Legacy Design Strategies
Omaha, NE, Minot, ND and Iowa Fall, IA Estate Planning and Elder Law Firm
Estate Planning and Elder Law Blog
With proper planning, insurance money can pay expenses like estate taxes. It will help keep other assets intact.
For example, Hector passes away and leaves his rather large estate to his daughter, Isabella. Because of the size of the estate, there’s a hefty estate tax due. However, unfortunately, most of Hector’s assets are tied up in real estate and an IRA. Isabella may not be keen on a quick forced sale of the real estate to free up some cash for the taxes. If Isabella taps the inherited IRA to raise cash, she’ll have to pay income tax on the withdrawal and lose a valuable opportunity for extended tax deferral.
FedWeek’s recent article entitled “Using Life Insurance to Protect Your Estate” that in this scenario, Hector could plan ahead. Anticipating such a result, he could buy insurance on his own life. The proceeds of that policy could be used to pay the estate tax bill. Isabella can then keep the real estate, while taking only the Required Minimum Distributions (RMD) that are warranted by law from the inherited IRA. If the insurance policy is owned by Isabella or by a trust, the proceeds most likely won’t be included in Hector’s estate, and the money won’t increase the estate tax liability she has.
However, some common life insurance mistakes can sabotage your estate plan:
Reference: FedWeek (Feb. 6, 2020) “Using Life Insurance to Protect Your Estate”
Get Started Today
Book your Free Estate Planning Consultation Now
Stay Up-To Date
Subscribe to Our eNewsletter