Tax Cuts and Jobs Act and Life Insurance Policies
A doubled estate tax exemption makes life insurance policies less necessary, while more
favorable basis rules decrease gain on their sale. The law known as the Tax Cuts and Jobs Act
(TCJA for short), approximately doubled the individual exemption from estate tax, which
increased from $5.49 million in 2017 to $11.18 million in 2018.
Life insurance is often employed to reduce the estate tax's financial impact. The doubling of the estate tax exemption diminishes the need for certain estates to use life insurance to cover the
estate tax. Life insurance owners whose assets are now sheltered by the increased exemption
may consider selling policies that are no longer necessary. Those who sell will also benefit from
more favorable basis rules.
The TCJA allows the seller of a policy to include all premiums paid in cost basis when
calculating taxes due on a settlement transaction. Thus, sellers of life insurance are now … Read More