Michigan Estate Planning Blog

What are the Different Types of Trusts?

 

Fortune’s recent article, “Understanding trusts: An important estate planning tool for everyday Americans,” gives a concise run-down of all of the various types of trusts.

AB Trust. Also called a credit shelter or bypass trust, this trust is used by married couples to get the most benefit from estate tax exemptions. An AB trust is two trusts. The easiest way to remember them is that the A trust is for the person “above ground,” and the B trust belongs to the person “below ground.” Assets up to the annual estate tax exemption are put in the B trust to avoid estate taxes and usually pass to the couple’s children (“bypassing” the spouse). The remaining assets are placed in the surviving spouse’s A trust. When the surviving spouse dies, assets in both trusts pass to the designated beneficiaries.

An AB trust may be best for highly affluent married couples with large estates wanting to max out their estate tax exemptions.

Charitable Trust. This trust can benefit three parties: you, the grantor, your beneficiaries, and a charitable cause. They come in two types—charitable remainder trusts and charitable lead trusts. They still have one thing in common: the benefiting charity must be a qualifying organization per Internal Revenue Service guidelines. A charitable remainder trust is a type of irrevocable trust that provides income for you or your beneficiaries during your lifetime. You typically will move highly-appreciated assets into the trust, which the trust then sells—avoiding capital gains taxes—to create the income stream. After your death, the remaining assets in the trust are distributed to one or more charitable causes. A charitable lead trust is an irrevocable trust that’s the opposite of a charitable remainder trust. It first benefits the charitable beneficiaries of your choice during your lifetime. When you die, the remaining assets are distributed to your beneficiaries. A charitable lead trust can be funded during your lifetime or when you die through instructions in your will. A charitable trust may be best for individuals with highly appreciated assets, like stocks, that can be used to help meet philanthropic goals during or after their lifetimes.

Grantor Retained Annuity Trust (GRAT). A GRAT is an irrevocable trust generally used by the wealthy to reduce tax implications for their beneficiaries. You transfer assets into the trust that are expected to appreciate over time and specify the term for which you’ll receive an annuity payment based on those assets. Once the GRAT’s term expires, the assets and any appreciation of those assets in the trust will pass to your beneficiaries with little to no estate tax burden. A GRAT may be best for wealthy individuals who want to help family members avoid paying estate taxes on their inheritance.

Irrevocable Life Insurance Trust (ILIT). Putting life insurance into a trust is a strategy the wealthy use to cover several fronts. You fund an irrevocable trust using one or several life insurance policies. When you die, the payouts from those policies typically avoid estate taxes but can be used to pay for things like state estate taxes and funeral expenses. The funds in the trust can help avoid the need to liquidate assets to meet these financial needs. An ILIT may be best for people who expect to pay state estate taxes and want to protect life insurance policies from creditors or divorce.
Special Needs Trust. This trust can help provide long-term care for a loved one with physical or mental disabilities who’s under age 65. The big benefit of special needs trusts is that assets held in them don’t affect their eligibility for Social Security and Medicaid benefits. There are three types of special needs trusts. Therefore, it is important to create one with an attorney specializing in special needs trusts. This trust may be best for those with mentally or physically disabled family members.

Reference: Fortune (June 9, 2023) “Understanding trusts: An important estate planning tool for everyday Americans”

Are CDs Good for My Estate Plan?

 

Certificates of deposit (CDs) are a low-risk way of saving funds for the short term and earning a modest return on it. When you take out a standard CD, your bank or credit union guarantees that they will pay you a set return on your money. In exchange, you agree to leave your money untouched in the account.

Investopedia’s recent article, “Can You Bypass Probate With CDs?” says that because CDs are a low-risk, time-constrained investment, they’re popular among seniors and often form part of inheritance settlements. When the owner of a CD passes away, it can be inherited in one of three ways. Therefore, it’s a way to pass on money without the CD going through probate.

CDs are treated like any other account as far as inheritance. While probate is frequently used to decide who will inherit particular assets after someone dies, other ways of passing on accounts can be much simpler and less expensive than probate.

There are three common ways to inherit property; only one involves probate. First, some property is jointly owned, passing directly to the co-owner without probate. This applies to joint accounts (including joint CDs) and real estate owned jointly.

The second category is contract property, like life insurance, retirement accounts and non-retirement accounts with beneficiaries designated upon death. These designations override instructions in the will and pass outside of probate directly to the named beneficiary. These accounts are often designated as payable on death (POD) or transfer on death (TOD). It is possible to add this designation to your CD account.

The third category is everything else. All property not covered above will generally have to go through probate.

If you want to avoid probate for the money you hold in your CD, there are two options available to you—you can either add a payable-on-death (POD) beneficiary to your account or hold it as a joint account. CDs can be held as joint accounts. However, the rules vary by state. In some states, if one joint account owner passes away, the other owner is automatically given full ownership of the account. If you inherit a CD in this way, it will typically continue to run in the way it was before. Once it reaches maturity, you can close it and withdraw the funds. In other states, if the joint owner of a bank account dies, the funds are divided between the surviving owner and the estate of the deceased.

Some CD accounts allow the owner to name a payable-on-death (POD) beneficiary. If the account owner dies, this person will automatically inherit the funds in a CD. These banks may terminate a CD when the account owner dies and allow the POD beneficiary immediate access to these funds. Other institutions will make them wait until the CD reaches maturity. In either case, the CD won’t have to go through probate.

Reference: Investopedia (August 23, 2022) “Can You Bypass Probate With CDs?”

 

Can a Minor Be Named as a Beneficiary?

The significant exception to the rule of not naming a minor as a beneficiary is trusts: you can name a legal minor as the beneficiary of a trust. That’s important because if you want to leave assets to a minor, a trust is the way to do it.

Yahoo Finance’s recent article entitled, “Can I Name a Minor as a Beneficiary?” points out that it’s important to know that property and estate laws are highly state specific. Therefore, consult a local attorney before making any decisions regarding your money and estate planning.

Several legal documents can name someone as the beneficiary of any underlying assets. A beneficiary is the third party who receives some benefit from the document, typically in the form of financial or other property assets.

Four primary types of documents can name a beneficiary when it comes to estate planning:

Wills: In a last will and testament, a beneficiary is the person the will names to receive assets from your estate.

Life Insurance: Here, a beneficiary is an individual who receives a payment from the life insurance policy after the policyholder's death.

Retirement Accounts: A beneficiary in a retirement account is someone who receives the assets in the account after the death of the account holder.

Trusts: In a trust, a beneficiary gets assets from the account based on the terms of the trust and the trustee’s management.

Under most circumstances, a minor can’t receive assets as a beneficiary. The major exception to this is also trusts. Minors can be named as beneficiaries of a trust because the beneficiaries of a trust don’t participate in contractual or financial transactions.

Because minors cannot participate in financial transactions or handle legal matters, they can’t get assets through contracts and legal documents. They can’t directly inherit through a will, nor can they receive assets through a contract, such as a life insurance policy or a retirement account.

Reference: Yahoo Finance (June 19, 2023) “Can I Name a Minor as a Beneficiary?”

What Three Things Do People Overlook on Estate Planning Benefits?

An estate plan is important for everyone. Without a legally enforceable estate plan, a court may apply state laws and decide how your assets will be distributed and who will raise your minor children. In addition to allowing you to direct the wrap-up of your affairs after you are gone, an estate plan can also help you reduce taxes, expedite settling your estate and reduce conflict in your family.

Yahoo Finance’s recent article, “3 Overlooked Benefits of Estate Planning,” explains that planning your estate entails making arrangements to ensure that your wishes are carried out after your death.

While some think estate planning is only for those with mansions and millions in the bank, this isn’t true. Instead, even those with modest assets can benefit from having a defined estate plan.

Remember that the estate planning process isn’t about how much you have—it’s about making sure what you do have ends up where you want it. It may also decide who will be responsible for raising any minor children who survive you.

Your estate plan can also affect taxes, the time it takes to settle your estate, your end-of-life medical care and the odds that your family will fight over it.

Deciding who gets what is the big question of many estate plans. Your estate consists of the assets, property and personal items you own at your death. This may include real estate, bank accounts, life insurance, stocks and investments, retirement accounts, and personal property like collectibles, vehicles, art and jewelry.

The documents in estate plans include a last will and testament, a living will, financial and medical powers of attorney and documents establishing various trusts.

Start your estate plan today with the help of an experienced estate planning attorney and review it periodically to accommodate marriages, divorces and births. The process often includes reviewing your property and wishes, drafting a will, naming an executor, assigning healthcare and financial proxies and settling other matters, like funeral arrangements.

Reference: Yahoo Finance (April 24, 2023) “3 Overlooked Benefits of Estate Planning”

 

What Is Probate?

Investopedia’s recent article, “What Is Probate Court?” explains that people want to avoid or shorten the probate process because of its length and expense. This can be accomplished by creating a living trust, assigning your assets to it and naming beneficiaries for those assets. A living trust is an estate planning tool that can help you avoid probate's usually lengthy, sometimes costly, and always public nature.

Some assets, including life insurance and retirement accounts, are not generally subject to probate. You instead designate beneficiaries for them in the account paperwork held by the life insurance company, retirement plan, brokerage, and bank. As a result, these funds will flow directly to the beneficiaries upon your death.

Another way to reduce probate is to give gifts during your lifetime. Anyone can provide individuals with tax-free money in the form of gifts, as defined by the IRS.

At a probate court hearing, the judge will list the responsibilities of the executor of the will, including contacting any beneficiaries and creditors, appraising the deceased's assets and paying any outstanding creditors and taxes.

At the second court hearing, the judge will ensure that all these tasks have been accomplished and close out the estate, so that the transfers of money and other assets in the estate may start.

Each state has specific probate laws to determine what's required. Unless someone has no assets or descendants when they die, probate may still be necessary to settle the deceased's remaining affairs, including debts, assets and paying their final bills and taxes.

While it can be hard to avoid probate court altogether, some ways to avoid probate include creating a living trust, naming beneficiaries clearly on all investment, bank and retirement accounts, and establishing joint ownership for certain assets.

The time for probate varies depending on the deceased person's assets, the complexity of their will and other factors. For instance, the executor may have to liquidate assets to pay creditors, and selling a home or other property for this purpose can take time. However, the average time it takes to complete is about nine months.

After someone dies, the grief over their loss can be all-consuming for their family and friends. Unfortunately, the probate process can add to this a financial and administrative burden. Yet, with or without a will, the probate process is essential to ensure that all of one's affairs are in order before death.

Investopedia (Sep. 21, 2022) “What Is Probate Court?”

What are Five Keys to Estate Planning?

