San Fernando Valley Los Angeles Attorneys
Navigation Two
Phone Number

Entries in insurance trust (4)

Monday
Jul082013

Tony Soprano's Run In With the Tax Man

 

by Robert A. Hull

 

Many of us who were fans of the HBO show about a fictional New Jersey mafia family, The Sopranos, and actor James Gandolfini in particular (who played mob boss Tony Soprano), were shocked and saddened to learn of the actor's untimely death.  

Now, the media reports that substantial taxes will be due on Mr. Gandolfini's estate due to poor estate planning. Could some of these taxes have been avoided or, at the very least, delayed with different estate planning strategies?  

Based on the latest information about his estate, it is very likely. While many of the specifics are unclear, it appears Mr. Gandolfini could have benefitted from using estate planning strategies to leave more of his assets to his family.

As one example, if the $7 million life insurance payout to James' son was not held in a life insurance trust, the full value of this payout would be included in the value of his estate for taxation purposes. If such insurance were held in a life insurance trust, then this payout would not be included in his taxable estate, and could result in savings of several millions of dollars in estate tax.

Also, Mr. Gandolfini could have potentially reduced the size of his estate subject to estate taxes also by using revocable and irrevocable trusts, perhaps creating certain business entities and employing gifting strategies. But, without additional specific information about his assets, it is difficult to tell which combination would have been most effective.

Though the value of most of our estates does not approach Mr. Gandolfini's, estimated at over $70 million, we all have an interest in maximizing the assets which are ultimately distributed to our beneficiaries and minimizing those to the Tax Man.

The government's take from Mr. Gandolfini's estate will likely be over $30 million, and that's a lotta "scharole".

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.
Wednesday
Jun192013

Designated Beneficiary Assets: Consider Your Income, Capital Gains & Estate Taxes

Trusts & Estate Planning Attorney

by Kira S. Masteller
818.907.3244

 

In the third segment of our series regarding Gift Tax & Estate Planning, we'll examine assets that require designated beneficiaries, specifically: IRA accounts, retirement accounts, life insurance, accidental death insurance, annuities and payable on death accounts, which pass outside of a probate or a living trust.

Designated beneficiary assets must be looked at individually because different types of assets require different designations depending on their income tax consequences.

For example, a life insurance policy does not suffer any negative income tax consequences when being distributed upon the death of the insured – although it is exposed to estate tax consequences. Because of this, your revocable living trust can be named as the primary beneficiary of a life insurance policy.

There are important advantages to naming the trust as the primary beneficiary: 

1. If you are married and have a trust that splits into two or more trusts upon the first spouse’s death for death tax planning purposes, the insurance proceeds can be utilized in the allocation of assets between the two trusts so that none of the decedent’s estate tax exemption is wasted.

If a surviving spouse is named as the primary beneficiary of the life insurance, the proceeds of the policy are not in the trust for allocation purposes and some or all of the decedent’s estate tax credit could be wasted.

2. If you have minor children and you name them as the direct beneficiaries of the life insurance policy, the proceeds will be subject to a Guardianship proceeding (court supervised) and held in an FDIC insured account (ensuring the account is held in an insured banking institution), which will be distributed to a child upon attaining age 18. This limits the asset’s growth possibilities, the ability for an adult to use those assets for that child during that child’s lifetime, and it gives a windfall to a child at age 18 when they may not be mature enough to manage money or get assistance managing money.

Remember: If minor children are direct beneficiaries of any asset, there will be a Court Guardianship proceeding which is expensive and time consuming. 

It is better to name your trust as the beneficiary of life insurance for children so that the problems discussed here, do not occur. You may consider using a life insurance trust for the same reasons mentioned above, as well as for estate tax planning purposes – the life insurance trust will keep the proceeds of the death benefit out of your taxable estate upon your death.

If you have any questions about who to designate as a beneficiary for your assets, please contact me for help.

In my next blog, we'll look into Retirement Assets, some of their potential problems and solutions to those problems. If you'd like to catch up on previous posts in this Gift Tax and Estate Planning series, click on the embedded links above to read about Living Trusts and Life Insurance.

Kira S. Masteller is a Gift Tax and Estate Planning Attorney and a Shareholder at our Firm. Contact her via email: kmasteller@lewitthackman.com for more information.

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Wednesday
Jun052013

Using Life Insurance and Irrevocable Trusts in Estate Planning

Trusts & Estate Planning Attorney

by Kira S. Masteller
818.907.3244

 

Continuing with Part 2 of our Gift Tax and Estate Planning blog series (we discussed Living Trusts in Part 1 of the series), we now turn to life insurance – one more helpful tool in accomplishing your goals – if used in conjunction with an irrevocable life insurance trust.

