Second-to-die life insurance (sometimes called “survivorship insurance” or “dual-life insurance”) can be a useful tool for providing liquidity to pay estate taxes for married couples with large estates.
Though not widely used, a second-to-die policy pays off when the surviving spouse dies. Because a properly structured estate plan can defer all estate taxes on the first spouse’s death, some families may find they don’t need any life insurance proceeds at that time. However, significant estate taxes may be due on the second spouse’s death, and a second-to-die policy can be the perfect vehicle for providing cash to pay the taxes.
There are several key advantages that a second-to-die policy has over insurance on a single life. First, premiums are lower. Second, generally an uninsurable person can be covered if the other person is insurable.
It is important to note that a second-to-die policy might not fit in your current irrevocable life insurance trust (ILIT), which is probably designed for a single-life policy. To ensure that the proceeds aren’t taxed in either your estate or your spouse’s, set up a new ILIT as policy owner and beneficiary.
Determining whether a second-to-die insurance policy is right for your situation requires a review of your personal circumstances. Contact us if you have questions regarding your life insurance strategy.
Scott T. Ditman, a tax partner and Chair, Personal Wealth Services at Berdon LLP, advises high net worth individuals and family/owner-managed business clients on building, preserving, and transferring wealth, estate and income tax issues, and succession and financial planning.