Wills, Trusts, & Estate Planning » Irrevocable Life Insurance Trust

Estate Plan Updates at Transition Points

stevenberger — Mon, 13 Jun 2011 21:36:51 +0000

This is the time of year for graduations and we are proud that our youngest daughter graduated from Williams College. We are also relieved of our obligation to write those tuition checks twice a year. As an estate planning attorney I realize that the last college graduation means our estate plan needs to be updated. No longer do we need a common trust to ensure that assets will be available to cover the cost of educating all of our children. We reached the point where putting our assets into a revocable trust makes sense for disability management and probate avoidance. We created a Bypass Trust to double our Maryland Estate Tax exemption and to ensure that our daughters are the beneficiaries of our career savings. We have a Standalone Retirement Trust to ensure that our retirement accounts receive their maximum stretch to delay income taxes while providing asset protection and management. Our life insurance policies are owned by an Irrevocable Trust that keeps the proceeds out of our estate. Finally, we updated our advance medical directives and executed the new Maryland statutory power of attorney. We are glad to be finished with this phase of our life and looking forward to the new challenges that life will bring.

Summer Vacation

stevenberger — Fri, 09 Jul 2010 18:43:01 +0000

Estate planning is not just for retirees. Summer is a busy time in the office for completing wills of young parents. Planning a summer vacation forces parents to think about who would look after their children if they both perished in an airplane or car accident.

The first step of the will is to name a Guardian avoiding the need for the Court to determine who should be responsible for their children. In addition to naming a guardian, the parents usually select a Trustee to manage the money (usually life insurance proceeds) they have set aside to raise their children. The question is always whether that person should be the same person as the Guardian. The answer is always “It depends”. A Trustee who is also a Guardian is in a position to watch over all aspects of the child’s development. An independent Trustee provides a second opinion on the child’s “best interest” and splits the workload of raising the child.

Preparing for the common disaster is often the extent of planning that most young parents accomplish and it is the most important planning they can do. However, statistics tell us that it is much more likely for just one of the parents to pass away before the children are independent. A simple will that leaves everything to the surviving spouse may not be the best thing for the children.

My recommendation is to establish a trust for the benefit of the children at the death of either parent. The trust can reduce estate taxes, provide a means to manage the money set aside for the children, provide creditor protection against the surviving parent’s creditors, and prevent the children’s money from being mixed into the new family’s funds if the surviving parent remarries.

A children’s trust can be setup in a will or by an Irrevocable Life Insurance Trust. The Irrevocable Life Insurance Trust is going to become a very popular tax planning device with the Federal Estate Tax being reinstated in 2011. Estate planning is not just for retirees. Think about meeting with an experienced Estate Planning Attorney before your summer vacation or your next business trip.

Life Insurance

stevenberger — Mon, 05 Apr 2010 18:10:55 +0000

I recently spent the afternoon with an elderly woman planning how to distribute her large real estate holdings fairly upon her death. I asked her how she had accumulated all that property. She said that her husband had died at fairly young age leaving her with life insurance proceeds. She used that money to pay off her mortgage and purchase more land. She worked the land and continued to buy more land as she had the resources to do so. In contrast, that evening I visited with a one of the county’s homeless as a volunteer in our church’s outreach to the homeless. I asked her how she ended up in the shelter. She said that her husband died and she lost her house as her income was not enough to cover her house payments. That day made clear to me the lesson of the need for life insurance to protect your family.

Before purchasing a life insurance policy, I would recommend that you contact an attorney to see whether an Irrevocable Life Insurance Trust is right for your situation. Although life insurance proceeds are exempt from income taxes, the amount is included in your total estate. An Irrevocable Life Insurance Trust puts the money outside of your estate and in a trust where you specify how the money is used. As an alternative, your revocable trust or trust setup by a will can be a beneficiary for your life insurance proceeds ensuring that the money is spent according to your wishes. This is especially critical if you have a life insurance policy setup to take care of your children. If you already have life insurance, a quick review of the beneficiaries is a prudent step to ensure that the government is not a beneficiary of your insurance. If your estate is named as the beneficiary of your life insurance policy, as a minimum the cost of probate will be increased by the life insurance amount. Putting that money in the estate will also allow creditors to make a claim on the life insurance proceeds. Mistakes in beneficiary designations are becoming more common as life insurance policies are bought on-line or part of a company compensation plan without an insurance agent to advise the policy owner on proper designations.