planning for estates took a hit in 2001 when the White House decided to repeal the estate tax in 2010. But business is back. As the debate drags on over whether to make that repeal permanent, advisors and investors are deciding it's better to do something rather than nothing.
One sign of increased interest is a bump up in sales of last survivor life insurance, which heirs can use to covertaxes after both members of a married couple have passed away. After falling by a quarter in 2001, sales of last survivor life insurance started recovering in late 2003 and were up 19 percent in 2004, according to LIMRA International.
“Affluent clients are no longer straddling the fence,” says Patrick Smith, director of advanced marketing at The Hartford. “Manywho had been sitting on sidelines, wondering whether they would even have an estate tax bill, are convinced they need to plan and have insurance as a backstop for financial loss due to taxes.”
Some companies even offer an estate tax repeal rider, which allows a client to surrender the policy and get the surrender charges waived, if the estate tax repeal is made permanent in 2011. But advisors are also using last survivor life policies for complex wealth transfer strategies. Coupled with dynasty trust planning, last survivor life insurance can help grandparents pass their wealth on to grandkids more efficiently, whether the estate tax repeal sticks or not. It's often cheaper than regular life insurance coverage — the premium can be anywhere from 5 cents to 20 cents on the dollar — since the death benefit is not payable until the second person passes away.
There's also the survivorship access trust, which pairs an irrevocable life insurance trust with the last survivor policy. It allows couples to pay estate taxes with tax-advantaged dollars without losing control of or access to their cash.
“This is something that a rep has to take care of. It's not part of an actual policy,” says Smith, an attorney. The key in estate planning is to offer flexibility, Smith says, and advisors are finding that survivor life insurance allows them to do that.