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Estate plan basics, part 2: the role of life insurance

In the first part of this post on the basics of estate planning, we focused on the documents that people should put in place to provide structure and guidance for health care decisions. That guidance and structure is crucial in situations when someone is no longer able to make those decisions for themselves due to cognitive or other impairments.

But of course it is also important to address asset transmission matters in an estate plan. Having a valid will is still a basic step to take in this regard. Regular readers of this blog also know that various forms of trusts provide flexible forms for achieving disparate estate planning goals.

In this post, however, we would like to provide a reminder that life insurance is also an avenue that can play a useful role in the transmission of assets.

Life insurance is not merely a tool for the less wealthy. Many high-asset individuals use it as well as a way to pass wealth along to heirs.

Much depends, however, on how a particular life insurance policy is set up. Just paying premiums without thinking about tax considerations and your overall estate plan is not a good strategy for using life insurance.

It is easy to become too focused on tax avoidance when making decisions about how to pass along assets. To be sure, estate tax issues should not be ignored. But don't forget the fundamental goal of disposing of assets in the way that the person who controls those assets most desires.

If life insurance seems like the best way to accomplish that, an individual with wealth to pass on should consider using it as part of his or her estate plan.

Source: Forbes, "What Is Estate Planning?" Russ Alan Prince, Nov. 4, 2013

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