Can Life Insurance Help Your Estate Plan?

Ben Franklin said that in this world nothing is certain but death and taxes. Well, one product sits at the intersection of both—life insurance. It may not help you cheat death, but it may help manage taxes.

There are certain estate planning steps we should all take, including the creation of a will and a health care directive. But if you have enough wealth that you expect your estate to be taxed—at either the state or the federal level—you may want to consider more advanced strategies, including using life insurance in a trust.

Irrevocable Life Insurance Trust

✔ May provide cash for heirs to settle estate.

✔ Death benefit is generally not considered taxable income by the IRS.

✔ Choose an insurer with a strong rating.

✔ It is a complex legal arrangement requiring properly drafted documentation.

✔ Consult a legal advisor regarding your specific situation.

https://www.fidelity.com/viewpoints/personal-finance/can-life-insurance-help

Advantages and Disadvantages of Joint Ownership of Estates (with Definitions)

Joint ownership itself may be structured in different ways, which may affect an estate plan. Each type of joint ownership structure offers an undivided right to the use and enjoyment of the property. However, depending on the specific classification of joint ownership, the ultimate consequences of transfer at a joint owner’s death may vary.

There are three basic ways to title a joint account, and each of them has distinct implications for estate planning, depending on your situation.

Joint Tenancy with Rights of Survivorship: When one owner dies, property ownership transfers to the surviving owner(s) through the rights of survivorship. Probate may be avoided on the death of the first joint owner of a jointly held account but not necessarily on the death of the surviving joint owner. This is because the asset that was originally jointly held may now be titled solely in the name of the surviving joint owner, hence resulting in a potential probate on the death of the surviving joint owner unless measures are taken to avoid that result.

Tenancy by Entirety: This is similar to joint tenancy with rights of survivorship, except that it applies only to married couples, which would include married same-sex couples in some states.

Tenancy in Common: Unlike joint tenancy with rights of survivorship, with tenancy in common, when a joint owner dies, that owner’s interest in the property will become part of the deceased owner’s estate and will be passed on according to his or her will. A word of caution: Be careful establishing a tenancy in common account, because it will likely lead to probate issues.

https://www.fidelity.com/viewpoints/estate-planning-to-dos

Estate Planning Pitfall to Avoid: Transfer on Death & Payable on Death

Pitfall to Avoid: 

Transfer on Death (TOD) or Payable on Death (POD) Not Matching Wills

A simple and easy way to help avoid probate is to name someone as a transfer on death (TOD) beneficiary or a payable on death (POD) beneficiary. The terms are essentially the same but apply to slightly different accounts. A TOD/POD beneficiary can be named on financial accounts, such as bank savings or checking accounts and investment accounts, vehicle titles, and—in some states—real property.

Despite their simplicity, one major issue with TOD-/POD-titled assets is a lack of awareness or poor coordination with overall estate planning strategies. Some people might not realize that a TOD- or POD-titled asset overrides whatever is stated in a will. If a number of accounts are titled as TOD or POD, a will can be rendered largely ineffective, and assets may not be distributed as intended because the TOD/POD beneficiary designations don’t align with those established in the will.

Estate taxes may be due on TOD assets depending on, among other things, how the will is drafted. If there are tax issues, relying on TOD/POD beneficiary designations may not be enough, and a more complex estate plan may be needed.

https://www.fidelity.com/viewpoints/estate-planning-to-dos

3 Estate Planning Must Dos...

https://www.fidelity.com/viewpoints/estate-planning-to-dos

Estate Planning for the Digital Era

Digital Estate Planning To-Dos:

✔ Make a list of your digital assets and passwords so others know where to find them.

✔ Back up data stored in the cloud to a local computer or storage device.

✔ Work with an attorney to provide consent in legal documents.

https://www.fidelity.com/viewpoints/wealth-management/estate-planning-for-digital-assets?ccsource=email_weekly

Estate Planning Pitfalls to Avoid

https://www.fidelity.com/viewpoints/personal-finance/estate-plan-pitfalls

3 Primary Benefits of Trusts

3 Estate Planning Considerations

An All-In-One Wealth Transfer Checklist

Money is one subject that families are often reluctant to talk about.

Death is another. 

Combine them—as in talking about your estate plan—and avoidance is a common reaction.
Nonetheless, talking with family members about plans to protect and transfer assets can help avoid unwelcome surprises and unnecessary stress after you or your spouse passes. 

Talking about money and values can also strengthen family ties and develop a shared purpose while you are alive and able to enjoy the results.

https://www.fidelity.com/viewpoints/personal-finance/wealth-transfer-checklist

Estate Planning: Pros & Cons of Joint Ownership of Estates

Estate Planning: The Pros & Cons of Transfer On Death (TOD) and Payable On Death (POD) Authorizations

Pitfall to Avoid: Transfer on Death or Payable on Death not Matching Wills

A simple and easy way to help avoid probate is to name someone as a transfer on death (TOD) beneficiary or a payable on death (POD) beneficiary. 

The terms are essentially the same but apply to slightly different accounts. A TOD/POD beneficiary can be named on financial accounts, such as bank savings or checking accounts and investment accounts, vehicle titles, and––in some states––real property.

Despite their simplicity, one major issue with TOD/POD-titled assets is a lack of awareness or poor coordination with people’s overall estate planning strategies. 

Some might not realize that a TOD- or POD-titled asset overrides whatever is stated in a will. 

If a number of accounts are titled as TOD, a will can be rendered largely ineffective, and assets may not be distributed as intended.

