In tax-efficient estate planning, life insurance can be used to cover taxes on asset transfers.

In tax-efficient estate planning, life insurance can be used to cover taxes on asset transfers.

• A. False
• B. Never used
• C. True
• D. Not applicable

Answer: (C)

In tax-efficient estate planning, having a liquidity source to cover taxes and related costs at death is crucial. Life insurance provides a readily available cash benefit that can be used to pay estate taxes, probate fees, and other transfer costs, helping to preserve the value of the estate for heirs. To maximize the tax efficiency, the policy should be structured so the death benefit is outside the estate (for example, owned by an irrevocable life insurance trust or other non-estate arrangements), ensuring the funds aren’t themselves eroded by estate taxes. So, yes, life insurance can be used to cover taxes on asset transfers.

In tax-efficient estate planning, having a liquidity source to cover taxes and related costs at death is crucial. Life insurance provides a readily available cash benefit that can be used to pay estate taxes, probate fees, and other transfer costs, helping to preserve the value of the estate for heirs. To maximize the tax efficiency, the policy should be structured so the death benefit is outside the estate (for example, owned by an irrevocable life insurance trust or other non-estate arrangements), ensuring the funds aren’t themselves eroded by estate taxes. So, yes, life insurance can be used to cover taxes on asset transfers.