Life Insurance and Your Estate Plan


Life insurance can play an important role in your estate plan. Life insurance can be used to provide for heirs, which is crucial if you have a stay-at-home spouse or young children who rely on your income. Life insurance can also be used to help ensure that your financial obligations will be fulfilled in the event of your death, which is why a life insurance policy is sometimes required as part of a divorce settlement.

If you own life insurance, you can either list one or more beneficiaries to receive the insurance proceeds upon your death or make the proceeds from the insurance policy payable to your probate estate or to a trust you've created. If insurance proceeds are payable to your estate, the money is distributed according to the terms of your will or the terms of the state's intestacy laws if you die without a will. If proceeds are paid to a trust, they are held in the same manner as other trust assets.

Using a trust for insurance proceeds protects assets from creditors and offers a certain amount of income tax planning and distribution flexibility. In addition, a trust can be used to care for a minor child's needs since children can't be given an inheritance directly.

Depending upon your other assets and the size of your life insurance policy, planning may be necessary to help shield insurance proceeds from estate taxes. The proceeds from life insurance are income tax free, but they are still subject to estate taxes in some cases. Large insurance policies can often cause your estate to surpass the exclusion amount, which rises to $5.43 million per person in 2015. Proceeds are included in your gross estate if they are payable to your estate directly or indirectly, or if you have a named beneficiary and have ownership in the policy at the time of your death.

How Can We Help?

If you are in need of legal representation relating to an estate planning issue, please call our office at (626) 683-8113 or email us at Our experienced Pasadena estate planning attorneys can help you evaluate your options and create an estate plan that best addresses your unique needs.