Danger Zones

Insufficient Coverage

During the month of May, we are taking time to explore potential danger zones when considering existing life insurance policies.  Life insurance agents should work with other advisors (wealth managers, attorneys, accountants, etc.) to develop and maintain each client’s financial portfolio.  At regular intervals, the specifics of each portfolio should be evaluated to make sure the financial vehicles are optimally balanced.

For instance, the value of a business ebbs and flows each year, based on many unpredictable factors.  The sudden death of a business owner can greatly impact a business if proper planning is not in place. The effect to employees and the other owners of the business can be devastating, along with a potentially significant financial impact to the deceased business owner's family.  It’s important to maintain a current valuation to determine the amount of risk at stake for the shareholders.  A business valuation is an important part of buy/sell planning, providing a value that determines the amount of life insurance needed to fund a buy/sell agreement.  Having a business valuation done proactively can help to avoid disagreements, confusion, and possible litigation between the business owners when the value of the business is disputed.  Additionally, if a business valuation was completed many years ago, chances are that it’s outdated, and the shareholders might be underinsured.  We recommend revisiting the business value and life insurance amounts at least every 5 years to maintain the optimal amount of coverage.  Click on this link to read more:  Business Succession: Meticulous Planning Is A Must.

Likewise, the sunsetting estate tax exemption amount can create some gaps in the optimal amount of life insurance coverage for personal purposes.  The Tax Cuts and Jobs Act (TCJA) of 2017 temporarily doubled the federal estate and gift tax exemption through the end of 2025.  At the beginning of 2026, the temporary doubling of the federal estate tax exemption is expected to expire or “sunset.”  The increased exemption as adjusted for inflation is a “use or lose” benefit and is available to a decedent who survives the increased exemption period only to the extent the decedent “used” the increased exemption by making gifts during the increased exemption period. In order to use the temporarily doubled exemption without losing it, the entire remaining exemption amount must be gifted prior to 2026 (or prior to the legislation being repealed).  Click on this link to read more:  Gift Now! Act Before Basic Exclusion Amounts Sunset.

Contact us with any questions or opportunities to help you or your clients achieve their goals.  This is what we enjoy doing for only a select number of families, businesses, and charitable institutions each year, and we look forward to hearing from you. 

This information is for general and educational purposes and is not intended as legal or tax advice. Nor is it intended to provide specific advice or recommendations for any individual or entity. To determine what is appropriate for you, please get in touch with a Heirmark Financial Professional. Information obtained from third-party sources is believed to be reliable but not guaranteed.