LIFE INSURANCE AND ESTATE PLANNING

Estate planning strategies help give you control over decisions concerning your assets, finances, and health care. They are not only a way to assign assets to heirs, but a way to perpetuate your legacy. You should be aware of the importance of having the proper estate planning documents to protect you,  your family and your assets. The intent is to decrease family strife and discourse at the time of serious illness or death.

Life insurance in Estate Planning

Estate planning can be a real challenge—even with a will in place. Life insurance death benefit proceeds can provide the liquidity needed to pay off debt, replace income, supplement retirement income, create an equitable inheritance between heirs, and even provide protection for businesses. Ensure that your plans are intact when you need it most.

Who can benefit? Beneficiaries, which may include a surviving spouse, children, other loved ones, and even business partners.
Why life insurance? Death benefit proceeds provide liquid funds where other assets can take time and specialized help to sell.
Individuals or trusts may be named beneficiaries of the policy.


Uses of Life Insurance in Estate Planning:

Life insurance can protect your survivors financially by replacing your lost income

life insurance proceeds are available very quickly, so your family has cash to meet their short-term financial needs. Life insurance proceeds left to a named beneficiary don't pass through the process of probate, so you don't have to wait until your estate is settled to get the money they needed to pay bills. The Probate process can take up to 6 months or longer to resolve through the courts and legal system, not to mention expenses and the time needed to deal with the process.

Life insurance can replace wealth that is lost due to expenses and taxes

Use life insurance to cover the potential costs of settling your estate, including taxes, fees, and other debts that his estate would have to pay. These expenses can take a big bite out of your estate by the time it’s settled. Your heirs might have to sell valuable assets to pay the taxes and expenses that arose as a result of your death.

Life insurance lets you give to charity, while your estate enjoys an estate tax deduction

Using life insurance, you can leave a substantial gift to a favorite charity. Since gifts to charity are estate tax deductible, this gift was not subject to estate taxes when you die.

Life insurance won't increase estate taxes--if you plan ahead

Before buying life insurance, understand the potential tax consequences. if your estate is large enough, it could be subject to federal and state estate taxes, depending on the applicable law at the time of death. If need be, a trust can be set up to own the policy and therefore remove the life insurance proceeds from the estate and help pay for some of the potential estate taxes that might be owed at death.

Life Insurance proceeds avoid probate, which can be a lengthy, costly and time consuming process for heirs.

Life Insurance can aid in creating an equitable inheritance between heirs when hard to divide assets such as a business or property are part of the estate. Maybe one child who has been involved in the family business would like to retain ownership of that business therefore leaving what might be a potentially large discrepancy in dividing up the assets equitably among the remaining surviving children should the business be a large percentage of all assets. Life insurance proceeds can be used to provide non-business heirs with “equitable” treatment if the parents’ desire is to pass the business intact to a business participating son or daughter. Doing this can prevent the business from being split into smaller units of uneconomical size to make an “equal” division among children. Leaving the business to the operating heir and life insurance proceeds to non-business heirs prevents the operating heir from having to buy out the interests of other heirs when he/she may be unable to afford it.


Life Insurance can even provide protection for businesses. Funds for the surviving partner to buy the partnership interest of the deceased partner from the heirs. This enables the business to continue as an on-going enterprise.

Consult an experienced attorney and or CPA about income and estate tax consequences before purchasing life insurance


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