Category Archives: Life Insurance

Presidents, Pandemics and Planning: A look to 2021 from the Lessons of 2020-Five Ways to Add Certainty to Your Estate Plan in Uncertain Times

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2021 begins in less than four weeks and the outlook on all fronts remains largely unknown.  Will there be a smooth transition from the current president to the president-elect? Will the Senate remain Republican controlled or will a 50-50 split render it a de-factor Democratic controlled chamber for the first time in six years?  Most importantly, will the Pandemic that has so fundamentally altered the world dissipate and/or disappear?

The answers to the above questions are unknown and it would be unwise to speculate.  In light of such uncertainty, finding stability in any area of life is a way to reduce stress and shield your family and assets.  The following are some suggestions to consider as we close in on the end of the year.

  1. Consider the use of a Revocable Living Trust-The current backlog in the Surrogate’s Courts has amplified existing problems with the processing of estates in New York.  Coupled with an already insufficient staff and funds, it is unlikely that the current logjam will let up any time soon.  To best allow your family to have immediate access to your assets after death, the best way to achieve this is to transfer your assets to a revocable living trust while you are alive and well.  This form of trust allows the grantor of the trust to continue to have access and use of the property in it while also titling it in such a way that allows family to access it in the event of incapacity or death without court intervention.
  2. Ensure beneficiary designations are updated on all transfer-on-death (TOD) assets-Retirement accounts, life insurance and other TOD accounts provide the easiest means of transfer for certain assets upon the owner’s death.  Failure to name initial and successor beneficiaries typically reverts the assets to a person’s probate estate, thus rendering the advantage these assets have moot. This can typically done online, cost-free and without the need to work with any advisor.
  3. Prepare/revise Power of Attorney (POA) and Health Care Proxy (HCP) documents-Because of current hospital restrictions, visitation and in-person communication with hospital patients has been limited or eliminated.  The increase of hospitalizations also leaves many individuals unable to handle their financial affairs or express their healthcare wishes.  A POA and HCP allowed a trusted relative or friend to step into the shoes of the hospitalized/incapacitated individual’s shoes to make decisions and handle the affairs of an individual while that individual is unable to do so.
  4. Finalize, update and prepare your estate plan-Confronting the need to plan for the future or the need to change previously prepared plans is never easy.  It is often times like these when the fears and anxieties about this are confronted with the reality of what happens if you do not address the underlying issues.  Removing the uncertainty of having an incomplete, outdated or nonexistent plan will remove a significant burden from your life.
  5. Stay informed and stay in touch with your advisors-Educating yourself on changes to the laws is not always the most engaging use of your time, but staying ahead of such changes will help guide you to ensured security with regard to your planning.  Alternatively, regular check-ins with your advisors is an easy and efficient way to keep informed.

William Shakespeare once wrote that “the past is prologue.”  Indeed, the immediate past of 2020 will remain with us for many years to come.  How we learn from it and make decisions from it will dictate how our lives, our families and our futures will be written.

Have a very happy and healthy holiday season and here’s to a much better 2021!-MCL

For more information, please contact info@levyestatelaw.com

Summer’s Here, And the Time Is Right, For Getting Your Estate Plan in Order!

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Over the next few weeks, summer will usher in a fun-filled, relaxing three-month period where kids can say goodbye to their studies for the time being and adults can travel and enjoy everything the season has to offer. It would seem odd to think of this as the perfect time to work on your estate plan; in fact, with many companies offering summer hours and workloads generally lightening during the warm months, it is the perfect time to consider to get your estate plan in proper shape.

Where do you start? It all depends on what you’ve already done, but here are ten action items for you to consider while you’re making your vacation and travel plans:

  1. Have your initial planning documents drafted. You’ve been busy all year…and the year before that…and the year before that.   Taking the first step in getting your estate planning prepared may be the hardest, but once you begin, the process can be completed quickly and painlessly.   Initial documents include a last will and testament, a durable power of attorney and a health care proxy/living will.

 

  1. Review your existing documents to ensure they still fit your needs. Having an initial plan in place puts you ahead of most people, but that is only the starting point of the estate planning process.   Family, assets and health changes can affect what your wishes are. If you haven’t reviewed your documents recently, take the time to speak with your attorney to ensure that your wishes and intentions are still reflected in your documents.

