Using Insurance Now to Minimize Estate & Inheritance Lawsuits When You Are Gone–the perfect estate plan for one with two families ?

Uncategorized • Apr 9, 2014

Who is the “mysterious billionaire” the San Jose Mercury News reported purchased the largest life insurance policy ever? While the identity of the purchaser of the $201 Million life insurance policy may remain wrapped in privacy for now, consider why you, or your estate, may want life insurance to be a part, perhaps a small part, of your estate plan. Lest you think this is a sales pitch, read on, as some of the non-traditional reasons for life insurance may help your estate with inheritance disputes once you’re gone.

Everyone knows that life insurance shifts the “risk of loss” to another – the insurance company – should you check out unexpectedly or earlier than planned. That’s all well and good for those with children or dependents.

Using Insurance as a Simple Inheritance

But there are other good reasons, some non-traditional, to have life insurance.

Life insurance may help avoid or limit estate disputes when you are gone. You know, the fight for your wealth.
Most people leave their estate under their will or revocable trust, creating shares or trusts for loved ones.
Instead of carving up your estate or trust into shares or percentages when you are gone, a life insurance policy can be a simple way to leave an inheritance.
Every beneficiary gets the death proceeds from his or her own policy. And that’s it. Nothing more. No fighting over the will or the trust because you don’t get any. This is a great option to consider for so called “second” or “split” families.

Consider Insurance Inheritance if you ReMarry

Everyone knows that the divorce rate is about 50%.
Many marry young or just decide to make a life or love change after the kids go off to college.
Consider the successful investor who has divorced their first spouse and now has a new spouse & perhaps even a second set of children.
Leaving your estate in the typical fashion, in trust for your second or third spouse & your adult children from your first marriage, is a sandbox where not everyone always plays nicely.
Do you really want your adult kids inheriting alongside your last spouse who is younger than your adult kids? (That’s what we call a “Palm Beach marriage.”)

Estate Lawsuits When You Are Gone

When you’re gone, you are not there to play referee.
Tension will arise between your last spouse and your kids.
Some of this is personal, such as disdain or animosity, (“I hate my stepfather”), but much of it is financial (“Why didn’t mom leave me more?).
Estates are filled with lots of emotions and dollar-counting. This all plays out in will contests and challenges to your trust, especially if your extended families are beneficiaries of the same family trust.

Why Marital Trusts May = Trust Litigation

Typical estate plans create a marital trust when you die.
Marital trusts are often created by estate planning attorneys which benefit your spouse during his or her life, with the trust remainder going to your children when your spouse dies.
While there are estate tax advantages to marital trusts for estates exceeding $5 Million ($10 Million if you are planning your estate with your latest spouse), the tax benefits come at a non- financial cost:

Q: do you want to put your kids and latest spouse in the same trust ?

Consider Fixed Inheritances — no $$ counting

Why not consider leaving your estate or trust to your new spouse and your second set of children, and give life insurance proceeds as an inheritance for your kids from your first marriage? Or vice versa ?
Separating the financial lives of your children and latest spouse may be a way to minimize friction and estate litigation when you are gone.
I know of few stepchildren who really get along with stepparents. Do you think your kids are different?
Why put all these beneficiaries or family members into one family trust, other than to keep the probate litigators fully employed?

There are other reasons to consider life insurance as well. Death proceeds provide your estate with liquidity to pay your last debts (like loans, mortgages, credit card bills, margin debt and home equity lines), expenses of estate administration, your last federal income tax bill. And who can forget your probate lawyers who will administer your estate and trust?

The price of multi-year term insurance is reasonable. Will your kids and spouse be the same when you are gone?