The Role of Life Insurance in Estate Planning
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Contents
Introduction
Life insurance is a critical part of any estate plan. It can help you avoid or reduce estate taxes, fund trusts and other estate vehicles, and even serve as an irrevocable gift that keeps on giving. Here’s what you need to know about how life insurance fits into your estate planning strategy:
Life insurance can help pay estate taxes.
The value of an estate is determined by a number of factors, including the size and type of your assets, but it’s typically based on their market value when you die. If those assets (like stock or real estate) are sold at that time, they’ll be taxed at their current market value. In other words: if you own $1 million worth of company stock when you pass away and sell it for $1 million dollars, then there will be no capital gains taxes due on that transaction because the sale price was exactly equal to its value as stated on paper–your heirs would only owe income tax if they sold any part afterward!
However! If instead they put this stock into an irrevocable trust before passing away so that only they could manage distributions from it while alive (and thus avoid paying gift/estate taxes), then when they die those same shares would still need selling off before distribution could happen–and since we’ve already established how much money would actually come out after such a sale…it might not even cover all those bills! So what do we do?
Life insurance can help fund a trust or other estate plan vehicles.
Life insurance can be used to fund a trust, which is an estate planning tool that allows you to keep assets out of probate. A trust helps ensure that the beneficiary receives their inheritance without having to go through probate court. There are many types of trusts, but one common type involves using life insurance as the funding mechanism.
This type of trust is known as a “special needs” or “special needs” trust because it allows people who have special needs (such as those with disabilities or mental illness) access to their money while still protecting them from creditors and predators who might take advantage of them financially.
Life insurance can be a gift that keeps on giving.
You can buy life insurance for someone and they can use it in the future, like if you buy it when they’re young and healthy but not yet sure what their financial situation will be in 20 years. Or, you can buy them a policy now so that they have access to money if something happens to you unexpectedly–like if one day you were hit by an Uber driver and died from injuries sustained from falling out of your car window onto the pavement below (which is exactly what happened).
Life insurance benefits are also tax-free once paid out as long as certain requirements are met.
Estate planning is important and life insurance is one way to do it.
Estate planning is important and life insurance is one way to do it. Life insurance can be used to pay estate taxes and fund a trust or other estate plan vehicles.
Conclusion
Life insurance is a great way to help protect your family and your estate. It can also be used as an asset in your estate planning. Life insurance can be used to pay estate taxes or fund trusts, giving you more control over how much money goes where when it comes time for distribution. You may even consider gifting life insurance in the form of an annuity or other vehicle that allows you to give away money while still being able to benefit from its growth potential over time (or even receive payments!).
