Life insurance is not only a means to provide for your family in the event of an untimely passing, but it can also be used to accomplish other goals within an estate plan.
1. Paying for funeral and estate expenses – A life insurance policy can be used to pay the costs of funeral expenses. There are several ways to accomplish this, including having a policy designated for these costs or making your estate the beneficiary of the policy. A life insurance policy can also be used to cover the cost of administering the estate, including paying probate fees, estate taxes and other costs, such as hiring a probate attorney to help with the process.
2. Establishing a life insurance trust – A life insurance policy owned by the deceased may be included in the value of the estate in many instances, which can result in estate tax exposure. A life insurance trust can remove the ownership of the deceased, thus removing the value of the policy from being included in the estate, which in turn removes the exposure to estate taxes.
3. Buying out a partnership – Many small businesses use a Buy/Sell Agreement when their partnership is set up, and proceeds from a life insurance policy can be used by the surviving partner to purchase the ownership interest of the deceased.
4. Creating an estate – Life insurance can be used to create an estate in situations where one might otherwise not exist due to the lack of assets.
5. Funding the purchase of the family farm – Life insurance proceeds can help pass the family farm, or other business, to a family member who may not have the cash reserves necessary to otherwise fund the purchase.
Life insurance is one of the many estate planning tools an estate planning attorney can discuss with you to determine which ones meet the needs and goals of your family.