Is Life Insurance a Legitimate Estate Planning Strategy in Tampa?
When approaching estate planning in Tampa, it makes sense to consider all potential possibilities. You may have heard about other Florida residents using life insurance as a retirement or estate planning tool – but how does this strategy actually work? Is it a viable choice? Should you consider using a life insurance policy for estate planning purposes, or should stick with a trust instead? This is a relatively common question – and an estate planning attorney may be able to help you answer it.
Why Some Families Choose Whole Life Insurance for Estate Planning
Certain families may benefit from life insurance-based estate planning strategies in Florida. These are primarily families with ultra-high-net-worth estates, as life insurance generally only makes sense when you are near the federal estate tax threshold. The current threshold is at historically high levels, and it will exceed about $14 million in the near future.
Why is life insurance effective in avoiding federal estate taxes? One option is an irrevocable life insurance trust or “ILIT.” This type of trust subtracts all insurance proceeds from the taxable estate, and this can reduce federal estate taxes while providing for chosen beneficiaries. For this strategy to work, the ILIT must “own” the life insurance policy. It must also be listed as a beneficiary. Finally, you must establish an ILIT at least three years before your death for this strategy to be effective.
Another option is survivorship insurance. With this approach, the insurance policy covers two deaths – but only the second death triggers the payout. Survivorship insurance may offer savings compared to two separate policies, and it is a popular choice for married couples.
Another popular choice is an “IUL” or “indexed universal life insurance.” Some retirees like to use this type of insurance policy to generate retirement income, as it allows you to invest the cash value of your insurance policy in an index – like the S&P 500. However, it may only be suitable for certain people – and it may be worth maxing out a 401(k) before considering an IUL.
In simple terms, life insurance is a popular estate planning tool among wealthy families because of its potential to reduce estate taxes. These insurance payouts also avoid probate, making it easier for beneficiaries to receive their share of the family wealth. By maximizing the value of the estate, wealthy families can pass on more of their fortune to beneficiaries.
Can an Estate Planning Attorney in Seminole Help?
An estate planning attorney in New Port Richey may be able to help you determine whether life insurance makes sense for you as an estate planning strategy. Online research can provide basic information about this option, but each estate plan should be carefully tailored to meet the needs of each family. A consultation with a lawyer at Knudsen Law may be more productive than online research – and it could help you determine the most appropriate estate planning choice.
Sources:
investopedia.com/articles/financial-advisors/111215/why-wealthy-should-buy-lots-life-insurance.asp
insurancenewsnet.com/innarticle/the-role-of-life-insurance-in-estate-planning-and-wealth-transfer#:~:text=Life%20insurance%20provides%20an%20immediate,event%20of%20an%20unexpected%20death
