Death and Taxes (and Insurance?)

Was it Mark Twain or Ben Franklin who famously stated it is “impossible to be sure of anything but death and taxes?”

Actually, the correct answer is neither!

Ben Franklin penned a 1789 letter to French scientist Jean-Baptiste Leroy regarding the United States’ new constitution. In his letter, Ben shared that while he hoped for the new document’s permanency, “nothing can be said to be certain, except death and taxes.”

However, nearly 75 years earlier, an English actor during his performance of The Cobbler of Preston uttered “tis impossible to be sure of anything but Death and Taxes.” That man was Christopher Bullock. As for Mr. Twain, although he has many famous quotes, he is often mistakenly attributed to this quote.

Regardless of who spoke these famous words, they remain true to this day. And after the modern estate tax was enacted in 1916 in the United States, the words “death and taxes” have never been more intertwined.

While most Americans will never need to be concerned with paying estate taxes after their passing, those that do may be required to pay a significant sum without proper planning.

For tax year 2022, the estate tax threshold sits at $12.6 million. This is a large figure to be sure. However, since the estate tax is applied mostly to unrealized capital gains, owners of small businesses, farms, and property are most at risk.

Take for example a family property purchased for $1 million 50 years ago which is now worth $20 million. Since the property has appreciated $7.4 million above the current $12.6 million threshold, that exceeds the amount may be subject to a 40% estate tax, or nearly $3 million. For those without a plan, selling the property may be the only way to pay the IRS.

There are many financial vehicles available to help reduce or eliminate estate tax burdens. One such way is to purchase life insurance to satisfy the potential tax debt. For a mere fraction of the possible tax that would be imposed, life insurance can help heirs avoid liquidating property unwillingly.