Frequently Asked Questions about
Estate Planning, Wills, Trusts, and Probate

• I can use insurance to pay my estate taxes?

Yes. For wealthy people, particularly people with business or farm assets that cannot easily be sold to pay estate taxes, life insurance may be an essential component of estate planning. For example, assume that Mr. and Mrs. Lee own a business in Virginia worth over $10 million, which they manage with their two children. If their goal is to leave the business to their children to run themselves, there is a major problem: a projected death tax of more than $2.7 million. In order to pay federal estate taxes, the Lees’ children might be caught in a “Catch-22” in which they would have to sell all or part of the business, face continuing cash flow problems, or incur dangerously high levels of debt just to pay taxes.

In such situations, it is possible to buy special life insurance, called “survivorship” or “second-to-die” insurance, that pays benefits only after both spouses die. Such insurance would usually be owned (and the premiums paid) by the Lees’ children, or by an ILIT, as discussed earlier, and the proceeds would be applied to pay the estate taxes attributable to the business. There are many other potential ways to use life insurance to pay death taxes – an experienced life insurance agent familiar with the needs of family business owners can be an excellent source of ideas tailored to your situation.

“By failing to prepare you are preparing to fail.” –Benjamin Franklin