Estate Planning for Elders

The Importance of Life Insurance

Life insurance is a basic part of estate planning for elders. Since the cost of insurance goes up as a person ages, purchase this necessary coverage as early in life as possible.

The proceeds from a life insurance policy may be used to cover the cost of:

• Funeral expenses
• Estate taxes
• Debts incurred by the deceased

Life insurance can also be used to replace the deceased person's income for a surviving spouse and/or children or to form the bulk of an estate if there are little or no other assets. In order to avoid paying estate taxes on the proceeds from a life insurance policy, designate someone as the beneficiary. If you choose to have the funds payable to your "estate," the amount will be taxable.

Term Insurance

As the name implies, term insurance is designed to provide coverage for a set period of time only. Term insurance does not have any cash value, and it is the most economical type of life insurance offered. Most insurers offer term insurance at a set rate for a period of five or 10 years.

Whole Life Insurance

Choosing a whole life insurance policy will provide the insured with coverage for his or her lifetime. In addition, the policy builds up a cash value, as the premiums are paid over time. Should a financial need arise in the future, these funds may be borrowed from the insurance company. The insured has the option of paying them back at any point. If the borrowed funds are not repaid during the insured person's lifetime, then the value of the loan is deducted from the face value of the policy before benefits are paid out.

Universal Life Insurance

This life insurance option offers flexible premium amounts, along with an accumulating cash value. It is possible to adjust the amount of coverage, either by increasing or decreasing coverage, as one's needs change. For every dollar in premiums paid, a portion goes into a fund to cover the cost of the insurance. The rest of the money is invested in a fund to earn interest.

The insured will have the option of choosing mutual funds or a fixed-rate investment for these funds. Keep in mind that there may be a hefty fee if you want to withdraw funds from the plan during the first 10 years or so. Before signing anything, find out what the penalty is, and decide how likely it is that you would need to access those funds in the near future.

Learn more about insurance options at LoveToKnow Insurance.

Other Options in Estate Planning for Elders

Dynasty Trust

One option in estate planning for elders is the Dynasty Trust. This type of trust is set up to be a long-term one; it spans several generations and could run into the hundreds of years. A Dynasty Trust can be used to minimize the impact of estate taxes.

As with all trusts, a trustee will be appointed to manage and control the assets. The grantor can give the trustee as much or as little leeway as desired. For example, some beneficiaries may be given control over their portion of the trust with no restrictions. In other situations, a "spendthrift clause" may be added.

Spendthrift Clause

Under the terms of a "spendthrift clause," those people benefiting from a trust do not receive gifts, as such. Instead, they have the opportunity to borrow from the Trust at a reduced rate of interest. The amount of the outstanding loan must be repaid before any further funds are advanced.

This practice is commonly referred to as the "Family Bank." This clause is also useful to protect the trust from claims made against it if one of the beneficiaries is going through a divorce.

Talk with a estate planning professionl, such as a financial planner or estate lawyer, about additional solutions to establish your estate.