Life insurance is an integral part of estate planning for many people in Oklahoma, and the reason why can be quite clear. Policies that are payable upon death help address funeral costs and other pressing post-death expenses. Unfortunately, for some, they can also impose additional expenses during the estate administration process. For those who have a high net worth, it is necessary to exercise caution when working life insurance into an estate plan.
Many people opt to name their own estate as the beneficiary of their life insurance policy, meaning that upon death, the payout will be added to the estate's worth. Life insurance money can also end up being incorporated into the estate if the named beneficiary is not the policy owner's spouse. Even naming a child or close friend means that the payout is added to the estate's worth.
For some, adding the value of a life insurance policy to the worth of an estate is nothing to worry about, as federal estate taxes do not kick in until an estate is worth $5.45 million. This can be a real problem for individuals with a high net-worth, as any amount over the tax limit is taxed at a rate of 40 percent. While exemptions are sometimes available, they are can take time and effort that can otherwise be avoided by ensuring that the insurance policy is not set to roll into the estate.
Federal estate taxes also put an extraordinary burden on surviving heirs in Oklahoma. High net-worth estates already tend to require considerable time and attention to detail during estate administration, which can make the nine-month time limit on paying federal estate taxes difficult to meet. Instead of taking chances with post-death costs and taxes, it is usually a good idea to consider how various insurance policies -- including life insurance -- can impact an estate plan.
Source: Forbes, "Life Insurance Can Bite The Wealthy When It's Time To Pay Estate Taxes", Amy Danise, March 22, 2016