When you’re applying for life insurance of your own, you would not want to worry about the would-be taxes that will be possibly be billed to you in certain conditions. But since taxes are inevitable in most facets of life, you should already expect that in life insurance policies or insurance in general it would be applied as well one way or another. Even if we don’t want to deal with taxes we basically don’t have any other choice but to face it.
Understanding taxes implied on your life insurance policy is very complex and may change at any time. That is the difficult part of the situation. In general, the funds you get from death benefits are income tax free, but what about life insurance inheritance tax? This kind of tax is usually imposed on beneficiaries who receive property from the deceased insurance holder.
Since the taxes are applied on the estate that are included in the policy and not on the certain income that you get from the death benefit. This is one of the biggest issues when it comes to payable tax. Why is it actually an issue? The thing with inheritance tax is that before the value of an estate can be claimed or released to your would-be beneficiaries, the life insurance inheritance tax is needed to be paid prior the value of the estate can be released to them.
This may seem as a problem for those who cannot afford and who are not informed about inheritance tax. It may even seem unfair to those beneficiaries who are not prepared about this kind of tax. But there are a few ways wherein you can meet the demands of the inheritance tax and one of those possible ways is to get a loan to pay what you need.
It may seem very unclear since you need to pay money in order for your money to be released as well, and you even need to borrow money in order for that money to be released. We hope we are not confusing you but the truth of the matter is this is how inheritance tax works.
So we would want to make it clear, that getting a loan to pay of your inheritance tax is not a solution you may want to consider. One way to help you is through life insurance inheritance tax which is basically a tax free way to pay what you need to deal with.
There are a lot of people get life insurance policies to be able to pay out on their death and cover the cost of the inheritance tax. The thing you should remember so that you may discuss it with your counsel is to set you up on a trust so that it will not become a part of the estate of the deceased in order for it to be used for life insurance inheritance tax purposes.
There may be other ways to lower or even eliminate the inheritance tax; this is when the insurance policy holder would decrease the value of their estate. These are usually done so as gifts to family thus making it tax free as long as the donor lives for a span of the seven year period. Although it may seem ironic to assume that the donor might not die within the seven years, other options may be available and can be made clearer with the help of a tax professional or an insurance agent for your situation.
Disclaimer: We are not offering financial, tax and/or legal help and/or advice. All information is thought to be true at the time of writing, but tax laws are always changing. Therefore, please always consult with financial and tax professionals before creating any tax, financial or life insurance plans. We accept no liability or responsibility for the misuse of any data on this site.