Life insurance and trusts are estate planning
tools that can help provide for your family's
financial security and preserve more of your
estate for your beneficiaries.
Life insurance
You should purchase life insurance to protect your
family's financial security after you die. When
it comes to estate planning, life insurance
proceeds can provide your family with an immediate
source of cash while other assets may be delayed
in probate. Unlike other assets, life insurance
proceeds bypass probate when you name a
beneficiary other than your estate. Life insurance
can also be used to pay anticipated estate taxes.
| Life Insurance Coverage
|
| Coverage Amount |
- You should purchase
enough coverage to pay debts, cover your
final expenses and provide some income for your dependent
survivors.
- Ideally, your beneficiaries should be able to pay your final expenses,
invest the remaining death benefit and
maintain their lifestyle by spending only the
interest.
- By preserving the principal, your loved ones will be assured some income.
|
| Tax Advantages |
- The proceeds of an insurance policy paid
to a named beneficiary are not subject to
federal income taxes for the
beneficiary.
- Generally, they are also exempt from
state income tax in most states.
|
| Policy Ownership |
- The way you establish ownership of a life insurance policy can affect your federal estate taxes.
- If you own your life insurance policy, the proceeds will be included in the value of your estate, making your
death benefit subject to federal estate
taxes if your estate value exceeds the current maximum
exclusion amount.
- If someone else owns the policy but you
pay the premiums or retain "incidents of
ownership" (the right to change the
beneficiaries of the policy), the
proceeds at death are
included in your estate.
- If another
individual owns the policy and pays the
premiums, the proceeds are generally not included in the
estate.*
- If a legal entity, such as an
Irrevocable Life Insurance Trust (ILIT)
owns the policy, the proceeds are
generally not included in the
estate.*
*Unless the owner dies
within 3 years of transferring the
existing policy to the individual
or ILIT.
|
| Military Individuals |
- Your date
of retirement determines whether payments
from the Survivors Benefit Plan are included
in your estate's value.
|
Trusts Trusts may help you accomplish
several important goals.
- Ensure your property is transferred according to
your wishes and in a confidential manner. (Because a will is
probated, it becomes a matter of public record.)
- Transfer property directly to your heirs without the
expense and delay of probate.
- Allow you some control of how your heirs use your assets
after your death.
- Manage your affairs if you become disabled.
- Reduce or eliminate federal estate taxes.
What Is A Trust? A trust is a legal
entity
that holds property designated by you, the
grantor, for your beneficiaries' benefit.
Generally, any property of value can be placed
in a trust, including cash, stocks, bonds, life
insurance policies or proceeds, bank accounts,
certificates of deposit, business or investment
income, real estate, retirement fund benefits,
jewelry or fine art.
| Types Of Trusts
|
| Testamentary Trust |
- Created by a will. Changing a testamentary trust requires a change to the will.
- Takes affect only when the grantor dies and the estate is probated.
- Often created for minor children who,
upon their parents' death, might receive
funds they cannot manage until a
specified date, such as college
graduation or the child's 25th birthday,
at which the trust expires.
- An appointed trustee manages the trust
until it expires.
|
| Living Trust (Inter Vivos) |
- Takes effect during the grantor's
lifetime.
- Can be more
comprehensive than a power of attorney
naming someone to act on your behalf should
you become incapacitated.
- May be more readily accepted by financial institutions than a power of attorney.
- May be less subject to challenge than
the actions of a court-appointed guardian
or someone acting under your durable power of
attorney.
- Generally accompanied by a
"pour-over" will, which directs any
assets not held in trust to be added to
it upon your death.
|
| Revocable Living Trust |
- Can be changed or ended at any
time.
- Often used to manage assets if you become disabled or incompetent (as defined in the trust).
- Can be created with yourself as trustee and other individuals and/or institutions named as successor trustees.
- You have complete control over trust assets until you become disabled or incapacitated, at
which point the trust becomes irrevocable
and your successor trustee manages it
according to your instructions.
- Assets held in the trust at the time of your death are subject to estate taxes.
|
| Irrevocable Living Trust |
- Cannot be changed or ended without the consent of the beneficiary.
- Enables the grantor to give money or
assets away before death.
- Assets held in the trust at the time of your death are not subject to estate taxes.
|
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Basic Money Management
Basic Money Management
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