Once again Congress has been asked to consider cutting estate taxes as part of its annual quest to provide tax relief to the masses. However, it is the family business or farm owner and his trade associations that are pushing the legislative effort. Since a good part of their wealth is tied up in their business or farm, these groups face the unenviable prospect of having their survivors sell the business upon their death to pay estate taxes. The problem is liquidity.
Survivors have nine months from the date of the owner's death to raise the cash to pay the taxes.
This may require a forced sale of property, shutting down the family business, or taking on a large mortgage to meet the tax obligation. An efficient way to raise the cash necessary to pay the taxes is by correct use of life insurance. Several types of life insurance policies are available for estate protection plans. Since the transfer of assets to a surviving spouse at the time of death is estate tax free, there is no need to purchase insurance to cover estate taxes after the first of the couple dies. However, when the second spouse dies, the couple's combined estate will be subject to the estate tax.