 

If your family has to sort out your affairs while also dealing with the emotional fallout from losing you, they will soon realize the importance of having an estate plan, whether you are wealthy or not. They’ll also feel the pain of your failing to create one for them.
CNBC’s recent article entitled “5 key things to know when you create a will and make other end-of-life plans” explains that your estate plan spells out whom you want to make decisions and who will inherit what you own. “Estate” refers to possessions and other assets. With that in mind, here are five key things to know if you start thinking about how you’d craft an estate plan.
1. A will may not cover all your bases. A will is a core component of an estate plan. A will states whom you want to have your assets and whom you want as a guardian for minor children. Without a will in place when you die, a judge will decide who gets what or who is appointed guardian.
2. Use care when naming an executor. When you create a will, you name an executor to carry out your wishes and handle your estate. This includes liquidating or closing accounts, ensuring your assets go to the proper beneficiaries and paying any liabilities. An estate plan should also include other end-of-life documents, like a living will that details the health care you want and don’t want if you become unable to communicate those desires yourself. You also can sign a power of attorney to an agent to make decisions on your behalf if you become incapacitated.
3. Some assets get a step-up in basis. If you have assets, such as the family home, and are thinking about giving them to your children while you’re alive, it might make more sense to wait. When these assets are sold, any increase from the so-called cost basis (the value when the asset was acquired), and the sale price is subject to capital gains taxes. However, at your death, your heirs who inherit receive a “step-up in basis.” This means that the market value of the asset at your death becomes the cost basis for the heir. As a result, any appreciation prior to that is untaxed. Therefore, when the heir sells the asset, any gains (or losses) are based on the new cost basis. In comparison, if you were to gift such appreciated assets to heirs before your death, they’d assume your original cost basis — which could translate into a large tax bill when the assets are sold.
4. You may want to consider a trust. If you want your children to receive money but don’t want to give a young adult or one with poor money management total access to a sudden windfall, consider creating a trust to be the beneficiary of a particular asset. A trust holds assets on behalf of your beneficiary. The assets are left to the trust instead of directly to your heirs. They can only receive money according to how (or when) you’ve stipulated in the trust documents. Ask an experienced estate planning attorney to help you with this.
5. You’ll need to review your estate plan. When you have a major life change, like the birth of a child or divorce, you need to review your estate plan. If you move to a new state, check to see if you need to update any part of your plan, so it follows that state’s laws.
Reference: CNBC (March 19, 2023) “5 key things to know when you create a will and make other end-of-life plans”

When Should I Begin Estate Planning for the Farm?

 

Successful Farming’s recent article entitled “Is 50 Too Early For Estate Planning?” gives us some guidelines, so you can address the what-ifs as changes occur and eventually solidify everything.
Let’s look at some key guidelines:
1. Define parameters. Regardless of what age you implement your plan, it needs definition. Outline the basics like how the rent will be calculated, how buyouts will be done, what defines a farming heir and at what ages distribution should happen.
2. Lay out options. There need to be “defined options.” These include:
Who has the option to farm?
Who has to option to rent or buy?
Are there equal options or secondary options?
3. Consider involvement. Your plan should reward those who are involved on the farm. You might want to hold off on the actual distribution of any assets until the youngest child has reached the age of 25 or 30. This gives everyone the opportunity to be involved if they want to.
4. Choose the right document. For example, drafting a revocable trust or planning a will allows you to make changes later in your lifetime.
With a revocable trust, its terms can be altered or canceled based on the wishes of the grantor or the originator of the trust. During the life of the trust, income earned is distributed to the grantor, but when they die, the property transfers to the trust’s beneficiaries.
5. Don’t overpromise and under-deliver. If you tell your children you’re going to do what will help them keep the farm together, be sure you do it. If you tell someone without documenting, it can lead to a major conflict later.
6. Update your life insurance. You can also change ownership and beneficiary designations of life insurance policies.
The biggest “what if” is “what if you don’t have anything in place?”
Reference: Successful Farming (March 16, 2023) “Is 50 Too Early For Estate Planning?”

What Is a Beneficiary?

 

A beneficiary can be designated by the owner or automatically assigned through the policy or contract. It’s essential to understand who these beneficiaries are and how they will be affected by the annuity payments to best plan for retirement income needs, says The Salisbury Post’s recent article entitled “What exactly is a beneficiary?” Let’s look at the different types:

Primary Beneficiary: This is typically designated by the owner when they buy the account who will receive any remaining funds from the annuity after the owner’s death. If there are multiple primary beneficiaries on an account, each may get a proportional portion of any remaining funds at death based on their age and relationship to the owner. Depending on individual circumstances, this may be taxable.

Secondary Beneficiaries: This is another individual who might benefit from an annuity upon the death of both owners (if it’s owned jointly). If a secondary beneficiary isn’t named, any remaining funds will pass directly through the owner’s estate according to state laws of intestate succession, if applicable.

Contingent Beneficiaries: In some instances, an owner may want to name a contingent beneficiary in the event that the primary and secondary beneficiaries predecease him or her before taking ownership of the annuity.

Annuity owners should keep their beneficiaries up to date by making sure they’re aware of changes in their lives such as marriages, divorces, the births or adoptions of children, the deaths of a loved ones, or any other relevant life events that may impact the ownership and/or distribution of the annuity policy.

It’s also important to think about the tax implications for everyone involved and how the funds should be allocated should something unexpected happen.

By understanding annuity beneficiaries and taking the time to name them correctly, an annuity owner can be sure his or her beneficiaries receive the funds from the annuity in accordance with their wishes.

Speak to an experienced estate planning attorney for more information about annuities and how naming the correct beneficiaries may help protect both you and those closest to you in the future.

Reference: Salisbury Post (Feb. 26, 2023) “What exactly is a beneficiary?”

Top Benefits of Estate Planning

Despite the hard lessons learned during the COVID pandemic, surveys repeatedly show most Americans still don’t have an estate plan in place. According to the article “Five benefits of estate planning” from The Aspen Times, a comprehensive estate plan ensures your assets are distributed according to your wishes when you die, minimizes taxes on your estate and protects your loved ones, especially those who depend on you financially. In addition, estate planning protects you while you are living and ensures that your wishes are followed, if you become incapacitated.

Protect Yourself and Your Assets During Your Lifetime. No one likes to consider themselves at risk of incapacity. However, this happens. If you become mentally or physically incapacitated during your lifetime, you might not be able to earn income, or make decisions for yourself. Part of an estate plan includes documents to address these risks to protect yourself, your family and your assets.

Designating a health care proxy and a power of attorney gives people you choose the ability to make decisions on your behalf. Otherwise, the responsibility for your medical, legal and financial decisions may go to someone you don’t even know.

Asset Distribution. Without a last will, your home state’s laws govern the distribution of your assets. Your intentions to care for certain individuals won’t be relevant, as the law itself decides who gets what. A last will is used to state exactly how you want assets to be distributed. Your last will should be updated as your financial situation and/or family dynamics change. You should also review designated beneficiaries on investment accounts and insurance policies regularly and especially after any major life changes.

Minimize Transfer Taxes. While there’s no way to predict what taxes will take effect in the future, it’s safe to assume there will be taxes on your estate. If you hope to leave wealth of any size to your family, proper estate planning is crucial. There are many different strategies to minimize taxes on inherited wealth, including life insurance, Roth IRA conversions, lifetime giving and trusts. Your estate planning attorney will be able to create a plan suited for your unique situation.

Protect Family Wealth. As people accumulate wealth, they often become the targets of frivolous lawsuits. For this reason, placing assets in certain types of trusts can ensure efficient wealth transfer, as well as protecting assets from predators and creditors.

Create and Continue a Legacy. Legacy planning is part of the estate planning process. Many people donate money or assets on their death to causes they supported during their lifetime. These goals can be achieved by contributing to a donor advised fund, creating a family foundation or setting up a philanthropic trust.

Creating an estate plan is also a useful tool for having candid discussions with the family about the future, avoiding future conflicts and making your estate administration easier for loved ones.

Reference: The Aspen Times (Jan. 24, 2023) “Five benefits of estate planning”

Top Benefits of Estate Planning

Despite the hard lessons learned during the COVID pandemic, surveys repeatedly show most Americans still don’t have an estate plan in place. According to the article “Five benefits of estate planning” from The Aspen Times, a comprehensive estate plan ensures your assets are distributed according to your wishes when you die, minimizes taxes on your estate and protects your loved ones, especially those who depend on you financially. In addition, estate planning protects you while you are living and ensures that your wishes are followed, if you become incapacitated.

Protect Yourself and Your Assets During Your Lifetime. No one likes to consider themselves at risk of incapacity. However, this happens. If you become mentally or physically incapacitated during your lifetime, you might not be able to earn income, or make decisions for yourself. Part of an estate plan includes documents to address these risks to protect yourself, your family and your assets.

Designating a health care proxy and a power of attorney gives people you choose the ability to make decisions on your behalf. Otherwise, the responsibility for your medical, legal and financial decisions may go to someone you don’t even know.

Asset Distribution. Without a last will, your home state’s laws govern the distribution of your assets. Your intentions to care for certain individuals won’t be relevant, as the law itself decides who gets what. A last will is used to state exactly how you want assets to be distributed. Your last will should be updated as your financial situation and/or family dynamics change. You should also review designated beneficiaries on investment accounts and insurance policies regularly and especially after any major life changes.

Minimize Transfer Taxes. While there’s no way to predict what taxes will take effect in the future, it’s safe to assume there will be taxes on your estate. If you hope to leave wealth of any size to your family, proper estate planning is crucial. There are many different strategies to minimize taxes on inherited wealth, including life insurance, Roth IRA conversions, lifetime giving and trusts. Your estate planning attorney will be able to create a plan suited for your unique situation.

Protect Family Wealth. As people accumulate wealth, they often become the targets of frivolous lawsuits. For this reason, placing assets in certain types of trusts can ensure efficient wealth transfer, as well as protecting assets from predators and creditors.

Create and Continue a Legacy. Legacy planning is part of the estate planning process. Many people donate money or assets on their death to causes they supported during their lifetime. These goals can be achieved by contributing to a donor advised fund, creating a family foundation or setting up a philanthropic trust.

Creating an estate plan is also a useful tool for having candid discussions with the family about the future, avoiding future conflicts and making your estate administration easier for loved ones.

Reference: The Aspen Times (Jan. 24, 2023) “Five benefits of estate planning”

Is a Trust a Good Idea?

If chosen wisely, with the help of an experienced estate planning attorney, a trust can be a great chance to minimize taxes on your estate.

Forbes’ recent article entitled “Estate Planning Opportunities: How Trusts Can Minimize Taxes On Your Legacy,” explains that trusts are legal arrangements that benefit causes or people you choose down the line. They vary in how they are activated and accessed, according to these basic types.

Revocable or irrevocable: In a revocable trust, a grantor can reclaim assets whenever they want during their lifetime. In an irrevocable trust, a grantor gives up the right to reclaim property once the trust is designated.

