Life insurance is a smart financial move for anyone who is planning their estate in the event of their passing. There are, in fact, a variety of ways that you can use a life insurance policy to boost your estate’s finances and keep taxes low. What are some of these valuable methods? Here are four that anyone can make use of.
1. To Create an Estate
If you don’t have much in the way of assets, you may not feel that you have much of an estate to leave anyone. If this is a problem – if you have children or older loved ones who depend on you, for instance – purchasing a life insurance policy is an inexpensive way to fix this. A limited policy is also a good means of paying off any shared debts your spouse may end up with or providing for children who will lose child support.
2. To Avoid Estate Taxes
Estate taxes aren’t a concern for a large portion of Americans’ estates. But they can take a bite out of estates with a few significant assets. If you own a valuable business, portfolio, or more than one real estate properties, for instance, your estate may exceed the exemption amount of $11.4 million (in 2019). At this point it is subject to federal and probably state taxes.
If your estate could reach this threshold, you might avoid taxation by reducing its assets and replacing some of them with life insurance coverage. Be sure to designate a separate beneficiary or place it in a separate, irrevocable life insurance trust. Both these actions would generally keep the proceeds out of your estate calculations.
3. To Bridge the Probate Gap
Probate in the court system can take a while to complete – in some states, it can be up to several years. In the meantime, your beneficiaries or family members may not have what they need to continue thriving after you have passed away. You may not be able to rush the courts but you can create a bridge with the strategic use of a life insurance policy.
You would begin by calculating a comfortable amount to pay for your loved ones’ household and daily expenses for a specified period – generally between six months and three years. Purchase this amount of life insurance coverage and make the responsible adult party a beneficiary. Life insurance with a stipulated beneficiary generally doesn’t pass through probate, so your family can begin using it at once.
4. To Enjoy Your Money Now
Would you rather be able to spend your money now and enjoy it with your heirs? Many Americans would prefer to enjoy their assets with loved ones but may be worried about providing for the long term. Fortunately, there is a way to have your cake and eat it too. The answer is a life insurance policy.
With this strategy, you would purchase a larger life insurance policy – perhaps one that approximates the estate value. Then, you can use the estate assets to enjoy experiences with your family, to help out others financially, or to complete your own bucket list items. The insurance payout would replace that money in your estate upon death, leaving a simpler estate that may not even need to go through probate.
Which of these estate strategies could you benefit from the most? Do you want to enjoy your estate more now, avoid taxes, or provide for your loved ones? No matter what you choose, a life insurance policy could be a simple solution. At Family Insurance Centers, we are ready to help. Call for an appointment with an insurance expert today.