Life insurance has last laugh on Uncle Sam
While the wealthy typically combine their coverages under one insurer, life insurance is the lone exception because high-net-worth carriers do not offer it. But make no mistake: Life insurance can save millions in estate taxes when the party is over.
"Life insurance definitely fits in," says Raquel Murphy, life insurance specialist with HUB International Northeast. "They want to pass their money on to the next generation, not to Uncle Sam, so they use life insurance as a low-cost hedge to cover their estate tax."
Here's how life insurance can pull off that trick.
"Say a husband and wife have $20 million in assets," Murphy says. "Currently, you can leave $5 million individual or $10 million per couple tax-free to your heirs through 2012. To pass on more of the remaining $10 million, they could use life insurance to fund an estate tax of approximately $5 million as long as it is held in an irrevocable life insurance trust."