Estate Creation & Securing Using Insurance
Using life insurance for estate planning purposes To provide liquidity in an estate to pay off liabilities such as taxes or mortgages. This will ensure that non-liquid assets, such as a cottage or business, do not have to be sold, but can be left to your beneficiaries.
Using life insurance for estate planning purposes
many business owners rely on life insurance proceeds as part of a business continuation agreement, enabling their business partners to acquire the ownership interest of a deceased owner's heirs. The surviving owners could use insurance proceeds to purchase the interest of heirs who have no intention of managing the business.
About estate planning
Understanding Estate Planning
Estate planning involves determining how an individual’s assets will be preserved, managed, and distributed after death.
It also takes into account the management of an individual’s properties and financial obligations in the event that they become incapacitated.
Assets that could make up an individual’s estate include houses, cars, stocks, artwork, life insurance, pensions, and debt.
Individuals have various reasons for planning an estate, such as preserving family wealth, providing for a surviving spouse and children, funding children's or grandchildren’s education, or leaving their legacy behind to a charitable cause
Life insurance is typically a critical element of a family's estate plan. It may enhance the amount of wealth you can bequeath to your heirs and provide a ready source of cash for their financial obligations.
Life insurance can help provide funds to pay estate taxes and offers wealth-protecting benefits by providing an effective way to transfer wealth to your beneficiaries.
4 ways to use life insurance in estate planning
Life Insurance for Estate Planning
As part of the estate planning process, you will need to evaluate carefully as you do your planning whether the products offered to you are useful to you.
Yet, life insurance is very often an integral part of a well-thought-out estate plan.
The proceeds of a life insurance policy can do much more than provide a large sum to your beneficiaries.
Here is a list of the benefits provided by making life insurance a part of your estate planning strategy :
It provides immediate cash at death to pay funeral expenses, debts and final income taxes of the insured.
•>> The cash provided by the proceeds can be made available to pay estate taxes and, thus, avoid the forced sale of an asset.
•>> Generally, life insurance proceeds payable to a named beneficiary pass to that beneficiary free of tax.
•>> Proceeds from the policy provide a relatively low-cost source of funds that can be transferred to a trust created in the insured’s will for the benefit of, for example, minor children or elderly or handicapped relatives.
•>> Life insurance proceeds payable to someone other than the insured’s estate can avoid passing through probate when the policy is owned by an irrevocable insurance trust.
•>> When the insured owns a closely held business, life insurance proceeds may fund a buy-out of his or her interest.
How It Will Help You?
Estate plan creation
Life insurance has a unique ability to create an immediate estate for your beneficiaries when you die.
It allows money to be passed directly to the designated beneficiary, essentially by passing the complications created by probate.
Moreover, the benefits are distributed tax-free and remain untouched by potential debts.
Even if you have an estate plan, it could take a great deal of time before money is released and distributed to your loved ones. Funds from your life insurance policy could immediately help pay for these expenses by passing along a tax-free death benefit.
Preserving family assets
Most family businesses are started with a dream and built with hard work. If what you envision for your business after you die is to keep it in the family, you should first consider a discussion about which of your heirs has the interest in managing and ability to manage the business. In many situations, families can use insurance benefits to “cash out” some of the other heirs if so desired, preserving family peace while continuing viability of the business.
Precautions
Selecting your beneficiaries
Your beneficiary is the person who will receive the policy death benefit. For life insurance, no matter who is designated, the beneficiaries will generally receive the death benefit proceeds income tax free.
Unlike property disposed of in a will, if the beneficiary designation form is properly completed, insurance proceeds do not go through probate.
Be sure to name contingent or secondary beneficiaries. This means that if the primary beneficiary has passed away, the insurance proceeds will go to an individual or trust.
How much ?
How much life insurance is enough?
The bottom line is that having a policy in conjunction with the protection of a will and/or a living trust allows you to guarantee that a lump sum of money will be available upon your death, providing an effective way to transfer wealth to your beneficiaries.
Depending on the complexity of your estate, please consider consulting an estate-planning attorney to be sure the decisions you make are right for you.
The amount of coverage you require will depend on your estate objectives and current financial status. As you age, you may find that the level of coverage you require declines or perhaps changes from short-term to permanent coverage. Determining exactly how much and what type of insurance is most suitable for your situation can be best assessed through the preparation of a financial plan and the aid of a life-licensed advisor.
Process..
Creating your estate plan
Most often, an estate plan can be constructed by following these six simple steps:
Step 1: Prepare an inventory of assets and liabilities.
> Assets:
>> Your home and vacation property
>> Registered and non-registered investments
>> Bank accounts
>> The face value of annuities and insurance policies
>> Personal property such as cars, jewelry, art, etc.
>> Pension assets (i.e. membership in a company pension plan)
>> The current value of any businesses you own
> Liabilities:
>> Mortgage on your home and vacation property
>> Investment-related debt
>> Credit cards
>> Personal obligations such as family support
Step 2: Define your estate planning objectives.
Below are some of the core questions you should answer:
>>
Who are your estate beneficiaries?
>> What impact will the estate plan have on your family?
>> How long do you intend to provide support for your immediate family?
>> Are there significant family assets that will need to be addressed?
>> Minimizing income tax and probate taxes important to you?
>> Do you want your beneficiaries to receive their inheritance immediately or at some future date?
>> Do you wish to leave any portion of your estate to charities?
Step 3: Evaluate your objectives.
Step 4: Determine how to achieve your objectives.
Step 5: Use the right advisors to implement your plan.
Step 6: Periodically review your plan.
Its not just about death...
Planning for incapacity
The final component of your estate plan should address potential situations where you may become physically or mentally incapacitated.
This is achieved by choosing critical illness and PA plans, and opting for POA.
Without an enduring power of attorney, your attorney (not necessarily your lawyer or notary) cannot act on your behalf during a period of incapacity until they receive court approval.
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