Life Insurance – The Ultimate Estate Planning Tool
Video Transcript
Ray Hrdlicka – Host – Attorneys.Media
You mentioned a life insurance policy earlier. Is that part of estate planning? Is that something that you would recommend to take out, to do—take a look at what they have—to essentially resolve some of those taxable issues that may arise and also to give, you know, the executor or the trustee time to manage the assets. Does that really play a part?
Andrew Dósa – Estate Planning Attorney – Tacoma WA and Oakland, CA
Well, the answer is it’s pretty unusual for someone to want to name the trustee as a beneficiary of a life insurance policy. I use one example—maybe the only one I can think of right now—where there was a lot of cash, a lot of value in the trust, but it was tied up in illiquid assets and real estate, with relatively little cash.
If you have liquid needs, such as bills that continue to accrue, and if you don’t have something like the cash proceeds from a life insurance policy, you might jeopardize those properties and have to sell them under duress to pay bills, which is a problem you want to avoid. You’re better off taking a tax hit but having a substantial amount of value there.
But for the majority of people, in most situations, the reason why you do life insurance is to make sure that one or more of your beneficiaries has that liquid asset. The nice thing is it passes outside of probate, so there’s no probate for the estate when there’s a life insurance policy. It goes directly to the life beneficiary to do as they wish.
There is one downside to that: If you have three children and you name only one as the beneficiary, under the law that person receives all those assets and the other children don’t get a share. If your inclination is to share equally among your three children, one will get a much greater benefit from the estate.
So you want to be careful about that. The solution is probably to have all three beneficiaries named as payable on death beneficiaries. That way, your estate plan to distribute equally is not compromised by the life insurance policy, which could skew the numbers away from the plan you intended.
Andrew Dósa – Estate Planning Attorney – Tacoma WA and Oakland, CA
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