Week 51
Is your estate growing?
The average person would likely tell you that the main reasons for purchasing life insurance is to replace income in case of early death, pay funeral expenses, and basically make sure that a beneficiary or family is not left destitute as a result of an unexpected death.
However, while these purposes are important, this type of thinking ignores the fact that life insurance can also be an extremely effective way of preserving or even creating an estate, providing a tax-free benefit for heirs, or creating a tax-free source of funds that can be used to pay the estate taxes.
If you are a parent without a large estate, but want to pass along a nice benefit to your children or grandchildren, a permanent life insurance policy can accomplish this. It provides a guaranteed tax-free death benefit that can be divided cleanly amongst beneficiaries. Likewise, if you are a parent with a decent sized estate, a life insurance policy can be an effective way to both maximize the inheritance and provide a tax-free source of funds to pay estate taxes in a quick manner.
In some cases, life insurance can also serve as an effective estate equalizer. For example, many estates are comprised of assets that are not easily divided, or at least not agreeably divided. For many families, the bulk of the estate is comprised of property. Maybe one heir desires to preserve the asset while others would prefer cash instead. Life insurance is a great way to equally divide the estate without finding ways to divide assets such as property or provide for joint ownership.
These are just a few common and basic uses of life insurance as an effective estate planning tool. However, it is very underutilized mainly because most people are unaware that life insurance can and should be used for these purposes.
However, while these purposes are important, this type of thinking ignores the fact that life insurance can also be an extremely effective way of preserving or even creating an estate, providing a tax-free benefit for heirs, or creating a tax-free source of funds that can be used to pay the estate taxes.
If you are a parent without a large estate, but want to pass along a nice benefit to your children or grandchildren, a permanent life insurance policy can accomplish this. It provides a guaranteed tax-free death benefit that can be divided cleanly amongst beneficiaries. Likewise, if you are a parent with a decent sized estate, a life insurance policy can be an effective way to both maximize the inheritance and provide a tax-free source of funds to pay estate taxes in a quick manner.
In some cases, life insurance can also serve as an effective estate equalizer. For example, many estates are comprised of assets that are not easily divided, or at least not agreeably divided. For many families, the bulk of the estate is comprised of property. Maybe one heir desires to preserve the asset while others would prefer cash instead. Life insurance is a great way to equally divide the estate without finding ways to divide assets such as property or provide for joint ownership.
These are just a few common and basic uses of life insurance as an effective estate planning tool. However, it is very underutilized mainly because most people are unaware that life insurance can and should be used for these purposes.
Homework:
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O - Contact your adviser to find out how life insurance could benefit your specific estate situation. Even if you feel that you may not need it for estate preservation purposes, there are many tax and retirement benefits associated with permanent life insurance that you may not be aware of. If you do not have adviser or would like more specifics, please contact us for a free consultation.
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