Testamentary or living: a testamentary trust, created under a last will, becomes effective when the grantor dies and then becomes irrevocable to administer the inheritance. A living trust, also called an “inter-vivos trust,” is a transitionary method that helps with incapacity planning, putting a trust into action before death, and avoiding potential problems in the probate process.

Grantor or non-grantor: In a grantor arrangement, income is generally taxed to the grantor rather than to the trust. In a non-grantor arrangement, income is generally taxed to the trust (unless it is being distributed that same year).

With the help of an experienced estate planning attorney, you can look at the best opportunities for you to protect your assets from unnecessary charges, leaving behind as much of your legacy as possible.

Reference: Forbes (May 23, 2022) “Estate Planning Opportunities: How Trusts Can Minimize Taxes On Your Legacy”

What Should I Know about Estate Planning before ‘I Do’?

Romance is in the air. Spring is the time for marriages, and with America coming out of the pandemic, wedding calendars will be filled.

AZ Big Media’s recent article entitled “5 estate planning tips for newlyweds” gives those ready to walk down the aisle a few things to consider.

1. Prenuptial Agreement. Commonly referred to as a prenup, this is a written contract that you and your spouse enter into before getting legally married. It provides details on what happens to finances and assets during your marriage and, of course, in the event of divorce. A prenup is particularly important if one of the spouses already has significant assets and earnings and wishes to protect them in the event of divorce or death.

2. Review you restate plan. Even if you come into a marriage with an existing plan, it’s out of date as soon as you’re wed.

3. Update your beneficiary designations. Much of an individual’s estate plan takes place by beneficiary designations. Decide if you want your future spouse to be a beneficiary of life insurance, IRAs, or other pay on death accounts.

4. Consider real estate. A married couple frequently opts to live in the residence of one of the spouses. This should be covered in the prenup. However, in a greater picture, decide in the event of the death of the owner, if you’d want this real estate to pass to the survivor, or would you want the survivor simply to have the right to live in the property for a specified period of time.

5. Life insurance. You want to be sure that one spouse is taken care of in the event of your death. A married couple often relies on the incomes of both spouses, but death will wreck that plan. Think about life insurance as a substitute for a spouse’s earning capacity.

If you are soon-to-be-married or recently married and want to discuss it with an expert, make an appointment with a skilled estate planning attorney.

Reference: AZ Big Media (March 23, 2022) “5 estate planning tips for newlyweds”

How Do I Avoid Probate?

 

Probate can tie up the estate for months and be an added expense. Some states have a streamlined process for less valuable estates, but probate still has delays, extra expense and work for the estate administrator. A probated estate is also a public record anyone can review.
Forbes’ recent article entitled “7 Ways To Avoid Probate Without A Living Trust” says that avoiding probate often is a big estate planning goal. You can structure the estate so that all or most of it passes to your loved ones without this process.
A living trust is the most well-known way to avoid probate. However, retirement accounts, such as IRAs and 401(k)s, avoid probate. The beneficiary designation on file with the account administrator or trustee determines who inherits them. Likewise, life insurance benefits and annuities are distributed to the beneficiaries named in the contract.
Joint accounts and joint title are ways to avoid probate. Married couples can own real estate or financial accounts through joint tenancy with right of survivorship. The surviving spouse automatically takes full title after the other spouse passes away. Non-spouses also can establish joint title, like when a senior creates a joint account with an adult child at a financial institution. The child will automatically inherit the account when the parent passes away without probate. If the parent cannot manage his or her affairs at some point, the child can manage the finances without the need for a power of attorney.
Note that all joint owners have equal rights to the property. A joint owner can take withdrawals without the consent of the other. Once joint title is established you cannot sell, give or dispose of the property without the consent of the other joint owner.
A transfer on death provision (TOD) is another vehicle to avoid probate. You might come across the traditional term Totten trust, which is another name for a TOD or POD account (but there is no trust involved). After the original owner passes away, the TOD account is transferred to the beneficiary or changed to his or her name, once the financial institution gets the death certificate.
You can name multiple beneficiaries and specify the percentage of the account each will inherit. However, beneficiaries under a TOD have no rights in or access to the account while the owner is alive.
Reference: Forbes (March 28, 2022) “7 Ways To Avoid Probate Without A Living Trust”

Why Is Estate Planning Review Important?

Maybe your estate plan was created when you were single, and there have been some significant changes in your life. Perhaps you got married or divorced.
You also may now be on better terms with children with whom you were once estranged.
Tax and estate laws can also change over time, requiring further updates to your planning documents.
WMUR’s recent article entitled “The 'final' estate-planning step” reminds us that change is a constant thing. With that in mind, here are some key indicators that a review is in order.
The value of your estate has changed dramatically
You or your spouse changed jobs
Changes to your income level or income needs
You are retiring and no longer working
There is a divorce or marriage in your family
There is a new child or grandchild
There is a death in the family
You (or a close family member) have become ill or incapacitated
Your parents have become dependent on you
You have formed, purchased, or sold a business;
You make significant financial transactions, such as substantial gifts, borrowing or lending money, or purchasing, leasing, or selling assets or investments
You have moved
You have purchased a vacation home or other property in another state
A designated trustee, executor, or guardian dies or changes his or her mind about serving; and
You are making changes in your insurance coverage.
Reference: WMUR (Feb. 3, 2022) “The 'final' estate-planning step”

Does My State Have an Inheritance Tax?

 

Real Simple’s recent article entitled “Here's Which States Collect Zero Estate or Inheritance Taxes” explains that inheritance taxes are levies paid by the living beneficiary who gets the inheritance. And both federal and state governments can apply estate taxes, which are levied against the assets that are bequeathed.
Just five states apply an inheritance tax: New Jersey, Nebraska, Iowa, Kentucky and Pennsylvania. There are 12 states that have an estate tax: Washington, Oregon, Minnesota, Illinois, New York, Maine, Vermont, Rhode Island, Massachusetts, Connecticut, Hawaii and the District of Columbia. Maryland collects both. As a result, there are 32 states that don’t collect death-related taxes: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana, Kansas, Louisiana, Michigan, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin and Wyoming.
To better estimate and project the possible outcomes, you should consider an intergenerational planning meeting. There are some families that like the transparency of establishing a trust. This can minimize fighting and avoid probate. Trusts are also taxed differently than individuals. There’s more certainty about who will bear the costs.
There are families that gift assets, while an elderly or chronically ill person is still alive. These gifts can be subject to taxation, but there are exceptions for tuition and medical expenses. Gifts to children may also be excluded.
There’s no one-size-fits-all approach to transferring valuable or sentimental assets. You can list the most important people and causes in your life. If that list has people in other states, it will be even more important to prepare everyone for their role and responsibilities with the help of an experienced estate planning attorney.
If inheritance tax sounds intimidating, start small with updating the beneficiary forms on your bank accounts and employer-led retirement accounts. Organize documents, such as insurance information and house titles and deeds. Make them secure but accessible to those who might need them, if you're unavailable.
Even if you're socially distancing, many estate planning attorneys offer consultations via video conferencing. There's no reason to delay another year to clarify your inheritance and estate plans.
Reference: Real Simple (Nov. 24, 2021) “Here's Which States Collect Zero Estate or Inheritance Taxes”

What are Biggest Blunders in Wealth Transfer?

 

When it comes time to transfer what we’ve work so hard to accumulate, the way in which we transfer our wealth can have a big impact on how much of our wealth is actually received by our heirs and how much is transferred to the federal government.
Forbes’ recent article entitled “Top 7 Tax Mistakes Made in Planning a Wealth Transfer” says that tax mistakes can mean losing a lot of hard earned money, if you’re not careful. Here are some of the biggest mistakes made in wealth transfer planning.
1. IRD Taxes. Most people are unaware of this tax. It stands for “Income in Respect of the Decedent.” It’s the income tax your heirs will pay on tax-deferred assets, such as traditional IRAs, 401k’s and annuities. In many cases, these taxes will push heirs into a higher marginal tax bracket. You should plan to reduce or eliminate the IRD Tax, if you have a 401k, IRA or annuities. For example, if you gift IRA and 401k assets to charity and non-IRD assets to your heirs, you can save them in IRD Taxes! The use of a Charitable Remainder Trust can provide a tax-efficient way to create a “charitable stretch IRA” for your children or grandchildren.
2. Charitable Giving Mistakes. Most people do charitable giving with after tax cash from their income. However, this isn’t the most efficient way to give. Gifting highly appreciated securities, real estate, or even business interests can give you a double tax benefit: it can eliminate capital gains taxes and still get the charitable tax deduction.
3. Dying without a Comprehensive Estate Plan. About three-quarters of Americans die without a will. A will, by itself, subjects your assets (and your heirs) to probate. A well-designed estate plan can help reduce or eliminate both probate and estate taxes. Ask an experienced estate planning attorney about creating a comprehensive estate plan for you or review the one you have.
4. No (or Improper) Beneficiary Designations. This can result in a loss of inheritance for your family. With retirement accounts like IRAs or 401(k)s, properly designating beneficiaries is essential to avoid the loss of further income tax deferral at death. If you don’t have primary and contingent beneficiaries named on all your accounts, these assets will have to go through probate and could cost unnecessary IRD taxes.
5. Improper Titling of Business Interests. A business is frequently titled only in the name of the business owning spouse. However, when that spouse dies, the business itself must go through the costly process of probate, which can create issues for the operation of the company.
6. Bad Choices for Ownership & Beneficiary Designations on Life Insurance. Life insurance can be a great financial planning tool and provide liquidity. It can also be a great wealth transfer tool in estate planning or business planning. However, if the ownership and beneficiaries are done incorrectly, the life insurance benefits can be subject to estate taxes. Ask an experienced estate planning attorney about an irrevocable life insurance trust (ILIT).
7. Giving the Wrong Assets to your Heirs. A common mistake that people make in wealth transfer planning, is to leave a percentage of their estate to their children, another to their grandchildren and another to their favorite charities (or Donor Advised Fund) in their will or via a trust. However, this isn’t the smartest way to distribute your assets from a tax perspective. Doing so could subject them to IRD taxes. Instead, use IRA (and other IRD assets such as 401k) for your gifts to charity and, give non-IRD assets (such as cash, real estate, life insurance, or a Roth IRA) to your children and grandchildren.
Reference: Forbes (Dec. 15, 2021) “Top 7 Tax Mistakes Made in Planning a Wealth Transfer”

Should I Start Estate Planning Now?

