When the amount of these marketable securities is considerably more than needed for the owners comfort, wealth will continue to expand. Under the current estate tax system, such persons will want to moderate the future increase in asset value within their estates because for every dollar of new wealth generated in their own names, heirs will lose 55 cents to estate taxes. The solution is a wealth-transfer plan. One way to transfer wealth is to make cash gifts to a family partnership or irrevocable trust. Cash gifts need to be invested.
Life insurance s income tax advantage exists without reference to the existence of an estate tax.
Therefore, even if the estate tax has ended, persons interested in maximizing wealth for heirs should still use life insurance because of its excellent income tax savings. That said, a distinction needs to be made between whole and universal life and variable life with respect to income tax advantages in a world without estate taxes. The keys to understanding this distinction are policy ownership and capital gains taxes. The investment component of whole and universal life policies is mostly fixed-income instruments held for yield. Therefore, a wealth-transfer policy s results should be compared with similar investments outside life insurance.