There
are many reasons for making life insurance part of your estate plans.
For
example, the death proceeds generally are received income-tax-free by
the beneficiary
or beneficiaries. Here are some other basic reasons:
-
It can provide financial protection for the family, both during and
after the
administration of the estate.
-
It ensures that the proceeds will go to whomever you desire, even if
your will
proves to be invalid.
-
It avoids a forced sale of estate assets to meet expenses, pay off
debts, or
pay estate taxes.
-
It can complement business continuity plans.
Inclusion
of proceeds from life insurance in your estate for federal estate tax
purposes
may diminish some of the benefits outlined above. When you own
a life
insurance policy or possess any incidents of ownership, the death
benefit is
included in your estate for the purpose of calculating federal estate
taxes.
Recommendations
are sometimes made to have a life insurance policy owned by an
individual other
than the insured. Typically this recommendation is made so that the
policy
death benefit is not taxed in the estate of the insured.