New Two-Year Tax Law Effective January 2011

The months are flying off the calendar so decide now

By Dana Hollinger
Broads Circle Advisory Board Member

Dana Hollinger, J.D.The two-year tax bill passed in December 2010 increases the amount of transferable property GIFT and Estate tax free. The bill increases federal estate, GST and gift tax exceptions to $5 million per person or $10 million for a married couple.  The increased rates provide opportunities to make lifetime transfers without incurring gift tax. The historic problem had been the premiums on large life insurance policies typically exceeded the $13,000 per year annual gift tax exclusion and people were reluctant to utilize their annual one million lifetime exemption to fund the premium.  Once the one million dollar exemption is exhausted, a person would have to pay a potential gift tax on any excess premiums in the historic range of 45 percent, so it was unattractive.

Now with the increase in the lifetime exemption to five million per individual and ten million for a married couple, savvy individuals (or people with savvy advisors) can transfer substantial assets to irrevocable life insurance trusts (ILIT). The purpose of the ILIT was to remove the property permanently out of the taxable estate.  The income from those substantial principle amounts can be used to fund the life insurance premiums.  In essence, we no longer have to use annual exclusions or life time exemptions to make premium payments. By way of example, we transfer a five million dollar piece of income producing real estate with annual revenue of $450,000 a year to an ILIT.

We use the income stream to fund the annual premium payment of $350,000 a year for a $10,000,000 life insurance policy. Upon the death of the insured, we have leveraged that five million dollar transfer of real estate to fifteen million (five million of real estate plus ten million of cash from the life insurance proceeds).

Who knows what will happen when this opportunity sunsets in 2013, and with no permanent law we can depend on, the time to act is now

Here are the questions to ask to determine if this is right for you or a client:

  1. Do you have clients or families who have estates in excess of $20 million?
  2. Do they have family businesses and need to equalize inheritances for the spouse/children who will not inherit the business? 
  3. Are there subsequent marriages where clients want to provide for children of former marriages? 
  4. Do your client’s want to make larger bequests to charities? 
  5. Or, roll out of split dollar? 
  6. Do they need to transfer policies out of qualified plans?

If the answer to any of the above questions is yes, now is the time to transfer the funds to pay the premiums and leverage the lifetime exemptions with life insurance.

Dana Hollinger, JD, is a registered representative who offers securities through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA/SIPC, and is an agent who offers annuity and insurance products through AXA Network, LLC and/or its insurance agency subsidiaries.  AXA Network, LLC does business in California as AXA Network Insurance Agency of California, LLC and, in Utah, as AXA Network Insurance Agency of Utah, LLC.  AXA Advisors and AXA Network are affiliated companies and do not provide tax or legal advice. Representatives may transact business, which includes offering products and services and/or responding to inquiries, only in state(s) in which they are properly registered and/or licensed.  Your receipt of this e-mail does not necessarily indicate that the sender is able to transact business in your state.
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T (310) 231-8848 – F (310) 477-8201 – C (310) 259-4874

One Response

  1. That\’s fantastic. I like way you present it

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