Is the need for second to die life insurance going to go away? Will the estate tax really disappear in 2010? Should you jump to decrease your life insurance because of the new exemption limits?
Well, in the world according to me the answers would be NO, NO and NO! The $3.5 million exemption that will go into effect in 2009 is, I believe, where congress will vote to keep it in 2010. They will have accomplished what the real objective was and that was to end the devastation of smaller estates, the areas that hit small business owners and agricultural families the hardest.
The Center on Budget and Policy Priorities released a “State of the Estate Tax” article recently that reviews in detail what has been accomplished. There isn’t any doubt left when you read the article that the increase in exemption limits was the right thing to do. Abolishing the tax altogether would, in my opinion, not be.
I believe that the life insurance survivorship policy, the long time estate preservation tool, will continue to be the choice in the future. Even if the federal government abolishes the tax (again, very doubtful), the missing funds will be made up by an increase in state death taxes. If you don’t believe that, look at how Washington state has poised themselves to fill the void. They’ve incrementally increased their death tax as the federal exemption has become more lenient.
Bottom line. As long as there are estate taxes, life insurance will be the most practical means of dealing with them.