ESTATE PLANNING LIFE INSURANCE
Life insurance plays a pivotal role when it comes to estate planning, including preserving the value of the deceased estate. Ideally, people want their estate to provide financial security or at least stability for their dependents or surviving spouse. In order to accomplish that, the deceased has to be able to ensure that other funds are available for any taxes, fees, or other outstanding debts upon their death.
It does not matter the size of the estate, each and every estate will be required to pay administration fees, taxes and (depending on the financial situation) any outstanding debts. This is why estate liquidity is also significant when it comes to being able to provide living expenses to a surviving partner or dependant.
PRESERVING YOUR ESTATE
with these registered plans, as well as estate taxes, and probate fees can all be covered by life insurance if the life insurance policy is set up to do so.
Life insurance can be used to provide the necessary funds to pay capital gains taxes. This can be critical if the policyholder’s beneficiaries intend to retain a property, or if market conditions are at a point where the market will not provide the estate with an amount equal to fair market value.
Life insurance is often also used to replenish an estate. This means that if an estate owes a lot in debts, to the point that they take away what would otherwise be available to beneficiaries the death benefit can help to replenish the amount that was lost, thus providing financial security for the beneficiaries.
PROVIDING FOR YOUR DEPENDENTS
When you have children, life insurance is an absolute necessity. After all, the last thing that you want is to leave your children without when you could have ensured that they had the funds that they needed. Life insurance can be used to replace the income of a parent, pay off outstanding debts, or to even provide for the education and day to day living expenses of your spouse and children. But what if one of your children needs additional help? Perhaps they are special-needs or have a physical disability that requires assistance? Well, there are ways that you can set up your life insurance to provide them with exactly what they need, even after you’re gone.
If you have a special-needs child who requires special care or assistance throughout their lifetime, life insurance is a great way to provide the necessary funds. Generally, life insurance proceeds are paid in a substantial one-time, tax-free lump sum. However, insurance contracts can be set up to be paid out in several ways that would allow for payment of the death benefit in multiple installments over a specified timeframe.
This is often how life insurance policies are set up if the policyholder is planning on leaving their life insurance to a minor, or someone whom for whatever reason might not be able to manage the full amount in the best manner.
CREATING THE ESTATE YOU WANT TO LEAVE YOUR LOVED ONES
Life insurance can be an additional way to build the estate that you want to pass along to your family. It can be used to pass on wealth and assets setting your family up for financial security for generations to come.
One way that this is done is through the equal distribution of the estate to more than one beneficiary. For example, if an estate includes shares of a business, those shares would be distributed among the family (who are listed as beneficiaries) that are also active in the industry. Usually, when this happens, the business is a significant asset within the estate. The remainder of the estate at this point would be distributed among any beneficiaries who are not active in the industry. By using life insurance to increase the amount of money within the estate, the beneficiaries who are not engaged in the business would receive an equal amount – or much closer to a fair amount – than what they would without that additional life insurance top-off.
PROTECTING YOUR ESTATE FROM CREDITORS
AM I ABLE TO LEAVE MONEY TO A CHARITABLE ORGANIZATION?
Some people are surprised to find out that as a policyholder, you can decide to use your death benefit to make a charitable donation. This can be done by merely naming the charitable organization of your choice as your beneficiary. Doing this is also an impactful way to reduce the amount of tax that your estate is hit with.