How Can I Provide for My Heirs?
As clients revisit their estate plans, they may consider if life insurance should play a role. Life insurance can complement client estate plans in three ways. First, life insurance provides liquidity needed to pay taxes, expenses, and/or provide for survivor income. Second, life insurance provides a hedge against estate strategies that do not fulfill their objectives. Below are two examples where life insurance can provide an effective hedge.
- Some estate strategies work best if you live a long time—for example, gifting funds out of your estate and successfully investing them over a long period of time. An early death decreases the odds that this strategy will succeed—and life insurance can provide a hedge against that early death.
- Estate strategies may also depend on the successful growth of the assets transferred—and that may not happen. Business and/or investment assets may decline in value after a transfer. Life insurance can provide funds to offset those asset declines upon the death of the insured.
Finally, some clients want to assure that they leave their heirs a certain amount—no matter what happens to their balance sheet. Life insurance can provide peace of mind that they will achieve that goal.
Properly arranged, life insurance can provide both an income and estate tax free benefit to heirs. This can be facilitated through the use of an Irrevocable Life Insurance Trust (ILIT). Additionally, the most common product used to fulfill estate goals is a Second-to-Die policy, which insures two individuals and pays out at the death of the second spouse when estate taxes are generally due. Due to improvements in mortality and premium guarantees, these products are priced more attractively today than they were in the past.