What Are the Benefits of Putting Life Insurance into A Trust?

A trust can be created to help manage asset transfer when you pass away in a streamlined and controlled manner. This prompts the question, should you put your life insurance policy into a trust? Naming a living trust as a beneficiary of your life insurance policy does come with some disadvantages.

The benefits of going this route, however, are that it makes it easier for your loved ones to access this money because they do not have to go through probate and the funds are protected from creditors who might step forward during that probate process to try to claim pieces of the estate.

If you are the trustee of your revokable living trust, any asset inside it is technically considered your property because this trust is not irrevocable. Life insurance proceeds in this example would be counted towards your overall estate work if your estate exceeds the IRS threshold for taxes, which is $12.06 million in 2022 and $24.12 for couples. Additionally, funding a trust with life insurance, much like annuity contracts, typically requires a change of ownership form that is submitted to the issuer of the contract.

Life insurance can be used alongside your estate planning or can play a more active role. Overall, it helps you to give your family immediate assets they can use to pay the most important bills and cover things like a mortgage. Deciding on the right amount of policy coverage is key to success, and you might want to revisit that over time, too.

Before placing a life insurance policy into a living trust, speak with an experienced estate planning lawyer about whether this is recommended for you.


Who Depends on Your Income?

One of the most important questions to be considered as you broach the estate planning process is to evaluate those people who are reliant on your income. If you are currently the primary breadwinner for your family, your sudden disability or death could present significant problems to your loved ones.

Thinking about these possibilities and taking proactive steps to protect your loved ones can go a long way towards enabling them to make quick decisions and to care for these important aspects after you pass away.

With your income gone life could change in an instant for your dependents with no solution in place. In addition to constructing a comprehensive estate plan that passes on your assets to your loved ones, you also need to think about protecting against loss of life.

This is typically done using life insurance which allows your chosen beneficiaries to receive these assets outside of the probate process and much more easily. This can provide for immediate financial support for your family members so that they can make the decisions most important to them. With so many different things to think about in the wake of your loss, you can make things easier for your family members by contemplating the creation of an estate plan that incorporates additional support through the vehicle of life insurance.

How to Use Life Insurance to Pay Estate Taxes

When you’ve done your estate planning homework, you’ve laid a roadmap for your loved ones to take action quickly if and when something happens to you. This can ease a lot of concerns in the most difficult moments of their grief but it’s important for you to think about how all of your estate planning strategies work together.

Life insurance should be a component of your estate planning because it can help provide immediate liquidity in the event of your death and can be relatively simply transferred compared to some other assets inside probate that might be liquidated. Life insurance can also provide a way to pay for estate taxes.

A person who has a taxable estate above $11.7 million federally for an individual in 2021, allows for those payments to be made in the timeframe required of 9 months after death. There are many conversations happening right now about whether or not the estate exemption will be reduced which will make it even more important for people to consider the opportunities with appropriate planning.

Life insurance can be used to supplement your existing insurance plans when you’ve worked with the right lawyer.

When you find yourself in these difficult situations the insight of an experienced estate planning lawyer can go a long way towards answering your questions. For further information about how life insurance can be used as part of your overall plan, sit down with an estate planning attorney in your area to walk through the different scenarios and to craft a custom strategy for your needs.


Using Life Insurance for Greater Liquidity as An Estate Gift


Do you have a life insurance policy to support your loved ones if something happened to you? Without one, you’re leaving them exposed to risk. Many people use life insurance as one vehicle to pass on assets to their families.

Leaving behind assets to your loved ones is a common goal for anyone creating their estate plan but when you don’t think carefully about the tax environment or the methods available to you to leave behind assets, you could leave your family members facing unnecessary problems.

Life insurance might assist in the payment of estate taxes. This is because for those people who have a taxable estate above $11.7 million federally in 2021, life insurance can be an important way to provide instant liquidity to pay that tax.

Those taxes are due 9 months after death, however, if a life insurance policy in question was owned by the deceased, this can also give family members immediate proceeds to help pay for other expenses, such as being reimbursed for funeral costs. There are several different ways that you can use life insurance as part of your bigger estate plan but you need to be prepared to consult with an experienced attorney to walk through your options and get a better understanding of what to expect and how to avoid some of the most common mistakes made in using a life insurance policy. You can help support your loved ones by working with a lawyer well in advance.

What is a Life Insurance Beneficiary?