 

  1. Fund your irrevocable and revocable trusts. Clients often forget that setting up a trust is a two-stage process.   First, the trust document is drafted to express how it will work and who will benefit from the assets. Second, the assets must be transferred into the trust. In particular, with irrevocable trusts, transfers should be made as soon as possible to avoid the imposition of the three-year rule if you die within three years of a transfer.

 

  1. Complete and/or update your beneficiary designations. Paid on death accounts and contracts such as retirement accounts, life insurance and annuities are amongst the easiest to claim after a loved one dies. Without the need to petition the court, these assets can be transferred quickly to the proper beneficiaries. However, without proper beneficiary designations, they can pass to the estate or to the wrong persons.

 

  1. Create or revise your assets list. Most estate attorneys, financial planners and other advisors will compile a list of your assets during the planning process, but the most accurate lists usually are self created. Updating or creating such a list will give you a better idea of where things stand with you and your family and can reveal that your assets have grown to the point where additional planning is needed.   Alternatively, in the event of your death, it can provide your heirs with a good roadmap of what assets need to be transferred and retitled.

 

  1. Review your life insurance. The amount, type and ownership of life insurance can change as you grow older and expand your family/assets. Many insurance agents provide audits of policies at no additional cost. Additionally, because life insurance is taxable only for estate tax purposes, changing the ownership of the policy to a life insurance trust is a great way to reduce the size of your taxable estate.

 

  1. Protect your family or small business. Business owners are often focused on the here and now and don’t take the time to consider what will happen to their business if and when they are no longer running it.   Many businesses lack the proper buy-sell agreements or even a proper organizational document to give co-owners and the owner’s family guidance over what happens to the business once the business owner leaves, retires or dies.

 

  1. Create a gifting plan. With the large increase to the federal estate tax exemption and the increased New York exemption, it might seem less important to consider gifting strategies. This is not true. For starters, individuals can now gift $15,000 (or $30,000 per married couple) to their beneficiaries every year. Additionally, through the use of trusts, the monies given to minors can be protected from waste and be available for usage for education and other expenses.   Finally, for those with estates nearing New York’s “estate tax cliff,” the lack of a New York specific gift tax continues to keep gifting as an important tool to reduce estate taxes.

 

  1. Consider Charitable Giving. For those with estate tax issues and philanthropic goals, setting up a structure to maximize your giving takes time and many state and federal approvals before you can begin giving. Summer gives you ample time to get the process started so that you can hopefully be ready to make contributions before the end of 2018.

 

  1. Understand your planning goals. Estate Planning attorneys and other advisors provide suggestions and advice based on what we know about the law and what others do.   But, without the input and understanding of what our client’s goals are, any plan we put in place will be incomplete.   With more time to contemplate your planning goals, you can help your advisors craft the right plan for you and your family.

 

Please contact info@levyestatelaw.com for more information

A Declaration of Interdependence

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Last Monday, we celebrated the 240th anniversary of the signing of the Declaration of Independence, the document by which the United States of America was born.  By recognizing the need to break free from the control of England, the former colonists put forth the belief that only by gaining independence could they gain the unalienable rights of “Life, Liberty and the Pursuit of Happiness.”

Nearly two and half centuries later, the world has changed dramatically, but the desire for independence and the ability to chart our own course remain key values to Americans. Running parallel to this need for freedom is our history of finding great success by relying upon each other.  The motto “E Pluribus Unim” (out of many, one) reflects that this is also a core American value.

When preparing an estate plan, it is understandable to want to rely on one person or one advisor to ensure all your wishes and desires are fulfilled.  However, in most cases, it is preferable and useful to have multiple advisors across multiple professions working with you to provide you and your family with the security you wish for.  By working together, attorneys, accountants, financial and wealth advisors and other professionals can bring their specific expertise to the table and strengthen the other advisors’ abilities to help a client reach their goals.

Family members and friends also play a part in ensuring your estate plan fulfills its goals. In their capacities as fiduciaries or beneficiaries, these most important individuals can assist both the individual and their advisors during their lifetime and beyond.  Conversely, a disgruntled family member can cause great harm to the success of an estate plan.

In the end, each individual’s estate plan should reflect their specific wishes and intentions.  It is each individual’s right to plan their affairs as they see fit.  Utilizing the people and resources available to you is best way to achieve this goal.

