Shielding Your Insurance from Estate Taxes

Life insurance can help provide for your heirs in the event of your death as well as an important estate planning tool. Most are aware that it can provide funds to loved ones when they need it most.

What may be unknown however, is that life insurance can add significant wealth to an estate, potentially causing assets to exceed the applicable exclusion amount of $11.7 million (per individual), that can be sheltered from estate taxes. With proper guidance, it is possible to keep your life insurance policy proceeds out of your estate while also providing immediate funding for short-term financial needs.

Here is some information that you may want to discuss in detail with your advisor: for new life insurance policies, insurance proceeds are not included in the estate of the insured when another person (often an adult child or an irrevocable trust created by the insured) is the initial applicant on, and owner of, the policy, or when the insured never possessed an incident of ownership on the policy.

If you want to keep life insurance proceeds on existing policies out of your estate, you need to transfer any incidents of ownership on the policy to another person at least three years before your death. In addition, make sure that your estate is not the beneficiary of the policy, and that the policy beneficiary is not required to use policy proceeds to pay estate claims and expenses.

Keep the above in mind as you develop a plan for keeping your life insurance proceeds out of your estate. Remember, before you take any action that might affect your policies, carefully consider all of the alternatives, and seek professional counsel on how to best achieve your specific objectives.

No one knows what the future holds, but with a little preparation you can rest assured that your loved ones will be taken care of if something happens to you. If you’re interested in learning more about how our Custom Retirement Paycheck Plan could help shield your insurance from estate taxes, schedule your no-cost, no-obligation second opinion meeting today. We would be happy to walk you through our process and answer any questions you may have. With over 20 years of experience helping people prepare for retirement, we are confident we can help you create a plan that fits your unique needs.