James Edward Maule, MauledAgain (September 13, 2021): Here’s an Idea: Limit the Life Insurance Proceeds Exclusion

James Edward Maule’s MauledAgain tax blog entry discusses the tax benefits of limiting the life insurance proceeds exclusion. His article, “Here’s an Idea: Limit the Life Insurance Proceeds Exclusion” includes the following commentary:

An idea popped into my head, and nothing I was doing at the time accounts for why it did. My thought was simply, why are the proceeds of life insurance excluded from gross income no matter the amount? The purpose of the life insurance proceeds exclusion, which has been in the federal income tax law, and most state income tax laws, since near the beginning of income tax time, is to spare survivors from paying tax on the insurance proceeds needed to replace the income stream that the decedent would have earned. During the past few decades, clever planners have found ways to exclude life insurance proceeds from state and inheritance taxes, mostly through the use of irrevocable life insurance trusts coupled with what are called Crummey powers. In essence, these plans have created arrangements that are far more similar to investments than they are to sources of support for struggling survivors. Over the years, of course, life insurance policy amounts have increased to reflect increases in the cost of living, but there is a big difference between a four or five million dollar policy whose proceeds can support the decedent’s dependents for a lifetime if properly managed, and the policies that pay out tens of millions, and in some instances hundreds of millions in tax-free returns.

To see the full article, click: “Here’s an Idea: Limit the Life Insurance Proceeds Exclusion”

Posted by Marin Larkin, Associate Editor, Wealth Strategies Journal.

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