There are some estate planning situations that can be addressed through the purchase of life insurance. In a broader sense, life insurance coverage can serve many different underlying purposes, but we will look at three specific uses in this post.
Estate Planning for Young Adults
The vast majority of Americans are going through life without any estate planning documents at all, and people that are under the age of 50 are the biggest culprits. Obviously, the overall life expectancy is close to 80 years, but people of all ages pass away every day.
If you are young and single with no dependents, you may feel as though it is not a priority, and this is understandable. However, estate planning is a must if you are married, and it becomes even more essential if you have children.
This is a subject in and of itself, but with regard to life insurance, term life can be a key part of an estate plan for younger adults. Since untimely death is not common, the premiums are quite affordable. If you carry the appropriate level of term life, you can go forward with the knowledge that your loved ones would be provided for if anything happens to you.
Estate Planning for Small Business Partners
The estate planning process for business partners can include the execution of a buy-sell agreement. With the agreement called the cross purchase plan, the partners agree upon the value of a share in the business. Once that has been established, they take out life insurance policies on one another that are equal to this amount.
When one partner dies, the other partner would collect the insurance proceeds from the company. They would then be used to buy the share that was owned by the deceased partner from their estate. Going forward, the surviving partner or partners would be able to carry on, and the family would have liquidity that could be distributed in accordance with the decedent’s wishes.
There is another type of buy-sell agreement called the entity purchase or stock redemption plan. The situation is the same with regard to life insurance policies being taken out on all of the owners or shareholders, but the business as an entity purchases the coverage.
Inheritance Balancing
We will explain the concept of inheritance balancing using a simple example. Let’s say that you have established a very successful construction company, and it is your most valuable asset by a wide margin. You have two children, and you have every intention of leaving them equal inheritances.
Your daughter became a teacher after graduating from college, and your son has worked with you full time in the construction business since he graduated from high school. It is obvious to everyone concerned that your son should inherit the business after you are gone.
That’s well and good, but where does this leave your daughter? Under these circumstances, you could take out a life insurance policy that is equal to the value of the business and make your daughter the beneficiary. After your death, the business would belong to your son in its entirety, and your daughter would assume possession of the life insurance proceeds.
Attend a Free Webinar
We have always conducted free seminars on an ongoing basis to give people the opportunity to gain insight into important estate planning and elder law topics. Since we are all required to practice social distancing, this is not a possibility, but we have adapted.
Technology allows us to offer webinars, so you can get all of the same information delivered in a similar manner without taking any risks. You can visit our seminar page to check out the free webinars that we have scheduled.
Schedule a Remote Consultation!
If you are ready to discuss your estate planning needs with a licensed attorney, we would be more than glad to provide you with a remote consultation. You can alternately speak with us through telephone conferencing if this is your choice. To set the wheels in motion, send us a message through our contact page or give us a call at 585-374-5210.
- How Estate Planning for a Family May Trap the Unwary Practitioner - August 31, 2022
- State Income Taxation of Social Security Benefits - August 24, 2022
- Understanding Tax Apportionment Clauses - August 17, 2022
