Estate Planning and Life Insurance: How It Could Benefit Your Estate

You've worked your whole life to provide for your family and diligently saved to ensure your loved ones are provided for after you’re gone. What you may not be aware of, is that the state or federal government (or both) may have other plans for your estate.

With proper planning, you can minimize potential estate taxes and maximize the benefits your beneficiaries receive. Read on to find out how estate planning and life insurance can ensure that your life's work goes to the ones you love.

Estate Planning Considerations

Two of out of every 1,000 estates owed federal estate taxes in 2017, according to the Center on Budget and Policy Priorities.

Estates that have combined assets totaling $11,180,000 or more are subject to the federal estate tax, according to the Internal Revenue Service.

In addition to your federal estate tax obligation, there are fourteen states, plus the District of Columbia, that have additional state estate taxes. The tax rate varies by state.

Estate taxes can potentially lower the amount of money your beneficiaries receive. The federal government levies a 40 percent tax on any amount over the $11,180,000 minimum, that your beneficiary will be responsible for paying. This could add up to a significant sum of money, quickly.

Estate Planning and Life Insurance

Even if you don't anticipate having a large enough estate to worry about estate taxes, life insurance could still help with estate planning.

It can take a long time to pay out the proceeds from an estate. Even with a will, some assets may need to be liquidated before your loved ones receive any funds.

But with a life insurance policy, under normal circumstances, benefits are typically paid out within 30-60 days to the beneficiary.

All the beneficiary needs to do is contact the life insurance company, provide a certified copy of the death certificate  and may also need to complete a form or other paperwork.

Once the life insurance company receives the appropriate paperwork, your beneficiaries will receive a check from the insurance company. They will not need to pay income taxes on the proceeds.

Be aware that there are some instances in which your life insurance proceeds may be included as part of your estate. This can usually be avoided by setting up an irrevocable life insurance trust (ILIT).

An Irrevocable Life Insurance Trust Can Help

Assets placed in an ILIT by the grantor are considered gifts. Placing certain assets in this type of trust can help beneficiaries take advantage of estate tax exemptions.  Assets cannot be removed from the trust, but the grantor can dictate exactly how assets in the trust are to be used. A trustee, named by the grantor, distributes the trust to the beneficiary(s), per the grantor’s wishes, upon their death.

An ILIT has multiple other benefits, as well, including protecting the assets from judgements and/or creditors , reducing certain tax liabilities and gifting a principal residence to children under more favorable tax rules, are just a few.   

How an Independent Insurance Agent Can Help

If you have questions about estate planning and life insurance, your insurance agent can help. An independent insurance agent works with multiple companies and can help you find the right policy for your needs. Contact us today for a free estate evaluation by clicking the "get a quote" button on the right side of the page.