Did you just start a new job or did you recently purchase private life insurance? If so, you probably came across the term “beneficiary” as you filled out this information. This is the person or people who will receive the funds from your policy when you pass away. For most people, there will be a primary beneficiary and contingent beneficiary.

The primary is the person who will receive most or all of the funds. You can choose who you want this person to be. In some policies, you can even use this strategy to help with business planning or replacing a key employee.

Most people, however, own a private policy or one through work that names their spouse or other family member as the primary beneficiary. The secondary beneficiary is the person who will receive the remaining amount of the policy after the primary beneficiary has been paid. The purpose for naming a second person is to allow you to maximize the benefits handled through this process and to support more people when you pass away, but also to ensure that someone receives your policy benefits if the primary beneficiary passes away before you do.

It’s important to do an annual review of your life insurance policy to make sure that you’ve covered all your bases and that you have an up-to-date beneficiary listing.

Are you ready to talk about how your NJ life insurance policy can help you accomplish your estate planning goals and what other aspects you need to consider? This is a good reminder to meet with an NJ estate planning lawyer to discuss life insurance and other important aspects of your planning.

Don’t head into 2022 without thinking about a review of your life insurance policies and their associated beneficiaries. If you need more support in crafting your estate plan, reach out today for more information.

Life Insurance Should Be Included as Part of Your Estate Plan

Life insurance can be a powerful planning tool when used in conjunction with the remainder of your estate plan. Having an estate plan put together with the help of an experienced estate planning lawyer is helpful for outlining what you intend to accomplish in the future. 

However, you should also engage other professionals, such as a CPA or financial planner to ensure that all of your plans are working together. Having a life insurance policy is the cornerstone of good financial protection. You probably assume that you don’t need life insurance until you have a family that you provide form and even then, sometimes life insurance does not come up on a person’s radar. However, there are four main reasons you want to consider purchasing a life insurance policy in conjunction with sitting down with an estate planning attorney to discuss your goals. These life milestones include;

  • Being part of a blended family, which has complicated family dynamics. You could use this to provide for your new spouse, allowing your children to inherit other assets.
  • You just started your own family and may need to replace income, pay for the child’s education, or pay for mortgage and car payments.
  • Your estate is large enough to have estate tax liabilities. You could have state or federal estate taxes associated with your estate when you pass away. Life insurance can allow you to fund this liability or can be used to generate liquidity reserves that can be accessed to pay initial taxes and expenses once you pass away.

Regardless of how you choose to use your life insurance policy, you should discuss your options directly with an estate planning lawyer.


Does My Life Insurance Policy Pass Through Probate?

Probate assets and non-probate assets raise all kinds of questions for people approaching the estate planning process. It can be difficult to figure out which of your assets needs to proceed through the probate process and which could be passed down to your heirs outside of traditional probate.

A life insurance policy is one example of an item that passes outside of probate due to the use of beneficiary forms. Beneficiary forms are used to establish who you would like to receive your assets, when you pass away, from a life insurance policy. This is different from a will, which articulates items of personal property and can even name a guardian for a minor child. life-insurance-estate-planning

Your life insurance policy will pass to the primary beneficiary or contingent beneficiary after you pass away based on the beneficiary forms you updated and maintained with your own life insurance company. This makes it very important to update all of these materials based on any major changes in your life, such as the birth of a child or grandchild or getting a divorce.

Since your life insurance company will rely entirely on these forms to pass down your assets after you pass away, you need to make sure that you have maintained updated paperwork directly with your life insurance company so that there is no confusion or misapplication of life insurance proceeds when you pass away. Your life insurance policy should be included in your comprehensive estate planning. Make sure you sit down with an experienced estate planning attorney to discuss your options.

Life Combination Policies May Fill Long Term Care Gap

Long term care insurance is known as one of the most expensive forms of insurance out there and it is extremely important for people to have long term care insurance coverage. Long term care insurance coverage provides a critical stop gap in the event that someone becomes suddenly disabled or affected by a cognitive or physical issue that renders them in need of nursing home care. New life combination policies have emerged to step in where traditional long-term care insurance falters. 

Traditional sales of long term care insurance policies have dropped by 60% since 2012. A newer option for ensuring against the risks of long term care costs includes universal life insurance that has long term care protection. In 2012, only 86,000 of these policies were sold, but that number surged to 256,000 in 2016.

