Avoid Probate and Estate Taxes on Life Insurance

Avoiding probate. The proceeds of a life insurance policy are not subject to probate unless you name your estate as the beneficiary of the policy. If anyone else, including a trust, is the beneficiary of the policy, the proceeds are not included in the probate estate, and can be quickly transferred to survivors with little red tape, cost, or delay. Except when your estate will have no ready cash to pay anticipated debts and taxes, there is no sound reason for naming your estate, rather than a person, as the beneficiary of your life insurance policy.

Business Needs

If you are the sole owner of a business, how much cash will it need when you die? Do you want, and expect, that some of your inheritors will continue the business? If so, do you think there will be enough cash flow for them to successfully maintain the business? You may need insurance proceeds to cover any cash flow shortage of the business. Will there be liquid funds to pay estate taxes?>

If your inheritors won't continue the business, the questions are different: How much is your death likely to affect the value of the business? Will there be enough cash to keep the business alive until it is sold?

If you are one of several co-owners, life insurance proceeds can be used to buyout co-owners' interests. For more information on using life insurance to fund buyouts, see Business Buyout Agreements: A Step-by-Step Guide for Co-Owners , by attorneys Anthony Mancuso and Bethany K. Laurence (Nolo).