Life insurance is about more than your family's financial security right now. True, if something happens to you, life insurance helps them pay the bills and stay afloat financially. But did you know it's also a way to give your kids the future you dreamed of?
When you insure yourself, you're protecting your children's present and their future. Life insurance is the tool estate planners turn to in order to help you do two things:
- pass your wealth onto the next generation
- create an inheritance for your children
Without Life Insurance: Income Tax and Estate Tax
The reason life insurance works so well for estate planning has to do with the tax laws and what happens to your estate after you pass away. For example, if you leave $100,000 to your children in your will, they will have to wait until your will clears probate (a legal proceeding that declares your will valid). Then, when they receive the money, they'll have to declare it as income and pay income tax on it. That takes a hefty chunk out of their inheritance. As a parent, you probably want all of your hard-earned money to go to your children, not the government.
Even worse, if the total value of your estate exceeds the government's estate tax threshold ($5.6 million as of 2018), your children will have to pay a 40% tax on the excess in order to inherit your estate. Most families don't have that kind of cash--the money is often tied up in real estate, a business, artwork, jewelry, or other possessions. Some kids have to sell off assets to raise the cash to pay the estate tax. Is this really what you want for your kids and grandkids?
With Life Insurance: No Income Tax or Estate Tax
Life insurance can help solve the problems described above. First of all, the life insurance death benefit is almost never subject to income tax. Because the policy is something that's bought and paid for, the death benefit is not considered income. Instead, it's simply a product you purchased. Don't just leave cash or other assets to your children. I can help you put that cash toward a life insurance policy that will ensure they inherit the money you want them to have income-tax-free.
I can also help you set up a life insurance trust that will keep that death benefit from counting toward the total value of your estate. When a trust is set up correctly, you are not the owner of your policy, even though you're the person insured. It means that the death benefit will not count toward the total value of your estate. Depending on how large a policy you own, this can make a big difference in whether your children get taxed just to inherit your estate.
Parents want what's best for their children, and I know you're no exception! Together, we can find a way to maximize the inheritance you've worked so hard to give them.