The coronavirus has taken a toll on our finances, as well as our physical and mental health. As a result, it’s important to plan appropriately for your health care and financial needs in an estate plan to provide much-needed peace of mind, say Yahoo Finance’s recent article entitled “Estate Planning During a Pandemic – Quit Stalling.” The article lists the important components of a comprehensive estate plan:
Advance Health Care Directive. This is a written plan that states your wishes, in the event you can’t speak for yourself. Your wishes need to be in writing, and the document should be updated as your health changes. Review your advance health care directive with your doctor and the person you select as your health care proxy to be certain it’s completed correctly.
Health Care Power of Attorney. This legal document lets you name someone who can review your medical records and make decisions, such as how and where you should be treated. This would be applicable, if you were incapacitated and unable to make medical decisions for yourself.
Living Will. A living will is a type of advance health care directive that specifically states your end-of-life decisions in the event you are terminally ill or permanently unconscious. This covers specific medical treatments, like CPR, ventilation, pain management, tube feeding and organ and tissue donation.
Financial Power of Attorney. This document lets you name someone to help with your finances, if you become incapacitated and unable to do so. You can state how much control your power of attorney will have, like accessing accounts, selling stock and managing real estate.
Trusts. Ask an experienced estate planning attorney about creating a trust to protect your assets as you pass them down to your heirs. If your children or grandchildren aren’t old enough or mature enough to handle their inheritance, you can set up a trust that provides them with a small amount of money each year, increasing that amount as they get older. You can also direct that the money be specifically used for an adult child’s mortgage or student loans.
Beneficiaries. Many people forget to update their life insurance policies, bank, brokerage accounts and retirement plans. These all have beneficiary forms, which supersede a will. These should be updated, along with your estate plan, every few years and after every major life change. That’s something like a marriage, divorce, death, adoption, or birth.
Make certain that you are reviewing and updating your estate plan when you review your retirement plan each year or so.
Reference: Yahoo Finance (Oct. 31, 2021) “Estate Planning During a Pandemic – Quit Stalling”

Should I Ask Mom and Pop about Their Finances?

 

Adult children should know about their parents’ finances in case of any emergency. They should also know critical information in case of death. NASDAQ’s recent article entitled “9 Questions to Ask Aging Parents About Their Finances” acknowledges that speaking to aging parents about their finances isn’t easy. However, to start this process, the article gives us nine important topics you may want to discuss with your parents:
Do You Have a Financial Plan (and is it enough)? See if your parents have a financial plan. Some parents will have a solid financial plan that will let them to live comfortably into their 80s or 90s. On the other hand, you may discover they’re living on a fixed budget and money is tight. If you see that you’ll need to help them financially now or in the future, start planning ASAP. Any decision to provide them with financial support will likely have an effect on your own financial plan.
Do You Have an Accessible List of All Your Accounts? Ask your parents to draft a list of their financial assets and those named as beneficiaries of those accounts and keep it in a safe place. They should also put together important contacts, such as clergy, CPA, estate planning attorney, physician, etc.
Where’s Your Will, and Who’s the Executor? See where your parents keep their wills and estate documents. Some estate planning attorneys retain an original copy. If your parents don’t have a will, encourage them to see an estate attorney. An item that’s not commonly listed in the will, that you may want to ask about, is if your parents have prepaid for a burial plot or memorial arrangements.
Do You Have Life Insurance Policies that I Should Know About? See if your parents have any active life insurance policies. Get the details of the policies and the policy numbers. If your parents are still working, they may also have life insurance through an employer.
Are There Any Special Bequests to Family and Friends? Family heirlooms and special personal property may be a part of your parents’ estate plan. A sibling may have claimed your dad’s coin collection. Knowing your parents’ intentions and wishes for their keepsakes will make things much easier when they pass. Moreover, having conversations about family heirlooms now can help prevent any hard feelings later. Some people make up a list for their personal bequests and reference it in their wills.
Who Have You Named as Your Financial Power of Attorney? This document lets your parents name a primary and secondary person to make financial decisions on their behalf, if they become incapacitated. If you’re the one named as the person to make financial decisions, find out where all of your parents’ financial assets are held. You should also get information about their Medicare policy, any pensions and their Social Security benefits. It even helps to know their utility companies in case you need to pay these bills and must prove power of attorney.

Do You Have a Living Will? They should each have an advance health care directive or living will and health care power of attorney. These documents designate who has authority to make medical decisions on their behalf, if they became incapacitated or terminally ill. This also includes your parents’ preferences for life-sustaining treatment, including a “Do Not Resuscitate” clause, as well as their preferences on organ donation.
Have You Had Trouble Balancing Your Checkbook Lately or Forgotten to Pay Bills? Have a discussion about key financial decisions with your parents while they are in good health. This will let you make a plan, if they show signs of memory loss. The signs of memory loss include forgetting appointments, making occasional errors while managing household finances, or getting confused about the day of the week.
Do You Have a Long-Term Care Policy? To claim benefits of long-term care insurance, a person typically needs to be unable to perform two out of six common “activities of daily living” (bathing, dressing, toileting, eating, transferring and continence) or have a severe cognitive disorder. If your parents have a policy, access it and review its core benefits, in case you need to help them file a claim.
Discussing your parents’ financial and estate plans isn’t fun, but it will help give both you and your parents some peace of mind to know that they will be provided for, and things will be taken care of in their absence.
Reference: NASDAQ (Aug. 27, 2021) “9 Questions to Ask Aging Parents About Their Finances”

What Should Small Business Owners Know about Estate Planning?

Not having an estate plan can place business owners and entrepreneurs in jeopardy because they may face difficulties in keeping the business running, if they have to withdraw from the business at any point in time.
Legal Reader’s recent article entitled “What Small Business Owners Should Know about Doing Estate Planning” explains that estate planning is necessary to ensure business continuity. Think about who can take control when you’re no longer around to have the business continue according to your wishes contained in your estate plan. An experienced estate planning attorney can help business owners create a comprehensive estate plan, so things do not become chaotic for their family in the event of premature death or any permanent disability. Consider these steps when it comes to good estate planning for business owners.
Create an estate plan if you haven’t got one. A will is designed to detail your wishes about how you want the business to run and the manner of sharing your property at your death. A power of attorney allows an entrusted individual to undertake your business transactions and manage your finances, if you are incapacitated by injury or illness. A healthcare directive permits a trusted agent to make medical decisions on your behalf when you can’t do so yourself.
Plan for taxes. Tax planning is a major component of estate planning. Our tax laws keep changing frequently, so you have to stay in constant touch with your attorney to develop strategies for decreasing your tax liability, as well as creating a strategy for minimizing inheritance/estate taxes.
Buy life and disability insurance. Small business owners should think about purchasing life insurance, so their families can have a source of income after their death.
Create a succession plan. In addition to estate planning, a business owner should have a succession plan that specifies exactly how your company, and your family will prepare for a transition of ownership. The purpose of a well thought out succession plan is to keep the business operating or to take steps to sell it. This plan also includes the organizational structure of the business in case of maintaining business continuity.
Finally, you should keep everyone impacted by your decisions apprised of your estate plan and your business succession plan.
Reference: Legal Reader (Aug. 26, 2021) “What Small Business Owners Should Know about Doing Estate Planning”

How Do I Avoid Estate Planning Mistakes with a Blended Family?

The Wealth Advisor’s recent article entitled “Remarried With Children? 5 Estate Planning Mistakes to Avoid” says that you can’t guarantee that everyone in the blended family will be happy with the arrangements you’ve made with a second marriage.
Mistake #1: Failing to change beneficiaries. With a beneficiary designation, the money passes directly to your intended beneficiary without probate. Look at all of your financial accounts to be certain that your spouse is designated the beneficiary if that's what you want. Plus, check your life insurance beneficiaries because these payouts also bypass probate.
Mistake #2: Failing to update your last will. Your last will determines much of who gets the assets you and your spouse accumulated during your lifetimes. You probably don't want your ex-spouse to get these. People on their second marriage frequently decide that the surviving spouse gets all the assets; upon the death of the second spouse, the remaining assets will be divided evenly among all of the children. There are ways to make that happen, but it takes very special legal planning.
Mistake #3: Treating all heirs equally. Most spouses aren't financial equals when they marry, and this is particularly so in second marriages. If your new spouse moves into your house, for example, you may want your children to get the proceeds when it’s sold, not your spouse or your spouse's children. There are many reasons why parents don't treat children equally, including when there’s a child who’s disabled or has special needs. A child may also suffer from an addiction and require a trust that provides stipends at regular intervals to the beneficiary and deters creditors from getting money in the trust.
Mistake #4: Failing to give while you’re still alive. If you're planning to leave money to your kids, you might think about giving it to them now. You can give up to $15,000 per person without having to pay the federal gift tax or deal with the IRS. Plus, your spouse may also give the same amount.
Mistake #5: Failing to work with an experienced estate planning attorney. If you're older and on your second marriage, your life is probably complex with ex-spouses and children and stepchildren. Blended families and comingled assets make things complicated, as does a child with special needs or an aging parent. An experienced estate planning attorney can work through all of your issues and make sure you have the best and most comprehensive plan for your circumstances.
Reference: The Wealth Advisor (July 12, 2021) “Remarried With Children? 5 Estate Planning Mistakes to Avoid”

What are Top ‘To-Dos’ in Estate Planning?

 

Spotlight News’ recent article entitled “Estate Planning To-Dos” says that with the potential for substantial changes to estate and gift tax rules under the Biden administration, this may be an opportune time to create or review our estate plan. If you are not sure where to begin, look at these to-dos for an estate plan.
See an experienced estate planning attorney to discuss your plans. The biggest estate planning mistake is having no plan whatsoever. The top triggers for estate planning conversations can be life-altering events, such as a car accident or health crisis. If you already have a plan in place, visit your estate planning attorney and keep it up to date with the changes in your life.
Draft financial and healthcare powers of attorney. Estate plans contain multiple pieces that may overlap, including long-term care plans and powers of attorney. These say who has decision-making power in the event of a medical emergency.
Draft a healthcare directive. Living wills and other advance directives are written to provide legal instructions describing your preferences for medical care, if you are unable to make decisions for yourself. Advance care planning is a process that includes quality of life decisions and palliative and hospice care.
Make a will. A will is one of the foundational aspects of estate planning, However, this is frequently the only thing people do when estate planning. A huge misconception about estate planning is that a will can oversee the distribution of all assets. A will is a necessity, but you should think about estate plans holistically—as more than just a will. For example, a modern aspect of financial planning that can be overlooked in wills and estate plans is digital assets. It is also recommended that you ask an experienced estate planning attorney about whether a trust fits into your circumstances, and to help you with the other parts of a complete estate plan.
Review beneficiary designations. Retirement plans, life insurance, pensions and annuities are independent of the will and require beneficiary designations. One of the biggest estate planning mistakes is having outdated beneficiary designations, which only supports the need to review estate plans and designated beneficiaries with an experienced estate planning attorney on a regular basis.
Reference: Spotlight News (May 19, 2021) “Estate Planning To-Dos”

Why Do I Need Estate Planning?

