There are a number of questions that arise when estate planning. Many people are uncertain about what effect various estate planning documents and accounts will have after their death, including their life insurance policies. The following will address the most common questions that we receive about life insurance and its effect on estate planning. Because many of these issues are particularly complex, it is often best to sit down with a seasoned estate planning attorney to discuss your unique situation.

What are the Different Types of Life Insurance?

As you begin to learn about life insurance, you discover that there are several types including second to die, term, and whole life. Each of these types of life insurance have advantages and disadvantages.

• Second to die life insurance is a type of life insurance that covers two lives and distributes the proceeds at the death of the second individual. While these policies often cost less because insurance companies are not required to pay out the proceeds to early, many times annual exclusion gifts are prohibited from being split among the couple.
• Term life insurance provides coverage at a fixed rate for a specified period of time, but after this period is over, coverage at the previous rate is no longer promised.
• Although whole life insurance remains effective for the duration of the insured individual’s life, premiums must be paid every year into the policy to make sure that it remains effective.

The exact life insurance benefit that will work best for you depends on a number of unique factors.

How do Life Insurance Policies Affect Estate Taxes?

Often, life insurance proceeds pass tax-free to the surviving spouses either directly if the spouse is named in the life insurance policy, through a tax-efficient trust, or through a Life Insurance Trust. If the beneficiary of a life insurance policy is not a spouse or if multiple beneficiaries are involved, the proceeds from a life insurance policy are taxable in accordance with the estate tax exemption amount.

What Role can Insurance Play in Business Succession Plans?

If you plan on transferring interest in your business before or after death, there is a possibility that not all of your children will be interested in gaining ownership of the business. In some situations, none of a family’s children want anything to do with the business. For this reason, the distribution of a business can present challenges when you want to equally divide your assets among your children. In these situations, a life insurance policy can be used to make sure that each child receives an equal amount.

Speak with an Experienced Estate Planning Attorney

If you are interested in estate planning, you should not hesitate to contact a knowledgeable attorney. At Resnick Law, we understand the numerous complex issues involved with estate planning and know what it takes to make sure that your wishes are fully achieved. Contact our law office today to schedule an initial free consultation.

(image courtesy of Sandy Millar)