Think Differently About Life Insurance
While most estate plans take into account life insurance as an element, too often, the multigenerational elements of life insurance are too often overlooked as a crucial asset. Usually, a life insurance policy is taken out on the patriarch of an estate and it is used to create a death benefit that is either earmarked for the estate or one specific beneficiary.
That is starting to be seen as somewhat shortsighted, and many estate planners are recommending that those planning an estate go a little farther and take out policies on children and grandchildren. While many may see such a thing as morbid, the purpose of the policies is not for those currently alive, but to create a significant cash benefit for future generations. The future tax benefits are also quite substantial.
By setting up a life insurance policy on, say, a grandchild, the person planning the estate can control it during their lifetime, and set it up to transfer to the grandchild upon his death. The grandchild can then determine the beneficiary for the death benefit, or even take money out to the policy as a life benefit. Either way has very attractive benefits with regard to income taxes. In fact, the insurance policy is similar in effect to a Roth IRA, where post-tax money is used to invest and the holder of the IRA only pays tax on any amount over and above the initial investment.
For those who are concerned that they might set up a policy for a grandchild, and then die before they've paid all of the premiums, there are policies available with short pay-in periods, which can go a long way to reducing that risk. Other options could include a policy with a single premium payment, or set things up so that the estate continues making premium payments.