Many people who failed to plan their estate with the help of an experienced estate planning attorney have their assets tied up in lengthy, and often messy, legal battles that were decided by people not of their choosing.
Forbes’ recent article entitled “Everyone Needs An Estate Plan: Here's What You Need To Know” says that although many of us don't have quite as much at stake financially, it doesn't mean that estate planning is any less important. In fact, leaving a legacy, passing down wealth and helping family aren’t things that are just for the ultra-rich.
The biggest misstep is not creating an estate plan at all. This is more than just a last will and includes powers of attorney, healthcare directives, a living will and a HIPAA waiver. People put this important responsibility off because they do not want to contemplate their own death. They try to avoid the subject. Some others may have complex family dynamics, and still others are hesitant to confide their complicated relationships with a lawyer. However, all these are just excuses.
We know that life is full of changes, and people get married, divorced, have children and grandchildren, relocate to different states, change careers and get inheritances. Each of these events could make you reconsider your goals. This may necessitate an update to your estate plan.
You need to review the beneficiaries on your IRAs, life insurance policies and pensions. You should look at how you want your heirs to receive your assets and any charitable or philanthropic notions. With powers of attorney, healthcare directives, living wills and HIPAA waivers, you need to think about who you’ll entrust to make important medical and financial decisions for you, if you become incapacitated. You see these critical questions and many others are fluid and prone to change every few years as your life changes.
Remember that your assets receive different treatment from the IRS based on the type and who owns legally owns them. For example, individual retirement accounts (IRAs), Roth IRAs, traditional brokerage accounts, life insurance policies and bank accounts are different than the family home. Therefore, it’s important to be mindful of which assets are left to whom.
Don’t wait. Speak to an experienced estate planning attorney to be certain that you give this process the attention it deserves for the well-being of you and your family.
Reference: Forbes (Feb. 26, 2021) “Everyone Needs An Estate Plan: Here's What You Need To Know”

Should I Add that to My Will?

In general, a last will and testament is an easy and straightforward way to state who gets what when you die and designate a guardian for your minor children, if you (and your spouse) die unexpectedly.

MSN’s recent article entitled “Things you should never put in your will” explains that you can be specific about who receives what. However, attaching strings or conditions may not work because there’s no one to legally enforce the terms. If you have specific details about how a person should use their inheritance, whether they are a spendthrift or someone with special needs, a trust may be a better option because you’ll have more control, even from beyond the grave.

Keeping some assets out of your will can actually benefit your future heirs because they’ll get their inheritance faster. When you pass on, your will must be “proven” and validated in a probate court prior to distribution of your property. This process takes some time and effort, if there are issues—including something in your will that doesn’t need to be there. For example, property in a trust and payable-on-death accounts are two types of assets that can be distributed to your beneficiaries without a will.

Don’t put anything in a will that you don’t own outright. If you jointly own assets with someone, they will likely become the new owner. For example, this applies to a property acquired by married couples in community property states.

Property in a revocable living trust. This is a separate entity that you can use to distribute your assets which avoids probate. When you title property into the trust, it is subject to the trust’s rules.  Because a trust operates independently, you must avoid inconsistencies and not include anything in your will that the trust addresses.

Assets with named beneficiaries. Some financial accounts are payable-on-death or transferable-on-death. They are distributed or paid out directly to the named beneficiaries. That makes putting them in a will unnecessary (and potentially troublesome, if you’re inconsistent). However, you can add information about these assets in your letter of instruction (see below). As far as bank accounts, brokerage or investment accounts, retirement accounts and pension plans and life insurance policies, assign a beneficiary rather than putting these assets in your will.

Jointly owned property. Property you jointly own with someone else will almost always directly pass to the co-owner when you die, so do not put it in your will. A common arrangement is joint tenancy with rights of survivorship.

Other things you may not want to put in a will. Businesses can be given away in a will, but it’s not the best plan. Wills must be probated in court and that can create a rough transition after you die. Instead, work with an experienced estate planning attorney on a succession plan for your business and discuss any estate tax issues you may have as a business owner.

Adding your funeral instructions in your will isn’t optimal. This is because the family may not be able to read the will before making arrangements. Instead, leave a letter of instruction with any personal wishes and desires.

Reference: MSN (Dec. 8, 2020) “Things you should never put in your will”

Should I Consider a ‘Life Settlement’?

Even in this volatile environment, many seniors may have an option for more retirement income available in the sale of their life insurance policy. A “life settlement” could provide them with an average of four or more times the cash surrender value of their policy.
The Street’s recent article entitled “Is Your Life Insurance Policy Worth More Than Its Cash Surrender Value?” explains that anytime a senior isn’t going to keep a life insurance policy, they should look into a life settlement to bring them the most money when they terminate the policy.
When a policy is lapsed, the policy owner gets nothing. When a policy is surrendered back to the insurance company, the policyowner receives little, if any, cash surrender value. So, in instances where a policy is being lapsed or surrendered, a life settlement makes financial sense.
According to 2019 life insurance industry data, over 90% of life insurance policies (by face amount) that terminated in 2018 were lapsed or surrendered. In 80% of those cases, the policyowners received nothing in return for years of premium payments to the insurance company, because they lapsed their policies.
Over the next decade, more than $2 trillion in life insurance policy death benefits that could qualify for a life settlement is anticipated to be lapsed or surrendered—about $850 billon is projected to be policies between $100,000 and $1 million.
To qualify for a life settlement, an individual must usually be at least 70 years old and own a whole life, universal life, or convertible term insurance life insurance policy, with a death benefit of $100,000 or more.
Traditionally, life settlements have been available only where the insured has developed a significant health impairment since the policy was started, but now even those insureds without a change in health can qualify for a life settlement, depending on their age and the type and size of the policy.
Some life settlement companies take several months to make an offer to purchase a policy, asking for full medical records and independent underwriting. However, recently, life settlement companies have shortened the time in evaluating a policy and making an offer.
Reference: The Street (Dec. 22, 2020) “Is Your Life Insurance Policy Worth More Than Its Cash Surrender Value?”

Life Insurance Donations: Two Birds With One Stone

Life insurance can be an incredible boon to your family, and a buffer against a dozen high-cost issues or a source of much-needed liquidity in the face of an estate tax. Then again, you might just end up not needing it all. What do you do with the policy? The good news is that you can kill two birds with one stone. Have you thought about donating your life insurance to a worthy cause? WealthManagement.com explained the motive and the usefulness of the approach a short time ago in a recent article titled “Donating Life Insurance.” What if it turns out that you won’t need that life insurance policy for which you scrimped to pay premiums over the years? Your children are grown and on their own, plus you have built up enough wealth to carry you and your spouse through retirement. Perhaps you have forgotten about that old policy sold to you by a college buddy when he was just getting into the business. In short, the policy is “found money” you really do not need now. Consider this: your favorite charity could make good use of your policy and its eventual proceeds. Charities in the know are far more amenable to such unique gifts than you might realize. Now, instead of the eventual proceed being a potential tax burden to your estate, you can claim a current charitable deduction. Two birds with one stone. Be sure to read the original article for more of the particulars. Then, before taking action, schedule a consultation with your estate planning attorney to make sure you connect all of the dots and get the best benefit while doing the most good.

Reference: WealthManagement.com (March 18, 2014) “Donating Life Insurance”

For more information, see www.jerryreiflawyer.com

 

Life Insurance Donations: Two Birds With One Stone

Life insurance can be an incredible boon to your family, and a buffer against a dozen high-cost issues or a source of much-needed liquidity in the face of an estate tax. Then again, you might just end up not needing it all. What do you do with the policy? The good news is that you can kill two birds with one stone. Have you thought about donating your life insurance to a worthy cause? WealthManagement.com explained the motive and the usefulness of the approach a short time ago in a recent article titled “Donating Life Insurance.” What if it turns out that you won’t need that life insurance policy for which you scrimped to pay premiums over the years? Your children are grown and on their own, plus you have built up enough wealth to carry you and your spouse through retirement. Perhaps you have forgotten about that old policy sold to you by a college buddy when he was just getting into the business. In short, the policy is “found money” you really do not need now. Consider this: your favorite charity could make good use of your policy and its eventual proceeds. Charities in the know are far more amenable to such unique gifts than you might realize. Now, instead of the eventual proceed being a potential tax burden to your estate, you can claim a current charitable deduction. Two birds with one stone. Be sure to read the original article for more of the particulars. Then, before taking action, schedule a consultation with your estate planning attorney to make sure you connect all of the dots and get the best benefit while doing the most good.

Reference: WealthManagement.com (March 18, 2014) “Donating Life Insurance”

For more information, see www.jerryreiflawyer.com

Insurance – Financial Planning Foundation Saginaw, MI

To know and not to do is not yet to know. In other words, to know there is a risk, for example, and yet not to act upon that risk can leave disastrous holes in your retirement plan, your end-of-life care, or your estate itself. While it is not the only financial planning tool in the tool chest, many financial plans could benefit from an insurance to solve myriad risks. The kinds of insurances we are “required” to buy help us with the minor bumps and scrapes in life and are sometimes easy to think about, shop for or ensure that we have adequate coverage. Auto and homeowners insurance, for example, come immediately to mind. On the other hand, disability insurance, long-term care insurance and life insurance are another matter entirely. As USA Today points out in a recent article titled “Insurance is most ignored in financial planning,” these three insurances are all too often ignored, misunderstood and difficult to think about emotionally. Nevertheless, they are often essential. Insurance is, quite literally, a product you purchase to solve a risk. It is peace of mind. Without fail, insurance is more cost effective than coping with a disaster. To become disabled, especially late in life, is to lose income that may be necessary for you and your loved ones. Disability insurance can mitigate this. Likewise, with the rising costs of medical care and seeming inevitability of requiring a good deal of elder care, long-term care insurance can step in when the medical needs are overwhelming. And finally, life insurance helps eliminate the risk your family faces without you and your income. Each type of insurance is well worth your consideration, and each can be budgeted to fit within a comprehensive financial plan.

