Wool Landon


What role does life insurance play in your estate plan

Wool Landon

You may have an insurance policy that will serve as the primary form of funding for a trust for the benefit of your children if you die while they are still minors. In such a case, you may have a term policy to cover a set number of years of expenses or to cover specific debts, like credit card balances and student loans.

Another common purpose for purchasing life insurance is for wealth replacement: life insurance can help balance assets among multiple beneficiaries, assist with payment of costs of administration, and the costs of running a business after the owners have died. In particular, as you develop wealth, there are well established insurance strategies for managing your estate’s tax obligations. Anyone creating or updating estate planning documents can benefit from revisiting their life insurance decisions as well.

Beneficiary designations matter

Discuss with your estate planning attorney whether it is best for your life insurance proceeds to go to your trust or estate, your child or your spouse, or some combination of these. You need to make sure the right instructions are place and you have signed all of the required beneficiary designations with your insurance company. People sometimes make the mistake of not updating their estate plan to include revising the beneficiaries named on their life insurance policies to coordinate with the rest of their plan. This oversight could lead to a conflict between what the paperwork with the insurance company says and what your estate plan documents say. If these documents conflict with one another, it is the life insurance paperwork, not your will, that determines who receives the proceeds from the policy.

For emerging wealth and estate tax planning, acquiring your life insurance through an irrevocable trust has profound benefits for your family and wealth transition. Some people continue to buy life insurance without planning for the increased wealth it represents. This oversight could lead to the loss of up to half its value when it is subject to estate tax on the death of the insured.

Changes happen

When your personal or financial situation changes, such as when you acquire more property, marry, divorce, or have children, your insurance arrangements may need to change as well.

Keeping your estate planning attorney informed about the status of all of your assets, including life insurance policies, is an important part of your ongoing estate plan.

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