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What is a Life Insurance Trust?

Courtesy of Armstrong, Fisch, & Tutoli Attorneys at Law · August 20, 2010 ·

Instead of your spouse or partner being named as the beneficiary of your life insurance policy, you may choose to transfer the policy proceeds into a irrevocable life insurance trust account and name your partner as beneficiary of the trust.

Why would you want to do that?

When properly done, a life insurance trust allows you to designate what is done with the proceeds as well as what happens to the remainder of the trust funds when you pass away. Also, because the trust owns the policy, the policy is not considered part of the estate when you die and therefore, is not taxable as long as the policy transfers to the trust at least three years before your death. The policy will pass outside of your partner’s estate as well.

You can pay the policy premiums by annually gifting money to the trust. You can also increase the amount of the policy by transferring additional money to the trust, if you wish. One caveat to a trust owning your life insurance policy is that you cannot name yourself as the trustee of the trust. In doing so, the policy is counted toward estate assets, subject to estate taxes when you pass away. Another caveat is to carefully structure the cash or assets going into the trust to avoid gift taxes.

If you don’t have a life insurance policy at the outset, you can also create a trust and transfer assets to the trust and instruct the trustee to purchase a life insurance policy. If the trust applies for and takes out the life insurance policy initially, there is no three-year waiting period before the policy is out of your estate.

An estate planning attorney can help you plan your estate using irrevocable life insurance trusts should you desire to use this tool to avoid estate inheritance taxes and give your heirs the full benefits you wish them to receive.

Saving Money to Make Money

Courtesy of Armstrong, Fisch, & Tutoli Attorneys at Law · August 18, 2010 ·

Many quote the adage that “you have to spend money to make money” but that’s not necessarily true. Unless you really need the items you’re thinking about purchasing, saving your money can be a great way to make money too – especially if you place extra cash in a savings account or long term investment.

Avoid Credit Card Interest

In today’s society, buying is easy. Goods are sold everywhere. Impulse buying has become a common phrase and is one of the major reasons for high credit card debt among Americans. Before you make your next “impulse buy”, consider how much you will be paying for that item if you use a credit card. If your interest is ten percent and you have over $ 1,000 in debt, you will pay one hundred dollars per year on that debt.

When you avoid frivolous spending and credit card debt, you can begin to save money. Create a monthly budget to help you. Your budget should allow for at least ten percent of your earnings to go into a savings account each month.

Earn Savings Account Interest

A savings account is the first step to creating financial security. In case of an emergency, you should save enough money for three months living costs in your savings account. Once your emergency fund is established, it will earn interest until you need it.

Find Investment Opportunities

Savings accounts are a great place to put emergency funds, but additional nest egg savings should be placed elsewhere. If all of your money is in a savings account, inflation may lower the value over time. Look for long term investment options, such as stocks and bonds, to grow your nest egg. Investment earnings can help you pay for a house down payment, college education or your retirement.

To ensure your portfolio can help you meet your goals, you should consult a qualified financial advisor.

Is Your Estate Plan Valid?

Courtesy of Armstrong, Fisch, & Tutoli Attorneys at Law · August 16, 2010 ·

Even though you have your estate plan in place, it could still face legal problems if any part is deemed invalid. What you thought was a perfectly sound estate plan could turn into a probate nightmare for your family. So, how you do make sure your estate plan will work?

Hire an Estate Attorney

Unless you are up-to-date on inheritance, tax and other laws that govern estate preparation, you will have to become an expert overnight to create your own plan. Writing a Last Will and Testament yourself or even purchasing a cookie cutter Will from a website can cause inheritance problems. Such Wills may not take into account every circumstance of your estate and loved ones such as step-children or a live-in partner may be mistakenly disinherited.

Saving money is great as long as it doesn’t cost more money in the end. If you are considering creating an estate plan without the assistance of an attorney, you may create costly probate issues for your family instead. An estate attorney knows the laws and can make sure your estate plan is legally sound.

Properly Signed Documents

If any estate document is not handled correctly a court of law may deem it invalid. This is why you must take care when you sign and date your documents. Your estate attorney can help with this since he or she will know state laws regarding signing, dating and notarizing.

Regular Maintenance

If you do not keep your estate plan well-maintained, your documents and assets may face probate issues. Maintaining your estate plan simply means checking every couple years or less to see if changes need to be made. Changes in your estate may be due if estate laws have changed, you have purchased or sold property, you have new heirs, heirs have passed away, or you have married or divorced.

If you do not maintain your estate plan and you pass away with property, assets or heirs not included in your Last Will and Testament or Revocable Living Trust, your estate could face a protracted probate. And don’t forget, when you create a new Will be sure to get rid of old copies to avoid confusion.

How LTC Insurance Can Help Protect Your Assets

Courtesy of Armstrong, Fisch, & Tutoli Attorneys at Law · August 12, 2010 ·

Long term care insurance is a very important component of your financial strategy and the reasons to get an LTC policy are very compelling.

The cost of assisted living or nursing home care alone should motivate you to pay the premiums. AARP notes that approximately 60% of people over age 65 will require some kind of long term care during their lifetimes.[1]Furthermore, in a 2008 annual Cost of Care Survey AARP and Genworth Financial found that:

The national average annual cost of a private room in a nursing home is $76,460 – $209 per day, and 17% higher than it was in 2004.
A private one-bedroom unit in an assisted living facility averages $36,090 annually – and that is 25% higher than it was in 2004.
The average annual payments to a non-Medicare certified, state-licensed home health aide are $43,884.[2]

You may have heard that LTC insurance is expensive compared with some other forms of policies. The annual premiums are minimal compared to real-world LTC costs.[3] Asset based LTC insurance policies have also provided a balanced approach of self-insuring a portion of the cost, helping to preserve retirement savings and income.

Contact us to learn more about the risk of long term care expenses pose to the value of your estate and how to properly plan to maximize the long term care insurance benefits.

[1] aarp.org/families/caregiving/caring_help/what_does_long_term_care_cost.html [11/11/08]

[2] aarp.org/states/nj/articles/genworth_releases_2008_cost_of_care_survey_results.html [4/29/08]

[3] aarp.org/research/health/privinsurance/fs7r_ltc.html [6/07]

Estate Tax 101: What is a Step-Up In Basis?

Courtesy of Armstrong, Fisch, & Tutoli Attorneys at Law · August 9, 2010 ·

If you’re reading all the debates about the return of estate taxes, then you’ve probably run across the “step-up in basis” phrase.

What is this mysterious step-up? And why do you care?

Actually, the step-up is what will keep your loved ones from paying large capital gains on the increased value of your estate.

Basically, the step-up rule says that assets get a new value when they pass to an heir and this new value is the one that’s used to determine if any capital gains taxes are owed when the property is sold.

Let’s say for example, that you purchased the family home for $50,000 decades ago but now it’s worth $150,000. Without the step-up, your heirs would pay capital gains taxes on the $100,000 profit if they sold the home after your death.

But with the step-up, a new value of $150,000 is given to the home and if your heirs sell it after inheriting the estate, they won’t have to pay capital gains tax on the new value.

To learn more about estate taxes and how they might affect your estate plan, contact our office today.

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