Estate Planning and Life Insurance

You work a lifetime to accumulate an estate; however, at your death the assets you pass onto your heirs may be subject to federal estate taxes and state inheritance taxes. If your estate is subject to estate taxes, taxes are due usually within 9 months of your death. Life insurance can play an important role in estate planning by providing the income necessary to pay estate taxes and expenses and provide liquidity so those expenses can be paid. Some expenses that must be paid upon an individual's death may include:

• probate fees
   
• legal and administrative fees
   
• debts
   
• funeral expenses

There are three options to pay estate taxes and expenses: use cash (it may be unlikely there will be much cash available), borrow the money (the money will have to be repaid with interest), pay Revenue Canada a lump sum or in installments, or pay now by purchasing a life insurance policy with the possibility of paying pennies on the dollar. Proper planning now may enable you to pass more of your estate to your heirs. Proper planning involves identifying estate transfer costs (federal estate taxes, state inheritance taxes, probate, etc.), using available tax breaks to reduce costs and determining the least expensive method of paying for remaining taxes and costs.