Many people own life insurance so that their family will have sufficient capital to replace their income for a specific period of time. Others own life insurance to enable a business partner to buy out the family's interests in a jointly owned company upon their death. Still others have life insurance specifically to pay estate taxes. 

However, a problem arises if you own your life insurance policy. The death benefit of your life insurance will be included in your estate for estate tax purposes if you are the designated Owner. You might not have a taxable estate with your home, savings and retirement, but when you add your $1,000,000 death benefit to your estate, your tax situation changes. 

You can avoid including life insurance in your taxable estate by using an irrevocable life insurance trust. An irrevocable trust can be set up specifically to own your life insurance and receive the death benefit. 

You cannot be the Trustee of the trust, but you can appoint a trusted family member, friend, or professional Trustee who will own the life insurance on your life as Trustee, pay the premiums annually (which you will gift to the Trust each year), and who will ultimately file a claim upon your death and receive the insurance proceeds available for your family, or to pay estate tax as you plan. 

The use of a life insurance trust can determine whether or not you have a taxable estate, as well as provide liquidity to an estate that is already taxable. It is an inexpensive tool available to anyone who is going to purchase life insurance or who already has life insurance. 

There are specific Internal Revenue Code rules that must be followed with respect to a life insurance trust, but they are well worth the cost and effort when you are saving up to 40 percent in estate taxes on the life insurance proceeds. Contact me if you have any questions regarding how best to maximize your tax savings.

In the next installment of this series, I'll be blogging about Designated Beneficiary Assets, specifically, income tax, capital gains tax and estate tax.

Kira S. Masteller is a Gift Tax & Estate Planning Attorney in our Trusts and Estate Planning Practice Group. Email her at kmasteller@lewitthackman.com for more information.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Tuesday
Sep062011

Your Life Insurance Review | Good Insurance Policies = Good Estate Planning

Trusts & Estate Planning Attorney

by Kira S. Masteller
818.907.3244

Tax, Trusts, Estate Planning Google+

First, let me just clarify that I do not sell insurance and I will not do an insurance policy review. But if you think you need a policy or need a review, I can recommend experienced professionals to help you.

However, I will advise that you review insurance policies on a regular basis, particularly your life insurance policies, as well as advise you what your potential life insurance needs are.

It just makes good estate planning sense, and, if you are acting as Trustee of another’s Trust, it is your fiduciary duty.

On the good sense side, many factors can affect the quality of your life insurance policy. Life, and financial environments are constantly evolving – your policy should reflect those changes.

When reviewing your policy, consider changes in:

▪ Interest or dividend rates, especially dividends to pay premiums
▪ Your life expectancy and health
▪ Overall mortality rates for your demographic
▪ Testamentary objectives of your estate
▪ Loans against the policy

As a Trustee of a trust in California, it’s your duty to oversee and manage the trust’s investments, handle the related accountings, and disburse information to the beneficiaries (and possibly the courts). That means you’ll have to Invest or manage Trust assets. If a life insurance policy is underperforming, this could be problem. A Trustee should be monitoring life insurance policies that make up an asset of the trust.

Review Life Insurance Often

How often? I recommend a policy review every two to three years. Most insurers will review life insurance policies without charge, and without obligation. And reviewing your policy will not necessarily mean that you will have to change your coverage.

Some topics you should discuss with your agent are:

1. Protection: Do you have sufficient death benefits?

2. Annual Premiums: Are you meeting your needs in the most economical way possible?

3. Ownership: Is your policy tax-efficient, or will it create financial liability for you or your beneficiaries?

4. Designations: Are you up to date? Did you have more children, or go through a divorce or another marriage? 

5. Supplements: What new benefit options are available?

6. Cash & Performance: Does your policy meet your expectations?

Again, you’ll need to contact your life insurance agent for a thorough life insurance review, but keep the above-listed questions in mind when you do it.

If you are uncertain as to what your life insurance needs are (income replacement, an investment, a tool to fund a buy-sell agreement, or to pay estate taxes or even just to provide your heirs with liquidity or additional wealth), please contact us to schedule an estate plan review at your earliest convenience.

Kira S. Masteller is a California Estate Attorney and Shareholder in the Tax and Estate Planning Practice Group at our Firm. She can be reached at kmasteller@lewitthackman.com, or by calling 818.990.2120.

 

 
Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

 

 

LEWITT HACKMAN | 16633 Ventura Boulevard, Eleventh Floor, Encino, California 91436-1865 | 818.990.2120