How is Life Insurance used in estate planning?
Life Insurance can provide much needed cash to pay for fees and taxes and also allow for an easier distribution of all assets. • Life insurance proceeds at death are passed to the beneficiary income tax free. • Life insurance proceeds at death add to the value of the estate and therefore are subject to estate taxes. This can be avoided by having someone other than the insured own the insurance policy. This can be accomplished in two ways: • The children of the insured can own the policy. • An irrevocable life insurance trust can be created and funded by life insurance. The trust is irrevocable because the insured (Grantor) cannot have any rights or powers over the trust and no incidence of ownership over the life insurance policy.
