Question: How Does Life Insurance Create An Immediate Estate? A way that life insurance creates an immediate estate is when an insured individual dies and the beneficiary of a/the life insurance policy is a named individual. The named beneficiary receives the (death benefit) proceeds with a claim form and a death certificate, normally within 10–20 business days.
Note: the claim may be investigated by the insurance company if it appears suspicious which will delay the payout. In this case the beneficiary does not have to wait for the process of probate to be completed or wait for a Trustee to distribute assets.
Life insurance provides an immediate estate because it provides the exact amount of money that was planned for in advance at the exact time it is needed the most. Upon presentation of the death certificate and within a very short time a check is delivered to the beneficiaries for whatever purpose the deceased intended.
That can include his or her own funeral, debts, a donation to a favorite cause, income for the survivors, paying off a home, paying educational expenses and so much more. It can also just be given to named survivors / beneficiaries in lump-sum amounts — and all of it is tax free!
What Is Meant By Life Insurance Creates An Immediate Estate?
The economic leverage of life insurance and its tax advantages can create an instant estate within the justification and insurable interest rules. A healthy male age 65 may be able to receive a 4 to 1 benefit to dollar spent on a single deposit.
A healthy female age 65 may be able to receive a 5 to 1 benefit to dollar spent on a single deposit. A survivorship policy with a healthy male and female age 65 may be able to receive a 6 to 1 benefit to dollar spent on a single deposit. So if you want to make a difference in the lives of your children, grandchildren, great grandchildren or charity, this is the economic way to go.
How does life insurance create an immediate estate?
Reading the other answers I feel compelled to stipulate there is a difference between creating an estate and having a Probate Estate. If a person owns a life insurance policy, at their death, their estate is immediately increased by the value of the life insurance policy regardless of whom is named beneficiary.
Ex: in 2020 the personal estate tax exclusion is $$11.58 million. If their estate is $10 million and they have a $5 million term life insurance policy in addition, On the day they die their estate is worth $15 million and estate taxes will have to be paid on anything over the $11.58 exclusion.
If an irrevocable trust or someone other than the insured is listed as the owner of the policy, (either from inception or for 3–5 years depending on your state) there would be no estate taxes because the $5MM falls outside of the ownership.
if you have a $0 estate before you die, and own a life insurance policy. The Death benefit Value of that policy instantly creates an estate on the day you die. Properly executed beneficiary designation avoids any need for probate from the life policy and your $0 remainder estate wouldn’t need to be probated either.
How Does Life Insurance Affect Your Estate Planning?
Estate planning is a difficult yet necessary part of life; while it revolves around an uncomfortable subject, it is important to provide a plan for asset distribution in order to take care of your loved ones, valuables and remaining debts after you die.
In addition to knowing the ins-and-outs of estate planning, it is also important to understand how life insurance policies can affect your assets and any outstanding debts that may remain after you die. Here, the family law and estate planning attorneys at Rodier Family Law discuss how life insurance can impact the intricacies of estate planning.
1: Life Insurance Can Affect Your Estate
If you have a life insurance plan, it is important to know how it can affect your estate. Many individuals have life insurance plans if they are a significant or sole income provider for their family and wish to provide their loved ones financial security after their passing.
There are a variety of different life insurance plans that are applicable for your individual situation, and these different policies can include whole life, term life, universal life and more.
If you have life insurance and are wondering how it will impact the estate planning process, it is important to first recognize if there are multiple beneficiaries on your plan. If there is an additional beneficiary named on your life insurance, the proceeds will pass to the living beneficiary automatically.
The proceeds, therefore, do not have to directly go towards outstanding debts and instead will belong to the surviving beneficiary or beneficiaries.
If the decedent of a life insurance policy did not complete a beneficiary designation form or there are no surviving beneficiaries, life insurance proceeds can be used to pay the decedent’s remaining debt or be granted to their surviving heirs-in-law.
2: Life Insurance Can Protect Assets
If you have valuable family assets, including a family business that you desire to preserve after you die, your life insurance proceeds can be used to ensure your wishes. Specifically, life insurance proceeds can be used to keep a family business in the family and support its continued success after you die.
In addition, life insurance proceeds, when passed directly to surviving beneficiaries, can help support surviving family members and protect assets so that they do not have to be used to pay off debts.
3: Life Insurance Can Help Pay Off Debts
Some individuals prefer to use their life insurance policies to mitigate the burden of outstanding debts or estate taxes. For instance, some individuals may include their estates as beneficiaries of their life insurance, meaning the proceeds will help cover any outstanding debts once they die.
In addition, federal estate taxes can be burdensome and often require the estate’s assets to pay them off. If you use the proceeds of your life insurance to pay off your estate taxes, however, you can protect your estate’s valuable assets so they can be passed down to your loved ones.
4: Speak to a Qualified Family Law and Estate Planning Attorney at Rodier Family Law to Learn More
There are many ways life insurance proceeds can be used after you die, and the ways in which you intend to utilize these funds largely depend on your individual and family situation.
That is why it is advisable to speak with a family law attorney, such as a family law and estate planning attorney at Rodier Family Law, to discuss your options and make a decision that best serves you and your loved ones. To speak to a family law attorney about how you can best use your life insurance proceeds in your estate planning endeavors, contact Rodier Family Law today.