The estate planning process ensures the willing preservation and distribution of your assets.  

Life insurance assists in providing funds to finance estate taxes. It also offers wealth protective benefits by providing an effective way to transfer wealth to your beneficiaries. Depending on your life stage, age, health, wealth, lifestyle, and other factors, it follows a unique procedure. For instance, a more significant estate associated with a potential estate tax burden calls for a sophisticated strategy than a modest estate requiring a simple will. 

However, regardless of your needs, life insurance plays a critical role in estate planning when used with the protection of the will or trust. 

Listed below are some of the most effective ways to use your life insurance during estate planning

Estate tax funding through life insurance

A significant proportion of your gross estate includes federal estate tax that must be paid in cash within nine months of the demise of the real estate owner. Typically, personal estate assets are used to cover tax debt. Furthermore, the proceeds from a life policy are usually received as tax-free income that beneficiaries can use to fund estate taxes while conserving the assets.

However, you should always consult with your real estate attorney along with your tax advisor regarding the situation prior to making any tax-related decisions.

Safeguarding family assets

Most family businesses start with a dream and are built with hard work. Hence, if you wish to maintain your business’s vision within the family, you should consider discussing it with your heirs, who show an active interest in your business affairs. In some situations, families use insurance benefits to “cash-out” some heirs (if desired) to further preserve family peace with the continued viability of the business.  

Estate equalization

Regardless of your robust estate planning strategy, the release and distribution of money may consume a great deal of time. Moreover, the expenses, including the business debt, funeral costs, and estate taxes, can lead to a financial burden on your family, requiring them to liquidate assets. Here, your life insurance funds can enable you to pay such expenses by passing along a tax-free death benefit. 

Estate plan creation

A life insurance policy uniquely creates an immediate estate for your beneficiaries soon after your demise. This allows your money to be passed on directly to your designated beneficiary by evading the complications. Furthermore, such benefits are distributed tax-free and remain untouched by potential debts. 

Therefore, having a life insurance policy in conjunction with the estate will allow you to guarantee a lump sum amount to your beneficiaries upon your death. However, depending on the complexity, hiring an expert for a hassle-free procedure is recommended. 

About‌ ‌Wotitzky Law Firm

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