Risk Management and Insurance Assignment Example | Topics and Well Written Essays - 1750 words

Risk Management and Insurance - Assignment Example Many families have children from previous marriages, whom they would want to incorporate into their estate plan. Many parents want to ensure the financial security of all their children. For families with a nucleus set- up, with no children from previous relationships, it is very easy to distribute the estate appropriately, but in blended families, it is a bit complicated. Therefore, an effective estate plan, designed and managed by an estate planning advisor, can enable families to find financial direction and avoid unnecessary taxation (Taylor, 2002). Since 2013, both the gift and estate tax use the same rate schedule. Additionally, gifts in life can affect the bequest’s taxation at death. The taxable estate at death and taxable gifts given during a lifetime are taxed at 40%, but the tax is only imposed on bequests and gifts above substantial lifetime exclusion sums and moderate exclusion amounts on an annual basis. The generational skipping tax is an additional tax property, where property passed from a grandparent to a grandchild and or future successive generations, through a trust or will, results in the imposition of a tax. The tax can also be passed on to individuals who are 37.5 years younger than the original owner. The tax was developed and implemented in order to ensure that estate taxes were no longer evaded. Wells states that AB trusts and their portability are also discussed, with regards to estate tax exemption. Since 2011, federal estate tax exemption can be transferred between married couples and they can be able to utilize federal estate tax exemptions via AB Trusts (Wells, 2011). The second to die life insurance highlights the affordability of the policy with regards to estate planning. To develop the policy, a second policy is set up between a married couple, however, neither one of them is able to collect a payout in the event that one of them dies. Privatizing the fund could be used to counter the burgeoning fiscal burden. This measure is not very popular due to its negative implication on the future benefits of current workers, coupled with the stock market losses experienced in recent years.Increasing the payroll tax cap has also been suggested as a reform measure. The current cap is $ 106,800 annually, but by increasing the cap, higher wage earners will pay larger portions of their wages to the system and help in closing the deficit. However, this measure has redistributive tendencies that are not very popular. Â