Reference: USA Today (November 10, 2013) “Insurance is most ignored in financial planning”

For more information, see www.jerryreiflawyer.com

 

Charitable Options For “Unnecessary” Life Insurance Saginaw, MI

To be over-insured is not exactly the same problem as being under-insured. Ask any widow or widower. That noted, if you have sufficient assets to provide for your loved ones, then you may have life insurance you really do not need. In that case, consider donating it to charity. Many of us tend to think of charity as an act of signing over an immediate gift. Nevertheless, even products like life insurance policies are important charitable contributions. What seems like a relatively small contribution now can have a big payoff later. The Wall Street Journal considered the ins-and-outs of donating life insurance in a recent article titled “Donating a Life-Insurance Policy to a Charity.” Basically, you have two fundamental options when it comes to being charitable with your life insurance policy. First, you can designate the charity as your primary beneficiary and the proceeds will pass upon your death. This approach provides a tax benefit to your estate, but no lifetime tax benefit to you. Alternatively, you can give the life insurance policy itself to the charity right now and enjoy tax benefits right now just as with any other immediate charitable contribution. Once the policy is owned by the charity, the charity can designate itself as the primary beneficiary. This latter alternative, gifting the ownership now, also means you can get further tax benefits by continuing to make cash gifts to the charity so it can continue to pay the life insurance premiums. This is pretty savvy, if you currently support the same charity with cash donations. These are notions worth exploring, if you truly have life insurance that no longer serves the purpose for which it was acquired. However, do make sure your family security is assured before taking action.

Reference: The Wall Street Journal (September 18, 2013) “Donating a Life-Insurance Policy to a Charity”

For more information, see www.jerryreiflawyer.com

 

 

Life Insurance – Incidents Of Ownership (May) Trigger Estate Taxability Saginaw, MI

Fact: the estate tax is set to some fairly generous limits these days, with a married couple able to protect up to $10.5 million together. Consequently, it can be tempting for many taxpayers to simply coast along without concern for exceeding that ceiling. As in past years, however, there is always a danger when it comes to ignoring your life insurance. Fact: without proper planning and structuring, life insurance will become part of the taxation math for your “gross estate” and you could end up getting hit by a state and/or federal estate tax. Those planning their estates and working to provide for financial security for their family often do so by way of life insurance. Indeed, the concept of life insurance is precisely to replace the lost income from the loss of a breadwinner. Of course, those planning with life insurance should be mindful of a potentially dangerous term in “legal speak”: “incident of ownership.” A recent WealthManagement.com article tackles this term head-on with an article aptly titled “Incidents of Ownership.” The IRS employs this term to differentiate those life insurance proceeds that will count a part of the “gross estate” value and those that will go scot-free to the family as intended. Unfortunately, ensuring there are no incidents of ownership is not just about buying the right policy, but structuring the ownership and beneficiary arrangements accordingly. Oftentimes a very specific form of “irrevocable” trust is required. Teaching point: the time to plan for tax-savvy protection of your life insurance begins before the application for the insurance is inked.

Life Insurance – Incidents Of Ownership (May) Trigger Estate Taxability Saginaw, MI

Fact: the estate tax is set to some fairly generous limits these days, with a married couple able to protect up to $10.5 million together. Consequently, it can be tempting for many taxpayers to simply coast along without concern for exceeding that ceiling. As in past years, however, there is always a danger when it comes to ignoring your life insurance. Fact: without proper planning and structuring, life insurance will become part of the taxation math for your “gross estate” and you could end up getting hit by a state and/or federal estate tax. Those planning their estates and working to provide for financial security for their family often do so by way of life insurance. Indeed, the concept of life insurance is precisely to replace the lost income from the loss of a breadwinner. Of course, those planning with life insurance should be mindful of a potentially dangerous term in “legal speak”: “incident of ownership.” A recent WealthManagement.com article tackles this term head-on with an article aptly titled “Incidents of Ownership.” The IRS employs this term to differentiate those life insurance proceeds that will count a part of the “gross estate” value and those that will go scot-free to the family as intended. Unfortunately, ensuring there are no incidents of ownership is not just about buying the right policy, but structuring the ownership and beneficiary arrangements accordingly. Oftentimes a very specific form of “irrevocable” trust is required. Teaching point: the time to plan for tax-savvy protection of your life insurance begins before the application for the insurance is inked.

Reference: WealthManagement.com (July 9, 2013) “Incidents of Ownership”

For more information, see www.jerryreiflawyer.com

 

 

Warning – Your Ex-Spouse May Inherit Your Life Insurance! Saginaw, MI

Few means of planning for the distribution of your assets are quite as useful, or quite as disastrous, as the simple beneficiary form. There is nothing simple about it. While an up-to-date beneficiary form bypasses ambiguity and probate, and often taxation besides, an out-of-date beneficiary form simply invites controversy and anguish. A very recent case on beneficiary forms and disaster went all the way to the Supreme Court in Hillman v. Maretta, and it’s quite instructive. The case is considered in a recent Forbes article titled [spoiler alert] “Supreme Court Favors Ex-Wife Over Widow In Battle For Life Insurance Proceeds.” You see, Warren Hillman left a life insurance policy behind amongst his other assets. Much of the estate simply passed to his then-current wife. Unfortunately for the current Mrs. Hillman, the life insurance policy was subject to a beneficiary designation form that still named his previous Mrs. Hillman, Judy Maretta. Judy and Warren had been divorced for some 10 years. Despite the pleas of the current Mrs. Hillman, the court had to do it: they gave it all – every penny – to the ex-wife named as beneficiary. Unlike a retirement account, the singular purpose of a life insurance policy is to provide financial protection to those depending on your life and income. This would seem to exclude a 10 years divorced spouse, absent an alimony requirement in the divorce decree. Bottom line: the beneficiary form is a matter of contract between the policy owner and the insurance company. The courts can do nothing but enforce that contract. Are your beneficiary forms ready to be followed to the letter? How will the rest of your estate keep out of the court system?

Reference: Forbes (June 3, 2013) “Supreme Court Favors Ex-Wife Over Widow In Battle For Life Insurance Proceeds”

For more information, see www.jerryreiflawyer.com

Life Insurance and Annuities - Tax Savvy Financial Products? Saginaw, MI

Insurance and financial savings products exist to put you at ease, for the care of your loved ones and your own retirement. It should come as no surprise that two of the hottest financial products on the market today are life insurance and annuities. Turns out these products may be tax savvy, too. But are they right for you? Regardless, you really need to do your due diligence when it comes to life insurance and annuities. A recent article in The New York Times titled “Getting the Full Picture on Annuities and Insurance” points out the obvious – both of these products are heavily marketed. Beyond the hype, much of the marketing focuses on their tax savings characteristics. Can these tools be tax savings devices? Indeed, if placed within a solid overall plan. Nevertheless, it is important not to lose sight of the true purpose behind these products and the cost-benefits of any particular policy. At the very least, it would be worth your time to read the original article. It will help you understand how powerful these products can be, how you can use them, and where they might fit into an overall plan.

Reference: The New York Times (May 10, 2013) “Getting the Full Picture on Annuities and Insurance”

For more information, see www.jerryreiflawyer.com

 

Life Insurance and Annuities - Tax Savvy Financial Products? Great Lakes Bay Region MI

Insurance and financial savings products exist to put you at ease, for the care of your loved ones and your own retirement. It should come as no surprise that two of the hottest financial products on the market today are life insurance and annuities. Turns out these products may be tax savvy, too. But are they right for you? Regardless, you really need to do your due diligence when it comes to life insurance and annuities. A recent article in The New York Times titled “Getting the Full Picture on Annuities and Insurance” points out the obvious – both of these products are heavily marketed. Beyond the hype, much of the marketing focuses on their tax savings characteristics. Can these tools be tax savings devices? Indeed, if placed within a solid overall plan. Nevertheless, it is important not to lose sight of the true purpose behind these products and the cost-benefits of any particular policy. At the very least, it would be worth your time to read the original article. It will help you understand how powerful these products can be, how you can use them, and where they might fit into an overall plan.

Reference: The New York Times (May 10, 2013) “Getting the Full Picture on Annuities and Insurance”

For more information, see www.jerryreiflawyer.com

 

Do You Really Have Enough Life Insurance?

It’s not too hard to properly insure a car or a valuable piece of art, because the value of the object can be determined, even in a shifting market. What about insuring your life for those who depend on you for financial support? How do you insure your life and how do you even begin thinking about life insurance? For starters, it is essential to note that life insurance can be a complex subject, especially when it comes to the right “kind” and the right “amount” of insurance. So what questions do you ask? Sometimes the important questions don’t come up when you click through those online life insurance calculators, and unfortunately, less so with some insurance brokers. Forbes recently addressed this important issue in an article titled “What A Life Insurance Calculator Can't Tell You.” Generally speaking, insurance exists so you can pay a “premium” now that you can afford to protect against the risk of a catastrophic event later that you cannot afford. When it comes to life insurance, of course, the risk is to your family and loved ones if you were no longer there to care for them. Life insurance is a potent tool in this regard, but it is far from the only tool to protect for your loved ones in the event of your death. The original article provides an excellent analysis of common “needs” that life insurance can protect. In the end, however, nothing can replace the advice and counsel of an experienced and qualified life insurance professional.

Reference: Forbes (March 28, 2013) “What A Life Insurance Calculator Can't Tell You”

For more information, see www.jerryreiflawyer.com

 

Do You Really Have Enough Life Insurance? Saginaw, Michigan

It’s not too hard to properly insure a car or a valuable piece of art, because the value of the object can be determined, even in a shifting market. What about insuring your life for those who depend on you for financial support? How do you insure your life and how do you even begin thinking about life insurance? For starters, it is essential to note that life insurance can be a complex subject, especially when it comes to the right “kind” and the right “amount” of insurance. So what questions do you ask? Sometimes the important questions don’t come up when you click through those online life insurance calculators, and unfortunately, less so with some insurance brokers. Forbes recently addressed this important issue in an article titled “What A Life Insurance Calculator Can't Tell You.” Generally speaking, insurance exists so you can pay a “premium” now that you can afford to protect against the risk of a catastrophic event later that you cannot afford. When it comes to life insurance, of course, the risk is to your family and loved ones if you were no longer there to care for them. Life insurance is a potent tool in this regard, but it is far from the only tool to protect for your loved ones in the event of your death. The original article provides an excellent analysis of common “needs” that life insurance can protect. In the end, however, nothing can replace the advice and counsel of an experienced and qualified life insurance professional.

Reference: Forbes (March
28, 2013) “What A Life Insurance Calculator Can't Tell
You”

For more information, see www.jerryreiflawyer.com

 

Do You Really Have Enough Life Insurance? Saginaw, Michigan

It’s not too hard to properly insure a car or a valuable piece of art, because the value of the object can be determined, even in a shifting market. What about insuring your life for those who depend on you for financial support? How do you insure your life and how do you even begin thinking about life insurance? For starters, it is essential to note that life insurance can be a complex subject, especially when it comes to the right “kind” and the right “amount” of insurance. So what questions do you ask? Sometimes the important questions don’t come up when you click through those online life insurance calculators, and unfortunately, less so with some insurance brokers. Forbes recently addressed this important issue in an article titled “What A Life Insurance Calculator Can't Tell You.” Generally speaking, insurance exists so you can pay a “premium” now that you can afford to protect against the risk of a catastrophic event later that you cannot afford. When it comes to life insurance, of course, the risk is to your family and loved ones if you were no longer there to care for them. Life insurance is a potent tool in this regard, but it is far from the only tool to protect for your loved ones in the event of your death. The original article provides an excellent analysis of common “needs” that life insurance can protect. In the end, however, nothing can replace the advice and counsel of an experienced and qualified life insurance professional.

