How To Lay Your Death Tax To Bed Before You Go

Adam Chodos
3 min readJun 8, 2022

After a lifetime of asset accumulation, death taxes can be a rude reality for families. Currently federal death taxes are 40%. Several states impose their own death taxes for an additional 3% to 12%. The federal death tax does not apply until assets exceed $12.06 million, however, the Biden administration has made clear they wish to reduce the exemption to a lower level; likely in the $4m dollar range.

The general objectives of estate planning are to minimize estate taxes, limit exposure to creditor claims, position our assets in the control of those best suited to manage them, and to protect loved ones by prearranging asset management for their benefit. For well informed families, there are a wide variety of strategies available to achieve these objectives.

Lack of preparation can have a heavy cost to the remaining family, including the forced sale of assets, loss of control of the family business, and shrinkage of income producing assets. An estate has just nine months to pay the estate tax bill. During this transitory time vital decisions must be made as to how to create liquidity for tax payment, business continuity, and generally redistribute and manage assets.

A well structured plan usually employs tools such entitization (owning assets in LLCs, LPs, trusts) to achieve estate tax discounts, gifting programs, and opportunity shifting (lending funds to finance an opportunity likely to appreciate so growth occurs in younger generations hands).

For the taxes that must be paid, the cost of paying estate taxes with the owner’s funds is the least efficient path. Even if liquid assets are set aside for estate taxes, the earmarked fund is itself taxable bringing the trust cost much higher (close to double with combined estate tax rates at 50%). The fund would also be income taxable, subject to creditor’s claims, and it is not practical to maintain such a high level of liquidity.

Since death triggers the tax obligation, we don’t truly need estate tax funding until the second death (the later death of the husband or wife). Survivorship life insurance policies insure both husband and wife, creating liquidity by paying out proceeds at the second death which coincides with when estate taxes are due. Survivorship policies cost approximately half that of insuring each spouse individually, and if owned properly, the proceeds are free of income tax, estate tax, creditor claims, and probate. The cumulative premium invested in a survivor life policy for a healthy 60 year old married couple is approximately 10% of the death benefit produced (the cost is lower for a younger couple and higher for an older couple).

Policy ownership is an important consideration; if the policy is owned individually or in a trust that was poorly designed, that can expose the proceeds to estate taxes. Entities can offer control and flexibility while being tax efficient.

The estate planning team uses available techniques and tools to reduce a family’s estate taxes to the lowest practical level given the family’s comfort. For the estate taxes that remain, life insurance can act as an effective tool to assure family control over assets and deeply discount estate taxes. If discounts are available through structured planning why would anyone pay full price?



Adam Chodos

Adam Chodos is an attorney and formerly a certified public accountant, serving as the managing member of Chodos & Associates in Boca Raton, Florida.