Life insurance can be used as a powerful tool in estate planning. Beyond the basics, here are some advanced strategies to integrate life insurance into your broader wealth transfer goals:
- Wealth Replacement Strategy: This involves purchasing life insurance to replace the value of an asset you’re gifting to heirs or a charity, while ensuring your family’s financial security. For example, you may donate appreciated stock to a charity, then use life insurance to replace the gift’s value for your heirs.
- Dynasty Trusts: A dynasty trust is designed to transfer wealth from generation to generation without incurring estate taxes. By funding a dynasty trust with life insurance, you can provide for future generations, avoid estate taxes, and pass on wealth to heirs while keeping control of the distribution.
- Irrevocable Trust for Life Insurance (ILIT): The ILIT is a trust that owns your life insurance policy. By placing the policy in an ILIT, the death benefit can pass to beneficiaries free of estate taxes, as it is not considered part of your estate. The trust can also manage the proceeds to ensure they’re used in ways you specify.
- Charitable Remainder Trust (CRT): This strategy involves donating assets (such as a life insurance policy) to a charity while retaining the right to receive income from the policy during your lifetime. The charity receives the remaining proceeds after your death, and you may also receive tax benefits.
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