Using Life Insurance For Estate Planning In Florida
Many people consider life insurance a good way to leave their children or spouse a nest egg when they pass away. In some cases, the life insurance is taken on as a means to ensure that a spouse will be able to pay off major bills and not be left bankrupt. Life insurance can be a very useful estate planning tool, especially in light of the fact that Florida does not have an estate or inheritance tax.
Generally, life insurance benefits or proceeds are not subject to federal taxes when they are made directly to the beneficiary, and do not even have to be reported as gross income. Any interest earned from the proceeds of a life insurance policy is taxable. Life insurance proceeds are also exempt from the insured person’s creditors. This means that the person who receives the proceeds of the insurance policy is under no obligation to use those proceeds to pay off any debts owed by the deceased.
However, the proceeds of a life insurance policy may become taxable under the federal estate tax if the insured’s estate is the beneficiary at the time of death. If the proceeds are paid out to the estate, and then distributed to heirs, the heirs would be considered to have inherited the money like all the other assets in the estate. Florida has no estate tax, and therefore, no taxes would be due from the estate.
The beneficiary to a life insurance policy is not named in a will, but rather is designated in the life insurance policy. When a person buys a life insurance policy, he designates a primary beneficiary, and sometimes, a secondary beneficiary. When the insured person dies, the primary beneficiary receives the proceeds of the policy. If the primary beneficiary is no longer alive, or is otherwise barred from receiving the proceeds, they are distributed to the secondary beneficiary. The policy can name more than one primary beneficiary.
If you are considering buying a life insurance policy as part of your estate planning, you should research the various options available before settling on a policy. For example, there is some disagreement over whether whole life policies are better than term life policies, or whether term life policies are the best. Some people prefer whole life policies, even if they are more expensive, because there is something left for their heirs to inherit after the insured death.
Some insurance representatives may advise customers to buy policies based on the commissions they receive and not what is best for the consumer. Therefore, there is no substitute for doing your own research before meeting with a representative.
Contact Us for Estate Planning Assistance
There are many different estate planning methods that you can use to ensure you are well cared for later in life, and ensure that your loved ones are well taken care of when you pass away. In order to discuss an individualized plan that fits your needs, contact our experienced estate planning attorneys at the Millhorn Elder Law Planning Group located in The Villages, Florida.