There are some things that can bode very well when it comes to an estate plan. Illinois residents thinking about their estate planning decisions might want to know how life insurance can play a part in those plans. Life insurance, for one, is exempt from taxes, so when there is a sizable financial gain for beneficiaries, a testator may wish to give life insurance some important consideration. Life insurance policies can actually be used in creative ways in estate plans.
IRAs and 401(k)s are still taxable for beneficiaries whether children, spouses or others named in wills. Stretch IRAs might become limited, and in fact, Congress is looking to limit them to 10 years at most. Life insurance provides tax-exempt funds to pay off debts and to allow families to keep assets instead of selling them. When it comes to those who are married, the tax-free benefits of life insurance can be used by a surviving spouse to pay a conversion tax if the benefits are rolled into a Roth IRA.
If both husband and wife have life insurance policies, if the IRA-owning spouse dies, life insurance funds could be used again. If done in the same year the spouse dies, the taxing filing could still be made under married status prior to the next year when the remaining spouse would have to file as single. In essence, many experts suggest that life insurance can be a protector and builder of wealth.
These are the types of issues with which an Illinois estate planning lawyer might be able to help a client. The tax implications could get tricky and confusing. A lawyer may be able to bring clarification on complex questions regarding wealth and estate planning and how to save the most for heirs.