For more information, please contact info@levyestatelaw.com.

Frequently Asked Questions-Part One

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In my years counseling clients, I have found that each client, couple or family who comes to me have their own unique situations to plan for. But while their situations are unique, the questions that they ask tend to be very similar. Below are some of the most common questions I get and some general answers to those questions.   Later this week, I will post some additional questions and answers:

1) Why do I need to use an attorney? Can I draft my will/estate plan myself? The proliferation of products like Legal Zoom have encouraged do-it-yourselfers to consider drafting their own estate plans with little to no advice from an attorney. In some situations, a “simple will” may be all you need and the harm in using self-preparation software is minimal. However, for most individuals, a simple will does not reflect their complicated lives. Moreover, while Legal Zoom does provide some legal counsel, the professionals they use are likely less dedicated to the do-it-yourselfers than their own clients.

2) Who should I select as my fiduciaries (executors, trustees, guardians)? Can they be the same people? The main criteria for selecting a fiduciary is whether you believe a person is qualified to handle the tasks they are appointed to do.   You may have family or friends who may handle financial situations well, but would struggle in the role as a guardian. There may be individuals whose current life situation is simply too complicated to serve in any capacity while others could handle all roles in a manner that you find appropriate. In the end, your fiduciaries should reflect your values and beliefs in how each role should be handled.

3) Why should I leave property to my children (or other minors) in trust and not outright? Under New York law, any account beneficially owned by a child must be paid to that child by the time they reach age twenty-one (21). For many children, this is a very early age to be given such a large financial responsibility.   The use of a trust for a child can extend the period of time when the property earmarked for that child can be held and managed by another individual (the trustee).

4) I was told that life insurance was tax free, but recently learned that life insurance proceeds are included in my taxable estate. Is there a way to avoid having these proceeds subject to estate tax? By using a vehicle known as an irrevocable life insurance trust (ILIT for short), life insurance proceeds can be removed from an individual’s taxable estate for both federal and New York estate tax purposes. The inclusion of these proceeds in a taxable estate can increase or even create an estate tax liability where none would exist otherwise.   The creation and administration of an ILIT does require additional time and money, but if properly administered, the benefits far exceeds the cost.

5) My parents have all of their assets in a revocable living trust and recommended I do the same. Is it true that this trust can help me avoid probate? If funded and administered properly, a revocable living trust can help avoid the costs and delays associated with probate and estate administration. However, for many individuals, an estate administration proceeding may be necessary even with a revocable living trust. Oftentimes, assets will not be properly transferred into a revocable trust before a person dies. In these situations, a short ‘pour over will’ will typically transfer the remaining assets into the trust following an estate administration proceeding.

For more information, please contact info@levyestatelaw.com

 

Doing It For Your Kids: Key Estate Planning Decisions For Families with Minor Children

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Preparing an estate plan at a young age comes with a series of unique and often difficult decisions for an individual, couple or family to make with regard to how their planning will be structured.   One of the primary difficulties comes from having to think about the care of their children in the event that both parents die before the children reach adulthood. This often holds people back from starting their planning, leaving their assets and their families unprotected from this unlikely-but not impossible-scenario.

To properly protect your minor children, an estate plan is a necessity. A properly drafted estate plan will outline certain key decisions that must be made to ensure that the family’s children are properly cared for. Amongst those decisions to be made are the following, namely:

How will property for the children be held-Money and other property that is held for the benefit of a minor child can be held in several different manners, each with a varying level of protection.   Parents or other relatives can set up custodial accounts for their minor children, which will protect the funds for the children they are set up for until the child reaches an appropriate age. In New York, custodial accounts must be paid out to the beneficiary of the account at age 21.

In some instances, a custodial account is insufficient or inappropriate. If the creator of the account is older, he or she may pass away without naming a successor custodian. A petition would have to be filed by another individual to gain control of the custodial account. Alternatively, the amount being held for a child may be large enough that allowing the child full access to the funds at 21 may not be wanted.   In such instances, the use of a trust can extend the period of time that the funds or property is not directly controlled by a child.

