Unfortunately for us, we can’t choose when we pass on but we can choose what we pass on. One of the most important aspects of financial planning is ensuring that your estate survives intact so that it can be passed safely to your heirs and loved ones.This is especially important for high wealth individuals and those who have large estates. A proper plan can ensure that these estates are protected from taxes and court costs.
Life Insurance provides an important role in estate planning – specifically in two ways:
- Estate Creation: The death benefit and cash value of your life insurance can be used to create a tax-free legacy for your family or to provide an endowment to your favorite charity.
- Estate Preservation: By using the tax-free cash provided by your life insurance for offsetting expenses, taxes, and legal fees your estate can be safely passed onto your heirs.
A properly sized death benefit should cover the following expenses:
- Remaining medical costs
- Funeral expenses
- Attorney and executor fees
- Probate court expenses
- Any applicable taxes – especially estate taxes for high wealth individuals
- Outstanding debts (mortgages, car loans, student loans, credit cards..etc.)
For those who still have dependents, the total death benefit should also be increased to offset the loss of your income. Typically this can range anywhere from five to ten years, but the bare minimum should be at least two years worth of income.
Getting started early with a permanent life insurance policy for the purposes of protecting or creating an estate can also pay dividends when using that policy to build a cash value. By utilizing the returns generated on the policy’s premiums, a cash value component can be created to increase the total value of the policy. This gives you the advantage of having a lifelong death benefit that increases with time – allowing you to leave a larger legacy to your loved ones.
Life insurance is only a part of a properly structured estate plan. Be sure to talk to your attorney about forming a will, living-will, and a trust. Some of our providers even include discounted legal-assistance as a complimentary benefit with their policies. It may not be fun to do now, but taking the time to plan ahead can ensure that your estate is preserved for those who need it.
We’re ready to work with you to analyze your estate’s needs and build a policy to pass on your life’s work.