AboutWillard R. Brumbaugh, LUTCF, CSFP Expertise I can handle questions concerning life insurance, it`s tax implications, how to determine what is appropriate, and how it fits in one`s estate and retirement planning.
Experience For 2 1/2 years I was an expert on AskMe.com, where for most of that time I was ranked #1. I have been a moderator (instructor) for the Life Underwriters Training Council. I have been licensed since 1969.
Organizations I belong to: National Association of Insurance and Financial Advisors - California
and the Inland Empire Estate Planning Council.
I hold the professional designation of Life Underwriters Training Council Fellow.
Question I read on your website that loans against the cash value of a policy are untaxed only when the policy stays in force until the death of the insured.
I have been thinking about purchasing a policy on my child as I am in poor health. Will my daughter be required to keep the policy in force after my death to avoid a tax liablility?
Thanks,
Kevin
Answer Dear Kevin,
I've actually had to deal with the situation that you are describing. Phyllis M. had had a number of policies on her life purchased by her mother. It was necessary to take special steps to avoid $140,000 in taxes. She, that is Phyllis, passed away just oa few months ago in her mid 80s.
You are correct in understanding that it will be a tax problem for your daughter if you use the policy as a retirement plan for yourself. You would be wise to put as much as you can into Roth IRAs. Using life insurance to supplement one's retirement is best done when the policy is on yourself, and it is intended to be kept in force until death. In that format it works better than "Buy Term and Invest the Difference".