Who will control the property for your children-Careful consideration must be made to determine the persons who will control property for the benefit of a minor child. Factors such as the competence, financial knowledge and temperament should be considered in selecting executors (responsible for a person’s estate), trustees (responsible for managing trust assets) and custodians (responsible for holding custodial accounts. In addition, an individual’s relationship with the child beneficiaries and understanding of your wishes with regard to distributions should be given consideration as well.

Who will care for your children-The decision of who to select as a guardian for your children is often fraught with emotion, fear and jealousy on the part of both parents and the persons considered for this important position. However, the key factor must be who will best care for your children.   You should consider not only how well you get along with the chosen guardian, but also how well the children get along with the selected individual(s). If a person has a large family themselves, the prospect of adding one or more children may be more than they can reasonably be expected to handle regardless of how close they are to the parents of the children. Finally, how seamlessly a guardian can take over responsibility for a child should be factored into making your final decision.

How will their education be paid for-College expenses and other educational costs should be a factor in determining how best to plan your estate. The use of savings vehicles such as a 529 plan or crummey trust can help establish a funding mechanism for education at a very young age.   Life insurance can also be a helpful tool either by purchasing permanent coverage with a cash value or by carrying sufficient term life insurance to cover expected expenses.

The benefit to making these crucial decisions early on is that once an initial plan is put in place, it can be modified and changed as your children grow older to meet their changing needs. Being prepared also can be a powerful way to reduce parental anxiety about their children’s future by ensuring that their children will be protected financially and cared for even after they are gone.

 

Please contact info@levyestatelaw.com for more information about estate planning.

A Tale Of Two Business Owners

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The following is a true story of two businesses.  Two professionals owned their respective businesses and successfully built them into thriving practices.  Each professional decided to bring a partner on board to share the burden and benefit of ownership.  And, unfortunately, each professional died while still engaged while still practicing their respective trades, leaving their business partners and family members to pick up the pieces.

Professional A had entered into a buy-sell agreement with his partner.  The agreement was fully funded by having each partner buy a life insurance policy on the life of the other.  When A passed away, his partner submitted a claim to his life insurance policy.  Three months after A’s death, his partner received the proceeds from the insurance policy, and used them to buy out A’s widow.  The partner had complete ownership of the business and A’s widow received the full value of her husband’s hard work.

Professional B hemmed and hawed about preparing a buy-sell agreement with his partner.  A draft agreement was prepared, but never signed.  No funding mechanism was ever decided upon or implemented.  When B died, his partner decided that it was his hard work that created the value in the practice, not B’s.  B’s widow tried to buy the partner out, but the partner refused.  Lawsuits commenced with neither B’s widow nor the partner receiving the proper value for their hard work.  Three year’s after B’s death, the lawsuit is still not resolved.

The difference between the end results for A and B’s families illustrates how a properly executed and enacted business succession plan can be the difference between finding a way to move on and being mired in a conflict that outlives our relatives.  It is not enough to just have a succession plan for your business, but the plan needs to consider five important issues, namely:

  1. Who will own the business-Business owners must decide if their business will continue by transferring ownership within the company or to parties outside the company.  For family businesses, having children and other relatives who are divided between active and inactive participants in the business can complicate this issue.
  2. Who will manage the business-Many business owners focus solely on the ownership question without considering who will actually manage the business once they are gone.  Failure to name a successor and prepare that successor for the tasks he or she may face is a common reason for a business succession plan to fail.
  3. How will the buyout of the departing owner be paid for-Regardless of whether a funding mechanism exists, the departing owner or his or her estate will be taxed for the value of their business interest.  By preparing in advance for how a buyout will be paid for is crucial to not only maximize the value the departing owner or his or her estate receives, but also to prevent taxes from being paid from non-business related assets.
  4. For family businesses, what about non-owner family members?  In some instances, not every heir of a business owner will inherit a piece of the business he or she built.  This may create jealousy or resentment if the non-owner heirs are not equalized in some form.  Dividing non business assets more favorably to non owner heirs, purchasing life insurance for the benefit of non owner heirs and providing a non ownership income stream from the business are some examples of how to equalize the non owner heirs.
  5. Special issues for professional businesses (professional corporations and professional LLCs)-Under the New York Business Corporation Law, a professional business cannot be owned by individuals not engaged in the specific profession that the business is engaged in (medicine, law, etc.).  The family of a deceased professional will be able to receive a redemption of the deceased professional’s business interests.  However, without a defined valuation clause or buyout provisions, this may provide the family with only a fraction of the true value of their family member’s interest.

