Using Survivorship Life Insurance in Estate Planning

Estate planning in Texas involves making decisions about issues like what type of life insurance policy to buy. An option you might consider if you’re married or in a similar formal relationship is a survivorship life insurance policy. Although these policies aren’t for everyone, they can play valuable roles in estate planning.

What Is Survivorship Life Insurance in Dallas, TX?

Survivorship life insurance is a type of insurance you might consider if you wish to cover yourself and a spouse or partner under the same life insurance policy. Individual life insurance covers one person and pays out death benefits when they die.

A survivorship life insurance policy is different. When one spouse or partner covered by  a policy dies, the policy doesn’t pay out until the surviving spouse or surviving partner under the policy also passes. In other words, a survivorship life insurance policy’s death benefit doesn’t pay out until both policyholders pass.

How Are Survivorship Life Insurance Policies Helpful in Estate Planning?

A survivorship life insurance policy offers many potential benefits to a married couple in Texas. This type of policy can be used by people in a civil union, by partners who live together, or by business partners, too. The cost of a survivorship life insurance policy may be less than the cost of two policies for two partners, although this isn’t always the case.

A survivorship life insurance policy can also be helpful for estate planning purposes. Consider the following examples:

• Helping cover estate tax costs – The unlimited marital deduction prevents an estate tax from being levied on the estate of a married person after they pass before their spouse. When one spouse dies, as long as their spouse is the sole beneficiary, the surviving spouse can receive the entirety of their estate without paying taxes on it. When the second spouse dies, an estate tax may apply if the total of the estate they pass to their beneficiaries meets or exceeds the estate tax exemption amount. The death benefit from a survivorship life insurance policy could potentially help cover estate taxes and administrative costs in this scenario.
• Reducing the tax burden – The death benefit of a survivorship life insurance policy may be greater than the benefit from an individual policy. Because a life insurance policy’s death benefit isn’t taxable in Texas unless the beneficiary is an estate or other non-person, this option may offer a tax-efficient way to leave more money to beneficiaries.
• Planning to enjoy retirement – Some assume a survivorship life insurance policy is only helpful for couples with large net worths. This isn’t necessarily the case. If retirees wish to spend their savings enjoying themselves during retirement but don’t want to worry about leaving behind nothing for their heirs, a survivorship life insurance policy could offer some peace of mind.
• Providing for a dependent with special needs – A survivorship life insurance policy can also be helpful when a couple has a child or other dependent with special needs. The payout from the policy could help provide for the needs of a dependent either directly or through a special needs trust.
• Funding a business – A survivorship policy is also an option to consider if you own a business and wish to ensure its survival after your passing. The death benefit from a survivorship life insurance policy could go directly to your business partners, helping them keep the company running during a critical transition phase. Alternatively, you could leave the death benefit to your children, providing the funds they may need to smoothly take over the organization.

The specific way you use this type of policy in estate planning will depend on the specifics of your situation. Upon further review, you may decide this type of policy isn’t right for you.

Potential Drawbacks of a Survivorship Life Insurance Policy in Texas

There are potential disadvantages to a survivorship life insurance policy that you should be aware of. For example, you must consider that a policy won’t pay a death benefit until you and your spouse or partner pass. That might not be ideal if you want your beneficiaries to receive the money sooner.

You may also consider the possibility that you’ll get a divorce. If you do, splitting a survivorship life insurance policy could be complicated. These are essential factors to account for when reviewing your options.

Contact an Estate Planning Lawyer in Dallas, TX

You don’t need to determine whether a survivorship policy is right for you on your own. A Dallas, TX, estate planning lawyer from Staubus and Randall can help you sort through your options. We’ll work closely with you to develop a plan that’s right for your goals. Get started today by contacting us online or calling us at 214-691-3411.