By M.K. Guetersloh, Life Quotes, Inc.

High exemption levels for federal estate taxes may make 2011 and 2012 a good time to reconsider your options when it comes to easing the tax burden on your heirs.

But if you don’t want to count on having a date with the Grim Reaper before Dec. 31, 2012, financial planners say investing in survivorship life insurance can be a better solution.

Survivorship life insurance, also called second-to-die life insurance, pays off when the second spouse dies. Ideally, it is used to provide children who will inherit Mom and Dad’s business, property or stocks with an immediate source of cash to pay off estate taxes.

Exemptions in the estate tax approved by Congress for 2011 and 2012 are set at $5 million per person for a maximum of $10 million per couple, says Mike Boot, a spokesperson from the Society of Actuaries.

“So, it will take a fairly sizeable estate to qualify for the tax,” he adds. “But if you are leaving behind a sizeable business or farm the value could push beyond the exemption limit.”

Boot says people need to plan not only for larger estates for the first two years of the current estate law where there is a significant tax break, but for 2013 where the exemption limit returns to $1 million.

“For 2013 it takes a huge jump down in exemptions,” Boot says. “We need to understand that the $5 million per person exemption is not going to be a forever law. And with the current state of the country’s finances it is safe to bet that the tax with a lower exemption will continue after 2013.”

The current law calls for:

2011 — a $5 million exemption per person with a 35 percent tax on amounts after the exemptions.

2012 — a $5 million exemption per person with a 35 percent tax on amounts after the exemptions.

2013 — a $1 million exemption total with a 55 percent tax on amounts after the exemption.

Boot says even during these two years of high exemptions, there can still be a challenge in paying the estate taxes.

“Let’s say a couple is leaving behind an estate or business that is worth $20 million, they still face a 35 percent tax on the remaining $10 million. That leaves the children to come up with $3.5 million in taxes immediately,” he explains.

Boot and financial planning expert Glenda D. Kemple of the Dallas, Texas-based Kemple Capital recommend having survivorship insurance in place.

“While we don’t know what (long-term) tax levels will be, I think that a high net worth client should own life insurance for the liquidity for family benefits as well as for illiquid assets the like a business, ranch, or real estate that a client may own,” Kemple says.

Kemple, a member of the Financial Planning Association, says parents may also look at a guaranteed contract life insurance policy.

“Shop around and keep your options open,” Kemple says. “Definitely life insurance is not an expense but a smart asset to own for anyone’s estate, no matter the size.”

Boot says that rates for survivorship life insurance maybe cheaper and the age and health requirements make it easier to buy than traditional life insurance.

“A $2 million survivorship life insurance policy –depending on age and health of the couple—is substantially cheaper than a traditional $1 million-policy for each person,” Boot says.

Because life insurance companies won’t pay out until the second spouse dies, underwriting requirements are more liberal, allowing the health and age of both spouses to be considered, Boot adds.

Generally, survivorship policies can routinely be converted to single, traditional life insurance policies for couples that divorce, experts say.

Kemple said all insurance needs to be reviewed annually and shopped regularly to make sure the policy is the best deal and the best fit for a person’s changing needs.

Although people with large estates generally use survivorship life insurance, Chris Anderson, a spokesperson for insurer Country Financial, says it is an attractive product for parents with special needs children.

The proceeds from the insurance can be used to establish a trust to guarantee the child gets adequate care once the last parent dies, she says.

Parents who want to see the family business continue also use survivorship insurance.

“This helps ease the transition of business ownership from one generation to the next,” Anderson says.

A survivorship policy could be used to provide some cash to equalize the inheritance, or repay children who cover some later-in-life medical expenses for their parents, experts say.

This article was originally published by Life Quotes, Inc.