Do you have life insurance in place to help support your loved ones if you pass away? Many people do, and decide to get it to help with more immediate costs. But you still must know how much insurance to get and how it may impact the rest of your estate plan.
When you pass away, all of the assets associated with personal ownership to you are known as part of your estate. This refers to the collection of everything that you own at the time that you pass away. You may use an estate planning document like a will to distribute the assets in your estate, and when you pass away, it may be necessary for a process known as probate to be used to administer those assets.
Life insurance death benefits are typically not intended to be part of your estate since these are payable on death directly to the beneficiaries you name with your insurance company. However, life insurance proceeds may be classified as part of an estate for tax purposes. This means that the value of the death benefit will be included in the valuation of your estate, and if it is greater than the current estate tax exemption, which sits at $12.92 million per person in 2023, estate taxes may be due.
There may be other benefits to discussing alternative structures for handling the administration of your life insurance policy, such as an irrevocable life insurance trust. Anytime you use life insurance as a plan to pass on assets to your loved ones, it is valuable to have these conversations with a Michigan estate planning attorney. This will help you clarify the intent of using life insurance policies and how these fit in with the overall asset transfer plan.