An Estate without funds can be very difficult to administer! If the estate’s assets include real estate or a business to be sold, substantial cash may be needed to pay property taxes or wind down the business. If the beneficiaries of the Estate are Class C (siblings) or Class D (all others), New Jersey Transfer Inheritance Tax will need to be paid unless the inheritance is small. Many Wills direct that inheritance taxes be paid from the estate itself, rather than paid by the beneficiary who receives the inheritance. The Executor may need to pay for the funeral bill. 401Ks or IRAs generally have designated beneficiaries, and therefore are not used to pay all of these estate expenses. There may be substantial debts to clear up as well, or unfiled income taxes. As you can see, there’s often a need for cash in the estate so that the Executor can reasonably take care of the Estate’s obligations.
Life Insurance Can Help. Life insurance that is payable “to my Estate” can be used to create the liquidity that’s needed in situations like these.
Here’s another example: Sometimes a person is leaving, let’s say, the tax-deferred accounts to some people, and the person wants the overall estate to go equally to all their beneficiaries. This can’t easily be done if there aren’t enough liquid assets (“probate assets”) in the estate for the Executor to use. Life insurance can be made payable to some of the beneficiaries as a way to even things up.
Funding for Trusts: Perhaps there is a Trust within the Will to protect the inheritance for certain heirs, or a supplemental needs trust for a disabled heir. Perhaps the deceased person had set up an unfunded standby trust for another person’s benefit. Life insurance can be made payable to the Trustee of these Trusts. Doing so ensures that there will be an inflow of dollars to fund the Trust. This is a particularly useful technique when the Trust includes a house that the beneficiary will live in.
Life insurance is one of many tools in the toolbox for an effective estate plan. Call us for advice to design the plan that meets your needs ….. 732-382-6070