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Using Survivorship Life Insurance in Estate Planning Image

Estate planning involves making important decisions about how to protect and distribute your assets after you’re gone. For many families, survivorship life insurance plays a crucial role in this process. But how exactly can survivorship life insurance policies help with estate planning?

At Peck Ritchey, LLC, we often recommend clients consider this unique type of coverage as part of a comprehensive estate plan. Following are some of the benefits and considerations of using survivorship life insurance for estate planning purposes.

What is Survivorship Life Insurance?

Survivorship life insurance, also known as second-to-die life insurance, is a type of joint life insurance policy that covers two people, typically a married couple. Unlike typical life insurance that pays out when one person dies, survivorship policies only pay the death benefit after both insured individuals have passed away.

How Survivorship Policies Help with Estate Planning

Survivorship life insurance offers several unique advantages that make it particularly useful for estate planning:

Estate Tax Coverage

For high-net-worth individuals, federal estate taxes can take a significant bite out of the legacy they leave behind. Survivorship policies provide a tax-free death benefit that can help cover these taxes, preserving more of the estate for heirs.

Asset Equalization

In cases where a family business or other illiquid assets make up a large portion of an estate, survivorship insurance can provide liquid funds to equalize inheritances among heirs.

Creating an Inheritance

For couples who have spent down their assets in retirement, a survivorship policy offers a way to leave a financial legacy for children or grandchildren.

Funding a Special Needs Trust

Parents of children with disabilities can use a survivorship policy to fund a special needs trust, ensuring long-term care and support after they’re gone.

Charitable Giving

Naming a favorite charity as the beneficiary of a survivorship policy allows couples to make a significant donation without impacting their lifestyle or other estate plans.

Business Succession Planning

For family businesses, survivorship insurance can provide funds for buyouts or equalization among heirs who may or may not be involved in the business.

Key Advantages Survivorship Life Insurance Over Individual Policies

While individual life insurance certainly has its place, survivorship policies offer some distinct benefits for estate planning:

  • Lower Premiums: Because the policy only pays out after both insureds die, premiums are often significantly lower than two separate policies.
  • Easier Qualification: If one spouse has health issues, they may still qualify for a joint policy based on the other spouse’s health.
  • Larger Death Benefit: The cost savings often allow couples to secure a larger death benefit than they could with individual policies.
  • Flexible Options: Many survivorship policies offer flexible premium payments and death benefit amounts, allowing for adjustments as needs change.

Estate Planning Strategies Using Survivorship Insurance

At Peck Ritchey, LLC, we work with clients to incorporate survivorship life insurance into their estate plans in various ways:

Irrevocable Life Insurance Trust (ILIT)

By placing the policy in an ILIT, the death benefit can be kept out of the taxable estate, maximizing the benefit to heirs.

Estate Equalization

For blended families or those with complex asset structures, survivorship insurance can help ensure fair treatment of all heirs.

Pension Maximization

Couples can sometimes use survivorship insurance to replace pension benefits lost when choosing a higher payout option.

Dynasty Trusts

Ultra-high net-worth families may use survivorship policies to fund multi-generational trusts that provide for future generations.

Business Continuation

Survivorship policies can fund buy-sell agreements or provide liquidity for estate taxes on a family business.

Considerations and Potential Drawbacks

While survivorship life insurance offers many benefits, it’s not the right choice for every situation. Some potential drawbacks to consider:

  • No Benefit for Surviving Spouse: Unlike individual policies, survivorship insurance doesn’t provide any payout when the first spouse dies.
  • Inflexibility in Divorce: These policies can be complicated to deal with if the couple divorces.
  • Ongoing Premiums: As permanent life insurance, these policies require premium payments throughout life, which can be a long-term financial commitment.
  • Complexity: The various options and features of survivorship policies can be complex, requiring careful consideration and professional guidance.

Working with an Experienced Estate Planning Attorney

Using Survivorship Life Insurance in Estate Planning Image 2

Incorporating survivorship life insurance into your estate plan requires careful consideration and expert guidance. The attorneys at Peck Ritchey, LLC have extensive experience in all aspects of estate planning, including the strategic use of life insurance. We can help you:

  • Assess your estate planning needs and goals
  • Evaluate the potential benefits of survivorship insurance for your situation
  • Coordinate with insurance professionals to find the right policy
  • Structure the ownership and beneficiary designations for optimal tax treatment
  • Integrate the policy into your overall estate plan

Don’t leave the future of your estate to chance. Contact the Chicago estate planning lawyers of Peck Ritchey, LLC at (855) 328-5787 or reach out online to schedule a consultation. Let us help you explore how survivorship life insurance and other estate planning tools can protect your legacy and provide for your loved ones.

Categories: Estate Planning

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