What Can Life Insurance do for Your Estate Plan?

Life insurance is a powerful estate planning tool. There are several roles it can play in easing the burden of your passing on your loved ones. While many consider life insurance to simply be an income replacement when a loved one passes, there are other ways it fits into an estate plan:

1. To pay expenses while an estate is in probate.

Since life insurance pays benefits to a named beneficiary, it avoids probate, and therefore the funds can be accessed more quickly than property that must be probated. Probate is the legal process that ‘settles’ an estate, and it can tie up property for months, but life insurance proceeds pass outside of this process.

2. To pay funeral costs, debt and estate administration costs.

Life insurance policies can be used to pay the costs of funerals, as well as probate fees and other debt of the deceased when an estate may have assets that are not liquid, such as real estate.

3. To create a life insurance trust.

An ILIT is an irrevocable life insurance trust, and it can be a powerful estate planning tool. An ILIT is a holding device that owns your life insurance policy for you, removing it from your estate. As its name suggests, the ILIT is irrevocable, which means once you have created this trust and funded it with an insurance policy, you may not take the policy back in your own name. But you can closely control many other aspects, such as naming the beneficiaries, the terms of the payment of benefits as well as choosing the trustee to manage the trust.

While a life insurance policy can have many advantages within an estate plan, it is important to work with an estate planning attorney to ensure that it properly coordinates to other aspects of your plan.

Author Bio

Catherine Hammond is the CEO and founder of Hammond Law Group, a Colorado-based estate planning law firm she founded in 2005. With a strong focus on protecting families from the legal consequences of disability and death, she creates comprehensive estate plans that minimize taxes, costs, and government interference.

A native of Denver, Catherine completed her undergraduate studies at Coe College in Iowa, and her Juris Doctorate from the University of Denver College of Law in 1993, concentrating on estate planning, tax, and mediation. Catherine is a member of various professional organizations, including WealthCounsel, ElderCounsel, the National Academy of Elder Law Attorneys, the Colorado Springs Estate Planning Council, and the Purposeful Planning Institute. Beyond her legal expertise, Catherine provides transformational coaching to support clients and their families through life transitions.

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