Uses of Life Insurance in Estate Planning:
Life insurance can be used for many functions in estate planning.
1. The most well known being to pay for federal estate taxes using a life insurance trust. A specific set of trusts and life insurance funding mechanisms must be considered to correctly avoid having an estate being largely taken by taxes.
2. In Wisconsin, residents with estates in excess of $675,000 should be considering trusts and life insurance to pay Wisconsin's Inheritance tax and preserve legacies and benefit future generations. Of note is that in Wisconsin, taxation occurs at the first death.
3. Education trusts for future generations can be established using gifting techniques and life insurance.
4. If you own a valuable property that you would like to keep in the family, a combination of a trust, gifting and life insurance can be created to establish a multi-generational property trust with a fund for maintenance. Many times, the property can be leveraged and used for extremely low cost during your lifetime. Commonly used by families with lake, estate or vacation properties.
Numbers 5 to 7 apply in situations when there is a family farm or business:
5. When a family owns a business or farm, life insurance can provide dollars that can be passed as an inheritance to non-family business or non-family farm heirs. This allows business or farm assets to flow to business or farming heirs. The insurance dollars offset the farm assets and therefore all family members receive something from the estate while preserving the farm or business intact.
6. Insurance can also be purchased by the business or farming heir/heirs on their parents. It will provide income, at the time of the parent’s death, for the buyout of business, land, machinery or operating assets from other heirs. Note: a critical factor here is that the farm or business heir owns the policy and makes all the premium payments. The farming parent or parents are the insured. The policy beneficiaries are the farm or business heirs. Using this format will insure the death benefits go to the intended people.
7. Business or Farming partners often buy insurance on each other. This process provides funds for buying out the deceased partner’s assets if a premature death occurs. The end result is that it enables the living partner to keep the farm or business intact.
Number 8 briefly describes a novel approach to the problem of long term care planning. Since the need for long term care for any person is a coin flip, but death is a certainty, Mr. Spano and several others are among a handful of representatives using life insurance to provide families certainty and efficiency by satisfying long term care planning concerns within the estate plan.
8. Wealth Replacement Trusts containing life insurance can be used to replace assets used for long term care expenses in a tax efficient manner. Highly recommended to be considered by couples with estates likely to be valued or already valued over $675,000 in Wisconsin.
Contact me to discuss your situation.
