Life insurance is a valuable tool for transferring wealth to the next generation tax-efficiently. Here’s how to leverage policies in estate planning:
- Irrevocable Life Insurance Trust (ILIT): By placing a life insurance policy in an ILIT, the policy’s death benefit isn’t counted toward your estate, thus avoiding estate taxes. The trust owns the policy, and beneficiaries receive the death benefit tax-free.
- Estate Equalization: For families with illiquid assets (like a business or real estate), life insurance can be used to equalize inheritances among heirs. For example, one heir might inherit the family business, while another receives an equivalent amount in life insurance proceeds.
- Legacy Giving: Life insurance can also fund charitable giving. Designate a charity as the policy’s beneficiary, and they’ll receive the full death benefit tax-free, creating a lasting legacy in your name.
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