The estate planning process is designed to help you manage and preserve your assets while you are living. It is also meant to conserve and control asset and fund distribution after your demise in accordance with the goals and objectives you have set. However, estate planning is unique as the plan differs for everyone, depending on your lifestyle, wealth, age, health and various other factors.
For instance, a modest estate may need only a simple will, whereas larger estates with potential estate tax burdens need a more sophisticated approach like starting a trust. But whatever your requirements, life insurance can be a crucial aspect in estate planning when used in tandem with the protection of a will or trust to provide the benefits mentioned below:
1. Preserving family assets
Most family businesses start with a dream and the foundations are built on hard work. If you wish to keep the business in the family after your demise, it is a good idea to discuss this scenario with your potential heirs to judge their interest and ability in managing the business. In several situations, families can use insurance payouts to ‘cash out’ some of the other heirs if that is their wish, preserving peace in the family while ensuring the viability of the business.
2. Estate equalization
Regardless of whether you have an estate plan or not, it takes a lot of time before a payout is granted and distributed amongst your loved ones. Expenses like funeral costs, business debt and estate tax could end up being a financial burden on your family that could result in them reaching into their own bank accounts not having to liquidate their assets. Funds from your life insurance policy can be immediately used to help cover these expenses by passing along a tax-free death benefit.
3. Estate plan creation
Life insurance has the distinctive ability to create an immediate estate for your beneficiaries when you pass away, often at a cost-effective price with good margins. This allows money to be transferred directly to the designated beneficiary, basically bypassing the complications created by probate. Additionally, the benefits are distributed tax-free and are free from any potential debts.
Several people consider using life insurance as a part of their estate plan. In the end, having a policy alone is not enough, but when used in conjunction with the protection of a will and/or a living trust will guarantee that a lump sum of funds will be immediately available upon your demise, providing an effective method of transferring wealth to your beneficiaries.
Depending on the complexity and size of your estate, we suggest getting in touch with an estate planning attorney to understand your options and be certain that the decisions you make are correct and suited to your goals and objectives.