Life insurance can play an important role in your estate plan because it provides a solution to a wide range of potential goals.
In general, life insurance fulfills one of two functions: creating wealth for your heirs or preserving your existing wealth. In general, life insurance premiums are not tax-deductible, but the benefit payable to the estate (probate fees may apply) or to a beneficiary (probate fees do not apply) is not subject to income tax.
Life insurance for estate planning purposes
Here are some common reasons that could cause you to use life ngl insurance for estate planning:
Although the term insurance can be used to finance a short-term estate-related need such as paying an outstanding mortgage or protecting the estate against an immediate shortfall, it is best to purchase a universal life or life insurance policy. for estate planning purposes.
For example, you can have a life insurance policy that would pay the estate tax on death (capital gains under the rules of the deemed disposition) or you can bequeath personal property without tax.
As with all insurance products purchased for estate planning purposes, a thorough cost-benefit analysis is required to assess the merits of the strategy.
How much do you need to buy life insurance?
The amount of insurance required will depend on your estate goals and your current financial situation. As you get older, you will likely find that the amount of insurance you need may decrease or move from short-term insurance to permanent insurance. It is through the preparation of a financial plan and the assistance of an advisor licensed to sell life insurance that one can most accurately assess how much insurance is required and what form is best suited to the situation.
Tax implications of life insurance and its assets
The life insurance earnings that beneficiaries receive after the insured’s death are generally tax-free. However, there are three circumstances that cause life insurance to be included in the deceased’s estate:
A property incident includes the right to assign, terminate, appoint beneficiaries, change beneficiaries and borrow against cash reserves.
Subscription entitlement replaces each certificate of inheritance
If inheritance occurs, it does not depend on the legal or testamentary succession. The person who is designated in the life insurance contract as a beneficiary may directly request the payment of the sum insured. She does not need a will and hereditary certificate. Alone with the presentation of the death certificate, the sum insured usually comes immediately and without delay to disbursement. No heir can block the payout.
The sum insured does not fall into the estate. Rather, it is a contract in favor of third parties, the result of the estate will be paid over. The beneficiary person did not need to be an heir. It is completely sufficient if it is shown in the life insurance contract as a beneficiary.
In addition, it is advantageous for this person that he can not be held liable for any liabilities of the estate. The liabilities of the estate concern only the heirs.
If the beneficiary is also the heir
If the heir and the beneficiary are one, the beneficiary may collect the sum insured and, as the heir, reject the eventual over-indebted estate or apply for the estate insolvency proceedings.
The sum insured does not then fall into the estate and the heir is not privately liable for the estate liabilities so that the sum insured for the estate creditor remains unassailable. This constellation is particularly suitable for entrepreneurially active testators who want to protect their family financially and protect them from the potential risk of corporate insolvency.
This is how life partners and partners secure their lives
The same benefits are achieved by unmarried and unregistered life partners. If a partner dies, the surviving partner has direct access to the sum insured. He needs no will and no certificate of inheritance. The sum insured will be paid out of the succession. If the partners split during their lifetime, the subscription right can be changed at any time and rewritten to a possible new partner.
Capital income is tax-free!
It is advantageous that the capital income (interest, dividends) arising during the deferment period of the testator is added to the insurance contract and remains tax-free. They continuously increase the return. For in the case of the death of the testator in the postponement phase, the sum insured will be paid out to the beneficiary without an income tax.
Subscription right changed at any time
During his lifetime, the testator may revoke the entitled person at any time by another person in the case of the revocable subscription right. The change is possible at any time and informally. The beneficiary is not entitled to receive its subscription rights. Alternatively, the irrevocable subscription right, which may lead to other results in the area of the compulsory supplement claim.
Testator retains the power of control during his lifetime
The testator forgives nothing during his lifetime. If he experiences the payout phase, the sum insured will, of course, be paid to him. He can pledge the insured sum as security during his lifetime and / or lend it to him and possibly even take out a policy loan. His financial freedom of action remains (revocable subscription right).
Life insurance as a building block of estate planning
In this sense, life insurance or pension insurance is an essential component of estate planning. Ideally, the potential testator combines his estate planning with a power of attorney, a care directive, a living will and a funeral directive, a special power of attorney and, as appropriate, an entrepreneurial power or custody order.