Money Matters Using Life Insurance as an Estate Planning Tool
The issue of money is a difficult one to confront for most people. Still, it can be an incredibly daunting task when you are just starting in life and working hard. This becomes even more true if the person has assumptions about their skills or abilities based on gender and race-based expectations from society.Indeed, money doesn't buy happiness, but what does? It seems like without some form of currency; everything would crumble into oblivion as there's no way for humans to survive on their own with limited access to food and water supplies. Money has a lot more than just economic power; it holds an entire world together!
Using Life Insurance as an Estate Planning Tool
Q: I have a significant net worth and am concerned about the estate taxes my family will have to pay when I am gone. Do I have any simple options for handling this issue?
A: One tool that is commonly used by those with considerable wealth to deal with estate/inheritance taxes is life insurance, more specifically an Irrevocable Life Insurance Trust (ILIT). This is actually a very common estate planning tool for the affluent.There are many benefits to this type of trust:
- It provides tremendous flexibility. Wealthy individuals do not always have wealthy heirs. Handling paying for estate taxes, which can be as high as 40%, can be terribly burdensome for many. Your heirs may be forced to sell real estate, stocks, bonds, or even personal property to raise the necessary cash.
- When set up properly, the assets owned by the ILIT aren’t considered to be part of the estate. In a nutshell, your heirs don’t have to pay taxes on any assets within the trust.
- The death benefit is also excluded from taxes. In nearly all cases, life insurance proceeds are exempt from taxes and can be used to pay any estate taxes that may come due.
Life insurance can be a great estate planning tool. Keep in mind that trusts can be complicated, and it’s important to find an attorney with the knowledge and experience to set it up properly.Life insurance provides cash for handling taxes and other expenses. For smaller estates, even if taxes aren’t a critical issue, life insurance can provide great flexibility and peace of mind for all involved.