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The first diagram addresses a hypothetical married couple with no estate planning.
The assets are assumed to pass outright to the surviving spouse and then to the children.
The green arrows depict estate tax free transfers while the red arrows depict estate
taxable transfers. There are no taxes due on the death of the first spouse, but the
IRS ultimately does very well.
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The second diagram takes the
same couple and shows that a basic estate plan can still provide for
the surviving spouse but save several hundred thousand dollars. Note
that the results may be even better if the surviving spouse lived
years longer than the first spouse. A typical trust would often include
the necessary language to protect the children from divorce, future
creditors, and can even minimize the children's future tax burden.
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| The third diagram improves on
the second diagram by showing the benefit of putting the husband's
life insurance policy in an irrevocable life insurance trust (ILIT).
The surviving spouse still has access to the insurance, but it is
no longer taxable. (Some folks think life insurance is not taxable
- they are partly correct. While life insurance is not income taxable,
it is estate taxable.) |
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