Life Insurance to fund capital gains tax liabilities

Successful Family Enterprises that are owned by a single family shareholder become more valuable over time giving rise to a growing capital gains income tax liability. It is generally accepted that the most economical and efficient method of funding this tax liability, if the owner died last night, is to have the owner acquire a key person life insurance policy and to own it corporately and to have the corporation ( which she owns)be the owner and beneficiary of the life insurance policy. The amount of coverage should be at least 25% of the value of the business to cover the accrued capital gains tax liability and the coverage should in place to fund the owner’s estate plan which is a need for permanent life insurance.

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