Estate Planning with Life Insurance

While life insurance may be most widely known as income replacement for dependent beneficiaries if the insured passes away unexpectedly, it also offers some strategic benefits when integrated into an estate plan. Different types of life insurance are available but, generally, life insurance is an insurance policy that pays money to your named beneficiaries if you die while you’re covered. Your estate planning attorney and insurance agent can work together to identify the best life insurance policy to realize your estate planning goals.

1. Cover up-front expenses to your estate.
As expenses to your estate begin or continue to come due after your death, the proceeds from a life insurance policy can provide your loved ones with a little “breathing room”. The financial support can help with your burial costs, any medical bills, and other expenses with no need to liquidate any estate assets.

2. Take care of estate tax liability.
Life insurance can be an effective tax-planning strategy within your estate plan. Death benefits are typically income tax-free to your beneficiaries, but life insurance proceeds are generally considered an asset of the estate for estate tax purposes. Therefore, if your estate is large enough to trigger estate tax liability, an irrevocable life insurance trust or ILIT may be a consideration for your comprehensive estate plan. An ILIT structures the life insurance policy ownership so the proceeds are not considered a taxable asset of the estate. In other words, the proceeds of any life insurance policies owned by this type of trust will not be subject to estate tax at your death. The life insurance proceeds can cover the estate tax liability, with any remainder going tax-free to your beneficiaries.

3. Keeping it fair and preserving assets.
A life insurance benefit may help ensure that each of your beneficiaries receives equally from your estate if you have more than one beneficiary and assets other than cash. This can be especially significant if you want to prevent larger assets from being liquidated in order to be divided and passed on to your beneficiaries.

For example, if one child enjoys visiting the family cabin and the others don’t, you can pass the family cabin to that child and use the life insurance proceeds to provide an equal value of inheritance to your other children. Otherwise, if you left the cabin to all the children equally, the uninterested children could force the sale of the family cabin to realize their portion of the asset after your death.

Another similar situation with a potential for unequal distribution is a family business. Maybe one child is involved in the family business and the other is not. With a life insurance policy, you can balance things out with the life insurance proceeds rather than leave the family business to both children equally. Otherwise, the uninvolved child could force the sale of the business to realize their share if the child running the business can’t afford buy out the sibling’s interest.

Work with an experienced Florida Estate Planning Attorney.
When it comes to the role of life insurance in estate planning, work with an experienced estate planning attorney. Call our office at 561-395-6800 or fill out our contact form to schedule a meeting and we will be in touch to get that scheduled.