Have you ever thought about life insurance as an option to estate planning?
Estate planning is not the same for everyone. It is dependent upon one’s life stage, wealth, age, health factors and lifestyle. The main aim behind this plan is to transfer wealth to beneficiaries. A policy is taken in conjunction with the protection of a will and/or a living trust that allows one to guarantee that a lump sum of money will be available upon death. For this an estate planning attorney can be hired to know whether the decisions taken by you are right or not.
A detailed explanation follows to understand how a life insurance plan vis a vis an estate planning works:
1.Creation of an estate plan: A life insurance allows money to be passed directly to the designated beneficiary. Mainly it bypasses the complexities posed by probate. The benefits thus received are free from any tax liabilities and protected by potential debts. Life insurance serves as an estate for you due to this reason.
2.Preservance of family assets: Usually the family businesses need a lot of time and hard work to build. And for the same reason the person who does this job wants the family business to be taken over by someone in the family as an heir who is willing and capable to do so. But if the legal heir who was supposed to be in charge is unwilling or due to any other reasons opts out, he/she can be paid out of the money received upon the death of the insured to transfer the running of the business to someone else. This could be a peaceful solution to probable disputes.
3.Life Insurance makes estate tax funding easy: In many cases the personal assets of the deceased are used to make payment of federal estate tax. The tax amount could be quite high being a percentage of the gross estate and needs to be paid in cash. Moreover, it must be paid within nine months of the death of the person who owned the estate. Liquidation of personal assets like a house property is difficult in a few months’ time. The proceeds received from a life policy can be used to pay the taxes and assets can be preserved. However, legal advice should be sought for this prior to making tax related decisions.
4.Equalization of assets: Funds from a life insurance policy are of much help to immediately pay off the expenses like funeral costs, estate taxes and business debts. As compared to that an estate plan would not be of help and might take a lot of time before money is released and received by the family members. Life insurance funds are tax free and readily available to the dear ones bypassing many hassles and is a tax-free death advantage.
Smrutirekha Bhoi