Frost Law
With a new year upon us, it’s a good time to visit or re-visit your life insurance coverage. Life insurance is an important tool in the estate planning world and can be the answer to many somewhat morbid questions including:
As estate planning attorneys and financial planning professionals, our job is to ask these questions, and the answer often ties back to a good term (or maybe whole) life insurance policy. Life insurance can serve to replace lost income in the event someone dies prematurely. It can also fund buyouts of partnerships, keep a business afloat after the loss of a key employee, and provide liquidity to pay estate taxes or other end-of-life expenses.
While every family’s situation is unique, let’s look at a typical base case: covering the mortgage, education expenses, and essential income replacement.
Example Scenario:
In this scenario, a family would need approximately $1.4 million in life insurance coverage just to cover these core expenses. This doesn’t account for additional needs like healthcare costs or inflation, but you can likely invest any portion of the proceeds not used for mortgage payoff and generate enough income to offset inflation.
For most families, term is all that’s needed and can strike a much better balance between affordability and long-term security. Cash value life insurance policies built into whole life insurance are often marketed as investment tools but may not always deliver on their promises. For a deeper dive into why cash value life insurance is often a poor investment choice, check out Matt Costa's blog post on the topic PART 1 and PART 2 from November 2024.
In many circumstances, effective life insurance planning involves the use of trusts. One of the most common tools is an Irrevocable Life Insurance Trust (ILIT).
What Does an ILIT Do?
Example Scenario: Imagine an estate valued at $12 million, exceeding the current federal estate tax exemption. With a 40% federal estate tax, the family could owe $1.6 million in taxes. A properly structured ILIT holding a $2 million life insurance policy could cover this liability, ensuring the estate remains intact and isn’t forced to sell illiquid assets like real estate or business interests.
Life insurance isn’t just about covering costs; it’s about peace of mind and ensuring your family or business isn’t left scrambling. Whether your goal is to secure your family’s future, protect your business, or plan for estate taxes, a thoughtful life insurance strategy—possibly including an ILIT—can make all the difference.
Now is the time to review your policies, reassess your coverage needs, and ensure your plan aligns with your financial and estate planning goals. Reach out to one of our fiduciary financial advisors or estate planning attorney at (410) 497-5947 or schedule a confidential consultation.
With a new year upon us, it’s a good time to visit or re-visit your life insurance coverage. Life insurance is an important tool in the estate planning world and can be the answer to many somewhat morbid questions including:
As estate planning attorneys and financial planning professionals, our job is to ask these questions, and the answer often ties back to a good term (or maybe whole) life insurance policy. Life insurance can serve to replace lost income in the event someone dies prematurely. It can also fund buyouts of partnerships, keep a business afloat after the loss of a key employee, and provide liquidity to pay estate taxes or other end-of-life expenses.
While every family’s situation is unique, let’s look at a typical base case: covering the mortgage, education expenses, and essential income replacement.
Example Scenario:
In this scenario, a family would need approximately $1.4 million in life insurance coverage just to cover these core expenses. This doesn’t account for additional needs like healthcare costs or inflation, but you can likely invest any portion of the proceeds not used for mortgage payoff and generate enough income to offset inflation.
For most families, term is all that’s needed and can strike a much better balance between affordability and long-term security. Cash value life insurance policies built into whole life insurance are often marketed as investment tools but may not always deliver on their promises. For a deeper dive into why cash value life insurance is often a poor investment choice, check out Matt Costa's blog post on the topic PART 1 and PART 2 from November 2024.
In many circumstances, effective life insurance planning involves the use of trusts. One of the most common tools is an Irrevocable Life Insurance Trust (ILIT).
What Does an ILIT Do?
Example Scenario: Imagine an estate valued at $12 million, exceeding the current federal estate tax exemption. With a 40% federal estate tax, the family could owe $1.6 million in taxes. A properly structured ILIT holding a $2 million life insurance policy could cover this liability, ensuring the estate remains intact and isn’t forced to sell illiquid assets like real estate or business interests.
Life insurance isn’t just about covering costs; it’s about peace of mind and ensuring your family or business isn’t left scrambling. Whether your goal is to secure your family’s future, protect your business, or plan for estate taxes, a thoughtful life insurance strategy—possibly including an ILIT—can make all the difference.
Now is the time to review your policies, reassess your coverage needs, and ensure your plan aligns with your financial and estate planning goals. Reach out to one of our fiduciary financial advisors or estate planning attorney at (410) 497-5947 or schedule a confidential consultation.