Nearly half of retirees have indicated that they are not confident they will be able to pay for their own long-term care, according to research gathered and presented by the Employee Benefit Research Institute, and even higher portion of workers share that same concern.

And a 2016 study conducted by LIMRA found that the number of retirees concerned about long term care expenses has increased from 2006 numbers by 13%. If you are curious about how to thoroughly protect yourself against the cost of long term care and ensure that you have made the move to get help quickly and easy one, contact an experienced estate planner today.

Do I Still Need Life Insurance In Retirement

When you’re retired, your cash flow is extremely important, and there’s a good chance that you’ve spent a great deal of your working years planning specifically for retirement.  

A 25 year retirement giving you increasing numbers and longevity can be cause for concern particularly was you evaluate your various expenses and figure out what makes sense for you.  Life insurance is a vitally important form of protection during numerous different points of your life. Planning for the possibility of someone’s death can help with paying off the mortgage, replacing income, providing liquidity to pay estate taxes, and to establish children’s college funds.  There are times, however, when these needs come and go and the re-evaluation of your needs in retirement is extremely important.

There must be consideration about whether or not your life insurance policy is still serving you at this period in time. Unfortunately far too many people in or nearly retirement are continuing to pay their life insurance premiums out of a sense of obligation without evaluating whether it is necessary.  Many life insurance policies that were purchased for the purpose of paying an estate tax may no longer be needed due to updates in the estate tax planning.

And particularly if you are married, you would need to have substantial assets in order to even trigger the estate tax. If you are concerned about whether or not this affects you, schedule a consultation with an estate planning lawyer.

Estate Taxes on Life Insurance & Life Insurance Trusts (“ILITs”)

Many Americans may be unaware of what an irrevocable life insurance trust (“ILIT”) is, let alone the benefits it may provide to them.

Typically, life insurance policy proceeds are not subject to income taxation. However, they are included in the calculation of a person’s gross taxable estate. This is where the ILIT comes in. If a person puts their life insurance policy into an ILIT, the proceeds of the policy are kept out of his or her taxable estate. The proceeds will therefore be available to his or her heirs free of income and estate tax.

Additionally, ILITs are a great way to provide cash to help pay for the taxes that will be levied on your estate. Beneficiaries of your ILIT can use some of the proceeds to pay the taxes owed on your estate. By doing this, your actual estate is kept in tact. This strategy is especially beneficial to those whose estate consists largely of illiquid assets such as a business or real estate. Through setting up an ILIT, you can ensure that your family will not have to sell the illiquid assets in your estate in order to satisfy the estate taxes.

Call us at 732-521-9455 or email at info@LawEsq.net to discuss the right way to own your life insurance.

Do you feel lucky? What is a Quick Draw Buy-Sell Agreement?

Many business owners have a buy-sell arrangement set up for the future. It’s helpful to draw out these directions in advance, especially when there is the potential that future owners or part-owners might get gridlocked with one another. In these situations, buy-sell directions can help disputing parties move forward.

Do you feel lucky What is a Quick Draw Buy-Sell Agreement

It’s possible that you’ve already heard about a shotgun buy-sell arrangement, but a quick draw agreement is a bit different. Under a shotgun, the offering individual stipulates a price. The offerree then has the option to buy those shares or to sell their own shares to the offeror. The exact timing isn’t a major issue in this situation, since the offeree retains the option to either buy or sell. In some ways, this can even be seen as a disincentive to pull the trigger.

All that changes under a quick draw arrangement. Under a quick draw, either side can provide a notice to purchase the other’s shares at a price that is determined through an appraisal process. This can happen after a contractually defined “trigger event”, but the timing of the trigger pull is essential in quick draw. Simply put, timing is everything.

Under quick draw, buyer and seller designation is determined simply by who submits their notice to purchase the other’s shares first. A difference of even just minutes can determine who gets to buy and who gets to sell. This complex process was recently held up in Mintz v Pazer, in which the judge supported this out of the box buy-sell arrangement.

If you’d like to learn more about your buy-sell options and put a plan for the future in motion today, reach out to us at 732-521-9455 or email us at info@lawesq.net

Discuss Finances Before Saying ‘I Do’

If you or someone you know is planning a wedding anytime soon, there are many things to consider. One of the most important of which is finances. You must discuss money with your future spouse, even if doesn’t sound romantic.

