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Jim Lentini: Life insurance and estate planning are important

Posted: September 28, 2009 10:04 p.m.
Updated: September 29, 2009 4:55 a.m.
Americans are dealing with many hardships during the recession caused by the financial market crisis.

And, it has caused a domino effect in almost every other facet of our economy and everyone's life.

One of the most important areas of financial planning for many Americans is; how do we protect and preserve our estate for our families, and minimize how much the Federal and State governments will take in estate tax before our children and grandchildren receive what's left?

What is happening now in Congress to help preserve the tax credits for our estate planning? There are currently three main bills in Congress dealing with estate tax reform. They are:

n S. 722. This Senate bill is a middle-class tax reform package that includes an estate tax proposal that would freeze the exclusion and rate at 2009 levels, reunify the estate and gift tax credit, allow for portability and index it for inflation.

n H.R. 2032. This bill would make permanent the exemption level at $2 million, index that level for inflation and establish progressive tax rates of 45 percent for estates valued between $2 and $5 million; 50 percent for estates valued at $5 to $10 million; and 55 percent for estates valued over $10 million.

This bill includes reunification, portability, the state estate tax credit and indexing for inflation.

n H.R.436. This bill would freeze the exclusion and rate at 2009 levels and reunify the estate and gift tax credit.

It would limit the valuation discount for family limited partnerships, and set forth valuation rules for transfer of non-business assets.

Besides the basic tax rate and exemption levels, "reunification" and "portability" provisions are critical to the insurance industry, both to you the insured and industry officials as small businesses.

Reunification of gift and estate tax exemptions would simplify estate planning by removing an artificial barrier that inhibits earlier intergenerational transfers of business interests and other assets and increase economic growth, according to some insurance industry officials.

Currently, the gift tax exemption is capped at $1 million while the estate tax exemption is $3.5 million; reunification would elevate the amount an individual could gift during a lifetime to $3.5 million.

For clarification and explanation, discuss these issues with your tax advisor.

What does this mean for you who are small business owners, and those who have estates valued above the exemption level?

You need to be addressing this issue with your tax advisor and financial advisor so they may help you prepare and preserve your estate.

What is the most important asset you can have in your estate planning to pay this tax?

It is life insurance. Life insurance provides immediate liquidity at death, and when structured properly, can be the most reasonable asset liquidated to pay these costs at an unknown time in the future.

If the majority of assets held by an estate include real estate or business assets, it may be difficult to pay final expenses and estate taxes with these non-liquid assets.

With life insurance, it provides immediate cash to pay the tax, at usually a minimal cost, and eliminating the cashing out of an asset whose value may be down and not easy to cash out, especially in our current economic conditions.

And, most people usually want to pass on to the next generation real estate and hard-earned business assets.

Jim Lentini, CLU,ChFC,IAR is President of Lentini Insurance & Investments, Inc. His column reflects his own views and not necessarily those of The Signal.


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