We often use life insurance as a tool in helping clients. Life insurance is important in many estate-planning situations, such as the following:
- Young families. Life insurance can help raise the kids and get them through college if a young parent dies unexpectedly.
- Business owners. A buy-sell agreement between partners in a business is important. But the agreement may not work without some cash to pay off the owner’s family. Life insurance helps provide that cash.
- Blended families. In a 2nd marriage with a new baby? But the husband already has grown children? Life insurance allows him to leave funds to his older children at his death, but still provide for the new baby and his new wife. Download 10 Tips for Blended Families here.
- Estate taxes. For our clients who are concerned about estate tax, life insurance is almost always considered in reducing it. Why? Because it gives more leverage. For instance, you can give $13,000 to your child (without any gift tax liability). However, if you instead use the same funds through a life insurance trust, that money may buy $1 million or more in death benefits. Proper planning will use pennies on the dollar to transfer money to your family without estate taxes.
QUICK TIP: If you have an old life insurance policy, you should consider having your financial advisor review it. You can probably get a better policy now. (One with more death benefit and a lower premium.) Why? People are living longer than they were 10, 20 or 30 years ago. So, that makes life insurance cheaper.
WARNING: You may have heard that life insurance is tax-free. Life insurance benefits are free from INCOME TAX. However, they will be subject to ESTATE TAXES at your death. If you are concerned about estate taxes, then more life insurance will only make the problem worse. There are specific estate tax planning strategies that we can use to keep the life insurance out of your estate.
Need to have your plan reviewed? Do you know whether your plan has adequately considered life insurance options along with the legal strategies? Call us to set an appointment at 217-726-9200. We will send you our Personal Information Form to fill out and return prior to your meeting. At our first meeting, we will discuss your family’s situation, what planning options may be best, and what it would cost to develop a comprehensive plan.