You also can use life insurance for estate planning. Specifically,
Since the two main types of permanent life insurance—
Here's an overview of the estate planning strategies that permanent life insurance can help you accomplish.
Use life insurance to reduce estate tax liability
Your estate may owe taxes if your total taxable assets are larger than the lifetime exclusion in the year you die. The lifetime exclusion is $13.61 million per person in 2024. Under current law, this exclusion amount will be adjusted for inflation annually through 2025, and in 2026, it will reset to $5 million (adjusted for inflation).
Many wealthy families facing estate taxes choose to create an
A qualified estate planning attorney can help you draw up the documents that govern this type of trust, which can't be changed once created. Thrivent Trust Company can serve as trustee of your ILIT should you choose to create one.
Death benefits can create generational wealth
You may be able to provide financial security for your children and grandchildren through the life insurance death benefit you leave them in an ILIT. Using life insurance to cover
By passing on the full value of assets such as investments, real estate and even a family business, your heirs will have more opportunities to spread your family's values, do good in their communities and pursue big dreams. The right estate planning documents and financial tools can help you create the kind of
Resolve inheritance inequities
Many people want to
You might consider leaving the assets jointly to your children to share equally. However, this could create conflict if they don't agree on how to run the business, if one of them wants nothing to do with it, or if one is happy to take it over but can't afford to buy out the other's share.
As an alternative, you could leave each asset—in this case, the home and the business—to whoever wants them and will carry out your intentions for them. Your other children, then, could be set up to receive an equivalent value from the proceeds of your life insurance policy.
Life insurance proceeds can fund a special needs trust
The death benefit from a permanent life insurance policy can provide for a disabled minor or adult child or another dependent who will need caregiving and financial support when you die. You can use it to fund a
In addition to life insurance, you can fund a special needs trust with assets such as cash, investments, retirement plan benefits and real estate. A trustee that you choose, such as an attorney, friend, relative or trust company, will take distributions from the trust to pay for items and services that support the beneficiary's quality of life according to the rules detailed in the trust documents. Distributions could pay for education, travel and recreation, assistive and electronic equipment, out-of-pocket medical expenses, in-home care and more.
Access living benefits, such as cash value
While we often think about estate planning in terms of things that will happen after we die, a permanent life insurance contract's
Depending on the contract, permanent life insurance contracts can accumulate
You can access the contract's cash value during your lifetime for various purposes. If you don't mind reducing the contract's death benefit, you can use your cash value to create a stream of retirement income, part of which may not be taxable. You also may be able to borrow against your cash value regardless of your credit or financial situation and repay the loan with interest to keep your full death benefit intact.2
Some contracts also may pay
Move forward with your plan
Life insurance can be an important tool serving many purposes within a holistic financial plan—not just for you but also for your loved ones. Planning for tomorrow can help you feel reassurance today.