Does your wealth management include estate planning? More people are turning to this area of investment planning ever since COVID-19 entered the scene. The fact is life insurance is a beneficial tool that does far more for you than simply provide financial support when you pass away.
Life insurance can also provide financial assistance in paying estate taxes while transferring your wealth to beneficiaries.
What Is Estate Planning?
Estate planning is designed to assist you in your asset & wealth management while you’re still living. Conversely, estate planning allows you to control your assets and wealth after you’ve passed away by adhering to your goals and wishes.
Moreover, estate planning is different for everybody. If you have a modestly sized estate, for example, you may only need a simple will to establish what happens to your assets. But if your estate is bigger, you will likely need to have a trust set up.
Funding Estate Tax Through Your Life Insurance
Federal estate tax rates can take up a sizable portion of your gross estate. Following your death, your estate taxes will need to be paid in cash within nine months. Typically, your estate’s personal assets will be used to cover any tax debt.
That said, assets like an IRA or personal residence can be difficult to liquidate on short notice unless you want to accrue substantial tax penalties or losses.
When you have a life insurance policy in place, proceeds are typically received tax-free. What is more, your proceeds can be used by your beneficiaries right away. In doing so, they can both preserve assets while funding estate taxes.
Equalization of Estate
Even with an estate plan, it can take quite a while before your money is released and distributed among your loved ones. It’s important to consider funeral expenses, estate taxes, and business debt can all put additional financial burdens on your family.
As such, your family could be forced to utilize their own bank accounts or liquidate assets to cover the aforementioned expenses. With a life insurance policy, however, your funds could help to immediately pay for these expenses with the use of a tax-free death benefit.
Creating an Estate Plan
If you have a life insurance plan in place when you die, it can be used to serve as an immediate estate for your beneficiaries. Not only that, but the estate often comes for pennies on the dollar.
This would allow money to be passed on directly to the designated beneficiary you have chosen. Doing so would essentially bypass the potential complications created by probate. What’s more, your benefits get distributed tax-free and would stay untouched by any potential debts.
It is important to establish a life insurance plan now so it’s not a lingering burden. When used in conjunction with your will or trust, you can rest easy knowing your goals will be met after you have passed.
To ensure you make the best decisions in your planning, contact us for further direction.
Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.