Life Insurance in Houston

Estate Planning Using Life Insurance

One key element in estate planning is the addition of life insurance. A life insurance policy can serve several estate planning purposes at once and the trend of falling prices for life policies has made life insurance an even more attractive part of an estate planning strategy. 

Life insurance

It’s actually a fantastically useful and flexible estate-planning tool that can provide income-tax-free security for your loved ones,It can also provide liquidity to pay estate taxes, especially if your estate largely consists of assets such as real estate or a closely held business that you may be reluctant to sell to raise cash.

Life insurance can play an important role in your estate plan, if for no other good reason than to assist your family with their short-term and/or long-term financial needs.

When you die, you can do one of three things with your estate. You can:

• Donate it to a philanthropic organization.
• You can designate certain people to get certain assets.
• You can give it to the government through estate taxes.

Careful estate planning can help to avoid the last option, either in whole or in part, and can help to maximize the amount available that you’d wish to donate or leave to an heir.

The proceeds of a life insurance policy can provide:

• Immediate funds at the time of your death to pay for your funeral and burial costs, your debts, and your final income taxes.
• Money to pay your federal estate taxes (this eliminates the chance of a “forced sale” of your assets to generate needed cash).
• Funds that can be transferred to a trust as part of your will.
• Proceeds to fund a buy-out of your interest in a closely held business, if that applies to you.
• A donation to your favorite charity. Gifts to charity are estate tax deductible, so any money you donate to charity won’t be subject to estate taxes when you die.

Don’t underestimate the importance of immediately available and unencumbered funds—such as the proceeds of a life insurance policy. The passing of a family member or a loved one comes with a parade of expenses, each with a tendency to exceed cost expectations. The average American family saves about 4 percent of its income each year, and even that small amount tends to grow wings. Collectively, we just don’t much cash on hand, with much of our money tied up in investments, 401k accounts, housing, and other illiquid assets—none of which should be sold in a hurry, if avoidable.

Some assets passed in an inheritance come with immediate payment requirements. Homes or cars that aren’t yet paid off can be a liability in the short term, perhaps doing more financial harm than good. Ideally, a life insurance policy will provide enough in proceeds to pay off any remaining debt. If that’s not possible, you’ll want to provide enough to make payments until the home or cars can be sold or until the assets can be repurposed; homes can become rentals.

Your life insurance policy proceeds, payable to a named beneficiary or beneficiaries, can avoid passing through probate—the “document received as the first step in the legal process of administering the estate of a deceased person.” This makes the funds available immediately. Your family won’t have to wait until your estate is settled, which could take six months or more, to get the money they need to pay bills. A tremendous amount of financial damage can happen during the time it takes to settle an estate in probate.

Source: truebluelifeinsurance

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