The failure of a business owner to plan for their eventual exit from their business, whether for retirement, death or disability, can wreak havoc for their business and family alike.  Planning ahead, as with all forms of planning, provides a business owner with their best chance of allowing both to thrive once they are gone.

Please contact info@levyestatelaw.com for more information about business succession planning.

Giving While You Can: The 2012 Gift Tax Planning Opportunity-Part III Planning Techniques and Strategies For Making A 2012 Gift

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Over the past two days, I have discussed why the 2012 Gift Tax Planning Opportunity is a big deal and provided several ‘best fits’ for making a 2012 Gift.  Today, I conclude this series with some examples of planning techniques and strategies that can be used to maximize your 2012 gifts.  As with any estate planning strategy, most of these techniques require careful coordination with an estate planning attorney, accountant and other advisers to ensure that they are properly structured:

1)   Outright Gifts-The simplest gifting technique requires very little work and time to complete.  This can be accomplished by any properly executed form of transfer and also requires less setup fees than the other techniques listed below.

There are several downsides to outright gifts.  First, assets gifted directly to a beneficiary remain exposed to the claims of creditors.  Second, if the gift is being made to a minor or an adult that is ill prepared to handle such a large-scale gift, the transferred assets can be wasted.  Finally, while making such a gift removes it from the donor’s taxable estate, it will be included in the beneficiary’s estate.

2)   Gifts to Trust-As an alternative, a gift to a trust may be more appropriate if there are concerns about creditor claims, taxes or waste.  An irrevocable trust can hold the gifted property outside the beneficiary’s taxable estate and the assets can be distributed to beneficiaries at the discretion of the named trustees.  Setting up a trust will require additional fees for set up and administration that are not required of a direct gift.  A suitable trustee will also be required that fits the grantor’s specifications.

3)   Grantor Retained Annuity Trust (GRAT)-Several of the more complicated trust arrangements could be useful for 2012.  A GRAT, for example, can be used to pass property to beneficiaries while retaining annuity for the donor for a set period of years.  Depending on the donor’s goals, the GRAT can be structured to have minimal annuity payments or as a means to ‘freeze’ the value of the donor’s estate.

4)   Intentionally Defective Grantor Trust (IDGT)-Using an IDGT can provide several benefits.  First, it can provide a way to remove an appreciating asset from a donor’s estate.   Second, if a portion of the transferred assets are transferred in exchange for a promissory note, the donor can retain an income stream through the repayment of interest and the principal.  Finally, because IDGTs are taxed to the Grantor of the Trust rather than the Trust for income tax purposes, the donor can further reduce the size of his estate while increasing the value of the property passing to their beneficiaries.

5)   Qualified Personal Residence Trust (QPRT)-Individuals who own their primary residences may utilize the 2012 Gift by transferring their residence to a QPRT.  The donor retains the exclusive right to live in the residence for a set period of years.  At the end of that period, ownership transfers to the remainder beneficiaries of the trust.  The donor can still live in the residence if they pay rent to the remainder beneficiaries.  The longer the term of the trust, the smaller the gift would be.  With the larger exemption in 2012, donors can set up a QPRT with a relatively short term to maximize their gifts.

6)   Family Limited Partnerships/LLCs-If a donor wishes to pool several assets into a single entity, they can utilize a family limited partnership or LLC as a means to centralize the management of certain assets.  A gift of an LLC or FLP interest can receive a valuation discount that would not be available to transfers of the underlying assets.

7)   Intrafamily Loan Forgiveness-2012 provides individuals and families to consider removing outstanding loans from a donor’s taxable estate.  Rather than continue to receive payments on a loan, the holder of a promissory note or other debt instrument can forgive all or a portion of the outstanding debt by making a gift of the forgiven amount.

8)   Funding a large life insurance policy-Donors can utilize all or a portion of a 2012 gift to fund a large life insurance policy.  If the beneficiaries do not need immediate access to the funds, this may be an attractive option to provide for a later benefit.  To fully protect the gift from any taxation, the insurance policy should be purchased by an irrevocable life insurance trust (ILIT).

As we draw closer to the so-called “Taxmageddon,”  the opportunity to fully take advantage of the current tax rates and exemptions shrinks.  Many of the techniques discussed above require time to set up and fund, so for those looking to make a 2012 Gift, time is not on your side.  The time to start planning your 2012 Gifts is now.

