Final Answer
The economical solution for funding the estate tax liability with life insurance is to utilize a second-to-die life insurance policy.
Step-by-step explanation
In estate planning, a second-to-die life insurance policy, also known as survivorship life insurance, proves to be a cost-effective strategy for addressing the potential estate tax liability. This type of policy insures the lives of both partners but pays out the death benefit only upon the death of the second partner. By covering both individuals under a single policy, the premiums for second-to-die insurance are often lower than those for individual policies, making it an economical choice.
The rationale behind this approach lies in the delayed payout structure. Since the death benefit is triggered only after the passing of the second partner, the surviving partner can use the policy proceeds to cover the estate tax liability, ensuring that the assets amassed during their marriage are preserved until both individuals have passed away. This delay allows for efficient use of resources while providing the necessary funds to settle the estate tax obligation. It's a strategic financial tool that aligns with the couple's goal of minimizing the impact of taxes on their estate.
By opting for second-to-die life insurance, the couple takes advantage of a tailored solution that addresses the specific circumstances of their estate. It not only provides a cost-effective means of funding the estate tax liability but also aligns with the overall objective of preserving their wealth for the intended beneficiaries.