Estate planning benefits of life insurance

Life insurance is typically a critical element of a family's estate plan. It may enhance the amount of wealth you can bequeath to your heirs and provide a ready source of cash for their financial obligations.

Those who own all or part of a business may also use life insurance as a tool for managing transfer of the value of that business as part of an estate. For example, an entrepreneur may need to plan an estate in which his two adult children — one who works in his business and one who does not — are heirs. The owner could bequeath the business to the son or daughter who works there and designate the other as beneficiary of a life insurance policy with a value approximating that of the business.

Additionally, many business owners rely on life insurance proceeds as part of a business continuation agreement, enabling their business partners to acquire the ownership interest of a deceased owner's heirs. The surviving owners could use insurance proceeds to purchase the interest of heirs who have no intention of managing the business.

Equitable Advisors does not provide tax or legal advice. Please consult with your professional tax and legal advisors regarding your particular circumstances.

Selecting your beneficiaries

Your beneficiary is the person who will receive the policy death benefit. For life insurance, no matter who is designated, the beneficiaries will generally receive the death benefit proceeds income tax free. Unlike property disposed of in a will, if the beneficiary designation form is properly completed, insurance proceeds do not go through probate.

For many married individuals, a spouse is the most logical beneficiary. A trust may be a prudent beneficiary choice, however, if a surviving spouse would not have the ability to prudently manage a large sum of money. The trustees (often a legal entity rather than an individual) would then take charge of managing, investing, and disbursing the policy proceeds for the benefit of the surviving spouse.

Be sure to name contingent or secondary beneficiaries. This means that if the primary beneficiary has passed away, the insurance proceeds will go to an individual or trust. If there are no surviving beneficiaries, then your beneficiary is generally the “estate of the insured,” which means the death benefits end up being probated and ultimately distributed according to the instructions of the last will and testament. If there is no valid will (intestate), then the order of legal beneficiaries to whom assets are distributed is specified by that state's law.

Withdrawals from life insurance policies may be subject to fees, penalties, and income taxes depending on the specific life insurance policy and the policyholder’s tax situation. Withdrawals reduce the policy value and death benefit.

Life insurance contains exclusions, limitations, and terms for keeping it in force.  For costs and complete details contact a financial professional.  

This information is provided for informational purposes only. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues. 

Please be advised that this document is not intended as legal or tax advice.  Accordingly, any tax information provided in this document is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.  The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent tax advisor.

Please consider the charges, risks, expenses, and investment objectives carefully before purchasing a variable life insurance.  For a prospectus containing this and other information, please contact a financial professional.  Read it carefully before you invest or send money.

Equitable Financial Life Insurance Company (New York, NY) issues life insurance and annuity products. Securities offered through Equitable Advisors, LLC, member FINRA, SIPC. Equitable Financial Life Insurance Company and Equitable Advisors are affiliated and do not provide tax or legal advice.

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