Donald M. Thompson - Wills, Trusts, and Estate Planning


Life Insurance

Life insurance plays a variety of roles in estate planning. The first is to provide a fund to support the surviving family of a breadwinner who dies young before building an estate. Another is to provide cash in large estates to pay estate taxes so other assets such as a family business or farm do not have to be sold or borrowed against.

Life insurance can also be used to avoid the estate tax. A life insurance policy, like any other asset, can be given away. If it is given away it is no longer in the taxable estate of the person who gave it. Yet it will provide the face value and perhaps more at the death of the person who gave it away. And it can be given away when it has little value so there is no gift tax. It is the ideal asset to give away since there is usually no use for it until the insured owner dies. And at that time he or she has little use for the proceeds. There are sometimes reasons not to give away a policy though. When a policy is given away the insured can no longer borrow against the policy. Nor can the insured changed the beneficiaries. Giving away the policy involves giving away these rights. Just changing the beneficiary is not the same as giving away the policy.

Life insurance proceeds are usually income tax-free.

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Donald M. Thompson * 55 W. Monroe #3950; Chicago, IL 60603
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