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Life
insurance may be the only way to create
an estate immediately. What
exactly does this mean? There are
many benefits to
purchasing term life
insurance but this ability to so simply
create an estate among the many options
that require time, attorneys, and money
may be one of the greatest. Let's
look at how you can instantly create an
estate.
First, what is an estate? A
person's estate in simple terms is the
net total of assets, properties and other
items that are owned. The context
we are using the word estate in has to
do with the plan for how these assets
will be handled upon the trigger of some event..such as the death of the owner.
This is usually handled via documents
such as wills, deeds, and/or trusts.
Estate planning is a world onto itself
and is not within the purview of this
website. How we are concerned with
estates and estate planning is the
singular ability of life insurance to
immediately create an estate with out
other documents such as will, deeds, or
trusts. Typically, an estate
planner or attorney helps to craft these
documents under the heading of estate
planning for a person as each person's
situation is different and requires a
specific fit.
Estate planning is important in that it
correctly states how things will
progress during the process of probate.
Probate is the the legal process of
administering a deceased person's
estate.
Although there are many variables that
come into play during the process of
estate planning (hence the need for a
professional estate planner), only life
insurance creates an immediate estate.
This means that the contract itself
automatically dictates where the life
policy benefit will go. To some
extent, the
life insurance policy allows
this money to bypass the sometimes
complicated and technical world of
probate. It's built directly into
the contract and does not need to be
established elsewhere to correctly be
processed when the insured person passes
away. This is a relief and part of
the attraction to life insurance.
The benefit of the "head of the line"
status for life insurance benefits is
that in avoiding probate, it also by
that nature avoids taxation and
potential debts. It passes
directly to the
life insurance
beneficiary. If an asset is not
correctly handled during the estate
planning process, it can be subject to
probate which may lead to taxation,
offsets by existing debts, and other
complications.
In
some ways, life insurance benefits are
like property in the context of estate
planning. It's pretty remarkable
that a monthly premium of $40-50 can
result in a non-taxed $500K or half a
million dollars if a person passes away.
This $500K is no different than a
liquidated piece of property which is
not subject to taxation, debts, etc.
There is a huge different between $500K
before and after tax. When money
comes to a person in a lump sum, the
maximum tax limit is usually applied to
the large amount. The ability to create an immediate
estate is just one more advantage of
purchasing term life insurance.
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