A person in Maryland might have a will drawn up or a trust put into place as a means of passing on his or her property to heirs. Yet one important part of an estate plan that may go overlooked is life insurance. This is because life insurance proceeds can, in some circumstances, be used to pay the taxes that may come along with inheriting an estate, allowing the beneficiary to retain property in the process.
For example, if a person passes away leaving a substantial estate, that estate could be subject to the estate tax. Similarly, if the deceased leaves behind an individual retirement account, withdrawals made by the account beneficiary may be considered income and, as a result, taxed. Life insurance proceeds can be used to pay these taxes, meaning that a person's heirs will not have to sell other property to meet his or her tax obligations.
That being said, there are some pitfalls a person should look out for when it comes to including life insurance in an estate plan. One mistake is to include only one person as the life insurance beneficiary. Having a couple's secondary beneficiaries in place can prove to be useful if the primary beneficiary passes away before the policyholder.
Similarly, one may want to avoid making an estate in general the beneficiary of a life insurance policy. This is because once the money is part of the estate, it will be subject to creditors and taxes, just like the rest of the estate.
One should also make sure that he or she carries a sufficient amount of life insurance. This can ensure that a beneficiary, such as a young child, will have the financial resources that are needed during his or her lifetime. This may be especially useful for parents. After all, no one can predict when a parent is going to unexpectedly pass away.
Those in Maryland who are considering purchasing life insurance have a lot to think about. It is important to carefully choose one's beneficiaries. It is also important to consider the big picture, with life insurance being only one piece of theestate planning puzzle. It is possible that for some, choosing to purchase a life insurance policy may be a good idea.