What is estate planning?
Whether you know it or not you have an estate. An estate is basically made up of everything that you own from your car and house to bank account and jewelry. It doesn’t matter how big or small the item is, as long as you own it its apart of your estate. The term “estate planning” refers to having advance plans for your property to be distributed among persons of your choosing should you pass away. Strategies for minimizing taxes and legal fees may also be included.
What’s the role of life insurance in estate planning?
A number of different needs are covered by life insurance when it comes to estate planning.
Life insurance plays a very important role in your estate planning for a number of different needs. However, traditionally life insurance needs have fallen into two basic categories:
- Needs around estate transfer (also known as estate preservation).
- Needs around income replacement (also known as estate creation).
Estate transfer: These are needs that you don’t generally have need for until a little later on in life, when there has been an accumulation of financial resources. Life insurances can be both tax efficient and economical when it comes to preserving and transferring these resources. Estate transfer needs can be inclusive of things like:
- A tax-sheltered environment with growing financial resources.
- Making a way for children to be treated equally when a large asset like a business is left behind by a parent for one child and an equal amount of cash to another.
- Taxes and probate covered upon death.
- Providing for last expenses including funeral, legal and executor costs.
- Facilitating charitable donations.
Income replacement: These are needs you experience at younger ages when you have family members who depend on your income. If for some reason you were to suddenly pass away, life insurance can provide a source of tax-free financial resources as a replacement to income that you lost.
Once you’ve determined the role your life insurance will play in your estate plan you then need to determine how much life insurance you’re going to need and which type best suits your needs. An insurance advisor can help you with this.