The Wall Street Journal recently reported that as many as 1/3 of American households have not taken out life insurance personally and are not covered at work. Life insurance can be an important tool in estate planning. There are several ways in which life insurance may play a role in your estate plan.
One of the ways life insurance can be used is to provide immediate cash so that the debts of the decedent can be paid; funeral or burial costs covered; and costs of administration paid. Insurance proceeds keep trust assets from having to be liquidated right away in order to pay these expenses.
If the decedent was in a partnership or small business, often special life insurance policies called “Key Man” or “Key Person”policies can be useful. Such insurance is insurance on the owners,partners, or other key people to cover such expenses as lost revenue, hiring a new person, or buying out the decedent’s interest in the company.
Another way in which life insurance can assist is if the decedent owned a business, farm, or ranch that is going to keep operating. Funds for the surviving partner of a business to buy out the deceased partner’s share can come from life insurance. Life insurance proceeds can also be used to prevent a farm or a ranch from being split up between the beneficiaries. If one child of the decedent wants to continue to operate the farm or ranch, the life insurance can be used to make an equal division among the other children and prevents the operating child from having to buy out the others.
Payment of estate taxes is another way in which insurance proceeds can help. Proceeds can provide the necessary cash to pay any federal estate taxes that are due. The estate may not have liquid assets or assets which want to keeo rather than liquidate. With life insurance, the decedent’s beneficiaries can pay the estate taxes without having to liquidate assets.
There are many aspects to estate planning just as in financial planning. If you have a small to medium business, a ranch or a farm, or just want to provide cash to your beneficiaries to pay taxes or for any other reason, you should consider contacting the experienced estate planning lawyers at Law Office of Scott C. Soady, A Professional Corporation for a complimentary consultation.