“You could have a complex will with all sorts of trusts created for your children,” says Pamela Pirone-Benson, a Fidelity estate planning specialist. “But if the assets don’t pass by the terms of the will, then the will becomes an expensive paperweight.”

Lubar describes transfer on death as a “placeholder,” rather than an estate plan. “It’s a temporary bandage until you put a larger, more effective, comprehensive plan in place.”

Consider Susan, a hypothetical client with a brokerage account worth $1 million.

She names her husband as a TOD beneficiary of the $1 million account. Five years later, she does some estate planning and states in her will that the account’s assets be split evenly between her two daughters from a different marriage. 

Unfortunately, Susan doesn’t realize that her now ex-husband will receive the assets, because the TOD registration overrides the will.

Another problem with a TOD or POD could occur if parents name their children individually as TOD on each of two separate accounts. At the time the assets are titled, the value of the two accounts is equal. But no one tracks the value of the accounts over time.

Thirty years later, when the couple dies, one child could receive a much smaller sum than the other.

And estate taxes may be due on TOD assets and payable by the recipient, depending on, among other things, how the will is drafted.

“This can create an administrative nightmare for the executor of the will, who then needs to go and collect taxes from the recipients after they receive the assets,” says Pirone-Benson.

Top 4 Estate Planning To Dos...

The Top 10 Retirement Challenges: #9. Estate Planning

While estate planning is less important for federal estate tax reasons, with the increase in the exemption amounts to over $5 million per person, the non-financial aspects of estate planning are still critical.

Making sure clients have a power of attorney updated and in place, and addressing the need for health care documents like a health care power of attorney and advance directive can be very important.

Trustee designations and naming the proper beneficiaries are often missed or not changed when life circumstances change.

10 Estate Planning Tasks To Complete Before 2013: #1. Get Your Plan Finalized

#1. Have Your Estate Planning Finalized.

You should set the end of the year as a deadline to finally get this completed. Figure out why you have been procrastinating and conquer your fears. 

If it’s because you don’t have an attorney, ask friends and acquaintances for referrals. If it’s because you aren’t sure who you want to be the guardian for your minor children or who you want to be your executor or trustee or how to divide your estate, your attorney and advisor can help you decide. 

(You can always change your mind later; don’t let these decisions keep you from putting a plan in place now.)

If money is an issue, start with what you can afford (a will, power of attorney, health care documents) and upgrade later when you can. Your attorney may also be willing to accept payments.


 

10 Estate Planning Tasks To Complete Before 2013: #2. Review & Update Your Plan

#2. Review and update your existing estate plan. 

Personal and financial circumstances will change throughout your lifetime, and your plan needs to change with them.

Revisions should be made any time there are changes in your family (birth, death, marriage, divorce, remarriage), your finances, tax laws, or if a trustee or executor can no longer serve. 

Now is a perfect time to do this; if there are changes you want to share with family members, you can do that when they are home for the holidays.

10 Estate Planning Tasks To Complete Before 2013: #3. Use Your $5.12 Million Exemption

#3. Use Your $5.12 Million Exemption.

For the rest of this year, every American can transfer up to $5.12 million free of federal gift, estate and generation-skipping transfer tax.

(A married couple can transfer up to $10.24 million.)

If Congress does not change the current law, the federal estate tax exemption in 2013 will be just $1 million.

You do not have to die in 2012 to use this exemption; you can use it to make gifts now, while you are living. You do not have to completely give away your assets; you can make the transfers in ways that will let you keep control and even keep the income your assets are generating. And you do not have to use the full $5.12 million exemption to benefit.

Even those with less than $1 million should consider some planning to prevent future tax liability.

10 Estate Planning Tasks To Complete Before 2013: #4. Make Tax-Free Gifts.

#4. Make Tax-Free Gifts.

Under current federal law, you can give up to $13,000 to as any people as you wish each year. This is a great way to reduce the size of your estate (and potentially save estate taxes) over time. 

For example, if you give $13,000 per year to your two children and three grandchildren, you would remove $65,000 from your estate in just one year and $325,000 in five years.

(You can double these amounts if you are married.)

Charitable gifts are unlimited. So are gifts for tuition and medical expenses, if you give directly to the institution.


  

10 Estate Planning Tasks To Complete Before 2013: #5. Secure/Update Health Care Documents.

#5. Secure/Update Health Care Documents.


At the minimum, everyone over the age of 18 needs...

1) a durable power of attorney for health care, which gives another person legal authority to make health care decisions (including life and death decisions) for you if you are unable to make them for yourself; and

2) HIPPA authorizations, which give written consent for doctors to discuss your medical situation with others, including family members.

In addition, a revocable living trust is preferable over a will at incapacity because it can prevent the court from controlling your assets.

10 Estate Planning Tasks To Complete Before 2013: #6. Review/Update Guardian for Minor Kids.

#6. Review/Update Guardian for Minor Kids.

It is quite likely that the person you name as guardian for your children when they are small will not be the best choice as they get older. Also, this person could change his/her mind, move away or even become ill or die.

Revisit your choice from time to time, and name more than one in case your first choice cannot serve.

Remember, if you haven’t named a guardian who is able and willing to serve and something happens to you, the court will decide who will raise your kids.


 

10 Estate Planning Tasks To Complete Before 2013: #7. Review/Update Beneficiary Designations

#7. Review/Update Beneficiary Designations.

This is especially important if your beneficiary has died or if you are divorced.

If your beneficiary is incapacitated or is a minor, setting up a trust for this person and naming the trust as beneficiary will prevent the court from taking control of the proceeds.