I am a 40-year-old woman who had breast cancer, but I have been
cancer-free for eight years. I am divorced, own a consulting firm and have a net
worth of roughly $10 million, most of which I inherited. My consulting income is
inconsistent, and I have a new daughter, so I feel like now is the time to
finally invest in proper life insurance. Should I go with term or whole
insurance? Does my medical history mean I have to pay higher premiums than most,
even though I am healthy now? Should I even bother with life insurance, or just
set up a trust for my daughter? Under the current law, nearly
$4 million of your estate will be consumed by federal death taxes. Permanent
life insurance, purchased and owned through an irrevocable life insurance trust,
can replace assets lost to the tax. As you have been cancer-free for eight
years, companies should be willing to issue you coverage at standard rates. The
annual cost of coverage will be about $30,000. The insurance planning should occur within the broader context
of your overall estate plan. The estate plan should include a trust to manage
inherited assets and provide for your daughter’s financial well-being. Your will
should include provisions naming guardians for the personal care of your
daughter. In addition, you should execute a power-of-attorney and a health care
proxy to protect your interests in the event of your incapacitation. Seek the
counsel of a qualified attorney to assist in the proper design of your estate
plan. Joseph A. Scarpo, CEO, Private Wealth Advisors, Pittsburgh As an estate planning attorney, I recommend that you do trust planning for your daughter,
if for no other reason than to create a structure to manage your assets for your
daughter’s benefit after your death. If you are going to do trust planning,
incorporating life insurance in that planning can yield tax advantages not
typically available with other types of assets. Under current federal estate tax law, the first $2 million in
your estate is exempt from estate tax, but anything in excess of this amount is
subject to federal estate tax at rates as high as 46 percent (and some states
have their own estate tax). The goal is to make that exemption go as far as
possible. Life insurance–as long as it is acquired by a properly drafted and
administered irrevocable trust–can pass to your daughter free of estate tax at
your death, while preserving your federal estate tax exemption to apply to
non-insurance assets in your estate. Gregory Hayes, partner, Day, Berry & Howard, Stamford, Conn. The question is whether estate
shrinkage due to estate taxes will prevent you from realizing the legacy you
want to leave your family and possibly your community. An attorney who specializes in estate planning and a financial
advisor will help you define your goals, as well as develop strategies to help
you achieve them. The use of life insurance should be explored to determine if
it is an efficient way to pay estate taxes, which under current law could be
nearly $5 million assuming death after 2010. The number only goes higher if we
factor in estate growth. However, whether life insurance is an option in this case will
depend on medical underwriting. Assuming you obtain a favorable offer from an
insurer, permanent coverage (either universal or whole life) should be used to
fund this long-term need because term insurance is better suited to address a
short-term need. Matthew Sinclair, financial services representative, New England Financial, White Plains,
N.Y.
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