Estate planning is an important part of building your economic and financial future and you can not have a complete estate planned unless you also include life insurance in the planning of your estate.

There are many ways that life insurance can be used in estate planning. One good way is for maintaining the lifestyle of your family after your death. In this case the life insurance is used to pay off debt and to provide a lump sum of cash, which can then be drawn on in the event of your death.

Another use of life insurance in an estate plan is for dividing and distribution of your estate equitably. You could, for example, have one person who is the heir to your business that may be valued at a couple million dollars and still provide another heir with a couple of million in life insurance proceeds.

Life insurance in an estate plan can also be used to reduce or eliminate gift and estate taxes. You could, for example, have an older individual who transfers his residence to a Qualified Personal Residence Trust (QPRT). The residence will then eventually pass to the younger family members without any additional gift tax - assuming that the grantor survives the required retained term and the younger family member buys a life insurance policy to insure the older member against the risk that the residence may be returned to the grantor's estate in the event that the grantor dies during the mandated retained term. There are similar programs that can be established using life insurance for Family Limited Partnerships (FLPs), Grantor Retained Annuity Trusts (GRATs), Private Annuities and others.

Life insurance is often used in estate planning as a means for solving future liquidity needs. In this way the benefit of the life insurance policy is used to pay administrative costs, gift and estate taxes. Many times an estate may be made up of non-liquid property or possessions including artwork collectibles, jewelry and family heirlooms that heirs would rather not sell to pay off estate expenses. In a case such as this, life insurance can be used to provide for the needed liquidity in order to pay the expenses associated with the estate.

The above are several examples of how life insurance serves to help in the planning of estates. These examples are only the very tip of the iceberg. There are numerous other ways by which life insurance can be employed in order to solve those issues that are often associated with estate and gift taxes. However, only a licensed professional can best help you determine those planning techniques that are most appropriate to your situation. Therefore it is good sense to closely work with a Life Insurance Professional and CPA.