By Associate Attorney Danielle Nodar
As estate planning attorneys, we counsel people on how to ensure that their loved ones are taken care of at their death. Oftentimes, life insurance is a tool we recommend for a variety of different reasons depending on the client’s assets, debts, and overall estate planning goals.
One reason that we recommend life insurance is that the proceeds pass outside of probate, which means that the beneficiary of the policy will receive the payout without an estate needing to be filed with the probate court. This is beneficial since probate takes about six months to a year before the inheritance can be distributed to heirs. With life insurance, the beneficiary will get the payout much more quickly which will help alleviate some of the financial burdens that your loved ones may be faced with such as funeral expenses, medical bills, or mortgage payments.
Since life insurance passes outside of probate, it is not considered a probate asset and is not subject to the court’s rules for such assets. Probate assets must be used to pay the deceased person’s debts. Anything remaining after all debts are paid can be distributed to an heir. For more information about what is a probate asset, please see this blog post. If you only have probate assets to pass to loved ones, they may not inherit anything depending on your debts at death. Since life insurance made payable to a named beneficiary is not considered as a probate asset, your beneficiary may not be required to use those funds to pay off your debts at your death. This provides some assurance if you are worried that you may not have enough assets to provide your loved ones with financial security at your death.
In the case of a surviving spouse, life insurance can be used to ensure that they will be able to pay your joint and some separate debts at death without having to deplete other assets. North Carolina holds the surviving spouse liable for medical and funeral expenses incurred by the deceased spouse, regardless of whether there are sufficient probate assets to cover them. By having life insurance, you can make sure your spouse will be taken care of and able to pay those debts at your death.
Life insurance can also be a valuable estate planning tool for clients who own businesses, as life insurance can be purchased to allow a business to continue after the death of an owner. For example, life insurance can be used to fund a buy-sell agreement between business partners. A buy-sell agreement sets the terms and prices that a surviving partner must honor in order to buy the shares of the business partner who leaves the business or passes away. If one partner dies, the surviving partner will receive the death benefit and can use those funds to pay the deceased partner’s heirs for the deceased partner’s ownership interest in the company. This allows the surviving partner to keep the business while compensating the deceased partner’s family.
These are just some of the benefits and potential uses for life insurance as part of your estate plan. At Jesson & Rains, we understand that a comprehensive estate plan involves both estate planning documents and products like life insurance to make sure that your loved ones are adequately protected and provided for at your death. If you have questions about estate planning, please call Jesson & Rains!
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