Federal Estate Tax
What Does Federal Estate Tax Mean?
The federal estate tax is a tax applied to a person’s estate after their death. This tax is typically assessed once the person’s outstanding debts have been settled.
Death benefits from life insurance are generally exempt from the federal estate tax. The picture can shift in some situations, though, especially when the deceased owned the policy outright or when the estate exceeds the federal exemption amount. This guide on whether life insurance is taxable covers when those rules apply.
Insuranceopedia Explains Federal Estate Tax
Beneficiaries of large estates may lose a significant portion to federal estate taxes. To reduce this tax burden, many people engage in estate planning strategies. Life insurance policies exempt from estate taxes are one method used to help minimize federal estate tax obligations. Most of these strategies use permanent life insurance rather than term coverage, since the policy needs to stay in force until the insured’s death to pay out and offset the tax bill.
