Life Insurance: The Oft-Forgotten Tool in Your Estate Planning Tool Belt
By: Barry E. Haimo, Esq.
June 17, 2021
Estate planning can be complicated. After all, you have to think about wills and trusts and powers of attorney and how to avoid probate years in advance if you want to do it right. But many people overlook one very important tool: life insurance.
Here is why it’s so important and why you should make sure it’s a part of your plan.
The Importance of Life Insurance
Life insurance is something that can help your family in the wake of your death, especially if you’re the primary earner in the family. However, its usefulness goes beyond making sure your family is taken care of — especially if you own your own business.
This is an oft-overlooked tool for those who own businesses, as well as among people with a high net worth. But it shouldn’t be, because these policies may not be considered part of an estate that is taxed by the government if done properly. This can help to minimize estate taxes the estate may have to pay.
Life insurance policies can also be sold for cash value or borrowed against the cash value during your lifetime. In other words, they have a lot of uses — and these are just the beginning.
Life Insurance and Tax Laws
A person with an extensive financial portfolio should consider life insurance simply due to how the taxes are handled regarding it. Tax law provides tax benefits for the premiums and proceeds of life insurance, which allows it to work as asset protection.
Proceeds from these types of policies are also tax-free to the person named as the beneficiary. If you have a high net worth, then this is a great avenue to help reduce the tax burden on your estate.
Those with insurance policies who have estates valued at less than $11.58 million individually or $23.16 million jointly can leave up to this amount to beneficiaries without being required to pay estate taxes. That means proceeds from policies can be used to pay taxes for those whose estates may exceed the threshold for estate tax exemptions.
Life Insurance Offers Protections for Business
If you own a business, life insurance can be used to fund a buy/sell agreement in the event of sudden death of a business partner. A family business may also be able to utilize a key person insurance policy on the central figure in the business to protect the business from having to dissolve if that person dies and a replacement has not yet been named.
Life Insurance Is an Asset
Again, life insurance is more than simply money beneficiaries get at the time of your death. It’s also something that can have intrinsic or cash value. Some types of life insurance even allow cash value accumulation. When it’s not needed any longer, it can be sold as a life settlement.
A properly structured whole life insurance policy can also offer tax-free dividends, providing an additional stream of income if you so desire.
The truth is that life insurance has way more to offer than you might realize. Talk to the professionals at Haimo Law about the ways life insurance can work to help you in your estate planning.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
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