Life insurance can play an important role in the estate plan of every individual, no matter the size of an individual’s estate. Life insurance offers many financial benefits as well as* an emotional benefit that can give an insured peace of mind in knowing that his or her family will be financially taken care of after death. While the federal estate tax is currently repealed as of January 1, it is likely this repeal will be temporary, so that the role life insurance plays in an individual’s estate plan will continue to exist. Accordingly, this article explores the role of life insurance in estate planning and estate tax savings under the assumption that the federal estate tax will be resurrected.
With proper planning, life insurance can escape federal estate taxation to provide liquidity to an estate to pay estate taxes, medical bills, funeral expenses or other debts of a decedent. Life insurance can also replace illiquid estate assets and the loss of income generated by the decedent and provide financial security to a decedent’s loved ones. For a business owner, life insurance can provide for the smooth transition of a closely-held business interest at death without disrupting the operations of the company or forcing the estate to sell the business interest to pay estate taxes. The benefits of life insurance are only realized, however, with proper planning.
The Irrevocable Life Insurance Trust
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