If you are single, you may see life insurance as a simple way to cover your final expenses. When you start a family, life insurance takes on a far greater level of importance as a potential means of income replacement. Life insurance has other uses in estate planning, one of which is to balance out inheritances.
Imagine this: you’re an avid art collector. You’ve traveled all around the world to find paintings, sculptures, and other works that inspire and intrigue you. Your collection is very valuable, but for you, the value of the art is not in its monetary worth, but in the memories it brings you of your voyages abroad, and of the people you met along the way. You realize just how much it means to you to keep your art collection in the family, and that’s why you want to pass it on to your two daughters, Beth and Tracy.
Unfortunately, you discover that while Beth is thrilled to look after the works of art you’ve spent so much time collecting, Tracy couldn’t care less about any of it, and is more likely to sell the artwork than to cherish it. You therefore decide to bequeath the entire collection to Beth. You want your daughters to inherit equal shares of your wealth, but leaaving the collection to Beth makes that impossible. How will you make sure that your other daughter receives her fair share of your estate??
The answer could lie in purchasing life insurance that will pay out enough money to balance out the inheritances. You would make Tracy the beneficiary and everything would remain equitable. You may not be an art collector, but there may be other elements of your estate the value of which cannot be measured in dollars. Or you may ownb a business or a farm that you want to pass to a child who is involved, which creates an imbalance like the above example. Using life insurance is one way to help all of your beneficiaries receive their fair share of your inheritance.
Life insurance can also be used to generate liquidity to pay estate tax or income tax on inherited IRA’s or annuities, or to facilitate buy-sell agreements for small business partners.
If you have any questions about how life insurance may fit into your estate plan give us a call at (513) 721-1513 to schedule a consultation.