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Published: Jul 12, 2021

Updated: Dec 8, 2023

How Survivorship Life Insurance Helps in Estate Planning

Published: Jul 12, 2021

Updated: Dec 8, 2023

Key Takeaways:

  • Survivorship life insurance offers greater death benefits at lower costs than typical life insurance because the benefits are not paid until two or more policyholders have died.

  • Because survivorship life insurance lists someone other than the decedent’s estate as a beneficiary, this type of insurance does not need to be distributed by a court through a probate process.

  • Survivorship life insurance may not be right for those who will need the death benefits in the immediate term in order to pay off expenses after the death of their spouse

Is survivorship life insurance more advantageous for estate planning than a typical life insurance policy? The answer, in part, depends on the needs of one party upon the death of another and is typically seen in spousal relationships or business partnerships. Like typical life insurance, survivorship life insurance is a tax-free investment that provides a source of capital to beneficiaries that can be used to help pay the costs of administering the estate of someone who has passed away or to replace or supplement the lost value or earning potential of the decedent (the person who passes).[1] Such expenses may include funeral expenses, a business buy-out, or estate taxes.[2]

Often called second-to-die, last-to-die, or joint-life insurance, survivorship life insurance covers two or more policy owners in one and promises death benefit payments only once all the listed policy holders have died.[3] In contrast, a typical life insurance policy only insures one individual.

Because survivorship life insurance policies list someone other than the decedent as a beneficiary, survivorship policies are considered non-probate assets.[4] As a result, a will would not control the distribution of the property and instead the proceeds would go directly to the appointed beneficiaries.[5]

Under Florida Law, probate assets are assets that are solely owned by or in the name of the owner or that are jointly owned without rights of survivorship, including certain bank accounts, personal property, real estate,[6] or life insurance policies with no listed beneficiaries other than the insured’s estate.[7] Non-probate assets are assets that are jointly owned by two or more individuals with rights of survivorship, typically through either joint tenancy or tenancy by the entirety.

While survivorship life insurance has traditionally been used by couples anticipating very large estate taxes upon their death, other situations may merit having such a policy.[8] For instance, it is commonly used by couples to preserve their wealth beyond their lifetime, or by business partners planning the future of their enterprise after their deaths.[9]

Survivorship vs Typical Life Insurance

The most important difference between individual and survivorship life insurance policies is that, on average, the latter offers greater death benefits at lower costs as a result of lower premiums paid throughout a longer period of time.[10] These policies offer lower premiums because insurers will take into account joint life expectancy when calculating the probability of making an early payout. [11] However, the drawback to survivorship policies is that the insurance payout only comes after both spouses have passed—meaning a surviving spouse without a traditional life insurance policy who needs life insurance proceeds to cover expenses will not have any access during the remainder of the spouse’s life.

A unique benefit of survivorship life insurance is that it is more accessible because the insurer might still be willing to insure a couple when one of the planned insureds may not be the ideal candidate.[12] This is because insurers would not have to pay out until another, perhaps healthier person, dies.[13]

Married couples have traditionally used survivorship life insurance to pay their estate taxes, which can be delayed via the marital deduction of the Internal Revenue Code.[14] This deduction allows the first spouse to pass unlimited assets tax-free to the second spouse upon the first spouse’s death.[15] A survivorship life insurance policy in these cases can be used to fund the estate taxes left behind once both insured individuals have passed.[16] Because death benefits are greater for survivorship policies than if the couple had taken out two separate life insurance policies, this type of arrangement can put heirs in a better position to cover the taxes.

While survivorship life insurance helps couples better manage estate taxes, this policy can also be useful for couples with more modest assets who are interested in preserving family wealth. For example, when a married couple wishes to leave their insurance benefits to their children, this type of policy ensures that the benefits go to such beneficiaries without intervention by one of the spouses.[17] On the other hand, if the couple had separate life insurance policies, the second-to-die spouse would get access to the benefits of the first-to-die and the children would not automatically be entitled to the assets.[18]

Parents of a child with special needs who will require ongoing care beyond their lifetime may also want to take out a survivorship life insurance policy to ensure that they have adequately planned financially for their child’s future needs.[19] In such cases, Special Needs Trusts are often used to ensure that the benefits from the insurance policy go towards the child’s care once both parents have passed away.[20]

Survivorship life insurance can serve as a useful tool for estate planning, especially for couples wishing to preserve their wealth or minimize financial risk to their heirs down the road. However, it may not be the preferred choice if a surviving spouse needs to collect insurance benefits in order to pay expenses after the death of their spouse.