Please contact info@levyestatelaw.com for more information about 2012 Gift Tax Planning.

Old Problems, New Solutions: Estate Planning For Non-Traditional Families. Part 3-Planning Complications For Non-Traditional Families

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“At a certain point, I’ve just concluded that for me personally it is important for me to go ahead and affirm that I think same-sex couples should be able to get married.”-President Barack Obama, May 9, 2012

The historic comments made by President Obama regarding his support for gay marriage marks another important step towards same-sex couples receiving the same legal treatment as heterosexual couples.  This progress was further augmented by a ruling earlier this week by 1st Circuit Court of Appeals which held that the Defense of Marriage Act (DOMA) was unconstitutional.  As public support for these changes increases, it is likely that more progress will be made.

But as quickly as social views may be changing, the laws relating to estate planning are unlikely to change in such a rapid manner.  Additionally, other forms of non-traditional families such as domestic partnerships, single parents and parenting partners are unlikely to see their rights change.

With the optimism attached to the president’s words and the realistic knowledge that laws are slow to change, non-traditional families should be aware of the following issues related to their estate plans:

1)   Guardianship of Minor Children-The care of minor children when one or both parents die is a difficult one in any circumstance, but it becomes much more difficult when the choices may be limited or may be conflicted with other familial relationships.  For single parents and parents who have entered into parenting partnerships, it is incredibly important to determine who your child’s guardian will be if you should die or become disabled.

This issue can also become highly problematic if a former spouse is still alive or if other relatives disapprove of your relationship.  Without the fallback legal protections of marriage, who is appointed guardian after a parent dies could become tangled up in a lengthy court proceeding.

Preparing a will or a similar guardianship appointment document can ensure that your wishes as to the care of your child are known and respected.  Notifying your family members about your selection can also reduce the likelihood of a conflict after you have passed.

2)   Inheritance-Married couples, both heterosexual and same-sex, have automatic inheritance rights under the New York intestacy statute.  However, relying on this statute may cause fifty percent of your estate to pass to your children outright regardless of their age.

For other non-traditional families, no automatic inheritance rights exist.  Rather than inheriting fifty percent of a deceased parent’s estate, a child of a non-married couple would inherit the entire estate of their predeceased parent if no will exists.  Having a will in place allows a surviving domestic partner to inherit property from their deceased partner.  A will can also include a trust for the benefit of the deceased’s children, which can protect the assets from waste by a child who may be unprepared to manage an inheritance.

Alternatively, families may choose to use one or more revocable trusts to pass property to their surviving spouses, partners or children.  A revocable trust avoids the probate process for any assets contributed to it during an individual’s lifetime and can be coupled with a “pour over” will to receive any assets that remain in the deceased person’s estate.  A revocable trust should also be considered if a family believes that another family member may challenge their estate plan.

3)   Estate Taxes-The New York Marriage Equality Act allowed same-sex couples to utilize the New York state marital deduction for estate tax purposes.  Same-sex couples can now pass unlimited assets to their spouses upon their death without incurring a New York State estate tax.  However, because of DOMA, the corresponding federal marital deduction is not available to same-sex couples.

For other non-traditional families, estate taxes will apply to any assets above the federal ($5.12 million) and New York ($1 million) estate tax exemptions.  Families can reduce their potential estate tax liability by utilizing the annual gift tax exclusion of $13,000 per beneficiary per year or by contributing a portion of their estate to charity.

Families may also prepare for an eventual estate tax liability by purchasing additional life insurance to provide the necessary liquidity to their estate.  In order to avoid additional estate taxation, the life insurance should be owned and administered by an irrevocable life insurance trust.

4)   Gift Taxes-All non-traditional families must also be mindful of potential gift tax liability under the federal tax code.  While a heterosexual married couple can pass assets freely between spouses, non-traditional families may incur a gift tax if they pass assets to their spouses, partners or children above the annual gift tax exclusion of $13,000 per person.  Any excess will be credited towards their lifetime gift tax exemption.  And while that exemption is currently $5.12 million, it is scheduled to be reduced to $1 million at the end of 2012.

