How Are Death Taxes Paid?

Five Ways to Provide Money for Death Taxes

A.  The Executor May Borrow The Cash:  This only defers the problem, since the money will have to be repaid with interest.  This includes installment payments to the government.

B.  The Taxpayer May Pay in Cash:  Rarely does a person accumulate large sums of cash.  If he or she does, he or she probably will forego many profitable investment opportunities in order to keep the estate in a liquid position.

C.  The Taxpayer May Sell Stock Market Investments:  This may be a wise choice if the "market is up" when the stocks or bonds need to be converted to cash and the taxpayer has been investing long enough to have accumulated the necessary amount.

D.  The Executor May Liquidate Other Assets:  If there is not a ready market, however, the assets may be sold at a great loss.

E.  The Taxpayer Can Pay His Estate Settlement Costs With Life Insurance.

A.  The insured's heirs almost always get back more than he or she paid in.

B.  Payment of benefit is prompt.

C.  There is generally no income tax on the proceeds.

D.  Proceeds may be free of estate tax.

E.  Payments can be spread out rather than paid all at once.

F.  It avoid many of the problems of the other four methods set forth above.

G.  The proceeds are generally not subject to probate.

H.  Life insurance provides cash for a predictable and certain need which will arise at some unpredictable moment.