Life insurance may play a vital role in an estate plan because insurance proceeds can be counted on to provide liquidity when it’s needed. With proper planning, insurance money can pay expenses such as estate tax and keep other assets intact.
Suppose, for example, Bill Smith dies and leaves a large estate to his daughter Julia. Substantial estate tax is due. However, most of Bill’s assets are tied up in real estate and an IRA. Julia might not want to rush into a forced sale of the real estate. However, if she taps the inherited IRA to raise cash, she will have to pay income tax on the withdrawal and lose a valuable opportunity for extended tax deferral.
Read more at: https://www.fedweek.com/retirement-financial-planning/careful-use-of-life-insurance-in-estate-planning/
