Grieving family members shouldn't inherit assets only to find out they cannot access them for the cash expenditures they will have to make after your passing. The majority of retirees' assets are in their homes and retirement accounts, which must be sold to obtain cash. Your estate can be managed and distributed more smoothly with the help of life insurance. According to your circumstances and the number of assets you possess, your insurance policies can cover final expenses, estate taxes, business ownership, estate equalization, probate, and special purposes. Our Brooklyn estate planning attorney details further.
Final Expenses Outline During New York Estate Planning
The average funeral cost in the US is nearly $8000 and somewhat less than cremation. The price becomes even greater when adding a burial plot, vault, or headstone. Even without a funeral service, cremation ranges between $1,000 and $10,000, depending on location, with the average around $4,000.
Some debts of the decedent will become part of the estate’s responsibility. These debts can reduce the remaining assets for your heirs, requiring a cash payout. Creditors may present the estate with outstanding bills and even litigate for payment.
State and federal final income taxes are a requirement. The government will seek payment of any back taxes in addition to those taxes owed in the year in which you die. Life insurance death benefits can help address these final expenses, helping meet the estate’s obligations.
How Brooklyn and Other NY Areas Handle Estate Taxes
The size of the estate affects the state and federal inheritance taxes that may be due. How much and at what rate is a shifting target of late. As thresholds change, so too should efficient tax planning for your legacy. Beneficiaries receive life insurance death benefits tax-free. With the right guidance, these proceeds can be used to offset inheritance taxes and avoid selling estate assets to cover tax obligations.
Business Ownership Process
If you own a business or are a co-owner, your passing may present substantial challenges for continuing the business, affecting family or business partners. Many start-ups and partnerships establish plans to address these eventualities, often in a buy-sell agreement. This contract outlines how a departing partner or founder’s business shares will be reassigned to other stakeholders or sold. Life insurance is often the financial product employed to fund such an agreement.
In the case of multiple heirs, assets often do not divide up easily or equally. For example, a vacation home worth $600,000 may be local and desirable to one heir, while the other two heirs live far away and have no interest in the property. To compensate those heirs who do not want to co-own the property, the heir wishing to retain the property must cash them out $200,000 each. This situation can quickly create a family rift.
As part of an estate plan, life insurance can fill the gap and equalize inheritance among heirs. In this case, one heir would get the property outright, while the other two would receive death benefit proceeds to compensate for their portion of the property value.
Probate Avoidance and Distribution
Probate court oversees the settlement and distribution of a decedent’s assets. It can be a lengthy, involved, and expensive process even when a general estate plan and will are in place. Life insurance proceeds bypass probate when going to the named beneficiary.
Unlike a public probate process, the payment remains private and tax-free to the beneficiary. Be aware that life insurance death benefits may still be subject to estate tax if the insured had “incidents of ownership” when they died.
Special Purposes: Child Support, Divorce, and More
A life insurance policy earmarked for special purposes can address divorce obligations like child or spousal support. Death benefit proceeds may go to the continuation of support of a loved one like a minor child with special needs or an elderly family member.
Mainly these types of direct purpose policies are part of an established trust. Assets like life insurance policies are held in the trust on behalf of a beneficiary and under the supervision of a trustee to meet obligations providing long-range monetary support in a substantially funded trust.
Your New York Estate Planning Attorney Can Identify the Right Trust Type
Personal circumstances and goals help define which trust will work best regarding probate, taxes, and more. Life insurance death benefits can solve many liquidity problems that arise in the dissolution of an estate. These proceeds are typically not subject to income taxes and have used as wide and varied as the circumstances and goals of the individual creating their estate plan. Your estate planning attorney can advise how to use life insurance properly to serve your beneficiaries. Please contact us at our Brooklyn office or call us at 718-233-2903.