Expert Insight on Life Insurance and Estate Planning
Full Article: https://www.moneygeek.com/insurance/life/estate-planning-and-life-insurance/#expert=drew-blackston
Why is life insurance an important component to estate planning?
Life insurance is a great way for individuals and families to pass on tax-free money to their heirs or beneficiaries. When it comes to Estate Planning, life insurance allows a family to help pay estate taxes, qualified retirement account taxes, or create a legacy. No other retirement investment vehicle allows for tax-free benefits to beneficiaries.
What type of life insurance is best for estate planning? What special considerations should you take into account when choosing a type of life insurance?
Life insurance is like buying a car. There are many different types of cars but you want the car that fits your family’s specific situation. The same is true with life insurance. There are many different types of policies, but you want the kind that fits your individual needs. In my practice, we use second-to-die life insurance for estate purposes. These policies insure both partners in the relationship and don’t pay out benefits until both individuals have passed. These types of policies are cheaper and allow more flexibility in the planning. For single individuals, we look at the same type of policy but insure only one person. The main thing is you do not want a policy that is super expensive and full of fees and costs.
How can you maximize the use of life insurance in estate planning?
Life insurance can be an excellent tool for helping protect large estates from estate taxes as well as giving smaller estates the ability to create a larger legacy to kids, grandkids, extended family or charities.
When is the right time to use an irrevocable life insurance trust?
Irrevocable life insurance trust is a great tool if you are trying to avoid estate taxes! When a person passes away, life insurance proceeds are included in the individual’s estate and for the calculation of taxes. If the life insurance is owned by an irrevocable life insurance trust, then the proceeds are NOT included in the estate thus avoiding taxes. An ILIT also allows the individual purchasing the life insurance to control how death benefit proceeds are distributed AFTER death. If you are including younger children or individuals who are not savvy with money, you can pay out death benefits over time or in chunks so that the beneficiary does not inherit large sums of money all at once.
Sources: Navigating Life Insurance for Estate Planning, By Nathan Paulus Moneygeek.com