Carlsbad CA Estate Planning

Life Insurance Is Simple and Can Benefit Estate Plan

Wall Street has an enhanced life insurance method that benefits wealthy people and is becoming increasingly popular, according to Barron's in "New-ish Tax Planning Instrument Gathering Billions."

Life insurance is a popular estate planning tool used as a relatively simple way to even out inheritances between heirs or to provide needed cash for family members, after the policy holder passes away.

A policy is purchased, premiums paid and upon the death of the policy holder, cash is distributed to the beneficiary.

Since life insurance is a death benefit, the beneficiary does not have to pay income taxes on it when it is paid out as a lump sum.

Wall Street has an insurance dedicated fund as a complicated investment tool that gets treated for tax purposes in the same way as life insurance.

It allows people to invest money that is then managed by hedge funds, without paying any capital gains tax on the investment. When the investor passes away, the accumulated funds in the account are distributed to beneficiaries and have the same tax benefits as life insurance.

Insurance dedicated funds are not new, but they have recently started becoming more popular.

An estate planning attorney can advise you on whether an insurance dedicated fund will fit your unique circumstances.

Reference: Barron's (June 28, 2017) "New-ish Tax Planning Instrument Gathering Billions."

Making Sure Your Family Has the Cash They Need

People often go to great lengths to get an estate plan carefully crafted that covers every possible need their family could have. That is a good thing, but it might not be enough.

If you are your family's sole breadwinner and most everything is in your name, then you also need to think about how your family is going to make ends meet while your estate is being administered. Bank accounts in your name are supposed to be closed as soon as you pass away, so your family cannot legally access them.

Unfortunately, that is not going to stop any bill collectors from making calls, and grocery stores are not going to sell their food on credit to your family.

As a result, you also need to plan for your family to have access to cash.

Some advice on how to do that comes from South Africa by way of Personal Finance in "Will your family avoid a cash-flow crisis on your death?" The advice is also applicable to the U.S.

Getting an estate through probate can take a lot of time, depending on the size of the estate and the probate laws in the state.

Your family will not receive the cash from your will for a while, in most circumstances.

If you do anticipate that your family will need cash after you pass away, the most effective way to provide it is normally to take out a life insurance policy. These policies pay out almost immediately upon learning of death.

Another idea is to open a joint bank account with a trusted family member and to put some money in the account that will only be used in the event of your passing.

Reference: Personal Finance (April 22, 2017) "Will your family avoid a cash-flow crisis on your death?"

Planning for a First Child

First-time parents are stereotypically known to be a nervous group. That is understandable. Bringing a new life into the world that you are responsible for, is a daunting task for even the most financially secure and emotionally stable people.

It is not easy being a parent and it is anything but cheap. Parenting a child costs a lot of money in today's world. It requires careful planning.

Recently, Wealth Management outlined some financial planning advice for new parents in "Six Financial Planning Steps for Expecting Parents."

All of the steps listed in the article are important and worthy of consideration for new parents. However, the last one is of particular importance, because it is the one that is most often forgotten.

New parents need to get estate plans.

It is through estate planning that parents can prepare for the worst case scenario if something happens to them, the parents, before their children reach adulthood.

It is in estate planning that guardians are nominated for minor children.

It is also through estate planning that financial arrangements are made to make sure that minor children have the resources needed for their care, if something happens to the parents.

If you are expecting a child, make sure you do not neglect to see an estate planning attorney so you do not have to worry about what will happen to your child, if something happens to you.

Reference: Wealth Management (March 31, 2017) "Six Financial Planning Steps for Expecting Parents."

When to Change Beneficiary Designations

Estate planning today is not just about going to an estate attorney to have a will or a trust drawn up. It also includes making plans for your own end-of-life care and deciding who should get your retirement accounts and life insurance policies, if something happens to you.

The beneficiaries of your accounts will get the assets by operation of law. If you have done everything correctly, then you have factored those accounts into your overall estate plan with the assistance of your estate planning attorney. Sometimes you need to review and change those designations.

Recently, the Aiken Standard listed some appropriate times to do that in "On the Money: Don't disinherit your loved ones," including:

• If you get divorced or remarried, then review your accounts to make sure you are not leaving things to an ex-spouse or that your new spouse is included.
• If you get a new employer and roll over your old account, then make sure that the new account accurately reflects your wishes.
• If the primary beneficiary on your accounts passes away, then you obviously need to make changes.
• If the financial institutions you have the accounts with change ownership, review your beneficiary designations to make sure the new company has everything recorded properly.
• If you have a new child or grandchild, consult your estate attorney about including them and whether they should be named as beneficiaries.
• If a beneficiary becomes disabled, you should talk to an attorney about creating a special needs trust. Keeping them as a beneficiary could make them ineligible for some needed government benefits.

Reference: Aiken Standard (Dec. 10, 2016) "On the Money: Don't disinherit your loved ones."

Life Insurance Trusts

When planning the estate of a family's primary breadwinner one of the biggest concerns is providing the necessary cash assets for the rest of the family to live on while everything else gets settled. This is especially the case if the estate is expected to go through probate or if most of the estate assets are difficult to sell quickly.

One of the best ways around this problem is through the use of life insurance. The policies pay out in cash almost immediately. However, as Forbes points out in "3 Considerations for an Irrevocable Life Insurance Trust" the solution is not always perfect.

