Many successful business owners and senior executives face the seemingly opposing needs to pay estate taxes and simultaneously ensure that adequate funds are available in retirement. Could life insurance policies offer a solution?

If you are a person of considerable means, then the value of your estate is a definite liability with which you will have to deal. Alternatively, you stand to lose so much of what you have worked so hard to achieve. As those in business well know, there are really only two ways to deal with a potential business liability: proper planning and execution on the one hand, and proper use of insurance on the other. Many find both approaches can also work in tandem to effectively achieve their estate planning and retirement goals.

The use of insurance to deal with an estate tax liability inevitably brings us to the topic of life insurance. In fact, an interesting approach was advocated recently in a Forbes article titled “Life Insurance For Estate Taxes And Retirement.” Why life insurance? Well, while the fundamental risk life insurance is meant to resolve is the loss of income upon the death of a breadwinner, it can cure the problem of illiquidity when estate taxes are due. That is especially helpful if real estate or other illiquid assets are what is driving your estate to taxation in the first place.

These sorts of insurance already have to be balanced so as not to create further tax liabilities. How does the life insurance work for you in life? As you can read the original article, there are ways to draw upon it in the form of a loan for retirement income without actually eliminating the death benefits payout.

There is much to say on the topic, but knowing the option is there can make a world of difference in how you structure your affairs. What else can you do and what else are you concerned about? When considering life insurance, remember to consult with competent estate planning legal counsel.

For more information about estate tax liability, please visit my estate planning website.

Reference:  Forbes (June 11, 2014) “Life Insurance For Estate Taxes And Retirement”