Life Settlements — An Important Tool in Estate Planning

Since Life Settlements offer clients a new estate planning tool, attorneys should include them as an option to meet their clients’ ever changing goals and needs.  Because a Life Settlement removes the life insurance benefit from the original beneficiary’s estate, it is important to evaluate the estate and probate considerations arising from the sale. This is why we stress the evaluation of a Life Settlement by a qualified tax consultant.

Attorneys have a fiduciary responsibility to their clients and are encouraged to perform due diligence when recommending the Life Settlement option as an estate planning technique. Attorneys will also be expected to make sure the settlement broker acts in a responsible manner by effectively shopping the case to enough companies to secure the best offer. 
Life Settlements are becoming a material part of estate planning because they can eliminate premiums and free up assets for the purchase of other financial instruments (or for donation to charity or family). Thus, they should always be considered an option when discussing changes to a client’s insurance plan.

When determining if a client is a candidate for a life settlement, the following questions should be asked:

  • Is this the best time for the client to sell given their current health?
  • Is the coverage still needed?
  • If surrendered, should an annuity or Long Term Care be purchased?
  • Is a Life Settlement or a 1035 exchange more appropriate for this client if they are still insurable?