Reference: Forbes (March 28, 2013) “What A Life Insurance Calculator Can't Tell

For more information, see www.jerryreiflawyer.com

 

Related articles

Expensive of Affordable?

Pay Close Attention to Beneficiary Designations Saginaw Michigan

have on family harmony. Naming beneficiaries seems pretty straight forward, but there may come a time when you forget who you’ve selected on various accounts. Thankfully there are shortcuts around this issue, you just have to know when and where to take them. When it comes to proper estate planning, the shortcuts are the existing options you already have with insurances and retirement accounts that allow you to designate your beneficiaries on a simple beneficiary designation form. For many of us, the beneficiary form is the first practical experience we have with estate planning. For thoughtful and downright tactful tips for designating your beneficiaries designations, consider a recent article in Fox Business titled “Bulletproofing Your Beneficiaries.” When it comes to beneficiary designations, some of them are shortcuts and some of them are dead-ends, and still others can completely undo your estate plans if you simply forget about them. That noted, there are at least two key points to consider. The second point is the beneficiary designation must be coordinated with your overall estate plan to the right beneficiaries (or even a system of trusts) to eliminate probate and minimize taxes. The first point, and a source of immediate concern, is that you must know who all of your beneficiaries are on all your accounts at all times. If you don’t know all of your beneficiaries, is it time for a “beneficiary audit” of all your accounts? You may want to consider reworking those designations to meet your distribution goals and ensure that your plans will end up as you intended.

For more information, see my website. www.jerryreiflawyer.com

Reference: Fox Business (October 1, 2012) “Bulletproofing Your Beneficiaries”

Benefits of a Spousal Lifetime Access Trust (SLAT) Saginaw, Michigan

You’ve decided to make a gift out of your estate to your heirs, but you are on the fence with completing the process. What if you need those funds in the coming years? This can be a justifiable apprehension, whether you have a little to give or a lot. With the longer lifespans we now enjoy and the expensive healthcare costs we now face, one strategy is to use gifts to purchase life insurance as a gift for your heirs, and to do so with a trust arrangement known as a SLAT. A SLAT, or “Spousal Lifetime Access Trust” enjoyed the spotlight in a recent WealthManagement.com article titled “SLATs and Life Insurance: Have Your Cake and Eat it Too.” Now, knowing how to have your cake and eat it too can require a complex bit of planning. However, done right, such planning can be powerful. Problem: when life insurance is owned by an individual it ends up counting towards their estate value by virtue of such “incidents of ownership.” A Spousal Lifetime Access Trust that owns a life insurance policy (a tactic normally seen in traditional Irrevocable Life Insurance Trusts) will allow access on the part of your spouse during their lifetime while also funding the policy for your heirs. If this sounds too good to be true, then it just might be if all of the i’s and t’s are not dotted and crossed properly. To learn more about this gifting strategy, seek appropriate counsel to ensure you know the whole process and can maintain peace of mind when it comes to giving to your loved ones.

For more information, see www.jerryreiflawyer.com

Reference: Wealth
Management.com (October 17, 2012) “SLATs and Life Insurance: Have Your Cake and
Eat it Too”

Pay Close Attention to Beneficiary Designations Saginaw Michigan

Naming beneficiaries seems pretty straight forward, but there may come a time when you forget who you’ve selected on various accounts. Thankfully there are shortcuts around this issue, you just have to know when and where to take them. When it comes to proper estate planning, the shortcuts are the existing options you already have with insurances and retirement accounts that allow you to designate your beneficiaries on a simple beneficiary designation form. For many of us, the beneficiary form is the first practical experience we have with estate planning. For thoughtful and downright tactful tips for designating your beneficiaries designations, consider a recent article in Fox Business titled “Bulletproofing Your Beneficiaries.” When it comes to beneficiary designations, some of them are shortcuts and some of them are dead-ends, and still others can completely undo your estate plans if you simply forget about them. That noted, there are at least two key points to consider. The second point is the beneficiary designation must be coordinated with your overall estate plan to the right beneficiaries (or even a system of trusts) to eliminate probate and minimize taxes. The first point, and a source of immediate concern, is that you must know who all of your beneficiaries are on all your accounts at all times. If you don’t know all of your beneficiaries, is it time for a “beneficiary audit” of all your accounts? You may want to consider reworking those designations to meet your distribution goals and ensure that your plans will end up as you intended.

For more information see www.jerryreiflawyer.com

Reference: Fox Business (October 1, 2012) “Bulletproofing Your Beneficiaries”

 

Estate Planning for the Military Family

For too many of us, the necessities of estate planning are easy to forestall. However, for a military family, the exigencies of the present are too great to ignore. Proper planning is an immediate concern. How can military families properly plan? A recent Forbes article titled “Make a Legal and Financial To-Do List Before Military Deployment” sheds some practical light. Essentially, military plans always are based on battlefield “contingencies.” Whether over there or on the home front, changes on the “battlefield” are hard to predict. For example, for a deploying soldier (sailor, airman, marine or coast guardsman), have you secured enough life insurance to provide for your family? If yes, does your life insurance specifically carve out war, war-risk, service casualties, and the like as exclusions? Regardless, make sure you maximize any government-offered life insurance, as it does not exclude such risks. Ultimately, do not ignore making proper estate plans as well. Be sure to coordinate your estate planning with the beneficiary designations on your life insurance and other assets. While a Legal Assistance Officer in your local Judge Advocate General’s Office can assist, most state bar associations have attorneys who will assist you at little, if any, financial cost.

Reference: Forbes (June 28, 2012) “Make a Legal and Financial To-Do List Before Military Deployment”

Estate Planning for the Military Family

For too many of us, the necessities of estate planning are easy to forestall. However, for a military family, the exigencies of the present are too great to ignore. Proper planning is an immediate concern. How can military families properly plan? A recent Forbes article titled “Make a Legal and Financial To-Do List Before Military Deployment” sheds some practical light. Essentially, military plans always are based on battlefield “contingencies.” Whether over there or on the home front, changes on the “battlefield” are hard to predict. For example, for a deploying soldier (sailor, airman, marine or coast guardsman), have you secured enough life insurance to provide for your family? If yes, does your life insurance specifically carve out war, war-risk, service casualties, and the like as exclusions? Regardless, make sure you maximize any government-offered life insurance, as it does not exclude such risks. Ultimately, do not ignore making proper estate plans as well. Be sure to coordinate your estate planning with the beneficiary designations on your life insurance and other assets. While a Legal Assistance Officer in your local Judge Advocate General’s Office can assist, most state bar associations have attorneys who will assist you at little, if any, financial cost.

Reference: Forbes (June 28, 2012) “Make a Legal and Financial To-Do List Before Military Deployment”

Unclaimed “Death Benefits” Await Claims

To make a broad but warranted generalization, life insurance companies generally don’t like to pay out death benefits. After all, they make their profits on betting not to pay out death benefits or to pay out less in death benefits than they take in as premiums. A recent article in the Wall Street Journal may give you pause regarding whether you might be owed some life insurance money. According to state regulators, as much as one billion dollars is languishing in the form of uncollected life insurance death benefits. All is right by the insurers, however, as most policies require the beneficiary to file a claim to collect. This occurs when a beneficiary doesn’t collect or doesn’t know that they are entitled to collect. Unjust or not, this phenomenon has raised regulator suspicions and, out of good will or regulator urgings, some companies have started programs to determine if policy holders have passed and whether claims ought to be filed. Still, it is a difficult enterprise, and one of the reasons insurers let beneficiaries make the claims in the first place, so there is room for error. So, if you want to ensure that you (or your loved ones) receive all that is owed, consider doing some sleuthing yourself. The original article has some advice regarding how to find out about a missed policy. An even bigger lesson is for policy holders, and estate planners generally. One billion dollars sits in policies that were meant to care for the policy holders’ families, and it is there mostly because it’s unknown. As a result, the most important part of proper planning, whether elaborate or simple, is making your family aware of what you own, what your plan is, and how it is to work. This especially includes any life insurance you may own.

Reference: The Wall Street Journal (December 31, 2011) “Are You Owed Life Insurance?”

Life Insurance Deconstructed for the Wary

Most of us don’t much like insurance of any type. If nothing else, it means confronting and directly dealing with risk. And life insurance can be an especially touchy subject, since it means dealing with the topic of death (usually our own). Still, life insurance is neither as scary nor as difficult as we may think. Fortunately, the Wall Street Journal recently provided a basic rundown for the wary on how to go about life insurance. Life insurance can be a powerful estate planning tool, because it is waiting to provide a potentially massive injection of liquidity into your estate at your time of death. It can mean the necessary income to provide support for your family, as well as pay off any debts, taxes and expenses you may leave behind. In addition, cash is king when it comes to paying estate taxes. This can be critical when your estate value is tilted toward illiquid assets like a family business interest. Still, the type and amount of life insurance that is right for you will depend on your own unique circumstances and the purpose of the insurance. Before you begin wading into the life insurance analysis process, take a look at the Journal’s rundown of the basics. Then, make sure you get the advice of an insurance professional to help you.

Reference: The Wall Street Journal (October 15, 2011) “Need to Know: Life Insurance 101”

Combined Insurance Policies A Mixed Bag for Long-Term Planning

Insurance, in its many forms, has been referred to as the Swiss Army Knife of estate planning – providing cash just when needed, and for pennies-on-the-premium-dollar. A solid life and estate plan may include long-term care insurance for advanced health care needs, life insurance to cover at least your final expenses, and even annuities to guarantee income. Rather than deal with two or three separate policies, though, there is a growing trend toward the use of combined insurance policies, but before buying, a recent Wall Street Journal article warns of potential drawbacks. Combined insurance policies come in a few shapes and sizes, but are generally based around long-term care insurance combined with a life insurance policy or an annuity. In the event that the policy holder requires long-term care, the funds come from the other component(s). Extra long-term care protection can often also be purchased. These policies may be a good deal for some. As the Journal points out: They allow those who don't use their long-term-care coverage to recoup money spent on premiums. Because many combined policies guarantee coverage at a set price, they also offer policyholders a way to hedge against the premium increases that have plagued holders of conventional long-term-care policies. Another benefit: For those in poor health, a combined policy may be easier to obtain. Nevertheless, since the policies are combined, using one policy effectively nullifies the other. There will either be no death benefit or no more steady income in the respective policies if the policy holder needs long-term care. Further, there may be other complications with a combined policy, depending upon your specific situation. Finally, these combined policies can be quite expensive. You can learn more about long-term care insurance in the Long-Term Care Practice Center on our website. Be sure to sign up for our free e-newsletter to stay abreast of issues like these that could affect you, your loved ones and your estate planning.

