LIFE INSURANCE

Common life insurance pitfalls and how to avoid them

Attention this county, the pitfalls of life insurance, to reduce it to its value of your family ... Or let you pay a combination of the IRS. Trap: Owning too many life insurance, too long. Over the years, you are working and educating children, you probably need a fair amount of life insurance to protect your family against possible loss of income. But as a senior years approach - with your children grew pay the mortgage and the retirement benefits-funding account - your insurance must be reduced drastically. For many, the rationale for purchasing life insurance is the financing of real estate taxes. But they must have been reduced by recent tax changes, land and exemption from gift for individuals to $ 1 million. The payment of the insurance did not need protection, in conjunction with the acquisition of higher investment. STRATEGY Check your insurance policy must be in the light of developments in your personal situation and your tax exposure. If you find that you have too much insurance, make sure .. Swapping your life insurance for a deferred tax asset of an annuity, an insurance company to an increase in investment and the return. That can be done through a tax-free exchange and allowing no taxable profits from the sale of insurance. Call your insurance policy for charitable purposes. You will receive from us a tax deductible expense based politics in general, the premiums paid for you inside. Make a donation to the policy of your child or grandchild. The political advantage of the VAT to the beneficiary, the child is a precious advantage on financial security. The gift is also that the policy of the taxable estate, if you survive, three years after this. You can avoid gift tax transmission by the use of the gift tax annual exclusion (currently $ 10000 per beneficiary, or $ 20000, if the gifts are a married couple) , and, if necessary, a portion of your real estate and gift items exempt from the tax. Exchange in politics. This will be cash in the pocket, but you see from taxable income to the extent that the amount received for the policy exceeds what we pay through premiums. From property taxes on the planning: If you find that you still have life insurance, for the financing of real estate potential of taxation, there is a second policy, both for you and your spouse, and pays its advantage over the death of the survivor. The land tax deduction of the family situation of a spouse, all assets acquired basic tax-free to the surviving spouse, so that it is the death of the surviving spouse of a couple's estate tax debt due. A second, the policy can be used to finance such a change of the tax at a price significantly below the purchase of two insurance to cover all spouses separated. TRAPS Owning insurance on your own life. This may mean that the assurances for the purpose of the tax, at speeds of up to 55%, because if you die, have a policy of your own life, the income is taxable in your estate. Avoid this trap own political recipient, or the creation of a life insurance policy to keep the confidence of politics and the allocation of earnings per your instructions. You can always, for the financing of the premium to the policy by the political gift to the owners (or beneficiary of the trust), with your annual gift tax exclusion to protect the gift tax. Benefit: In case of insurance on your life is in possession of beneficiaries, the assurance of property income and income tax-exempt. Parents avoid mistakes ... Owning insurance on your own life and to designate your spouse as the beneficiary. The proceeds from the basic insurance, to evade taxes because of the death unlimited deduction family situation - but if your spouse dies, the loss of revenue to possess, they are subject to its establishment. Owning insurance on a person's life and the name of a third person as a recipient. For example, if one spouse has insurance on the life of the other spouse, and on behalf of a child as beneficiary. The trap is that the owners, because the political control of the payee, the payment of the benefit for the beneficiary is considered a taxable gift, the policy of the institution. Similarly, avoid this trap itself, beneficiaries of life insurance, or life insurance on its own confidence in politics. Important: If you have a life insurance trust in their own insurance, make sure that confidence is a specialist in the region. Trust documents written by nonspecialists can easily contain erroneous bad languages which are not in conformity with the technical requirements, and the trust should be denied. Borrowmg against life insurance. It may be tempting to borrow from the life insurance policy because the loan can be a tax on the source of Cash & Carry low interest rates. But some traps can borrow insurance ... If you are prepared to reduce insurance benefit of the insurance, for which you have probably bought the insurance, so that your family, more financial risk. Screenplay dangerous: As a general rule, interest on loans against insurance is not paid in cash, but against the policy. If the non-repayment of loans and interest associations, loans can grow until it complies with the political values. Next, put an end to the policy, and identify you, income in the amount of the unpaid loan ( "debt attributed"), unless your base of the policy, even if you have no cash income, with whom the fee. If you are ready to insurance and politics, and then to another person who took advantage of the policy are subject to income tax. Wby: If a policy that has been borrowed by contrast donation, the beneficiary is deemed to have bought the policy through the assumption of the obligations outstanding loan, the loan amount as the purchase price. And among the Tax Code, if a life insurance policy is purchased to benefit from the policy came back to the buyer, if the purchase price above the donor base in politics. For example, a parent has insurance coverage of $ 500000 to his / their own lives, the present value of a $ 100000 It has a base price of $ 60000 in politics. It borrows $ 90000 from the policy of reducing capital flows up to $ 10000, then donated the policy of a child. The result is that the child is considered as a purchase, the policy on the assumption that the $ 90000 loan without obligation. Therefore, for $ 410000 policies will be based on taxable income of the child, unless reason to be exempt from tax. Bottom line: loans problems, so it is the best, it is not ready to take life insurance. If you are ready to leave the life insurance, check with an expert to any unexpected problems that it can.