Estate Planning with Life Insurance

Estate Planning with Life Insurance

Learn how to effectively use life insurance in your estate plan.

How to Use Life Insurance in Your Estate Plan

Life insurance is an important component of estate and financial planning.  It creates a predictable source of funds upon the death of the insured person. However, simply designating one or more individuals as beneficiaries is not enough to ensure that life insurance death benefits will be used exactly as the policy owner intended. In other words, an insurance policy must be coordinated with estate planning documents whenever the funds are to be used for a particular purpose. Otherwise, the beneficiaries are free to use the death benefits without restriction.  Please review the table below for specific ways to use life insurance as part of an estate plan.

  • Income Replacement

    A trust can be used to provide managment of a life insurance proceeds to replace the income formerly generated by a deceased person.  The trust may be structured to pay the proceeds as needed by the beneficiary, in specific increments, or over a set period of time. 


    Recommended Estate Plan:

    Living Trust Plan

  • Support of Minor Children

    Life insurance is an ideal source of funds to provide support for minor children upon the death of one or both parents.  A trust must be used to manage the distribution of income and principal generated by the policy death benefit. 


    Recommended Estate Plans:

    Basic Estate Plan for Children

    Living Trust Plan

  • Support for a Disabled Child

    A disabled child will need support following the death of his or her parents.  This support may be provided by life insurance which will be used to supplement government benefits.   A special needs trust is ideally suited to support the child without sacrificing government benefits for food and shelter.


    Recommended Trust:

    Special-Needs Trust

  • Property Preservation

    Many people own family farms or vacation property which they desire to retain for the benefit of their family.  Life insurance can be used to fund a trust to pay maintenance, taxes and other expenses associated with the property.  The trust may also specify how the property will be used by the beneficiaries.   


    Recommended Trust:

    Cottage Trust

    Life Estate Trust

  • Debt & Mortgage Payoff

    Life insurance proceeds may be designated to pay certain expenses, such as a mortgage or personal debts a of deceased person.  A will or trust must be used for this purpose. 


    Recommended Estate Plan:

    Basic Estate Plan

    Living Trust Plan

  • Payment of Burial Expenses

    Life insurance proceeds may also be earmarked to pay funeral and burial expenses.  A will or trust should be used to provide instructions for this purpose (unless the policy is pre-assigned to a funeral home by the policy owner). 


    Recommended Estate Plans:

    Basic Estate Plan

    Living Trust Plan

  • Payment of Education Expenses

    A parent or other family member may direct life insurance proceeds to pay for education expenses. If so, a trust should be used to manage the funds, and to provide incentives for the beneficiary to complete certain degree programs or to maintain a minimum grade point average.


    Recommended Estate Plans:

    Basic Estate Plan

    Basic Estate Plan for Children

    Living Trust Plan


  • Payment of Estate Taxes

    Life insurance may be designated to pay estate tax for large estates (more than $11,000,000).  A will or trust must be used for this purpose. 


    Recommended Trust: 

    Life Insurance Trust

  • Business Succession Planning

    Life insurance is frequently used as a source of cash to purchase a deceased business owner's interest from his or her estate.  Specific agreements for this purpose must be drafted to ensure payment of the proceeds to the deceased owner's surviving family members.   


    Recommended Estate Plans:  

    Probate Avoidance Plan

    Living Trust Plan

  • Divorce Settlement

    Divorce settlements often contain a requirement to maintain life insurance for the benefit of a former spouse or the parties' children.  Such settlements may require one or both spouses to maintain life insurance to offset the loss of spousal support, child support or education benefits that would occur if one of the parties died during the term of the agreement.  An estate plan should be implemented to manage the insurance proceeds for the children.


    Recommended Estate Plans: 

    Basic Estate Plan for Children

    Living Trust Plan

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