It is essential to address issues of liquidity as part of your estate plan. Life insurance may be used as a main liquidity resource in your estate. Some of the most commons purposes for life insurance policies are as follows:
• Quick access to cash for your loved ones when you are gone;
• Payment of death taxes to avoid fire sale of your illiquid assets, such as a house or a business;
• Asset protection planning
Once you are gone, your business is left without its “leader”. Your spouse/partner and children may not be “business people” and will need advisors with respect to running your real estate and companies. Life insurance comes as a welcome help in such circumstances so that your loved ones do not have to rush into making any rash decisions with respect to your businesses and real estate.
If you do not have businesses to run, your loved ones may need quick access to liquid assets to pay your creditors and/or your final medical bills and funeral/burial charges. Life insurance offers an excellent savings vehicle that is flexible, versatile and tested to address your concerns.
If you have a policy that you purchased many years back, it is crucial to have it reviewed and evaluated every few years. There may be better options for you on the market for the same amount of premium that you’ve been paying for years. It is also important to understand what it is that you can do with the current policy – can you borrow against it? Can you convert it?
If you have a policy or thinking of buying a policy, it is most important to place it into a life insurance trust (or better yet, have your life insurance trust purchase your policy). Life insurance trust should be an essential part of your estate plan. Life insurance trust shields the proceeds of your life insurance policy from your creditor claims or the claims of the creditors of your estate. Life insurance trust, if structured properly, removes the policy from your gross estate for tax purposes.
If you want your spouse to benefit from the policy, you may wonder why you need to put the policy into a trust instead of having it pay outright to your spouse. The trust is essential to protect the policy proceeds from your spouse’s creditors and to ensure that, when your spouse is gone, the proceeds continue in trust for your children. Your spouse may remarry and his or her estate plan will continue to change as their circumstances change. If the policy is in a trust, no matter what the circumstances are, the proceeds of the policy, once collected by your trustees, will stay in trust and will continue to benefit those of your loved ones as you intended.
To set up a Life Insurance Trust or to discuss planning your estate please contact us today at 212-596-7039