Estate Planning with Life Insurance

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Life Insurance

For most families , life insurance is an important tool in an estate planning. The reason why life insurance is so valuable as an estate planning tool is that life insurance allows one to guarantee that a lump sum of money will be available upon their death to be directed in a way that will provide maximum benefit to their estate. This is just a fancy way of saying that many very wealthy people have a lot of their wealth tied up in non liquid assets like houses, property, businesses, etc. that if their estate was forced to liquidate some or all of those assets at death then they would likely greatly inconvenience the beneficiaries of the estate at best or at worst force a very unwise business decision (selling a business before the ideal time, being forced to quickly sell a piece of land, etc. - all in order to pay estate taxes due). Using life insurance in estate planning gives enormous freedom to those who upon their death may be ultra wealthy but relatively cash poor.

The benefits of having a Life Insurance in your Estate Plan:

* Paying Expenses and debts: Life Insurance provides immediate cash for the estate.

* Paying Income Taxes: Qualified retirement plans,like IRAs or 401K plans may be subject to large income taxes on all of the value of these plans on the death of the plan owner.

* Providing a way to treat all heirs equally: Most parents want to treat their children equally when dividing up their estate. But this may prove impossible with family businesses in which only the children active in the business are to receive the business. If the value of the business exceeds the active children�s equal share of the estate, it is impossible to treat all the children equally. A simple solution is to use a life insurance policy as an estate equalizer. The non-active children (or a trust for their benefit) will be the beneficiaries of the policy.

* Second Marriages:When children from a previous marriage are involved,estate planning becomes more complicated. Take the example of a second marriage in which the husband has children from a previous marriage. The husband establishes a living trust that, upon his death, provides his wife with income and principal as needed to maintain her accustomed standard of living, with the remainder passing to his children at his wife�s subsequent death. This approach has two problems. First, the children have to wait until their stepmother�s death to inherit their father�s wealth. Second, as the remainder beneficiaries of the trust,the children have legal rights to challenge the distributions from the trust to their stepmother if those distributions exceed (in the children�s opinion) the amount called for by the trust. A solution to these problems is life insurance on the husband�s life. By naming his wife as the beneficiary of the life insurance, the husband can leave his estate to his children at his death (either outright or in trust).

* Creditor Protection: The cash surrender value of a life insurance policy and/or the death proceeds from a policy may be protected from creditors. The availability of protection and any dollar limits there on varies from state to state, and may be dependent upon who the beneficiaries of the policy are. For example,some states only protect a policy�s cash surrender value and death proceeds if the insured�s spouse and/or children are the beneficiaries of the policy.



The younger you are when you purchase life insurance, the less expensive your life insurance premiums will be. If you develop a serious illness before obtaining life insurance, you may not even be able to get coverage at all.

Consult an independent financial advisor to answer your questions.

Contact us : anecamara@mintcofinancial.com