Filed Under:Markets, Boomer Market

Estate Planners: 9 Months Left for Tax-Free Transfer of $10 Million

Financial advisors catering to high-net-worth investors have just nine months to help their clients transfer more than $10 million to their heirs free of estate taxes before generous exemptions expire at the end of this year.

Andrew Friedman, a principal in The Washington Update, which focuses on the impact of public policy on the financial services industry, has written a 10-page white paper detailing the wealth transfer opportunity. The paper points out that while it is well known that compromise legislation at the end of 2010 extending Bush-era temporary tax reductions increased the estate tax exemption to $5 million, it is less well known that the lifetime gift tax exemption was also raised to $5 million.

But the paper makes clear that life insurance may be the optimum investment because neither the investment earnings nor the death benefit are subject to income tax, meaning that heirs can receive their inheritance entirely income and estate tax free.

Irrevocable life insurance trusts, known as ILITs, also have the advantage of providing a tax-free source of funds in the event that heirs running an illiquid family business face a tax bill they otherwise could not pay without selling the business. An investor may also combine the ILIT with an annuity that guarantees a stream of income will be available to pay the policy premiums.

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Nichole Morford

Nichole Morford
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