English: A Catholic wedding ceremony in Milwau...
(Photo credit: Wikipedia)

Talking about finances is at least as important as discussing the reception or honeymoon. Maybe more important.

Talking about finances — budgets, insurance, savings and so forth — could be critical to ensuring a happy marriage, says a story on cnbc.com.

Setting a specific time to sit down and talk about how you want to organize your finances after marriage is key. Will you have joint checking accounts or separate ones? Who is going to manage the money and pay the bills? These are just some of the questions that must be asked.

It is also critical to set a budget and put your expenses and financial goals down on paper. It is important that each partner be okay with the other’s spending habits.

If there are disagreements, the couple may want to obtain the advice of a marriage counselor or financial advisor.

Other areas to discuss are life insurance ( a “must” for most couples, according to the article); debt, if there is any;  disability insurance; homeowners insurance; health insurance; and an estate plan, or at least a plan to designate beneficiaries in case of one’s death.

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For the Newbies: Four Estate Planning Tips For Beginners

Estate planning is often a difficult topic to approach. Not only is it difficult for many people to discuss the reality of their own mortality, but the process of estate planning can quickly become confusing and overwhelming. If you have not prepared your estate plan yet, a recent article offers four steps to take care of most of your planning needs:

1. Prepare a Master Information Document: A master information document should include all of the information your executor will need in order to locate and settle your accounts. This document is simple to create, and will save your executor from the nightmare of an unorganized estate. Importantly, be sure to keep this document in a safe place so that it does not fall into the wrong hands.
2. Consider Purchasing Life Insurance:  Life insurance is an important estate-planning tool for anyone who leaves behind dependents. The proceeds can keep a person who relies on your income from financial ruin.
3. Draft a Will that Considers Important Possessions:  If you have any items that carry a sentimental or financial value, chances are you will want to dictate who receives that item after your death. Additionally, if you do not account for the distribution of such items, you may trigger a feud among your family members.
4. Designate a Guardian for Any Minor Children: If you have minor children, guardian designation is the single most important part of your estate plan. Carefully select the person you would trust to care for your children should you become unable to do so and discuss your designation with that person before putting it in your will.

How to Plan for, or Avoid, Transfer Taxes

As a recent article suggests, estate planning encompasses a lot more than most people would think. Not only does estate planning allow you to structure the final distribution of your assets upon your death, but it also allows you to provide for the management of your assets during life, plan for the care of your children, and make important decisions about what kind of medical care you would like to receive at the end of your life. Although estate planning encompasses all of these things, most people come to the table with an overwhelming goal of avoiding transfer taxes, namely Estate Taxes, Inheritance Taxes and Gift Taxes.

There are plenty of ways that estate planning can be used to minimize the tax liability an estate will face after the owner’s death. In many situations, it is possible to plan for zero estate taxes. Some strategies involve giving up control of certain assets. For example, a person could zero out their tax liability by setting up a charitable trust. Others, such as Family LLCs (FLLCs) and Family Limited Partnerships (FLPs) allow owners to maintain more control..

For the ultra-wealthy, there are many sophisticated asset transfer mechanisms that can be used to avoid transfer taxes. These mechanisms include foreign grantor trusts, dynasty trusts and private placement trusts. Again, these mechanisms often mean that a person has limited or no access to the assets within the trusts.

For those who want to maintain full control of their assets, life insurance is another way to provide money for anticipated taxes. These policies are often used to provide quick cash for a person’s heirs to pay any taxes and fees on the estate.

When Considering Life Insurance

Life insurance is a simple concept. A person takes out a policy in order to provide funds to his or her loved ones upon his or her death. However, life insurance can get complicated by the various products that life insurance companies offer. A recent article attempts to assist insurance customers in understanding how to make good decisions concerning their life insurance.

The article first suggests that people consider life insurance as financial plan insurance. The term itself is rather misleading, considering that life insurance cannot bring you back once you have passed on. Rather, life insurance provides for the financial future of your loved ones.

Here is one rule of thumb: when purchasing life insurance, first calculate how much money you believe your family would need to live comfortably without you. Factor in any mortgage or car payments, college tuition for children, and supplemental income. When you have factored in all of these assets, consider how long your family will have these specific needs. Often, a level term policy that expires at the same time that your working career would be over is the best option.

Life insurance replaces your income, so consider how long of a working career you believe you will have. For example, if you plan on retiring at age 65, calculate your income until that date. After which, there is no anticipated income to protect.

