Life Insurance for Estate Planning: What You Should Know

Part of protecting your loved ones when you pass away is making sure that you have a proper estate plan in place. Another aspect is making sure that the right amount of money is available to carry out your goals for their future. Life insurance for estate planning has helped many people provide for their loved ones in the way they envisioned. 

This blog is written for educational and informational purposes only. It is not meant as a substitute for legal advice. For legal advice related to life insurance for your estate planning needs, schedule your free consultation with Ciolino & Onstott now!

Who Benefits from Life Insurance for Estate Planning?

Many different types of people can benefit from having adequate life insurance coverage. The most common groups include:

• Business owners. If you own a business and want to leave it to some but not all of your children, a life insurance policy can provide cash to the children who are not receiving an interest in the business. This assists in equalizing the value of each child's inheritance. A surviving business partner may also seek to use life insurance proceeds to buy out the deceased partner's interest from their family. This provides money to the deceased partner's loved ones without the surviving partner spending money from the business or out of their own pocket. The business continues without interruption. 
• Parents of young children. A life insurance policy payout can help pay for the expenses of raising the children if the parents are deceased. This reduces the guardian's financial burden. It can also provide for a surviving parent if the deceased parent was the family's primary source of income. 
• Any person caring for a disabled family member. A life insurance policy payout can provide money for continuing care for members with long-term disabling health or mental health conditions. However, if they currently receive or if they are eligible to receive federal or state government assistance, you must exercise additional caution when providing them with these funds so that the disabled family member is not disqualified from receiving those benefits. 
• Individuals interested in philanthropy. A life insurance policy payout is an effective way to fund your charitable endeavors without taking away from other accounts or property that you may want to leave your loved ones. Life insurance for estate planning can enable you to leave a more significant gift to a charity of your choice when you die than you would have if you made contributions during your life. 
• People facing a sizeable federal estate tax. If the value of all of your accounts and property is more than the yearly exclusion amount when you die, the federal estate may be due. A life insurance payout can provide your loved ones with cash to pay the tax. This cash can be beneficial if your accounts or property would be difficult to cash in or sell to pay the tax. 

Related: What Is an Estate?

Importance of the Beneficiary Designation

If you have a whole life insurance policy or term insurance policy, it is crucial to complete the beneficiary designation in a way that matches your overall estate planning wishes. Below are some examples of what results when you list certain classes of beneficiaries. 

• No beneficiary listed on the life insurance policy. If you do not complete the beneficiary designation before you die, the death benefit will be distributed according to the policy agreement's default rules, which may give the proceeds to your spouse or heirs, as defined by the plan agreement. Then again, it may be subject to your Louisiana Last Will and Testament or, if you don't have one, Louisiana's intestate laws may apply. When these laws are enacted, your loved ones go through a more costly and time-consuming process. 
• A minor named as a beneficiary. Depending on your family situation, you may be inclined to leave the money from a life insurance policy to your minor child or grandchild. However, because a minor cannot legally control their own money, a court would have to select someone to control the money on the minor's behalf until they become an adult. At that time, the money would be turned over in full to the beneficiary, who would be able to spend it however they choose. 
• A trust named as beneficiary. This option allows the money from the life insurance policy to be paid to the trust, along with instructions for how and for whom the trustee is to use the money. Additional provisions can be added to the trust to increase protections against creditors, divorcing spouses, and ensure that the trust beneficiary benefits from the money. 
• A charity named as beneficiary. For the philanthropically inclined, naming a charity as a beneficiary means that the death benefit will be immediately paid to the charity upon your death. This allows for the charity to receive the life insurance proceeds without waiting for any probate or succession processes that may cause delays for your estate. 

Learn More about Life Insurance for Estate Planning

Ready to learn more about how life insurance can be used to fund your estate planning goals? Call Ciolino & Onstott now to schedule your free consultation. If you already have life insurance, we can assist you in reviewing the beneficiary designation to ensure it fits your ultimate goals. If you don't have life insurance or think you need more, we can talk with you about your goals. Don't wait: schedule your free consultation with Ciolino & Onstott now!