Life insurance — a useful tool for estate planning and management

An illiquid estate can be very difficult to administer. If the estate assets include real estate or a business to be sold,  there can be a need for substantial cash to maintain these pending sale. If the beneficiaries of the Estate are Class C (siblings) or Class D (all others), New Jersey Transfer Inheritance Tax will need to be paid. Many Wills direct that these taxes be paid from the estate itself, rather than paid by the beneficiary who receives the inheritance. The Executor may need to pay for the funeral bill.  401Ks or IRAs generally have designated beneficiaries, and therefore are not used to pay estate expenses. There may be  substantial debts to clear up as well, or unfiled income taxes. So there’s often a need for cash in the estate so that the Executor can reasonably take care of the Estate’s obligations.  Life insurance that is payable “to my Estate” can be used to create the liquidity that’s needed.

If the estate plan needs to balance the amounts being left to different people, and certain people are receiving, let’s say, the tax-deferred accounts, the beneficiary designations on the life insurance can take care of the others.

Perhaps there is a Trust within the Will to protect the inheritance for certain heirs, or a supplemental needs trust for a disabled heir, or an unfunded standby trust for another person’s benefit. Life insurance can be made payable  to the Trustee of the Trust, to ensure that there will be an inflow of dollars to fund the trust. This is a particularly useful technique when the Trust includes a house that the beneficiary will live in.

Life insurance is one of many tools in the toolbox for an effective estate plan. Call us for advice to design the plan that meets your needs ….. 732-382-6070