Wait, I Did What?!?! Are You Second-Guessing Your ILIT?

Many Americans let out a sigh of relief when the American Taxpayer Relief Act of 2012 was finally signed into law. The signing of the act put an end to much of the uncertainty that previously surrounded estate planning where taxes are concerned. As a recent article explains, one consequence of this newfound certainty is that individuals who planned meticulously in order to avoid death taxes are now attempting to back-pedal .

One product that many individuals are now second-guessing is the Irrevocable Life Insurance Trust (“ILIT”). As the term “irrevocable” implies, ILITs are relatively inflexible. However, there are certain ways through which estate-planning attorneys can soften the terms of an ILIT.

Options such as adding a spousal access clause, adding a special trustee clause, or increasing the discretionary power of the trustee allow the trust creator to exercise more control over the trust. Some state governments have also attempted to make ILITs flexible by enacting “decanting” statutes that provide for the transfer of assets from an old ILIT to a new, less restrictive one.

If you would like to modify or revoke your ILIT, it is important to examine the originating documents carefully. Be sure to consider the legal, tax, financial, and insurance components of any planned adjustment. Importantly, any changes to your trust should comply with its terms and make financial sense.


Advantages Of An Irrevocable Life Insurance Trust

Many Americans may be unaware of what an irrevocable life insurance trust (“ILIT”) is, let alone the benefits it may provide to them. A recent article discusses several of the benefits offered by ILITs.

Typically, life insurance policy proceeds are not subject to income taxation. However, they are included in the calculation of a person’s gross taxable estate. This is where the ILIT comes in. If a person puts their life insurance policy into an ILIT, the proceeds of the policy are kept out of his or her taxable estate. The proceeds will therefore be available to his or her heirs free of income and estate tax.

Additionally, ILITs are a great way to provide cash to help pay for the taxes that will be levied on your estate. Beneficiaries of your ILIT can use some of the proceeds to pay the taxes owed on your estate. By doing this, your actual estate is kept in tact. This strategy is especially beneficial to those whose estate consists largely of illiquid assets such as a business or real estate. Through setting up an ILIT, you can ensure that your family will not have to sell the illiquid assets in your estate in order to satisfy the estate taxes.

Equalizing Inheritance for Your Children

When one estate planner hears his business-owning clients say, “I love my kids equally, so I want to share my assets equally,” what he actually hears is, “I don’t know how to handle this, so when I’m gone, I’ll leave the business to the kids and let them sort it all out.”

The article in Forbes goes on to state that clients who truly want their business to continue to grow and thrive after their death, but also want their children to succeed in whatever career path they have chosen, should speak with an estate planning attorney about logically equalizing their children’s inheritance.

One potential method of inheritance equalization is through life insurance. Using this strategy, one can set up their estate plan so that, upon their death the children who would like to take an active role in the family business inherit your stock in the business, while those children who have chosen another career path receive monetary inheritance equivalent to the value of the stock through life insurance death benefits and other non-business assets you hold at the time of death.

Through inheritance equalization, parents can create equal and equitable transfers to the next generation.


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Using a Flexible Irrevocable Life Insurance Trust to Shelter Life-Insurance Proceeds

Many people do not realize that life insurance proceeds are in fact taxed. Although these proceeds escape income taxes, they ARE  counted as part of your taxable estate. An article in The Wall Street Journal discusses one way to shelter such proceeds from estate taxes, the Irrevocable Life Insurance Trust.

In order to avoid such tax consequences, you may choose to transfer ownership of your existing life insurance policy to an Irrevocable Life Insurance Trust (“ILIT”). By transferring such ownership, the ILIT is removed from your estate. Once established, an ILIT also allows you to split death benefits among several beneficiaries any way you wish. You also retain the power to decide how and when the benefits will be distributed to your heirs.

If you believe that an ILIT is right for you, you should act sooner, rather than later. Existing policies transferred to ILITs are subject to a three-year look-back period, meaning that if you die within three years of its creation, your life insurance proceeds will revert back to your name and be included within your taxable estate (Although this is not the case for new policies purchased directly by the life insurance trust.

An ILIT is usually used for life insurance policies that were set up for the sole benefit of the heirs. If you need to own or access your life insurance policy at anytime, an ILIT may still be a good solution for you, but it must be drafted with that goal in mind.