Estate planning is a term that covers a wide range of methods used to protect assets and ensure the transition of assets to your loved ones. The process entails drafting various legal documents such as wills, trusts, POAs, and other directives. However, estate planning also includes financial management and minimizing tax burdens. A helpful tool that is often overlooked during estate planning is life insurance. This article will delve into the many ways you can utilize life insurance in your estate plan.
Estate Equalization
You likely want to provide equal inheritances to your heirs; life insurance is a great way to accomplish this goal. Many estates aren’t easily divided equally, depending on the types of assets. Some of your heirs may want the house, while others would prefer monetary considerations. Family businesses are another asset that is hard to distribute equally, especially if an heir does not want to own the business. Life insurance can be utilized as a balance to cover inadequacies between estate property that you intend to leave. It can also ensure that each heir gets a fair share of other properties they do not want or cannot occupy.
To ensure fairness, the life insurance policy owner can designate specific beneficiaries in different amounts. A policy also allows heirs to receive liquid assets that enable them to use how they see fit. The policy owner can decide precisely how much money they would like to leave a beneficiary, regardless of what the heir receives in the estate. Estate equalization is a great way to reduce family issues and fighting over the estate.
Keeps Estate Settlement Liquid
Keeping your estate liquid can be challenging, especially if you have substantial debts and taxes to pay off. Life insurance can cover expenses and prevent your beneficiaries from having to sell their inheritance to pay off estate debts. You never know what type of financial situation they may face once you pass away, and life insurance provides a cushy safety net to cover immediate debts. A hefty life insurance policy can give your loved ones options and allow them to keep and use more of the estate you plan to leave them.
Offset Taxes
There is always a chance that your heirs will have to pay taxes on your estate. Taxes can lower your estate’s value and cause your loved ones to be left with less than you had planned. Life insurance is a great way to offset any payments those you leave behind will have to pay towards taxes. Wealthy individuals may owe substantial taxes, and life insurance can provide ways to still leave your heirs part of your estate.
How to Choose a Life Insurance Policy
There are many types of life insurance policies to help you meet your goals, and it’s important to learn about each one before choosing. The main two classes are permanent life and term life insurance. Here are the pros and cons for each type:
Permanent Life Insurance
Whole life and universal life policies fit into the category of permanent policies and normally last until you die. While you will pay more for permanent life insurance, they stay in force for life and usually build a cash value. Universal life is often used to build monetary value while providing a death benefit. You can even take loans against your universal life policy in most cases.
Term Life Insurance
Term life insurance policies are designed to provide coverage for a set amount of time, such as 10, 20, or even 30 years. They are cheaper to own, but the cost will rise substantially once the period ends, and you must get a new policy. You may feel you are throwing your money away by buying term since it may expire before you die. Still, you can own substantially more life insurance coverage for a fraction of the cost of a permanent life insurance policy. The life insurance company is taking a risk that they will have to pay out a death benefit, as there is always the chance that you will outlive your policy.
An Estate Planning Attorney Can Help
Life insurance policies are purchased through insurance agents, but an estate planning attorney can help you make the right choice. They can also consult with you and help you determine the allocation of assets that you want to leave to your loved ones. An experienced attorney will understand your needs regarding life insurance and can walk you through the process of finding the best policy for your family and loved ones.
Contact an Attorney
Progeny Law Firm assists clients with estate planning in Baton Rouge, LA. Call (225) 465-1090 or contact us online for a free consultation.
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