How is Life Insurance helpful in estate planning?

Life insurance can be a valuable asset in estate planning. However, life insurance is personal to the needs and expectations of any family.

If you have a taxable estate (meaning that your assets exceed $12.06 million per person in 2022; $24.12 million for a married couple in 2022), then you may want to create an Irrevocable Life Insurance Trust (or ILIT). The trust holds the life insurance policy for you; but you cannot manage the money or the trust once you set it up. You name the trustee and the beneficiary, and then it is managed by others.

If you do have life insurance, then you must make sure you have a beneficiary of that life insurance policy. The beneficiary is the person (or people) who will receive the payout when you die.

If you have minor children in California, then you likely want to have a trust as the beneficiary of the life insurance policy to ensure that your children can have access to the funds before they are 18 years old. If you name minor children as beneficiaries, the funds will be held in an account that they cannot access until they are 18 (aka legally an adult). If the guardian wants to access those funds, then they would need to petition a court for access.