Permenant Life insurance can also be an effective way to fund the tax liability that arises at death.
An individual who owns shares in a corporation, a partnership interest, or business assets (as in the case of a sole proprietorship) will be deemed to have disposed of these properties at death. As a result, a tax liability may arise in the form of capital gains and recaptured capital cost allowance. If funds or other assets are not available to pay the tax liability, the shares or partnership interest may have to be sold, or business assets may have to be liquidated, possibly for a price below the fair market value.
Life insurance can provide the funds needed to pay the tax liability that results from the capital gains and recaptured depreciation triggered by an individual’s death. Life insurance is a particularly valuable and cost effective funding vehicle if the beneficiaries want to retain the property or if the market conditions will not provide the estate with an amount equal to the fair market value of the property.
The individual could own the life insurance policy, or it could be owned by the corporation or partnership and dispersed to the individual’s estate after death.
Contact us today to learn more about funding capital gains tax.