Wealthy Framingham, MA residents who own estates valued in the millions have special considerations to take into account when getting their affairs in order. Specifically, it’s sometimes necessary to account for any potential estate taxes that might be levied against an estate when it’s passed onto heirs. If you own an estate that’ll likely be taxed when you pass away, a whole life insurance policy might help you prepare to pay the tax.

Keep Your Framingham, MA Estate in Tact with a Whole Life Insurance Policy

Estates Worth Millions of Dollars May Be Taxed

The estate tax is complicated, even by tax code standards. For estates that are taxed, the tax rate is among the highest rates in the United States -- effectively working out to be 40 percent. (All of the details included in this section are from 2016; tax rates and laws can change from year to year).

The estate tax rate is a stratified, graduating rate. There are 12 different brackets, with the lowest bracket (estates worth $10,000 or less) paying 18 percent and the highest (estates worth more than $1 million) paying 40 percent.

There is a lifetime exemption, however, that lets individuals give heirs up to $5.45 million ($10.9 million for married couples) worth of money and assets without paying taxes on it. This limit is for an entire lifetime, so many people don’t exercise the lifetime exemption until they pass away.

(Exactly how this exemption is actually filed can be complicated. Often, the tax is calculated, and then a credit is awarded. A tax professional in Framingham, MA can help with details regarding the exemption).

Despite the complexity, the end result is fairly simple. In most situations, estates worth $5.45 million (or $10.9 million) or less end up not paying any estate taxes. Estates worth more than this much usually pay a 40 percent tax on anything over $5.45 million (or $10.9 million).

Estate Taxes Can Be Costly

Most Massachusetts residents don’t have estates over $5.45 million and, therefore, don’t have to worry about the estate tax. For wealthy individuals who do, however, the estate tax can be sizeable. A $10 million estate would likely be assessed $1.82 million in taxes ([$10 million - $5.45 million exemption] x 40 percent = $1.82 million).

Unless your heirs are themselves very wealthy, they may not be able to pay (or want to pay) such a high tax bill. In order to pay the estate tax, they might be forced to sell off part of your estate. If you have property or other assets that have been in the family for a long time, this would be a shame.

Whole Life Insurance Can Help Cover Estate Taxes

If you’re facing a potential situation like this, you might be able to keep your estate together by purchasing a whole life policy to cover potential estate taxes. Life insurance policies are often purchased for hundreds of thousands, and sometimes millions, of dollars. If your estate taxes exceed the coverage available through a single whole life policy, you can even get multiple policies.

Unlike term life policies, whole life policies are designed to remain in effect throughout your entire life. As long as the premiums are paid, they don’t normally expire until you pass away. Thus, they’re great for providing your heirs with the funds necessary to pay estate taxes with.

Importantly, the death benefits that whole life policies pay to beneficiaries aren’t themselves normally subject to the estate tax. Death benefits are given directly to a policy’s beneficiaries, rather than first being added to an estate. As a result, they’re typically considered the property of the beneficiaries -- and not assessed an estate tax.

Work with an Agent and Accountant in Framingham, MA

If you’re concerned about possible estate taxes that might be levied against your estate, ask a Framingham, MA insurance agent and a local tax professional for help assessing your situation. A qualified tax professional should be able to help you determine what taxes your estate may be subject to, and an independent insurance agent can then help you find a whole life insurance policy that provides enough coverage to pay those taxes.