Question

Fred is a U.S. citizen. His wife, Christina, is a in the US on a K1 Visa. Fred died in 2019.

At the time of his death, he owned a life insurance policy on his life. It had a death benefit of $500,000 and cash value of $200,000. Christina is the beneficiary.

Fred, comes to you before he dies and says that he wants to make sure that Christina can receive his assets (which will exceed $16,000,000) when he dies and have the unlimited marital deduction or at least defer estate taxes until Christina dies. What estate planning recommendations do you make to Fred?

Answer 1

1.)

In the United States, assets left to a spouse is not subject to U.S. Federal estate tax. Assets left to any other heir, including the decedent's children, may be taxed if that portion of the estate has a value in excess of the estate tax exemption. As of 2018, the federal estate tax exemption was $11,180,000. For a married couple, the combined exemption is $22,360,000.

In this case of Fred (a US Citizen), the assets will be received by his wife after his death and the limit of an amount not chargable to federal estate tax is $22,360,000.

No tax liability in given case.

2.)

Life insurance proceeds generally are not taxed for U.S. Federal income tax purposes.