How to Use Life Insurance as Part of Your Estate Planning
Grief is heavy. And when you die, your loved ones will be left to pick up the pieces. Estate planning is essential to make it easy for them to carry on. Though, there are various methods and strategies used when planning for the future – including the use of life insurance.
Whether used on its own or combined with other estate planning tools, life insurance can be quite beneficial. Let’s take a closer look at how it can be used with your end-of-life planning.
Depending on how your estate planning is set up, the protection and security you have put in place for your loved ones may not be accessible right away. This is often because there are usually a few steps that need to take place in order to get everything settled.
With life insurance, once a claim is filed upon death, payments can be received by beneficiaries in as little as a week or two. This access to funds can prove helpful in reducing any burden.
Funeral and other Final Expenses
Upon death, there are expenses that need to be addressed right away, such as the cost of burial, funeral, outstanding taxes, and other debts.
Having access to life insurance payouts as soon as possible can allow your loved ones to handle these immediate expenses without worry. Because you can place multiple people as the beneficiaries, you can even have your life insurance split amongst your kids, spouse, etc. making it easy for them to have access to liquid cash quickly.
Coverage for Estate Taxes
Within nine months of an estate’s owner, the federal estate tax must be paid. This is a tax on the gross estate. Based on the residency of the decedent, state estate tax may also be required.
Life insurance can be used to cover the cost of estate taxes so they don’t have to be addressed later on.
Balance Out Your Estate
Using life insurance as part of your estate planning can help in estate equalization. For instance, if you have multiple beneficiaries, it may be tough to split up your assets equally amongst them.
Life insurance can be used to balance out the estate, such as giving property to one beneficiary and life insurance proceeds to another, or any combination thereof.
Used for Special Circumstances
As part of your estate planning, life insurance can be used for special circumstances. Individuals have been known to dedicate the death benefit proceeds for things like caring for a disabled dependent, spousal or child support payments, funding a trust for one reason or another, and so on.
This money can be dedicated to whatever you want it to be.
Keep Your Assets Out of Probate
Probate is a means of settling an estate, taking care of outstanding claims from creditors, and distributing the assets to beneficiaries. The problem is that this process can take too long. Although it will vary from estate to estate, some probate can take several months – to over a year or more to settle.
In the meantime, your loved ones have to wait. This can be incredibly tough for those who rely on you for support.
Life insurance proceeds go directly to the beneficiaries, tax-free – and free from probate. So, even if your assets do get tied up within the courts, you can feel confident that those you are looking out for will have some relief.
Complete Your Estate Planning in Virginia
If you have not already started your estate planning, now is the time. At Northern Virginia Trusts & Estates, our law firm can help you develop a personalized plan for the future in many ways, including using life insurance as part of your estate planning.
To learn more, schedule a consultation with our experienced attorneys. Contact us today at (703) 938-3510.