Life Insurance Can Still Play a Key Role As Part of an Estate Plan

October 25, 2016

Life insurance can be beneficial in replacing lost income for young families, but as people get older, it can also serve a purpose as part of an estate plan.

Historically, one main reason to buy life insurance as part of an estate plan was to have cash available to pay estate taxes. Now that the estate tax exemption is so big (in 2016, estates can exempt $5.45 million per individual from taxation), most estates don’t pay federal estate taxes. However, life insurance can still be helpful in a number of other ways.

  • Immediate cash. Life insurance provides cash to use for the payment of debt, burial fees, or estate administration fees. In addition, life insurance can be used to pay state estate taxes, if the state requires it.
  • Wealth replacement. It can replace income or assets lost to pay for long-term care. It can also be used to fund a trust for a minor child or a child with special needs.
  • Buy out business interests. It can allow a partner or a family member to buy out the deceased partner’s interest in a closely held business to ensure the business can continue.
  • Fund a charity. Proceeds from a life insurance policy can be used to fund a charity. The policy can be donated directly to the charity, which also has the benefit of giving the donor a charitable income tax deduction. Alternatively, the charity can be named as the beneficiary of the policy.
  • Treat family equally. A life insurance policy can be used to make sure children receive an equal inheritance. For example, if one child is inheriting a certificate of deposit, a life insurance policy can ensure that the other child receives the same amount.

To find out if you should include life insurance as part of your estate plan, talk to your attorney.

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Wills vs. Trusts in Michigan

Planning for the Future

Many people interested in estate planning are unsure of the difference between wills and trusts. While both instruments allow you to distribute your assets after death, there are some key differences between the two. Keep reading to learn the differences between wills and trusts in Michigan to make the best decision for you and your family.

Wills

A will is a document that directs how your property will be distributed after you die. You can use a will to:

  • Name an executor who will oversee the distribution of your property.
  • Appoint a guardian for your minor children.
  • Designate beneficiaries for your property, including family members, friends, charities, or organizations.

Trusts

A trust is another way to direct how your assets will be distributed after you die, but with some important differences from wills. Trusts can be revocable or irrevocable. Revocable trusts can be changed at any point during the settlor's lifetime, while irrevocable trusts cannot be changed once they are created. This means that with a trust you can:

  • Place conditions on how and when assets are distributed.
  • Avoid probate, which is the legal process of distributing a person's assets after they die.
  • Reduce or eliminate estate taxes.

Differences Between Wills and Trusts

While wills and trusts both allow you to direct how your assets will be distributed after you die, there are some important differences to consider. These include:

Probate

As mentioned above, one of the main advantages of using a trust is that it can help you avoid probate. With a will, your assets will go through probate after you die. Probate can be time-consuming and expensive, so avoiding it can be a major advantage.

Control

With a will, you have less control over your assets' distribution than with a trust. With a trust, you can place conditions on how and when assets are distributed, which gives you more control over what happens to your assets after you die.

Taxes

Another advantage of using a trust is that it can help you reduce or eliminate estate taxes. With a will, your assets may be subject to estate taxes when you die.

Work with an Estate Planning Attorney

Deciding whether to use a will or a trust is an important decision in Michigan estate planning. If you have questions about wills vs. trusts, or any other aspect of estate planning, contact an experienced Michigan estate planning attorney today.

October 11, 2022

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