A Simpler Solution for Life Insurance
There is an easier way to remove your life insurance from your taxable base: You can give the policy to your beneficiary. By doing this, you will still be the insured person, but now your beneficiary will be both the owner and the beneficiary. If your beneficiary also owns your life insurance policy, the policy proceeds payable at your death will not be subject to federal estate taxes.
Be aware that if you make your beneficiaries the owner of your life insurance policy, you have given them all the rights you had, including the right to withdraw the cash value from the policy. In addition, you are making a gift that must be valued and, if over the annual exclusion of $13,000, must be reported as a taxable gift.
Remember, you need only be concerned about your life insurance if your taxable base, as described in Chapter 17, is more than the unified credit amount in the year of your death. When the cost of making a mistake is paying the federal government a rate from 18 to 45 cents on the dollar, it's well worth the time to get some help.
If you decide to take the simple path and give your insurance policy to your beneficiaries, you will still need the assistance of a professional to help you compute the value of the gift you might be making.
