Life Insurance - Oakland
Life insurance is used in estate planning for support, education expenses, death taxes, and retirement. The main goal for insurance is to ensure beneficiaries are provided for. Proceeds from life insurance are received by the beneficiaries upon the death of the insured, but sometimes life insurance gets included in the decedent's estate when the proceeds are paid to the executor of the decedent's estate, the decedent at death possessed an incident of ownership in the policy, or there is a transfer of ownership within three years of death.
One type of insurance is the First-to-Die Life Insurance Policy, also known as joint whole life insurance. This is a group insurance policy where benefits are paid to the surviving insured on the death of one of the insured group members. A first-to-die policy can reduce taxes upon the death of the first spouse.
Another type of insurance is the Survivorship Life Insurance Policy, also know as second-to-die. This policy insures two or more people and pays out upon the last death instead of the first one. Because the benefit is not paid until the last insured dies, the life expectancy is greater and the premium lower. Survivorship policies are usually written to insure husband and wife or a parent and child. The premium on a second-to-die policy is based on a joint age.
If a life insurance policy is owned by the insured, he has control of the policy. If the spouse of the insured owns the policy, the insured has indirect control of the policy. If the spouse dies before the insured, the policy might revert to the insured and be included in his/her estate. If the children of the insured owned the policy, the death benefit would be included in the children's estate, not the parent's. The insured has no control over the policy, and if the children are minors it would require appointment of legal guardians before benefits can be paid. The policy might be owned by a revocable trust, where the insured might be in control of the policy and the death proceeds shielded from potential creditors of the insured. Because the insured has an incident of ownership through the revocable trust, the death benefit is includable in the insured's gross estate and could be accessible to the estate's creditors. If the policy is owned by an irrevocable trust, there is no inclusion in the gross estate, and the insured does not regain any control over the policy and cannot revoke the trust.
If an individual is named as beneficiary of a policy, the decedent cannot exert control over the death proceeds. The individual that inherits the death benefits can use the money for any reason.
If an estate is named beneficiary of the policy, the death benefits are includable in the decedent's gross estate and are subject to the e estate's creditors. If the beneficiary is an irrevocable trust, the trustee can distribute or withhold benefits available to the insured's estate, the assets are protected from creditors and the trust's assets can be assigned to professional money managers.
