Estate planning is often a challenge for even the best planner. Because you have to foresee and plan for a wide variety of issues — ranging from taxes to interpersonal conflicts to inflation affects — planning for your passing can create several unexpected obstacles. One element that may help you with some of these obstacles is obtaining a life insurance policy. How might life insurance solve a few specific problems? Here are some ways.
1. Avoiding Liquidation of Assets
If your estate is to be split among different heirs, you'll need to be able to divide its value quickly and completely. However, large assets — like real estate, business stakes, and hard investments — often cannot be broken up without being sold. A life insurance policy can help create a liquid asset that's easy to divide, protecting your nonliquid assets for the future.
2. Providing for Early Expenses
Probate and the distribution of assets takes time. But what happens to heirs before they get access to your assets? What about immediate expenses like funeral costs and medical bills? Life insurance pays out immediately and simply, so it can provide that liquid cash necessary for the early expenses after your passing.
3. Targeting Inheritance Goals
Do you have specific dollar amounts you want to give to various heirs? Some people want to split assets evenly among children or grandchildren, while others may choose to create equitable division based on the needs, family sizes, or resources of different heirs.
However, it can be difficult to achieve exactly the right mix when relying on existing assets. Some may be hard to divide or impossible to liquidate. By adding a life insurance policy to the mix, you have more flexibility to achieve these financial goals.
4. Minimizing Tax Effects
Taxes can be a drain on your estate, so you must consider tax effects during estate planning. Life insurance is tax-free and penalty-free for heirs, so it can help avoid tax impacts.
If your estate will owe taxes within a short period of time, for instance, insurance can pay them without liquidating assets. It can also help avoid taxes and penalties for early withdrawals from retirement accounts or IRS time limits on clearing out these accounts.
Where to Learn More
Do you face specific challenges in your estate plan? From mitigating tax effects to crafting an easier and more equitable distribution, a life insurance policy could be a valuable tool in your planning toolbox. Learn more by meeting with an estate planning firm, such as The Trust Pros, in your state today.
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