How Are Survivorship Life Insurance Policies Helpful in Estate Planning?
Survivorship life insurance policies (also known as second-to-die life insurance) are a type of joint policy that covers two individuals and pays out upon the death of the last surviving person. This means that if you and your spouse have a survivorship policy, the benefits will not be paid until both of you pass away.
While these types of policies may not seem like an obvious choice for estate planning, they can actually be quite useful in certain situations. Let’s take a closer look at how survivorship life insurance policies can be helpful in estate planning.
Jump to article sections:
- Estate Tax Planning
- Equalizing Inheritances
- Providing Financial Stability
- Preserving Family Businesses
- Facilitating Wealth Transfer
- Your Next Steps in Estate Planning
- Frequently Asked Questions
1. Estate Tax Planning
One of the main reasons why people consider survivorship life insurance is to help cover potential estate taxes. When the first spouse passes away, their assets may not be subject to estate taxes due to the unlimited marital deduction, which allows for an unlimited amount of assets to pass between spouses without being taxed. However, when the second spouse passes away, their entire estate (including any inheritance from the first spouse) may be subject to estate taxes.
Having a survivorship life insurance policy can help cover these potential taxes and ensure that your heirs receive the inheritances you intended for them. This can be especially beneficial for those with high net worth estates.
2. Equalizing Inheritances
In some cases, one spouse may have significantly more assets than the other. This can create an imbalance in inheritances for their children, which may lead to family conflicts and legal disputes after their passing.
By having a survivorship life insurance policy, both spouses can contribute towards equalizing the inheritances for their children. This can help minimize potential conflicts and ensure that each child receives a fair share of the estate.
Additionally, if one spouse has a larger estate than the other, they can use the policy to provide an equal inheritance for their partner’s children from previous marriages or relationships. Overall, having a survivorship life insurance policy can help promote fairness and equality in distributing inheritances among family members.
3. Providing Financial Stability
Losing a loved one is emotionally devastating, but it can also bring financial challenges and instability. The death of a breadwinner can leave their family struggling to make ends meet, especially if they were the sole or primary source of income. Survivors may also have to deal with funeral expenses and outstanding debts.
A survivorship life insurance policy can provide financial stability in such difficult times. The death benefit from the policy can cover immediate expenses like funeral costs and outstanding debts. It can also provide ongoing financial support for the surviving spouse and children, ensuring that they are not left in a financially precarious situation.
4. Preserving Family Businesses
For families who own businesses, a survivorship life insurance policy can also be a valuable tool for preserving the business. In the event of the death of one of the owners, the policy’s death benefit can help cover any estate taxes or other financial obligations that may arise. This allows the family to keep the business running without having to sell it off in order to pay off debts.
Additionally, some policies offer the option to add a buy-sell agreement rider. This allows surviving partners or family members to use the policy’s death benefit to purchase shares from the deceased owner’s estate and maintain control of the business. It can also prevent conflict or disputes among remaining owners or family members.
5. Facilitating Wealth Transfer
In addition to protecting the business, life insurance can also play a crucial role in facilitating wealth transfer for business owners. Through proper estate planning, life insurance can provide a tax-free source of funds to pay any estate taxes or other final expenses. This ensures that the business is not burdened with these financial obligations and can continue operating smoothly.
Moreover, by designating beneficiaries on a life insurance policy, business owners have control over where their assets will go after they pass away. They can choose to leave a portion of their death benefit to family members or loved ones who are not involved in the business but may still be dependent on them financially. This allows for a more equitable distribution of assets.
6. Your Next Steps in Estate Planning
Survivorship life insurance is a powerful tool that can make a real difference in securing your family’s financial future. From covering estate taxes and protecting family businesses to ensuring a smooth transfer of wealth, it plays a vital role in a well-rounded estate plan. However, successful estate planning requires careful consideration and professional guidance. Take the time to evaluate your unique needs and consult with an experienced estate planning attorney.
For a trusted Wauwatosa estate planning attorney, reach out to Margerie Law. Margerie Law can help you with your estate plan for any stage of life to make sure you have a plan in place. For questions about survivorship life insurance, or anything about estate planning, give us a call today!
7. Frequently Asked Questions
Q: What is survivorship life insurance?
A: Survivorship life insurance, also known as second-to-die life insurance, is a type of joint policy that covers two individuals and pays out the death benefit after both individuals have passed away. This type of insurance is often used in estate planning to provide financial protection for the surviving spouse or to cover any remaining estate taxes.
Q: How does survivorship life insurance differ from individual life insurance policies?
A: Individual life insurance policies cover only one person and pay out the death benefit upon their passing. Survivorship life insurance, on the other hand, covers two people and the death benefit is paid out after both individuals have passed away. This type of insurance can be beneficial for couples or families who want to ensure financial stability for their loved ones even after they are gone. It also has different uses than individual life insurance policies, such as estate planning and covering estate taxes.
So, while both types of life insurance provide important protection, it’s important to understand the differences between them in order to make an informed decision about which one best suits your needs.
By Paul Margerie, Owner of Margerie Law
Paul Margerie of Margerie Law is a knowledgeable and experienced estate planning attorney based in Wauwatosa, WI. With years of experience helping families and individuals with their estate plans, he offers a gentle touch that puts his clients at ease. He understands the sensitive nature of this work and ensures that all details are taken care of with precision and accuracy. He strives to help each client achieve peace of mind that their future is protected by providing personalized advice and creating tailor-made solutions that fit their individual needs.
