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Use Life Insurance as an Estate Planning Tool

Use Life Insurance as an Estate Planning Tool

If you have several children, an extended family, or a number of beneficiaries to whom you wish to pass assets when you die, dividing your estate equally can be difficult. That is especially if your estate includes assets like real estate or a business. One simple way to avoid selling certain assets in order to divide your estate is to purchase life insurance that makes up the difference.

For example, say you own a home, have three kids, and your home makes up half of the value of your estate. You hope to leave an equal share of your estate to each of your three children. In order to do divide your estate into three equal shares, the home will have to be sold.

If you hope to leave the home to one of your children, life insurance could be a simple solution. Say your home is worth $1 million and you also own $1 million in other assets. Purchase a life insurance policy worth $1 million and make two of your children equal beneficiaries. Then leave the $1 million home to one child and half of your other assets to the other two children (the two who receive an equal share of the life insurance). The life insurance policy makes up the difference, each child gets an equal share, and your home will not need to be sold.

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