How Are Survivorship Life Insurance Policies Helpful in Estate Planning?

Survivorship life insurance policies are helpful in estate planning because they provide a tax–efficient way to transfer wealth to heirs, cover estate taxes, and protect assets after both policyholders have passed away.

Also known as second-to-die life insurance, this type of life insurance policy covers two people, typically spouses, and pays out the death benefit only after both insureds have died.

Our Gilbert trust and estate planning attorneys bring 30 years of combined experience helping clients build comprehensive plans that protect what matters most. Keep reading to find out the answer to, “How are survivorship life insurance policies helpful in estate planning?”

How Are Survivorship Life Insurance Policies Helpful in Estate Planning?

Survivorship insurance serves several important functions in a well-structured estate plan. Here is a closer look at the most common ways a survivorship life insurance policy provides value:

Covering Estate Taxes

One of the primary uses of a survivorship life insurance policy is to cover federal estate taxes that become due after both spouses have died.

Under current law, married couples can take advantage of the unlimited marital deduction, meaning no estate taxes are owed when the first spouse dies, and assets pass to the surviving spouse.

However, when the second spouse dies, the estate may be subject to significant federal estate taxes. The death benefit from a survivorship insurance policy can be used to pay those taxes without forcing heirs to sell off property, investments, or a family business.

Preserving Wealth for Heirs

A survivorship life insurance policy is an effective tool for wealth transfer. The death benefit passes directly to beneficiaries, typically income tax-free, providing heirs with a financial cushion that preserves the overall value of the estate.

This is especially valuable for high-net-worth families who want to pass on assets without diminishing their worth through taxes or liquidation.

Funding an Irrevocable Life Insurance Trust

Many estate planning attorneys recommend placing a life insurance policy inside an irrevocable life insurance trust, commonly known as an ILIT. When structured correctly, the death benefit is kept outside of the taxable estate, which can significantly reduce the estate tax burden.

The trust owns the insurance policy and distributes proceeds to beneficiaries according to the terms set by the grantor, offering both tax advantages and control over how funds are used.

Additional Benefits of Survivorship Insurance

Beyond covering federal estate taxes and facilitating wealth transfer, a survivorship life insurance policy offers a range of additional benefits that make it one of the most versatile tools in estate planning.

The right life insurance policy can address financial challenges that other estate planning tools simply cannot. Here is a closer look at some of the additional advantages survivorship insurance provides.

Providing for a Special Needs Beneficiary

Survivorship life insurance is commonly used by parents of children with special needs.

Because the life insurance policy pays out after both parents have passed, it can fund a special needs trust that provides long-term financial support for the child without disqualifying them from government benefits such as Medicaid or Supplemental Security Income.

This type of planning ensures the child is cared for even when neither parent is alive to provide direct support.

Lower Premiums Compared to Individual Policies

Because a survivorship insurance policy only pays out after both insureds have died, the risk to the insurance company is lower than it would be for two separate individual policies.

This typically results in lower premium costs, making it a more affordable option for couples who want substantial coverage as part of their estate plan.

Even if one spouse has health issues that would make an individual insurance policy expensive or difficult to obtain, a survivorship life insurance policy may still be available at a reasonable rate.

Equalizing Inheritances Among Heirs

In situations where an estate includes illiquid assets such as real estate or a family business, it can be difficult to divide the estate equally among multiple heirs.

A survivorship life insurance policy can provide a cash death benefit to heirs who are not receiving the illiquid asset, effectively equalizing the inheritance without requiring the sale or division of the primary asset.

Why Do You Need an Estate Planning Attorney?

Survivorship insurance and estate planning without professional guidance can lead to costly mistakes that affect your family for generations. The legal and tax implications involved are significant, and the stakes are too high to leave to chance.

A qualified estate planning attorney, working alongside your financial advisor, will:

• Review your overall estate plan to determine whether a life insurance policy fits your goals
• Coordinate with your financial advisor to ensure the insurance policy is properly structured
• Draft or update trust documents, such as an ILIT, to maximize tax benefits
• Advise on beneficiary designations to avoid unintended tax consequences
• Help you plan for special needs beneficiaries with the appropriate trust structures
• Ensure your plan complies with current federal estate tax laws and regulations
• Update your plan as laws change, so your family remains protected over time

Without an attorney, you risk structuring your life insurance policy in a way that inadvertently increases your estate tax exposure or fails to achieve your intended wealth transfer goals.

Contact The Law Offices of Brandon White

Now you know the answer to, “How are survivorship life insurance policies helpful in estate planning?” If you are considering survivorship insurance as part of your estate plan, The Law Offices of Brandon White is here to help.

Our team brings 30 years of combined experience guiding clients through complex estate planning decisions in Gilbert and the surrounding areas. We take the time to understand your unique situation and build a plan that protects your assets and your loved ones.

Contact us today for a free consultation and let our Gilbert estate planning lawyers help you plan for the future with confidence. Start your success story now.