May 26, 2018

Life Insurance And Estate Planning

Let’s take a look at this VERY important topic.

If you are like most people then you’ve worked hard your whole life and want to be sure that as much of it as possible gets passed down to your kids and grandkids when you are gone. Well, Uncle Sam has a different plan in mind. Although as of 2010 no one really knows what is going to happen to the estate (death) tax. Most are willing to bet that it isn’t going to stay at 0% but probably fall somewhere between 30% and the historical 50%. Therefore it is important to plan ahead and take actions to minimize the amount that Uncle Sam is going to affect the inheritance you intend to pass along. Life insurance is a good way to solve some of these problems by the following:

  • Maintain surviving family’s lifestyle – life insurance death benefits may help by paying off debt and providing a lump sum of cash from which your family can draw in the event of your death.
  • Divide and distribute your estate equitably – for example, if you have someone who will be the heir to your business that is worth a couple million dollars, you could provide another heir with a couple million in life insurance death benefit proceeds.
  • Reduce or eliminate gift and estate taxes1 – for example, a member of senior generation transfers their residence at a reduced gift tax cost to a Qualified Personal Residence Trust (QPRT) and retains the right to live in the residence for a specified term; the residence eventually passes to the junior generation without any additional gift tax – as long as the grantor survives the specified retained term; junior generation purchases life insurance policy insuring senior generation to insure against the risk that the residence may be brought back into the grantor’s estate if the grantor dies during the retained term. Similar programs can be set up for Grantor Retained Annuity Trusts (GRATs), Family Limited Partnerships (FLPs), Private Annuities and many others.
  • Solve liquidity needs – to pay for administrative costs, gift taxes and estate taxes. Oftentimes, estates are composed of illiquid property or property such as collectible artwork, jewelry and other family heirlooms that heirs may not wish to sell to pay expenses. Life insurance can be used to provide the necessary liquidity to pay the expenses associated with your estate.