Fairfax, VA (Law Firm Newswire) July 20, 2016 – Life insurance can be an integral part of estate planning in that it can help preserve wealth for posterity.
In the case of an unforeseen death, life insurance can shield the testator’s family by replacing lost earnings. Additionally, there are many ways in which it can be used to take the place of wealth. For instance, if the testator owns real estate that has appreciated in value, or other assets, and would like to part with them without incurring capital gains tax liability, the testator could give the assets to a charitable remainder trust (CRT).
Because it is a tax-exempt entity, the CRT can engage in a sale of the assets and reinvestment of the proceeds without giving rise to capital gains tax. When a couple manages their assets this way, both spouses benefit from income and tax deductions. Following the death of both spouses, the remaining trust assets go to charity, thereby causing the amount of wealth accessible to the couple’s beneficiaries to be reduced. However, they can use life insurance to replace that wealth.
Prominent Vienna, Virginia estate planning attorney Lisa McDevitt states, “Life insurance is an effective estate planning vehicle that individuals and their families are advised to consider when creating a plan for the benefit of their heirs.”
Another use of life insurance is to replace funds that have been applied toward the payment of long-term care expenses, including the cost of care in a nursing home. Even though long-term care insurance is an option, it can be costly, particularly if an individual is past the age of retirement. A more beneficial alternative is to pay for long-term care with savings and investments, and to buy life insurance to take the place of those funds. In this scenario, if a couple buys insurance and neither spouse needs long-term care, their beneficiaries will inherit the life insurance proceeds.
Furthermore, life insurance can enable individuals to support their preferred charities. When life insurance is donated to a charity, the organization becomes both owner and beneficiary, thus allowing the donor a charitable income tax deduction. An alternative is to designate a charity as beneficiary, in which case the grantor maintains control over the policy, such as the right to access its cash value or remove and add beneficiaries. Upon the death of the grantor, the estate has a right to an estate tax charitable deduction.
Lisa Lane McDevitt
2155 Bonaventure Drive
Vienna, VA 22181