You probably know that you need to have a life insurance policy, but you might not recognize its specific goal in the overall process of estate planning.
If you have other assets that you intend to pass onto your loved ones when you are no longer around, this can be done through estate planning vehicles such as a will or trust. However, you might also wish to supplement any specific assets you have with support that comes from an active life insurance policy.
A life insurance policy is a popular tool to be used within an estate plan because it can do more than certain other assets. Some of the major benefits of using a life insurance policy as part of your overall estate planning strategy include:
- Life insurance proceeds that are payable to someone other than the estate of the insured individual can avoid going through probate if the policy is owned by irrevocable insurance trust.
- This provides immediate cash to family members to pay debts, final income taxes and funeral expenses.
- The cash provided by the proceeds can be made available to pay estate taxes, and therefore, reduce the possibility of having to force the sale of an asset such as a home that the spouse could still be living in.
- Typically, life insurance proceeds that are payable to a named beneficiary will go to that beneficiary without income tax ramifications.
All of these reasons and more should prompt you to consider how a life insurance policy might fit into your overall estate plan.
Life insurance is only one way that you might transfer assets to your loved ones and deciding on the right amount of coverage means that you need to think about the big picture of all of your estate planning needs. Our Pasadena estate law office is here to assist you in creating that big picture plan.