How To

How to Purchase Enough Life Insurance to Deal With Estate Tax Liabilities

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By eHow Contributing Writer
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The value of your estate is calculated by adding the current used value of all your assets, less the value of mortgages and other debts. You add to this number the value of taxable gifts made, and find your total. If this amount exceeds $2 million, then you are among the wealthiest 2% of Americans according to the IRS. You are also liable for estate tax. If you have found that this is the case in your estate, then you will want to be sure to purchase enough life insurance to cover the estate tax.

Difficulty: Moderate
Instructions

Things You'll Need:

  • Life insurance
  • Tax information

    Purchasing Life Insruance to Cover Estate Tax

  1. Step 1

    Add up the value of the estate as described on the IRS Web site to determine whether you will need to pay it upon your death. Remember to exclude any assets that will pass directly to a co-owner upon your death.

  2. Step 2

    Use the forms dictated by the IRS to determine how much you will have to pay in estate taxes.

  3. Step 3

    Contact a life insurance agent to buy a policy for that amount, plus a bit extra since your beneficiary will have to pay income tax on the insurance policy.

Tips & Warnings
  • Since you have already done the work, date the forms you fill out to determine your estate taxes and keep them with your will or insurance information to make the calculations easier for whoever deals with your estate.
  • Do not forget to sign up for extra insurance to cover the income taxes that your beneficiary will have to pay.

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