References:

[1] See Howard M. Zaritsky & Stephan R. Leimberg, Tax Planning With Life Insurance: Analysis With Forms 1.11(1) (1998) (providing an example where a survivorship life insurance policy could be used to buy assets from the estate of the last survivor and ensure that children end up with property free of tax liability). [2] Id. [3] Id. [4] See The Florida Bar, Important Preliminary Administration Issues § 1.2(E) (10th ed. 2020). [5] Id. [6] Note: Property subject to homestead may be a probate or non-probate asset. [7]See Office of the State Courts Administrator, Probate, Florida Courts, (last visited Jul. 13, 2021). [8] See Zaritsky, supra note 1, at 1.11(2)(a). [9] Id. at 1.11(2)(b)-(d). [10] See Howard J. Saks, Survivorship Life Insurance Products and Their Use in Estate Planning in 1994, 21 Est. Plan. 183 (1994). [11] Id. [12] Id.  [13] Id.  [14] See 26 U.S.C.A. § 2056(a). [15] Id. [16] See Zaritsky, supra note 1, at 1.11(2)(a). [17] See Howard M. Zaritsky, Tax Planning for Family Wealth Transfers at Death: Analysis With Forms 7.02(5)(a)(i) (2014). [18] Id. [19] See W. Michael Parrott, Basic Estate Planning In Florida § 2.2(b) (10th ed. 2020). [20] Id.

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A real estate attorney specializes in property law, helping clients navigate the complexities of buying, selling, and managing real estate, ensuring that transactions comply with state laws and regulations, and providing protection and peace of mind.

Responsibilities of an attorney include drafting and reviewing contracts, negotiating terms, and resolving complex issues such as zoning, leasing, property development, and disputes involving boundaries or titles. Real estate attorneys are also skilled in handling litigation related to construction defects and other property disputes, helping to resolve these matters effectively and prevent potential legal challenges.

By conducting due diligence and offering strategic legal advice, attorneys play an important role in safeguarding clients’ interests. Whether for individual homeowners or commercial property investors, real estate attorneys mitigate risks, represent clients in court, and assist them with making informed decisions that are legally sound.

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Attorneys who practice business law provide legal advice for starting, managing, and expanding businesses, ensuring compliance with applicable laws. Their expertise covers various duties, including drafting and reviewing contracts, advising on corporate governance, facilitating business transactions such as mergers and acquisitions, forming partnerships, LLCs, and other business entities like DBAs, drafting and reviewing LLC Operating Agreements, and assisting with strategic planning.

Business attorneys also help wtih legal matters such as intellectual property rights, disputes, franchising, and regulatory compliance, represent clients in civil litigation to resolve issues like contract breaches and other civil matters, offer advice on administrative and compliance requirements, assist clients who are buying or selling businesses, and even help plan for succession and asset protection.

Attorneys help mitigate risks, safeguard company interests, assist clients in making legally sound, informed decisions, help manage growth, and provide guidance to navigate and resolve legal challenges effectively. Their strategic insights are invaluable in ensuring business operations align with legal standards and long-term objectives.

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Probate

Probate attorneys actively manage the estate administration process following an individual's death, ensuring the distribution of assets aligns with the will or state law, and handle Formal Probate Administration for complex cases, Summary Administration for smaller estates, and Ancillary Administration for assets in other states.

Responsibilities of probate attorneys include filing petitions, appointing personal representatives to manage estate affairs, notifying interested parties to ensure transparency and prevent disputes, helping conduct an inventory and appraisal of the estate's assets, overseeing the payment of debts and expenses, handling probate litigation to resolve any disputes that arise.

They also assist in distributing the assets and formally closing the estate, ensuring all legal and financial responsibilities are met, simplifying the complex probate process, honoring the decedent's wishes, and providing clarity and support to the beneficiaries.

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Wills & Trusts

Will and trust attorneys help draft legal documents to ensure their clients' wishes for asset distribution are executed correctly. They draft personalized and legally compliant wills to designate beneficiaries, appoint executors, and establish trusts for asset management and distribution. It is important to note that wills and trusts are an integral part of the estate planning process.

Responsibilities of wills and trust attorneys include providing legal advice and guidance related to asset protection, minimizing tax obligations, facilitating efficient wealth transfer to designated heirs, offering advice on appointing guardians for minor children, and drafting healthcare directives for unforeseen circumstances.

By providing tailored legal advice and crafting personalized documents, attorneys help clients safeguard their legacies, protect loved ones, and ensure that all documents are both legally compliant and enforceable.

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Estate Planning

Estate planning attorneys provide advice and legal guidance for managing and distributing assets in the event of death or incapacity and assist individuals of various financial backgrounds in preparing essential legal documents such as wills, trusts, and Lady Bird Deeds, and may offer advanced techniques like offshore trusts and family-limited partnerships.

Experienced attorneys offer personalized legal advice, tailoring strategies to meet individual client needs, and assist clients in navigating complex laws and regulations affecting asset management, taxation, and inheritance.

End-of-life planning safeguards wealth and secures a lasting legacy for heirs and charitable causes. Whether estates are modest or substantial, these plans provide invaluable peace of mind and financial security for future generations.

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Civil Litigation

Civil litigation attorneys manage disputes and represent their clients effectively with various legal matters and issues. They provide clear legal advice and handle all aspects of a case, from preparing documents to gathering evidence and preparing for trial. They also offer guidance and experience to help clients navigate the legal system efficiently, ensuring that cases are managed effectively and lead to timely outcomes.

Civil litigators are also skilled negotiators, often resolving disputes outside of court to save time and maintain relationships, which is particularly vital in business and probate matters.

When trials are necessary, they present and argue cases effectively to minimize losses and secure favorable outcomes. They offer continuous support and guidance throughout the litigation process, simplifying complex legal issues for their clients in both personal and business contexts.

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