Benjamin Franklin once said, “in this world nothing can be said to be certain, except death and taxes”. Those words have proven to be timeless, of course, but these days we have life insurance to at least cover the financial ramifications of a death. But could life insurance also solve some tax woes?
We all know that life insurance can be a necessity once we start a family. The last thing you want is to leave your spouse and children without much-needed financial resources, in the event that something happens to you. But what about later, when the kids are grown? Life insurance is still necessary, although for different reasons… And some of them might surprise you.
Equalize inheritances. Let’s say you own a vacation home in the mountains, and your daughter and her children frequently visit with you there. That place means a lot to them, and you’d like to bequeath it to her in your will. But will your son, who is more of a beach guy and rarely visits the mountain home, feel left out? Probably not, if your life insurance policy is used to equalize the inheritance. Simply bequeath him a policy equal to the value of the mountain home, and no one feels slighted.
Wealth replacement. What if much of your estate is comprised of non-cash property? Upon your death, your estate could be taxed if the total value goes over the current non-taxable exemption (which frequently changes). A life insurance policy could be used to pay the taxes on the estate, so that your heirs aren’t scrambling to sell assets (potentially at a reduced value) to pay the tax bill.
Replace lost pension income. In many cases, pension income stops upon the death of the recipient… even if his or her spouse is still living. A life insurance policy can be used to replace lost pension income, in the event the pensioner is the first one to pass away.
Carry out your wishes. Assume that you’ve decided to cover each grandchild’s college tuition (or some other worthy endeavor). Each year, you can gift $13,500 to each grandchild, according to IRS rules on non-taxable gift-giving. But if something were to happen to you in the meantime, you would want your wishes carried out. A life insurance policy, in the amount of the total gift, can ensure that you can finish giving those gifts. And, since life insurance benefits are usually non-taxable, your grandkids won’t have to worry about any additional burdens.
These are just some of the creative ways that life insurance can be used to accomplish your goals. Give us a call to discuss your own situation, and we can probably find a solution that fits your needs.