One of the biggest myths in the tax law is that life insurance is tax free. While your named beneficiaries generally receive the proceeds of a life insurance policy resulting from your death free of income taxes, if you own or have any control over a life insurance policy, the entire face amount is included in your gross estate and subject to federal estate taxes. The policy could result in the face amount being taxed at 41%-50%- a staggering and totally unexpected loss to your estate and to your intended beneficiaries. Too often insurance and legal advisors simply recommend having your spouse or children own life insurance policies. This could serve only to make a bad situation much worse. With proper estate planning and by working with a team of professionals, you can totally avoid the federal estate tax on every dollar of life insurance that insures you or your spouse.
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