Your Life Insurance And Your Estate Plan
It’s one of the last gifts you can leave to your family when you pass: life insurance. Usually given as a lump-sum benefit, a life insurance policy offers the beneficiaries some financial support to move forward. Whether it’s a spouse, partner, children, or anyone else you designate, the money can be used as they need it to recover from your passing. As the policy owner, you can designate the proceeds to be used to care for an aging spouse or a child with disabilities. The money can also be used to continue alimony and child support payments after your death.
The money is quickly accessible. Since liquidating assets for probate can take some time, life insurance allows your relatives to have the money they need to pay for funerals and other final expenses.
But life insurance can also be part of a larger estate plan that can preserve a lifetime of accumulated assets and ensure that your beneficiaries receive them. Make sure to discuss what life insurance policy you may have in place when talking with your estate planning attorney, such as attorney Jim Nici of Naples Florida,
Two Types Of Life Insurance
As an insurance professional will tell you, there are two basic types of life insurance:
1. Term, which lasts for a specified period and pays out upon your death if it occurs within the policy period
2. Permanent, or whole life insurance, which covers you for your entire life (as long as you pay premiums.) This type of insurance includes dividends and cash value over time. However, it’s also more expensive.
There may be other policies with similarities to term, whole life, or a hybrid of both. It’s up to you to choose the type that’s best for your needs.
Transfer Policy Ownership To Another Person
Many estates will owe taxes, including the life insurance policy. However, transferring that policy to another individual will help lower the tax bill following probate.
When considering ownership transfer, it’s important to consider your current situation and possible future states, such as:
• The death of the person you transfer it to
• The ability of the new owner to continue paying premiums
• The possibility of a divorce before the policy pays (if transferring to a spouse, child, or in-law)
• The complete loss of control over the policy once the transfer is completed
It is possible to gift the new owner up to $16,000 per year to ensure that the premiums are paid timely to keep the policy in force.
Irrevocable Life Insurance Trust (ILIT)
Another way to keep policy proceeds out of the probate process is with a trust. These legal instruments are available for a variety of uses and can significantly preserve assets while taking them outside of the estate. The result is that the policy funds pass to the beneficiaries faster without going through probate.
By placing the policy into the trust—where you are no longer the owner—the proceeds are removed from the estate, lowering its value. Transferring the policy also means that you will give up your rights to cancel the policy, change the beneficiaries, or borrow against the policy. You cannot be a trustee and have no right to revoke the trust or change the terms of the policy.
If the proceeds are intended for the care of minor children, you can name a trustee to handle the money for the children when you set up the trust.
Let Nici Law Firm Help With Your Estate Plan
Prior to purchasing any life insurance plan, it’s important to do your due diligence to understand how each policy works and what it can do for you, your family, and your estate plan. Discuss with Jim Nici, an experienced estate planning attorney, what type of life insurance you have.
For more questions about trusts, life insurance policies, transfers, and other estate plan topics contact Naples Estate Planning Attorney Jim Nici at (239) 449-6150 today. Let us use our experience and expertise to help you make the best decisions to provide for your beneficiaries.