Paul L. Caron
Dean


Friday, December 3, 2010

Life Insurance Lobbies Hard Against Estate Tax Repeal

AM Logo The American Family Business Foundation has released Life Insurance Cash Cow: An Issue Brief on the Hidden Side of Estate Tax Lobbying:

Estate tax advocates often portray their fight as a struggle for fairness against greedy billionaires and spoiled heiresses, but as this American Family Business Foundation Issue Brief documents, it’s the multi-billion-dollar life-insurance industry who profits handsomely from the tax at the expense of family business owners and farmers, to whom they sell estate tax-related products. It’s no surprise then that the life insurance industry, which stands to gain an estimated 10% of its revenues from estate tax policies, is leading the charge to ensure that the estate tax roars back to life.

https://taxprof.typepad.com/taxprof_blog/2010/12/life-insurance-.html

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Comments

Don't forget charities! Big Charity is also in on it, by trying to preserve what they get from that unlimited estate and gift tax charitable contribution deduction. They're rapacious in their greed!

Posted by: Mithras | Dec 3, 2010 1:39:00 PM

If one had a goal of equal tax treatment for similar situations, shouldn't the estate tax imposed on property transfers after death be equal to the capital gains tax imposed on property sales before death? Other than dead people can't vote, I never understood the punitive percentage tax rate for the estate tax. Better yet, index the cost basis for inflation in both cases.

Posted by: George B | Dec 4, 2010 7:16:38 AM

How do life insurance companies profit from the estate tax and how do they gain an estimated 10% of its revenues from estate tax policies?

Posted by: Ken | Dec 4, 2010 7:24:23 AM

Still, if you set the exempt amount at a high number ($10 million?) and then index it so it automatically adjusts higher over time, it seems like good policy, particularly from a micro-economic and social policy perspective.

Posted by: Mark V Wilson | Dec 4, 2010 7:40:47 AM

This has been patently obvious for years. While there are other uses for survivorship life insurance (for example, to provide for a special-needs child who will need lifetime care after both parents have passed on), its primary use is to pay estate taxes.

But wait, you say, why would the rich need insurance to pay a large tax? Aren't they rich? It's because those eeevil rich don't have their assets in a Scrooge McDuck vault of gold coins, but often in something illiquid, like a business.

And don't worry, if you own one of these businesses, and are forced to sell after death, someone like Warren Buffett will be happy to buy your business... at a bargain-basement price.

Posted by: Greg | Dec 4, 2010 8:26:11 AM

Who benefits the most when it comes to estate planning? Why, anyone who sells life insurance and annuities! Why am I not surprised that life insurance companies would be against repealing the estate tax?

Just another example of how big business benefits from big government.

Posted by: Chris Bolts Sr | Dec 4, 2010 9:51:53 AM

Ah, corporatism at its finest. Obama and socialists all over would be proud.

Posted by: woofty | Dec 4, 2010 10:09:51 AM

Wow, do these guys know how to bury the lede: The DC article never gets to why the insurance industry profits from estate taxes, and the AFBF white paper doesn't get there until page 5.

For those of you who are as dense as I was on this topic:

The estate tax is a huge profit driver for the industry, because it provides an incentive for wealthy individuals and business owners to buy life insurance. The industry, in fact, touts “whole life,” and “universal life” policies as ways to pay for the estate tax. And on a more basic level, life insurance payouts are not taxed – if inheritance isn’t taxed either, life insurance becomes less useful.

And Paul, wouldn't "Life Insurance Lobbies Hard Against Estate Tax Expiration Repeal" be more correct? (I feel a little bit like the two crooks at the airport in Big Trouble: "Whadda we want? Arrivals or departures? We're arriving, but then we're departing..."

Posted by: TheRadicalModerate | Dec 4, 2010 10:29:52 AM

And on a more basic level, life insurance payouts are not taxed – if inheritance isn’t taxed either, life insurance becomes less useful.

Huh? See I.R.C. 2042:

The value of the gross estate shall include the value of all property -
(1) Receivable by the executor
To the extent of the amount receivable by the executor [read "executor" as "estate"] insurance under policies on the life of the decedent.
(2) Receivable by other beneficiaries
To the extent of the amount receivable by all other
beneficiaries as insurance under policies on the life of the decedent with respect to which the decedent possessed at his death any of the incidents of ownership, exercisable either alone or in conjunction with any other person.

The only way life insurance helps you dodge estate tax is if you go to the trouble to set up an irrevocable trust that is the beneficiary of the policy. And once you're setting up such trusts, you're doing what truly rich people already do as a matter of course, quite often without bothering with life insurance policies.

Posted by: PG | Dec 5, 2010 3:51:50 AM

PG, don't confuse them with facts.

Posted by: Mithras | Dec 5, 2010 6:35:12 AM

Also, "it’s the multi-billion-dollar life-insurance industry who profits handsomely from the tax at the expense of family business owners and farmers."

Even if you could take The Daily Caller seriously, since almost no small business owners or farmers are subject to the estate tax, the claim fails on its face. Insurance is the equivalent of saving to pay for post-death needs, with the risk of dying early minimized by spreading it around. Or are rightwingers now claiming all life insurance is a ripoff?

Posted by: Mithras | Dec 5, 2010 6:59:47 AM

PG, apparently I'm still dense on this subject. So, for the AFBF argument to hold up, the insurance industry has to be able convince people to buy enough insurance to cover roughly twice the cost of the taxes on the estate, with half of that payout going back to the government.

Posted by: TheRadicalModerate | Dec 5, 2010 7:41:22 AM