What function can life insurance serve as part of your estate plan?
Prior to the big changes in estate tax laws, life insurance was commonly put into place to pay estate taxes. No longer necessary, as estates can exempt $5.45 million for each individual from what used to be called the “death tax”, life insurance can still play some important roles.
What are some potential uses for your life insurance policy?
1. Quick Cash
A life insurance policy can provide the quick cash necessary for funeral expenses, debts, estate administration expenses, and, in some states the money to pay estate taxes to the state.
3. Trust Fund for Minor or Special Needs Trust
A life insurance policy can also be used to fund a trust for a minor child or a child with special needs.
2. Lost Income or Long Term Care
A life insurance policy can provide funds to replace lost income, or assets to make long-term care possible. With the increasing expense of long term care, these funds could be a life saver for a spouse or parent as they age.
4. Charitable Contributions
You may wish to use your policy for a charitable donation, either given directly to the charity, in which case there is an added bonus of a charitable income tax deduction, or by adding the charity as a secondary beneficiary of the policy. That way, should something happen to the intended beneficiary, you know the money will go to a good cause - and not some distant relative, or to attorneys in a family dispute over the funds.
5. Equalize Inheritance
Money from a life insurance policy can help equalize the inheritance amounts left to family members in order to ensure familial harmony. Oftentimes, multiple assets cannot be sold or appropriately divided so as to create equal amounts for each family member. Thus, the cash from a life insurance policy can insure that the division of assets among beneficiaries is fair and equitable.
6. Small Business Buyout
In closely held small businesses, when a partner dies, a crisis can be averted if either another partner or family member has the money to buy the deceased person’s share. A life insurance policy in this case can provide that cash, enabling one of the parties in the business to buy out the deceased partner’s interest. In this case, the life insurance policy would be part of the business estate plan, with the structure and setup being closely overseen by a qualified business attorney and an estate planning attorney.
These are all compelling reasons to carefully consider life insurance policies, and how they fit in with your Personal or Business Estate Plan. Most often, life insurance policies are best to leave to an existing person, but in some cases you may want to make your trust the beneficiary. Discussing options with a qualified, experienced Estate Planning Attorney is the best way to find out what steps to take.
For questions about Estate Planning, Revocable Trusts, Irrevocable Trusts, and how your life insurance plan fits in, call our Walnut Creek Estate Planning Attorneys at 925-322-1795 for your consultation.