One of the problems with life insurance policies is that the benefits can be counted for estate tax purposes. This is especially problematic if the benefits would put your estate over the exemption limit when it would not be otherwise.

One way to get the advantages of life insurance while avoiding the estate tax problem is to create an irrevocable life insurance trust. The trust becomes the owner and the beneficiary of the life insurance policy and keeps the benefits out of the estate tax calculations. However, if you transfer ownership of an existing life insurance policy, then you must live for three years to avoid having the IRS include the death benefit value in your estate anyway.

If you have questions about irrevocable life insurance trusts or other ways to provide liquid assets to your family after you pass away, then speak with an estate planning attorney about the options.

Reference: Forbes (Sept. 19, 2016) in "3 Considerations for an Irrevocable Life Insurance Trust."

Feds Go After Terrorist's Life Insurance

There are still unanswered questions following the December terrorist incident in San Bernardino, Ca. Authorities still are uncertain whether Syed Rizwan Farook had assistance from foreign terror groups or if he planned other attacks. Was he a lone wolf terrorist?

What is not still in doubt is that Farook committed an act of terror and U.S. law prevents people from profiting from terrorist acts. Because of that, the federal government has filed a lawsuit to seize the life insurance benefits from two policies Farook took out as reported by Fox News in "US seeks to seize San Bernardino shooter's life insurance." Farook's mother was the beneficiary of both policies.

Currently, it is unknown whether the shooters had estate plans and, if they did, who their heirs would be. However, it is certain that whoever ends up inheriting their estates will not likely keep very much of it, if they are even able to keep any of it.

The families of the victims will most likely sue the estates for any assets. Although there is unlikely to be very many assets in the estates, it can be an important symbolic message to go after what is there and it may help the victims' families get closure.

Reference: Fox News (June 1, 2016) "US seeks to seize San Bernardino shooter's life insurance."

Divorce and Estate Planning

In divorce property settlement agreements it is common for the spouse who will be responsible for paying child support to agree to also maintain life insurance. The insurance benefits are meant to provide for the child support should something happen to the parent.

However, as the National Law Review points out in "How Divorce Can Impact Your Estate Plan," these life insurance provisions in divorce agreements are often flawed from an estate planning perspective.

Divorce attorneys do not normally also work with estates. From a divorce perspective a provision to have one parent obtain life insurance is adequate. However, from an estate planning perspective such provisions often leave out important details.

For example, the mere requirement to obtain life insurance would not stop the receiving spouse from using the entire sum for his or her own benefit. Even if the benefits are to be put in a trust for the benefit of the child, divorce settlement agreements often leave out instructions regarding what happens to any funds left in the trust after the child reaches the age of majority.

An estate planning attorney can look at a divorce agreement life insurance provision and suggest ways to improve it. He or she can also help ensure that the provision is carefully crafted so any life insurance benefits will go to the proper beneficiary, which is usually the child.

Reference: National Law Review (May 19, 2016) "How Divorce Can Impact Your Estate Plan"

Designating Beneficiaries the Right Way

Designating a beneficiary on your IRA might seem like a simple process of just writing down the name of your spouse or child. However, as Morningstar points out in "How to Handle Beneficiary Designations" it should not be taken that lightly.

Beneficiary designations are an important part of the inheritances for your heirs and should be carefully considered.

The article offers some tips about how you should go about it:

• The Basics – With very limited exceptions, you can name almost any person or entity as a beneficiary. The property will pass automatically to the beneficiary after you pass away without having to go through probate or your estate plan.
• Keep Things Up to Date – Review your designations regularly to make sure they are still appropriate.
• Taxes – Understand that inheriting the property could have tax consequences for the beneficiaries. It is a good idea to get professional advice about those consequences.
• Be Specific – Do not rely on naming one person and allowing that person to distribute the assets to others. Write down specifically how assets are to be distributed.
• Special Needs – If you have family members with special needs, speak to an attorney about how to name them as beneficiaries in a way that does not disqualify them from receiving government benefits.
• Other Estate Planning – Designating beneficiaries should be done in accordance with how your other assets will be distributed in your estate.

In short, make sure you have the assistance of a qualified estate planning attorney when making these important decisions.

Reference: Morningstar (April 22, 2016) "How to Handle Beneficiary Designations"

Finding Life Insurance Beneficiaries

Life insurance is a key component of many estate plans. Because life insurance payments are supposed to be made immediately they can provide necessary funds to descendents and surviving spouses while the rest of the estate takes a slow course through probate.

Life insurance is also often used to provide longer term income for beneficiaries when the other estate assets are not enough to cover ongoing expenses. Florida has recently passed a new law that aims to ensure that these important planning benefits are carried through.

The Tampa Bay Times reports on this development in "New Florida law requires life insurers to do more to find beneficiaries."

What the law is trying to address is that sometimes insurance companies do not learn that their policyholders have passed away and do not make enough effort to learn if they have. This can happen when the policyholder has not provided enough information about the policy to other family members.

The law would require the insurance companies to check all policyholders with the Social Security Administration's Master Death File going back to 1992. Yearly checks would be required on an ongoing basis.

As many people retire in Florida it is a good place for this type of law. It should help in getting payments in the hands of beneficiaries sooner.

Reference: Tampa Bay Times (April 12, 2016) "New Florida law requires life insurers to do more to find beneficiaries."