James Gandolfini, actor extraordinaire of The Sopranos, who died recently of a heart attack at age 51 apparently has left his heirs subject to a sizable estate tax. Tax experts noted that they will likely end up owing a significant amount partly due to his residing in New York. State estate taxes vary considerably depending on which state you reside in.
I was struck by this comment in one analysis as to the very practical role of life insurance in estate planning.
At a minimum, an irrevocable trust should have been set up for Mr. Gandolfini to use to pay insurance premiums toward a life insurance policy that would have covered expected estate taxes, Mr. Wolfe said.
Gandolfini did set up a $7 million life policy for his son in a irrevocable life insurance trust (ILIT). To give the benefit of doubt, he may of set up others. Life insurance is not required to be in the public domain of probate. One lesson to come out of this is to add life insurance regularly especially when remarrying and having children. Insurability, the ability to obtain coverage, can be an issue when adding life insurance later in life. Fully underwritten life insurance involves a blood test, and depending on age and coverage amount, an EKG and medical records. In Gandolfini’s case at his age in the absence of identifiable heart disease his rate classification probably would have depended almost entirely on his weight according to the carrier’s build chart.
Estate planning with minor children makes term life insurance an option. There’s 10, 15, 20, 25 or 30 year term depending on the age of the child and how far it is prudent to carry the coverage out. Term is inexpensive and conversion allows on to exchange the term into a permanent policy without proof of insurabilty during the term period.
For permanent life insurance the first and foremost estate planning tool is Guaranteed No-Lapse Universal Life locking in coverage to age 120 or beyond. For other situations and goals the options include current assumption Universal Life, Indexed UL or on the upper cash value and benefit end a Whole Life plan.