This gives families additional incentive to maximize their use of the annual gift tax exclusion every year.  For larger transfers, families may wish to consider the use of more advanced planning structures like sales to defective grantor trusts or GRATs to zero out the gift tax liability.  Families can also use family owned entities such as limited partnerships and LLCs to reduce the value of the assets being transferred.

For non-traditional family, estate planning is more complicated and with less advantages than are afforded to traditional families.  Nevertheless, a properly drafted and administered estate plan can provide any family with the financial protection and security that they deserve.

Please contact info@levyestatelaw.com for more information about estate planning for non-traditional families.

A Spring Cleaning Checklist For Your Estate Plan

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Spring has begun to blossom and although we had a very mild winter, the improved weather is a welcome change.  And while we are only a few weeks into the new season, thoughts of summer and various travel plans have begun to enter many of our minds.

This time of year is a very common time for reviewing, adjusting and creating estate plans.  With tax season nearly over, getting your estate plan in order is a good next step to ensure all your planning is properly in place for the remainder of the year.

Below is a to-do list for your estate plan.  Some of the items may not be applicable to your specific situation, but all are worth considering.

1. Review your current estate planning documents with your attorney-For a typical individual or family, an estate plan should be reviewed every 3-4 years.  If you have had major life changes or your planning is complicated by health, money or interpersonal issue, you should review your plan even more frequently.

2. Complete your beneficiary designations for “transfer on death” accounts-One of the easiest and cheapest ways to improve your estate plan is to ensure that the beneficiary designations for all “transfer on death” accounts are properly completed.  Certain bank accounts, retirements accounts and life insurance all pass outside of a probate estate as long as the beneficiary designations are executed.  If you fail to designate beneficiaries, these accounts and assets will pass to your estate through the probate process, delaying their transfer.

3. Review all deeds and real estate documents-Real estate that is owned with a right of survivorship will pass outside the probate process.  To ensure a smooth transition, it is important make sure all jointly owned real estate is titled as a tenancy by the entirety property (for married couples) or as joint tenancy property (for non-married couples).

People who own multiple pieces of real estate may wish to consider consolidating their properties in a trust or an entity such as an LLC.  This is especially important if you real estate in multiple states or if you own real estate outside of New York.

4. Meet with your financial planner or insurance agent to discuss your insurance coverage-Like an estate plan, it is crucial that your insurance policies (life, disability and long-term care) are periodically reviewed alongside your trusted advisor.  This allows the advisor to determine if you have sufficient coverage for your current situation and allows the client to determine if they are satisfied with their current policies.

5. Speak with your current or named fiduciaries-In time between a person is named a fiduciary under a will and trust and the time when they actually are asked to serve, the named fiduciary’s relationship with you and their personal circumstances may change.  While most named fiduciaries are close friends or relatives, it is helpful to frequently confirm their willingness and ability to serve.

For those with existing fiduciary relationships, frequent communication about the fiduciary’s administration of an estate or trust is a good way to avoid conflict at a later date.  It also gives the fiduciary the ability to communicate any suggestions or concerns they may have with their current role.

6. File Gift Tax and Fiduciary Income Tax Returns-If you and your spouse have made any large-scale gifts during 2011, it will be necessary to file a gift tax return.  Similarly, nongrantor trusts and estates are required to file fiduciary income tax returns since the income of each will be taxed as a separate entity.

The April 17th filing deadline for personal income tax returns also applies to gift and fiduciary income tax returns.  So while it may be too late to have a return filed before then, it is not too late to file for an extension.

7. Plan your 2012 gifts-With 2012 almost a third over, there remains nine months in which large scale gifts may be made that take advantage of the current $5.12 million gift tax exemption.  On January 1, 2013, absent an intervening action, the exemption drops to $1 million.

For those looking to make more modest gifts, utilizing your annual gift tax exclusion is a great way to benefit your children and reduce the size of your taxable estate.  Individuals may gift $13,000 to as many beneficiaries as they like while married couples can gift up to $26,000 per beneficiary.

8. Plan 2012 charitable gifts-Philanthropically minded individuals should consider the different ways of benefiting charities while also creating tax benefits for themselves.  Individual gifts, charitable annuities, the use of charitable trusts and the creation of a private foundation are all great ways to benefit the causes or organizations that matter most to you.

