22nd Jul 2013
If there is anything in common between life insurance and estate planning, it is the idea of death. People associate these two items with death and thus procrastinate in getting one. That is unfortunate. Life insurance and estate planning is not about dying; it is more about people you left behind living normal and worry-free lives.
As an estate planning attorney, I counsel my clients on the preparation and execution of wills and living trusts. Life insurance is outside my discipline; yet I counsel my clients to get one if they still do not have one. And if they already have a life insurance policy, to get additional coverage enough to cover the total value of their estate.
Now let me proceed to tell you why life insurance is a good complement to your estate plan:
First, life insurance proceeds are paid directly to the named beneficiaries. The proceeds will not go through probate or any court procedure. The process of obtaining one’s claim is fairly quick. In about a week or so (a month at the most), the beneficiaries can go home with check in hand. Compare that to the long waiting time the heirs have to wait for their share when the estate is under probate.
If the insured names his beneficiaries as “irrevocable”, then that’s another good news for the beneficiaries. Their proceeds will not be levied estate or inheritance taxes. The beneficiaries will get every penny of their proceeds. That’s because the law sees he beneficiaries and the insured as co-owners of the policy. In effect, no assets transferred.
However, here is where life insurance will complement your estate planning document. Note that, with an insurance policy, proceeds are paid directly to the beneficiaries. Imagine you have the same beneficiaries in your insurance policy and the same in your will or living trust. Your beneficiaries can then file for their claim immediately upon the death of the insured. Which is why, as an estate planning practitioner, I advise my clients to get life insurance with a coverage totalling or approximating the value of their estate. In that way, the beneficiaries may have gotten a “piece” of your estate so to speak in the form of life insurance proceeds.
Another scenario, which happens quite frequently in my experience, is the demise of the estate owner with little liquid assets and financial obligations to settle. Without an insurance coverage, the beneficiaries may have to rush to sell a piece of property at a loss just so they can pay the estate owner’s obligations. It will be different when the beneficiaries enjoy life insurance proceeds.
Life insurance practitioners call this estate conservation or estate preservation. As an estate planning lawyer from Orange County, I simply call it prudent estate planning.