Insurance and Estate Planning
Estate planning is for everyone, no matter what assets you own, or the size of your family. Basic estate plans include a will, payable-on-death accounts (POD), IRAs, and other retirement plans that include beneficiaries. Some people may also include a trust, depending on whether it is beneficial or financially expedient to their individual circumstances. Life insurance is another tool for estate planning and can be a valuable addition to your estate planning strategy.
Life insurance is usually purchased by persons with families and is easily affordable if you get it at a relatively young age, especially if it is term life. You can purchase term life for as little as $10,000.00 to well over $1,000,000.00 with fixed premiums for a set period of time. The most common amount for policies are for $100,000.00 and are designed to replace the income lost by the premature death of the primary wage earner in a family.
A prime advantage of life insurance is that it becomes available to the beneficiary within weeks of the owner’s death. Probate can take many months or in rare cases years. Meanwhile, you may have to make mortgage payments on a home, pay the property taxes, income taxes, and living expenses while the bulk of the decedent’s estate steers its way through probate courts.
However, life insurance can be used in many other ways as well, although you will need the counsel and assistance of an experienced estate planning lawyer to ensure you avoid estate taxes and creditors in some cases. The death benefit (the amount paid when the insured dies) can also be used to fund retirement plans (IRA), pay college tuition, or to cover any other expense.
Types of Life Insurance Policies
One type of life insurance is universal life, which has fixed premiums to old age. You can reduce the death benefit, which reduces the cost of the policy, if you feel the beneficiary is no longer in dire need of a large amount of money so as to reduce your premiums.
Cash value policies should be carefully researched before purchased. Fees can be high and your cash surplus if you die early may not be what you anticipated. Discuss these policies with a financial advisor whom you trust or with estate planning lawyer Patricia Bloom-McDonald.
Joint Whole Life
This policy insures more than one person. The proceeds are paid to the survivor when an one of the insured passes away.
In this type of joint policy, the proceeds go the beneficiary when the last insured dies. These are more affordable policies since the life expectancy is longer as it relies on a joint age
Revocable Life Insurance Trust
This is a trust where the beneficiary of the life insurance policy is the trust while the grantor (person who created the trust) has the right to revoke the trust, change the beneficiary and other rights during his or her lifetime.
Irrevocable Life Insurance Trust (ILIT)
This type of trust cannot be revoked once it is created so you lose control over it. Its assets are not part of your estate since you do not own them and not subject to estate taxes ($5,49M or $10.98M for a couple). ILITs are complex to create and administer so consult an experienced estate planning lawyer.
The trustee can purchase the insurance policy with you as the insured. The trust is the owner. Upon death, the proceeds are used to pay debts or income taxes that may be due on other retirement benefits, and the remainder distributed to the trust beneficiaries.
You can set up an ILIT jointly or as a survivorship policy that is paid out when the last insured passes away. The funds go into the trust and eventually to your beneficiaries.
Consult Estate Planning Lawyer Patricia Bloom-McDonald.
Patricia Bloom-McDonald is a highly experienced estate planning lawyer who has been working for the rights and interests of seniors and families for over 25 years. Consult with her for all of your estate planning goals, especially regarding the purchase and use of life insurance policies as part of your overall estate strategy.