Life insurance policies are a useful tool in the estate planning process. In addition to their traditional use (providing support for dependents when you are gone), there are some other less established ways that life insurance can help.
A great example is for estate equalization. In some cases, a person’s wealth is comprised largely of a sole asset like a business or property. If the intent is for the asset not to be liquidated following the original owner’s death, and instead to be preserved and passed in-kind to a single beneficiary, it may lead to one beneficiary getting everything and (for example) their sibling getting nothing. This outcome is overtly unequal, and arguably unfair, but life insurance provides a means by which the child that didn’t get the business or the property can still receive a share of their parent’s estate.
Another benefit of life insurance is that the policy will pass to the named beneficiary outside of the estate of the deceased person. In cases of conflict between a will-maker, their spouse and/or children, or where privacy is warranted for other reasons, life insurance offers a means by which the insured can direct funds to a specific person or entity, outside of the reach of his or her will and therefore outside of the reach of a will variation action.
In general, life insurance policies can simply provide liquidity in the face of liabilities triggered by death such as capital gains. They can also help to offset such taxes if the policy is used to fund a charitable donation on death.
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This article is intended for information purposes only and should not be taken as the provision of legal advice. Grace C. Cleveland is a lawyer with the law firm of Cleveland Doan LLP and can be reached at (604)536-5002 or email@example.com.