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Many of our callers ask us how to deal with estate planning clients in view of the current proposals to repeal the estate tax.

Often, whether a producer has a convincing answer to such a question from a client may well make the difference between a permanent or a term sale, or perhaps no sale at all.

Unlike some industry sources, we are not inclined to oppose the repeal of the estate tax. What is good for our clients, will be good for us. Taxes are an economic decelerator; they slow economic growth. On the other hand, with good economic growth, as our clients become more prosperous, they can afford to address more of their problems.

One of the biggest problems a wealthy individual has is remaining wealthy, particularly through several generations. Spouses and sons and daughters of successful entrepreneurs are sometimes better at spending money than they are at saving and growing it. Investment risks pose a problem, too.

In a world of uncertainty, life insurance can offer certainty, at an attractive price, and leverage, with low risk.

The basis of most estate planning is to permit a surviving spouse and heirs to “remain in their own world” following the death of the insured. This is not just a matter of estate tax liability; it is a matter of “human life value.”

The insured had acumen, contacts, skills, habits and abilities that facilitated the earning and investment of substantial assets. Those valuable characteristics possessed by the insured will be lost forever to the survivors. It is at best uncertain how well they will do on their own without them.

A life insurance trust, for example, can turn this uncertainty into certainty. Modest premium contributions can create a most substantial, income-tax-free, death benefit.

This death benefit will come safely into the possession of the trustee, where, in most jurisdictions, it can be protected by “spendthrift provisions” from the ex-spouses of beneficiaries, or from litigants or other possible creditors.

Until the death benefit is paid, the policy will grow tax-deferred in the trust, free from the punitively high rates of income tax that are applicable to trusts.

All of this makes just as much sense without an estate tax as it does with one. Life insurance, properly held, is just as good at minimizing income taxation, as it is at reducing estate taxation.

Besides, even if the legislation now before Congress passes as written, the estate tax will be with us without substantial reductions until 2010. Is your client sure to live that long? And who wants to bet his estate that Congress won’t change its collective mind in the next ten years?

Printed with the permission of Advanced Underwriting Consultants

Last Updated: 12/15/2002 11:46:00 AM