Trusts and Estates > Estate Planning > State Premium Tax Planning

Jun 1, 2011 12:00 PM

State Premium Tax Planning

Strategize with clients to minimize costs incurred with large domestic insurance policies

By Al W. King III & Pierce H. McDowell III

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Act) brought about an increase in the gift, estate and generation-skipping transfer (GST) tax exemptions to $5 million each.1 Many clients are considering creating new trusts or adding to existing trusts to take advantage of these increases.2 Some clients are also considering purchasing large amounts of insurance in trusts as a result of these increased exemptions. But with these large amounts of insurance come high insurance premiums, which could result in extremely large state premium taxes being due. Trusts and limited liability companies (LLCs) created in certain low premium tax states can be an excellent way to reduce these large state premium taxes.

Typically, a state premium tax is built into each insurance premium paid and averages 200 basis points (bps) (that is, 2 percent). These state premium taxes, however, range from a low of 8 bps (that is, 8/100ths of 1 percent) to a high of 350 bps (that is, 3.5 percent). The life insurance company pays this tax directly from the premiums paid into the policy.

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Estate Tax Donor Advised Funds
GSTs Family Offices
Private Foundations Life Insurance
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Topics of Interest

Estate Tax Donor Advised Funds
GSTs Family Offices
Private Foundations Life Insurance
2010 Tax Act News Industry Trends Surveys

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