In this Part II of No Contribution Is Too Small I discuss addtional planning considerations in addition to those mentioned items in Part I.
Additional Planning Considerations
A properly drafted estate plan can ensure that your money and property are protected and used in a way that matches your ultimate wishes. If you have not created an estate plan, the state’s default plan will take effect upon your death. Although the laws in each state vary, your money and property will generally go first to your surviving spouse and then to your
●descendants (children and grandchildren);
●siblings’ children (nieces and nephews)
in that order, depending on who survives you. The amount that each person receives also varies depending on your state’s law.
One thing that we focus on to protect families like yours is making sure that any life insurance proceeds are protected from your beneficiaries’ creditors and predators and are available to support the intended beneficiaries according to your wishes. One way to do this is to name a trust as the beneficiary of the life insurance policy. There are two different types of trusts that can protect life insurance proceeds.
●Revocable living trust.
A revocable living trust is one that you create during your lifetime, and you can change it until you die or become mentally unable to manage your affairs. In most cases, you are the trustee and continue to manage the money and property in the trust. In addition, you can continue to use the money and property during your lifetime. If you become unable to manage your financial affairs, a successor trustee that you previously selected can step in without court involvement and manage the trust on your behalf.
For individuals with accounts and property valued below the current lifetime estate tax exemption amount or who have already set up a trust, naming a revocable living trust as the beneficiary of a life insurance policy can be a useful option. Naming the revocable living trust as the beneficiary ensures that, at your death, the policy’s death benefit will be paid to the trust to be used by or for the trust beneficiaries’ benefit according to the instructions already in the trust agreement. Because the trustee must follow the trust’s instructions, we can design a plan to better protect this money from your beneficiaries’ creditors, divorcing spouses, or other undesirable people.
●Irrevocable life insurance trust.
An irrevocable life insurance trust is an added layer of protection because it can both own the life insurance policy and be named as the beneficiary. You can create an irrevocable life insurance trust either by transferring ownership of an existing policy to the trust or by the trust purchasing a new policy. Using your annual gift tax exclusion, you make cash giftsto the trust to pay the insurance premiums. Upon your death, the trust receives the death benefit and the truste distributes the money according to the instructions in the trust document. If you have accounts and property valued close to or above the current lifetime estate tax exemption amount, this strategy allows you to remove the value of the life insurance policy and the death benefit from your taxable estate, potentially saving your loved ones money on estate tax.
Protecting families is our passion. We welcome the opportunity to work with you to help protect you and your family. Call us to schedule your appointment, or visit our website to learn more about our firm and process.
(This is not intended to be legal advice and is only informational)