Good estate planning allows you to manage your assets while you are alive and indicate exactly how you would like them shared when you pass on. The present health pandemic has encourage several individuals to do just that.
At a period like this, you might not know if you have the appropriate tactics in place to safeguard your loves ones in the vent of your passing. If you feel your heir will not be supported after you die or that they may have to do away with some of your estate to settle estate taxes, you might consider buying life insurance.
This article will explain the necessary life insurance techniques for estate planning, including how life insurance can benefit you and your loved ones. However, before we delve into that, let’s take a look at what estate planning is.
What is Estate Planning?
Estate planning is a plan made to facilitate the management and distribution of a deceased assets upon his death or incapacitation. This plan involves series of legal document put together to create a plan that speaks for the estate owner after his or her death or during incapacitation.
An estate plan is often made with the help of a professional estate planning attorney. However, sometimes individuals often embrace DIY due to the cost associated with hiring an estate planning attorney. Nevertheless, we would always advice to create a will and other estate planning document by contacting an estate planning attorney especially if you have a large estate.
Life Insurance strategies for Estate Planning and why they matter
Estate planning needs are different for everyone depending on your estate, age, wealth, health, lifestyle, etc. Irrespective of your situation, the threat of COVID-19 makes it essential for everyone with dependents to start planning their estate.
Some estates needs just a basic will to decide how assets will be shared to designated beneficiaries. Complicated financial situations requires more specific instructions. Either way, having a plan and making your wishes known is essential. Along with having a will, you should think of buying life insurance as an important part of your estate planning strategy. Doing so will help your beneficiaries maintain a good standard of living without you. It will also reduce the burden on your loves ones during an already sad and frustrating time.
Using life insurance benefits in estate planning
If you have a huge amount of assets when you die, your beneficiates may owe estate taxes when settling your estate. If this is the case, and your estate comes with assets such as house, vacation property, jewelry, or other sentimental items, you surely don’t want your beneficiaries to be compelled to sell off your assets just to settle the tax bill.
Instead, you can buy life insurance to provide instant cash. Your beneficiaries can use your life insurance payout, a lump sum of cash which will generally be tax-free, to cover these estate taxes—or any expenses they might have—without liquidating your estate.
In addition to leveraging life insurance, you can as well consider irrevocable life insurance trusts to transfer your wealth.
Irrevocable Life Insurance Trust
N irrevocable life insurance, also known as (ILIT) is an arrangement you might consider for transferring your wealth in a tax-smart way. With this technique, you’ll purchase a life insurance policy for yourself and transfer it to the ILIT. Your heirs are designated as beneficiaries of the trust and the proceeds of the insurance policy are shared to them after your death.
The policy’s death benefits usually passes to the ILIT’S beneficiaries tax-free. It isn’t added as part of your estate and not subject to federal estate taxes. Without an ILIT in place, the death benefit from your policy will be added in your gross estate. This amount could be subject to estate taxes.
ILITs must have a grantor, trustee(s), including beneficiaries. The grantor buys the policy to fund the ILIT and gifts it to the ILIT permanently (hence the name “irrevocable”). The grantor designates a trustee to manage and share the funds to the ILIT’s beneficiaries.
Do you need an Estate Planning Attorney?
If you need the help of an estate planning attorney in planning your estate, don’t hesitate to contact us. We boast of the best and experienced estate planning attorneys who can help you create an estate plan that suits your needs.
