Estate planning is all about securing your assets and finances to help support and protect your loved ones in the event of your passing. Life insurance is another means to the same end, supporting and protecting your loved ones. But is life insurance a necessary part of estate planning? Expert attorneys in New Jersey say: Yes.
Firstly, this is because a life insurance policy increases the size of the estate you’re leaving to your loved ones, directly providing them with more financial protection. It also benefits your loved ones in that many policies cover some or all funeral costs. Further, in the event of an unexpected death, the money can help fulfill any unplanned financial obligations.
Secondly, life insurance usually pays out much more quickly than an inheritance when an individual is named as the beneficiary, helping your family and dependents to continue to meet financial obligations while your estate is settled. Naming your estate as the beneficiary, however, will mean the money goes into the estate itself and will be tied up until probate is concluded.
Thirdly, life insurance policies are highly beneficial to estates that include a business, especially if the business is being left to a family member. This way, you can use your life insurance policy to ensure your heirs benefit more equally from your estate.
And lastly, insurance policy payouts are generally income tax-free, helping your heirs to avoid potentially costly inheritance taxes. In fact, you can also help ensure it does not affect your estate tax as a whole by either ensuring your spouse is the beneficiary, or by making the policy part of a trust known as an irrevocable life insurance trust, which is something an experienced estate planning attorney can assist you with. This is especially important for estates that exceed the limits for both federal and New Jersey estate taxes, which are subject to change from year to year.
An estate planning attorney such as SCC Legal, can help you set up this trust and name your chosen beneficiaries of the trust – not the policy – and the trust will then purchase your life insurance policy. If you pass away, the trust then becomes the beneficiary of your policy and will receive the money paid out by the insurance company. The beneficiaries of the trust will then receive the payments directly through the trust agreement. This means the proceeds of your policy are not counted as part of your estate and are therefore not subject to estate taxes.
At Sedita, Campisano & Campisano, LLC, we can offer you over 30 years of estate planning experience to give you complete peace of mind. For more information on estate planning in New Jersey, please contact us today.