Life Insurance Will Always Matter - With or Without the Estate Taxes
Submitted by JMB Financial Managers on March 6th, 2018
As it does every few years, projections that the estate tax will soon sunset have begun to emerge. But we feel very strongly that even if it were to do so, the need for life insurance within estate planning would still be vital. Life insurance has the ability to satisfy an array of necessities that only life insurance can. Some of the most common uses of Life Insurance are mentioned below.
Inheritance Planning
If you hope to pass on substantial, but illiquid assets, it can be difficult to ensure that your assets will be distributed equally, and in the way you intended, between your beneficiaries. When this becomes the case, turning to life insurance may be the best option.
A life insurance death benefit has the ability to financially compensate for any discrepancies that illiquid assets may cause during allocation to heirs, such as a family owned business or real estate holdings.
Charitable Planning
Life insurance is often used in planning charitable remainder trusts (CRTs). A CRT is often used to achieve three different goals.
- A CRT removes an asset from a taxable estate when placed in a CRT
- A CRT develops a retirement income stream from the trust’s invested assets
- A percentage of the assets left in a CRT after death can be donated to charities or non-profit organizations
Gifts of appreciated assets when a CRT is created removes those assets from an inheritance. Life Insurance can be purchased with the income from a CRT to make up for the loss of the CRT assets bound for charity.1
Business Planning
Life insurance can provide assistance during succession planning by assisting to fund buy-sell agreements that aid the transfer of the ownership of a business. Life insurance can help attract and retain high quality employees by allowing you to insure them. It can feed into the benefits of executives as it is integral to supplemental executive retirement plans. It can also be used as a safeguard against the financial hardship the death of a key employee can cause.2,3
One additional value of life insurance is that the death benefit transfers quickly to a beneficiary – within weeks and sometimes even days. Because a beneficiary form directs the process instead of a will, the asset distribution occurs separately from probate.
As you can see, life insurance will continue to hold its own with or without estate taxes.
To learn more about how a life insurance policy can fit into your overall financial plan, take advantage of a free 60-minute consultation with JMB Financial Managers today.
**The cost and availability of life insurance depends on factors such as age, health, and type and amount of insurance purchased.
**Charitable Remainder Trusts are trusts that are used to develop a vehicle for donations to a favorite charity, which also allows for the reduction of income taxes through a charitable deduction and favorable tax treatment at the date of the gift by non-recognition of built-in capital gains. The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional before implementing such strategies.
Sources:
1 – estateplanning.com/Understanding-Charitable-Remainder-Trust/ [3/28/16]
2- quotacy.com/protecting-the-future-of-your-business [8.17/16]
3 – nationwide.com/supplemental-executive-retirement.jsp [11/9/17]