Reference: The Wall Street Journal (July 31, 2011) “‘Combined’ Insurance Policies Grow”

Income Protection Insurance For Self-Employeds?

If you’re self-employed, then likely you know just how much the flu or even a short-term injury can set you back. If you are out of the “game” for even a short period of time, then there is a direct impact on your bottom line. There is no sick leave to fall back on, is there? What if an illness or injury were to take you out of the game for an extended period of time? You might just lose your business and, with it, your home and the rest of your assets. That is not a pretty picture, is it? Maybe it would be worth taking a look into the possibility of long-term disability insurance, but according to a recent Reuters article, long-term disability insurance is far more difficult to underwrite for the self-employed. The purpose of long-term disability insurance is to replace income that might be lost if you are incapacitated for a long period of time, or for some, at least until age 65 (when social security kicks in instead). However, the self-employed have the problem of either “being” their business, or being unable to prove the full extent of their business. If you own an actual business, rather than operate as a freelancer or individual agent, then the first case is your problem. The insurance will pay out in accordance with what it thinks you actually live on, your gross minus your business expenses (roughly what you pay income taxes on), but that just might mean cutting out necessary business costs (like licenses). While extra protection can be purchased, there is the extra expense to consider. If you are a freelancer or just work on a case to case basis, then you’ll also have to work to prove your income to the insurance underwriter. If they have trouble pinning down your actual income, then it makes it difficult for them to properly assess how much your policy would cost and how much it might offer in protection. In the end, the insurance company simply may elect not to offer coverage. At any rate, the original article is worth a look. It is, after all, an important issue to bear in mind. If you are your own boss, then plan accordingly.

Reference: Reuters (August 16, 2011) “Self-employed? How to find disability insurance”

Be Sure Your Life Insurance Is “Life Insurance”

Not all life insurance is the same, and that’s not just an old sales trick to up-sell a client. In the eyes of Medicare and Medicaid, not all life insurance actually is “life insurance” – and that can be a reason to deny benefits. Consider the case of Lind v. Maxwell-Jolly (Cal. Ct. App., No. C061912, July 28, 2012) (unpublished), as discussed here on ElderLawAnswers.com, where an endowment life insurance contract became an impediment to Medicaid benefits. Mary Lind, a nursing home resident, applied for Medicaid benefits and then purchased a "Single Premium Pure Endowment Life Insurance Contract" for $92,000. Here’s how the contract works: If she were still alive at the contract maturity date five years hence, then Ms. Lind would be repaid her premiums plus dividends. Of course, the state and two appeals courts weren’t buying it. Since the contract specifies that it will repay Ms. Lind in her lifetime, it is not life insurance. Further, the contact didn’t even specify the amounts to be paid out to beneficiaries upon her death. Accordingly, the court held that the contract is more akin to a legal trust and, therefore, the funds invested in it are available funds precluding her from Medicaid. Clearly, then, not all “life insurance” is life insurance. As in all things financial, and legal, look before you leap.

Reference: ElderLawAnswers.com (August 1, 2011) “Endowment Life Insurance Contract Is Available Asset for Medicaid Availability Purposes”

Combined Insurance Policies A Mixed Bag for Long-Term Planning

Insurance, in its many forms, has been referred to as the Swiss Army Knife of estate planning – providing cash just when needed, and for pennies-on-the-premium-dollar. A solid life and estate plan may include long-term care insurance for advanced health care needs, life insurance to cover at least your final expenses, and even annuities to guarantee income. Rather than deal with two or three separate policies, though, there is a growing trend toward the use of combined insurance policies, but before buying, a recent Wall Street Journal article warns of potential drawbacks. Combined insurance policies come in a few shapes and sizes, but are generally based around long-term care insurance combined with a life insurance policy or an annuity. In the event that the policy holder requires long-term care, the funds come from the other component(s). Extra long-term care protection can often also be purchased. These policies may be a good deal for some. As the Journal points out: They allow those who don't use their long-term-care coverage to recoup money spent on premiums. Because many combined policies guarantee coverage at a set price, they also offer policyholders a way to hedge against the premium increases that have plagued holders of conventional long-term-care policies. Another benefit: For those in poor health, a combined policy may be easier to obtain. Nevertheless, since the policies are combined, using one policy effectively nullifies the other. There will either be no death benefit or no more steady income in the respective policies if the policy holder needs long-term care. Further, there may be other complications with a combined policy, depending upon your specific situation. Finally, these combined policies can be quite expensive. You can learn more about long-term care insurance in the Long-Term Care Practice Center on our website. Be sure to sign up for our free e-newsletter to stay abreast of issues like these that could affect you, your loved ones and your estate planning.

Reference: The Wall Street Journal (July 31, 2011) “‘Combined’ Insurance Policies Grow”

ESTATE PLANNING / LIFE INSURANCE

Purchasing life insurance in an amount sufficient to cover an estate tax liability has long been a staple of estate planning strategy. But with so many escaping federal estate taxes under the new tax law, families are starting to re-examine their need for life insurance obtained to help heirs pay the tax. Faced with continuing premium payments, many are asking whether they need to keep the insurance. You should think twice, though (and get some professional advice) before giving up your policy. The Wall Street Journal recently advised readers to consider keeping life insurance. First – realize that the “death tax” is not dead. We are seeing an unexpectedly generous exemption this year and next ($5 million per individual, $10 million for a married couple), but don’t forget that the exemption was a mere $675,000 in 2001. As government coffers continue to run dry, a “more robust” estate tax could be very tempting way to raise funds. At any rate, current law expires at the end of 2012, and we don’t know yet what happens next. If you relinquish a policy now, you may find it more expensive – or even impossible – to replace it later. Remember, life insurance is purchased with your good health, cash just pays the premiums. Second – that life insurance policy could solve a number of other thorny problems, regardless the state of the estate tax. If you have spent more of your savings and investments, life insurance can provide the inheritance you had hoped for your heirs. Life insurance also can help equalize an estate – especially for business owners who have some children participating in the family business and some who do not. If you’re having trouble keeping up with those premiums, there may be cost-effective options that still allow you to keep some coverage. If you have a whole or universal life policy, you can ask the insurer to reduce the death benefit to a level at which you can afford to make payments. You also may ask your heirs to cover all or a portion of the costs. As long as the policy is owned by a trust for their benefit, there are ways to do this with no gift-tax consequences. A sale or surrender of your policy has tax consequences, so be sure to consult an advisor before making any decisions about your policy.

ESTATE PLANNING / LIFE INSURANCE

Since most of just finished filing our annual income tax return, we may not be in the mood to further discuss the topic of taxes … unless it’s all about avoiding them. Which is why now is a good time to turn to the topic of life insurance, taxes and your estate plan. The primary purpose of life insurance, for most people, is to replace income that would be lost should you die prematurely. The good news is that life insurance death benefits are generally received by your beneficiaries free of any federal income tax (and usually free of any state income tax as well). But what about the federal estate tax? Contrary to popular belief, the death benefit of life insurance could be subject to estate tax. If the tax rules treat you as the owner of a policy on your own life, the death benefit is included in your taxable estate – unless the money goes to your surviving spouse (they then will become part of his or her estate). If you are the owner of the policy and the death benefits go to anyone else, a child or sibling even, then money is included in your estate. The estate tax exemption is currently set at $5 million through 2012, and although this is historically quite high, a large life insurance policy could push an otherwise non-taxable estate above the limit. And don’t forget that the current rule is in place only through 2012, and there are quite a few who believe lowering the exemption might be the answer to reducing our federal debt. Smart Money last week laid out pretty clearly how the life insurance / estate tax scenario plays out. To quote them: “The tax rules say you own a life insurance policy if you possess so-called ‘incidents of ownership.’ You have them if you retain the power to change policy beneficiaries, change coverage amounts, cancel the policy and so forth.” So, how do you avoid these “incidents of ownership”? You can establish an irrevocable life insurance trust (ILIT) to purchase a new policy on your life. If that’s not possible, you could consider transferring an existing policy. But there are some potential land mines in that strategy. First, if you transfer the policy and die within three years, the IRS pulls the proceeds back into your estate as if the transfer had not occurred. Second, if you transfer a policy with cash value in excess of $13,000, it could trigger adverse gift tax consequences. You can read more about irrevocable life insurance trusts in the Fundamental Estate Planning Practice Center on our website. While you’re there, be sure to sign up for our free estate planning e-newsletter to stay informed of important matters affecting your estate plan. Link: http://www.smartmoney.com/personal-finance/insurance/how-to-avoid-taxes-on-life-and-disability-insurance-1303243651375/ From SmartMoney (April 20, 2011) “How to Avoid Taxes on Life Insurance”

ESTATE PLANNING / LIFE INSURANCE

Purchasing life insurance in an amount sufficient to cover an estate tax liability has long been a staple of estate planning strategy. But with so many escaping federal estate taxes under the new tax law, families are starting to re-examine their need for life insurance obtained to help heirs pay the tax. Faced with continuing premium payments, many are asking whether they need to keep the insurance. You should think twice, though (and get some professional advice) before giving up your policy. The Wall Street Journal recently advised readers to consider keeping life insurance. First – realize that the “death tax” is not dead. We are seeing an unexpectedly generous exemption this year and next ($5 million per individual, $10 million for a married couple), but don’t forget that the exemption was a mere $675,000 in 2001. As government coffers continue to run dry, a “more robust” estate tax could be very tempting way to raise funds. At any rate, current law expires at the end of 2012, and we don’t know yet what happens next. If you relinquish a policy now, you may find it more expensive – or even impossible – to replace it later. Remember, life insurance is purchased with your good health, cash just pays the premiums. Second – that life insurance policy could solve a number of other thorny problems, regardless the state of the estate tax. If you have spent more of your savings and investments, life insurance can provide the inheritance you had hoped for your heirs. Life insurance also can help equalize an estate – especially for business owners who have some children participating in the family business and some who do not. If you’re having trouble keeping up with those premiums, there may be cost-effective options that still allow you to keep some coverage. If you have a whole or universal life policy, you can ask the insurer to reduce the death benefit to a level at which you can afford to make payments. You also may ask your heirs to cover all or a portion of the costs. As long as the policy is owned by a trust for their benefit, there are ways to do this with no gift-tax consequences. A sale or surrender of your policy has tax consequences, so be sure to consult an advisor before making any decisions about your policy. Link: http://online.wsj.com/article/SB10001424052748704296604576197170185126448.html?mod=WSJ_RetirementPlanning_MoreHeadlines From The Wall Street Journal Online (March 13, 2011) “Consider Keeping Life Insurance”