A way to approach 3 typical estate planning needs

Multi-author for Wastler and Hill

By Allen Wastler and Mark Hill
Subject and communications experts for MassMutual.
Posted on Jun 30, 2022

Estate planning, depending on one’s circumstances, can involve many factors. But there are three situations that often arise that can present challenges.

They are:

Survivorship whole life insurance can provide a way to help handle such situations, beyond the protection and accumulation features that can help with overall estate planning and wealth transfer needs.

“Survivorship policies can be very effective for legacy planning and efficient wealth transfers,” said Alejandro Mendieta, president of Coastal Wealth Private Client Group, a division of Coastal Wealth, a MassMutual firm, in Miami. “And generally speaking, by combining the coverage into one survivorship policy instead of two individual policies, we can lower overall premiums for our clients compared to individual coverage.”

Indeed, a $100,000 pay-to-age-100 survivorship whole life insurance policy (specifically the MassMutual Survivorship Whole Life 100) covering a nonsmoking couple, aged 55 and in good health, would cost $2,044 in annual premiums. After 10 years, it would have a guaranteed cash value of $15,834.

General estate planning features

Survivorship insurance is life insurance that covers two policyowners and pays off at the second death. And as a whole life insurance policy, it will also build cash value over time in addition to providing lifetime protection.

Whole life insurance offers significant advantages that make it an effective way to transfer wealth to your family. These include:

  • Tax efficiency. The policy death benefit will generally be paid income tax free to your beneficiaries or a trust. In addition, the policy ownership can be structured to keep it out of your estate for estate tax purposes.
  • Liquidity. The death benefit can provide cash to pay taxes and other expenses that may be due at death.
  • Financial leverage. Whole life insurance can provide a significant death benefit in relation to the premiums paid.
  • Value not subject to market conditions. Unlike securities or real estate, the value of your policy death benefit and cash value will not vary based on changes in the financial markets. And the cash value grows on a tax-deferred basis at a rate guaranteed by the insurance company.
  • Easily divided. The life insurance will be paid to your beneficiaries based on your wishes, and may help you balance bequests to family members if you have a business or property that you want to leave to specific family members. (Related: Keeping a farm in the family)
  • Not subject to probate. The death benefit is paid directly to beneficiaries, so it avoids the delays and expenses of probate and will not be part of any public record. (Related: Why people fear probate)
  • Creditor protection. In many states, personally owned life insurance cash values are fully or partially exempt from the claims of creditors.

“Any life insurance policy, structured properly, provides immediate funds that can avoid probate, which is an invaluable tool when navigating the estate settlement process,” said Doug Collins, financial planning director for Fortis Lux Financial in New York City.

Additionally, these features make survivor whole life insurance particularly useful for the three situations listed above.

Estate equalization

Sometimes, an estate has assets that aren’t easily divided, like a family farm or business, for example. Or perhaps it’s an estate that includes things like an art collection, heirlooms, or a family vacation home.

Complicating the situation may be multiple heirs or family members, some of whom treasure certain parts of the estate, like the childhood home, and some of whom don’t. Or perhaps some of these family members worked for the family business and, therefore have an interest in seeing it continue intact, while others choose to pursue separate careers.

“Life insurance benefits provide liquidity, which can be crucial when dealing with stressful situations — such as the loss of a parent — and can quell many family dynamics,” Collins pointed out. “For example, you can’t sell one-third of your childhood home.”

Proceeds from a life insurance policy can help mitigate such situations by equalizing inheritances among heirs. For example, one child can get the vacation home while siblings get a larger share of the death benefit. Or one beneficiary can get the whole farm while others divide the death benefit. (Related: Estate planning and keeping a farm in the family

The point is that death benefit proceeds are easily divided. And the proceeds can be paid to your beneficiaries based on your wishes, which may help you make equitable bequests to family members.

Charitable giving

A survivorship whole life insurance policy can also help you leave a substantial contribution to a charitable organization you support.

Naming a charity as a direct beneficiary of a policy means that there will be no probate involved in your gift and no public record. Your heirs don’t even need to know.

Or, if you and your partner want to leave a particular asset to charity — land or art, for example — life insurance can help as well.

“Life insurance policies use named beneficiaries and work in percentages,” explained Collins. “This means that a married couple can specify who should get what portion of the death benefit. So, you can name a charitable organization as a beneficiary for part or all of the death benefit, if that is your desire. Or, you can leave other assets to charity, but make your heirs the full beneficiaries of the life insurance.”

There can be tax implications for donating certain assets to charity, so for many it’s a good idea to consult a tax attorney or accountant when setting up such a plan.

Survivorship whole life insurance can also help a couple ultimately make a larger gift to a charity rather than smaller gifts of cash. For instance, a healthy adult may be able to purchase a life insurance policy costing a set number of premiums at $100–$200 a month with a $100,000 benefit. That benefit is likely far greater than what most couples could donate at one time — or even over time. (Related: Using life insurance for charity)

Providing for a loved one with special needs

Parents or caregivers of someone with a disability or other special need can use the policy’s death benefit to help ensure that expenses related to the care of their loved one will continue to be paid after they are gone.

This often involves using death benefit proceeds to fund a specific type of trust for the beneficiary. Additionally, proceeds can be structured in a way that helps maintain the beneficiary’s eligibility for government programs or public assistance. (Related: Understanding ABLE accounts)

“For special-needs care you should always work with a financial professional who has a focus in special needs, but survivorship whole life policies can pay a death benefit that can be used to fund a special-needs trust so that a special-needs child or adult can be financially taken care of by the trust while still possibly qualifying for other benefits,” said Collins.

For this type of planning, it is usually wise to consult estate planning experts, such as a financial professional or tax advisor.

Conclusion

These are just three instances — albeit typically common ones — where survivorship whole life insurance can help. But there can be many others, contingent on the complexity of individual financial circumstances. A financial professional can always help you navigate the applications and the choices.

Discover more from MassMutual …

How whole life insurance helps diversify your taxes

Whole life insurance: Criticisms and rebuttals

How life insurance can help you in your retirement

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The information provided is not written or intended as specific tax or legal advice. MassMutual, its subsidiaries, employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.

The products and/or certain features may not be available in all states. State variations will apply.

Survivorship Whole Life Legacy Insurance (Policy Forms: SWL-2015, ICC15SWL and ICC15SWL in North Carolina, SWL-NY-2019

and SWL-FL-2015 (Rev 2021)), is issued by Massachusetts Mutual Life Insurance Company, Springfield, MA 01111-0001.