For those in second marriages, life insurance can be the perfect solution to making a comprehensive estate plan.
For the couple above, life insurance worked perfectly. We took the money they had promised to each other, their children, and long term care and put it in one place.
On each spouse, we suggested they purchase a $300,000 life insurance policy. The beneficiaries of both policies were all 3 children, who would each get $100,000 at the death of each spouse.
This means in the end, all children would end up with $200,000 of life insurance payments. We determined they would also all equally split the remaining assets at the death of the second spouse.
By doing this, we were able to ensure that at the death of the first spouse, no matter who went first, their children would get an inheritance while the bulk of the assets would stay with the surviving spouse so they had enough to live off of.
In this specific scenario, the husband had initially made the beneficiary of his IRA a trust, with the trustee being his daughter. Leaving an IRA to a trust not only makes distribution of this money complicated, but also causes the beneficiaries to pay more in taxes, as the Secure Act recently limited the use of a Stretch IRA.
To simplify, it means while his daughter would inherit the IRA money, she would also have to take out large distributions, resulting in a very large tax bill.
Surviving spouses receive special treatment in regards to inherited IRAs. They are able to either withdraw the balance of the IRA over their life expectancy or roll the money into their own IRA. This gives them the ability to pay lower taxes as they do not have to withdraw large amounts.
The best part of this specific life insurance policy though was the addition of the long term care benefit.
If either spouse was to need long term care, they are able to use this policy to pay for care. This policy would give them $6,000 a month for 50 months each to pay for long term care services.
If they used all 50 months, the life insurance benefit would be exhausted and not pay out anything at death. If they used just part of the long term care benefit, the life insurance benefit would be reduced accordingly.
While this means that the children might not get a check at death, they are alright with this, as it protects their parent’s estate from the high cost of long term care services.
All the benefits, whether paid out as life insurance or for long term care are tax free.
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