Can insurance contracts be included in estate plans?

Insurance contracts, like annuities or life insurance, offer great flexibility for individuals considering an estate plan.

For starters, the beneficiary does not have to be a person. By naming a trust as the beneficiary, an individual can have greater control over how the proceeds are used by loved ones or heirs. This can be an excellent strategy for avoiding a lump sum distribution when the contract becomes payable. 

An attorney that focuses on wills and trusts can help an individual decide which approach is best suited to his or her goals. For example, annuities generally offer a fixed payment over the annuitant’s life. However, the annuitant may prefer to defer payments, allowing the income to build up in the policy.

The type of life insurance also offers different benefits. For example, a term life insurance policy generally provides only a death benefit and has a termination date. A whole life policy, in contrast, typically does not expire as long as the premiums are paid. For that reason, a whole life policy has an investment component, whereas a term life policy does not. The two types can also be combined in a universal life insurance policy, which generally offers a death benefit but will not expire as long as premiums are timely paid.

The utility of these policies also depends on the individual’s long-term goals. In some cases, the access to funds upon the policyholder’s death might be used to pay burial and funeral costs. Alternatively, if the policyholder was primarily interested in leaving a legacy, the proceeds of an irrevocable life insurance trust may be one way to pass on wealth via a tax-free inheritance. An attorney can ensure that such plans comply with existing law and that all estate-planning documents have been properly executed.

Source:  LifeHealthPro, “Who does what in a life settlement transaction?” Robin S. Weinberger and Peter N. Katz, March 9, 2015

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