The “Estate Planner’s Arsenal” series highlights specific estate planning tools and their uses.

Life insurance can be one of the most important and versatile tools in the estate planner’s arsenal. It can be critical in estates big and small, taxable and non-taxable. Depending on your age and insurability, life insurance can be relatively cheap to maintain. Life insurance is a non-probate asset that passes outside the Will. The proceeds are generally not taxable to the recipient and can also be available relatively quickly after death.

Here are just some of the many uses for life insurance in your estate planning. Many of these uses are (or will be) addressed in greater detail in other posts.

• Create a larger inheritance for your heirs – good for small estates
• Create a source of liquidity to pay estate taxes and other expenses
• Equalize inheritances among your heirs, such as when one of them is receiving a business interest or a piece of real estate, and your estate lacks other items of comparable value
• Planning for unmarried couples, especially if there is no Will
• Planning for Blended Families, such as giving your children an inheritance right away rather than after your spouse (not your children's parent) dies 

Note that ownership of the life insurance policy is a very important consideration when planning your estate. If you own the policy in your name and retain control over the policy, the proceeds will be considered part of your estate when you die. Depending on the value, this can have estate tax implications upon your death. However, there are tools available to avoid that result, such as Irrevocable Life Insurance Trusts (ILIT).

Speak with an estate planning attorney, perhaps in conjunction with an insurance advisor, to see how life insurance can be incorporated into your estate plan and help you achieve your distribution goals.