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Taxing life insurance?

February 10, 2005

Word has been spreading lately that the Bush Administration is planning to tax all life insurance death benefits. Although he would probably like to, the proposal I have seen indicates that only certain narrow life insurance transactions would be taxed. This is contrary to the administration's rhetoric, and a new tax of any sort is always harmful, but it's not as bad as the rumors make out.

According to the "General Explanations of the Administration's Fiscal 2006 Revenue Proposals" released earlier this week, Treasury has taken aim on certain programs of professional investors that use charities as intermediaries to insure their older, wealthier donors for profit. Life insurance planning experts, Stephen Leimberg and Michel Nelson, remark:

The budget proposal is clearly aimed at the investors obtaining tax-free benefits of life insurance in this investment driven situation. In response to the fundamental question, "Should life insurance death benefits arising from the death of unrelated third parties be tax-free to investor groups," the budget explanation concludes with a resounding NO!

For complete commentary by Stephen Leimberg and Michel Nelson, click here.

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