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Life insurance can play important role in estate planning

Life insurance can be a strong component of estate planning in Texas and elsewhere. Most people, however, do not place the purchase of life insurance on their priority lists. Life insurance can pay for funeral expenses and post-death bills. It can provide funding for special trusts and may be used to pay tax obligations after death. Of course, there is the general estate planning purpose goal of providing an extra level of financial security to one's loved ones after death.

For younger families, a working parent should consider purchasing enough insurance to cover his or her income for five to 20 years. The policy can also account for getting the children through college. The good news is that a substantial amount of basic term insurance coverage can be bought for modest premiums by younger persons in the prime of life.

When leaving the proceeds to a minor, however, the probate court may become involved, and the appointment of a guardian could become necessary. One way around that problem is to create a testamentary trust in one's will and name the trust as the beneficiary on the policy. The trust will be administered by the grantor's chosen trustee and not by an expensive court-appointed stranger.

Living trusts are always a potential component of estate planning in Texas and elsewhere. The trust can provide the instructions on using the life proceeds at death for the use of the minor. The question of whether to make the living trust revocable or irrevocable can be best resolved in consultation with one's estate planning attorney. In some instances, a qualified financial planner will also be a useful partner in the planning process.

Source: Tampa Bay Times, "A quick guide to buying life insurance", Mar. 12, 2016

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