9. Consider Lifetime Trust Planning-Whether planning for your child’s education, removing your life insurance from your taxable estate or making gifts to your children, lifetime trust planning provides a great mechanism for protecting assets while also providing your children and other relatives with a significant financial benefit.  This is especially true this year while the lifetime gift tax exemption is at an all time high and interest rates are at a historic low.

10. Update your business succession/organization plan-Business owners should be aware of the potential negative consequences of not having a succession plan in place.  Failure to plan for your business, much like failing to create an estate plan, could create unexpected and undesired consequences for your family, business and associates.

A good estate plan requires consistent review and updates to ensure yourwishes are properly enacted.  Before you make your summer plans, make sure that your estate plan is up to date.  It will be one less thing that will keep you from having a great summer.

Please contact info@levyestatelaw.com for more information about estate planning.

Life Insurance as an Estate Planning Tool

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Estate planning is a key component to an individual’s long term life planning.  To ensure the best possible result, an estate plan should be coordinated with other forms of planning such as investment, retirement and tax planning.  In addition, most individuals will include life insurance planning as part of their overall life planning.  For estate planning purposes, life insurance can be a very important and versatile tool.

There are several types of life insurance to choose from.  Term life insurance provides financial protection for a period of years.  It is the most inexpensive form of life insurance and is a good fit for younger people.  However, the premiums increase as a person gets older and unlike other types of life insurance, there is no accumulated cash value to a policy.

Whole life insurance protects an individual for their entire life. In addition, a whole life policy will accumulate cash value over time.  The cash value can be borrowed against and either be repaid or deducted from the death benefit payable to the policy’s beneficiaries.  Whole life insurance is more expensive that term life insurance because it acts as a savings plan as well as a form of protection.  Other types of life insurance include universal life and variable universal life insurance.

The uses of life insurance for estate planning purposes are numerous.  They include:

1) Income Replacement-Regardless of the type of insurance you own, the key component to all insurance policies is the death benefit.  For younger people, having an available resource to replace a loved one’s income stream is the biggest reason to own life insurance.  When purchasing insurance, it is important to determine how large of a policy will be necessary to replace an income stream in the event of an untimely death.

2) Estate Liquidity-Life insurance proceeds can be used to pay funeral expenses, debts, taxes and other expenses incurred at the time of a loved one’s death.  This is especially key for individuals with largely illiquid assets such as real estate and securities.  Without life insurance proceeds, these assets would have to be sold to provide an estate with the necessary cash to pay for these expenses.

3) Business Buy-Sell Planning-Life insurance can provide a family member with the means to purchase an interest in a family business.  Conversely, insurance may also be used by a non-family business partner to purchase a deceased individual’s business interests at the time of their death.

4) Inheritance creation/equalization-Life insurance can be used to create additional wealth to be passed to an individual’s heirs.  It can also be used to equalize inheritances in situations where other estate assets will not be shared equally amongst the individual’s heirs.

5) Estate reduction through gifting-For individuals who have taxable estates, using the annual gift tax exclusion to pay for an insurance policy can decrease the size of their taxable estate.  However, if the individual or the estate owns the insurance policy, the proceeds of the policy will be included in their taxable estate.

As indicated in number 5, if a life insurance policy is owned individually or by an estate, it is a taxable asset for estate tax purposes.  As an alternative, life insurance can be purchased by a trust known as an irrevocable life insurance trust (“ILIT”).  Insurance owned by an ILIT is considered outside of a taxable estate and the proceeds of an ILIT owned life insurance policy pass free of estate tax.  You can also transfer existing policies into an ILIT.  However, if an individual dies within three years of transferring a policy, the proceeds of the policy will be included in their taxable estates.

ILITs can be very helpful in passing wealth estate tax-free, but they require proper care and administration.  Insurance premiums must be paid by the trust directly to the insurance carrier.  The creator of the trust (the settlor) has limited powers regarding the insurance and should not be a trustee or a beneficiary.  The trustee of the trust must also follow all the formalities required by the trust instrument to ensure that the trust assets remain outside the taxable estate.

As you can see, life insurance can provide significant benefits to an individual and his or her heirs.  To ensure that you maximize those benefits, it is best to consult with both an estate planning attorney and an insurance professional to collectively determine the best possible plan for your specific needs.

Please contact info@levyestatelaw.com for more information about estate planning with life insurance.