Second-to-die policies are also known as survivorship policies, and are primarily used by married couples to provide a guaranteed legacy to their children after they have both passed away. These come in handy for estate planning, when an estate tax bill might be looming for the heirs.
To be clear, this insurance covers the lives of two individuals and provides a death benefit to a listed beneficiary only after the last surviving insured individual dies.
For example, a husband and wife have Second-To-Die Life Insurance with their son as the beneficiary. Once the husband dies, neither the wife nor the son will receive any benefits. Benefits will only be provided after both parents die.
A common purpose for Second-To-Die Life Insurance is to help pay for estate taxes: since there is portability for exclusions to a spouse, nothing is due in estate taxes until both spouses have died.
Putting a survivorship policy inside an irrevocable trust is a popular way to make sure that estate taxes can be paid with a tax-free death benefit (which is not includable in the estate if it is in an irrevocable trust) instead of the estate’s assets. Otherwise the IRS could begin liquidating whatever assets were readily marketable and valuable in order to pay the estate taxes due.
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