Overland Park Attorney

Answers about the Qualified Terminable Interest Property (QTIP) Trust

The facts of life include remarriage. Almost 42 million adults in the U.S. have been married more than once, up from 22 million in 1980, according to the Pew Research Center. For older Americans, remarriage can pose estate planning problems. Even for couples who share children, potential remarriage might be a concern. And even if remarriage isn't a concern, your surviving spouse may need help protecting assets from scam artists. So how can you provide for a surviving spouse yet still leave your wealth to children from a prior marriage?

Let’s say that Betty and Bob have kids and grandkids. Bob is worried that he'll die first and pass on his wealth to Betty, who might remarry and his kids would get nothing. Investor’s Business Daily explores this issue in “Cut Taxes, Send Assets To Loved Ones After Your Death.” One solution is to create a Qualified Terminable Interest Property, or QTIP trust, so that when the first spouse passes away, the assets pass to the trust.

A QTIP typically doesn’t have estate taxes. The surviving spouse must be a U.S. citizen and must be entitled to all of the trust income, which has to be paid out at least once a year during the survivor's lifetime. No one else can receive trust distributions during that time. At the same time, the trust creator can give the trustee some flexibility: the distributions of principal to the survivor might be allowed to pay living expenses and essential medical bills. However, the surviving spouse need not control the QTIP assets.

Here’s another example: What if Carl marries Ella and each has children from a prior marriage. Carl passes and leaves most of his wealth to a QTIP trust for Ella, so that she will have cash flow for life. She’s not allowed to name new beneficiaries who'll get the QTIP assets after she dies. The QTIP assets will pass to the beneficiaries that Carl named, and those assets will be taxed in Ella's estate. Both spouses can create QTIP trusts.

The trust creator has to authorize his or her executor to finalize your QTIP election after your death, and federal and state elections may have to be made to get full estate tax deferral. An estate planning attorney knows all about this. It’s important that your family understands the QTIP’s goals to alleviate conflict after your death. The QTIP allows your spouse to have lifetime distributions to maintain his or her lifestyle, and your children will inherit your wealth without having to worry that a stepparent will spend it all after your death.

But a QTIP trust may be a source of conflict, as the surviving spouse may want the trust fund to be invested for income, and the survivor can actually demand that the trustee sell assets that don't produce revenue. The children will likely want the QTIP assets invested for growth. You need to select a trustee who can negotiate peace among beneficiaries. Tax deferral may also mean inheritance deferral, because if your spouse lives a long time after your death, your children will have to wait for a QTIP payout. Consider making some assets available for immediate bequests to descendants, or to provide for them with life insurance that will pay at your death.

If you want to learn more about Estate Planing in Overland Park, KS (and throughout the rest of Kansas and Missouri), please visit my Estate Planning website.

Reference: Investor’s Business Daily (September 4, 2015) “Cut Taxes, Send Assets To Loved Ones After Your Death”

 

Was Bequest to Snowflake a Mistake?

What would you do if 10 years after receiving a life insurance bequest, the insurance company asked for the money back claiming it had made a mistake? The town of Snowflake, Arizona is currently facing that dilemma.

In 2005, Snowflake, Arizona received a life insurance bequest of approximately $73,000. The holder of the policy had been a former employee of the town and it was probably presumed at the time that he wished to give something back to it.

Recently, however, First Colony Life Insurance asked the town to return the money.

It seems the insurance company claims that a mistake was made and the town never should have been listed as a beneficiary on the policy. Before making a decision about what to do, the town is looking into the matter.

Naturally, the council would like to know why the company believes a mistake was made and whether the town has a legal obligation to return the money.

The Arizona Journal reported the story in an article titled "Bequest To Town Was Made In Error, Says Insurer."

This is an unusual case and it is impossible to speculate on what might happen. To date, the insurance company has not released details about what happened and why it believes a mistake was made.

Nevertheless, when you are creating an estate plan it is very important that any life insurance policies you have state clearly who the beneficiaries are.

The clearer your policy is, the less likely it is that mistakes will happen.

It would be disastrous if you use life insurance to balance your estate between relatives and the money does not go to the proper beneficiary.

Contact an experienced estate planning attorney for help to ensure that your estate wishes are crystal clear.

If you want to learn more about Estate Planing in Overland Park, KS (and throughout the rest of Kansas and Missouri), please visit my Estate Planning website.

Reference: Arizona Journal (May 20, 2015) "Bequest To Town Was Made In Error, Says Insurer."

 

Protect Your Assets!

If you have assets, then you need protection. Protection from creditors, civil suits, the IRS, even possible future claims of a spouse. Obviously, not all assets can be or are meant to be protected from creditors. Creditors typically make a secured loan on the basis that one or more assets would be collateral for the loan. Asset protection does not imply hiding an asset; even the most secreted assets have ways of being unearthed by creditors as we do live in asset traceable/discoverable society.

So there is no hiding of assets, but there is—if you are wise—comprehensive estate planning that leverages several kinds of tools to protect your assets. Estate planning should entail asset protection, as well as long-term planning strategies that can realize the objectives of both estate planning and asset protection simultaneously. You want to make sure that you have the protections in place while you are alive to safeguard your assets from creditors and also grow your estate so that your loved ones are cared for after you pass.

A recent Fort Meyers Florida Weekly article, titled "Take measures to protect your assets into the future," reminds us that while federal law applies to protection of some assets, such as IRAs and retirement plans, state law also plays a part in choosing the ideal products and strategies for the protection of your assets. For instance, the article reminds us that not every state treats homesteads or life insurance in exactly the same manner.

The more assets you have, the more extensive your estate plan should be. However, even a regular middle class person can be subject to litigation or the seizure of personal assets to satisfy corporate debt. So if you are a millionaire or even if you are not, you should seek the assistance of your estate planning attorney. He or she can examine all of your current and potential assets and liabilities, and create a plan that makes the most sense for you and your circumstances.

Do not wait to meet with your estate planning attorney until the creditor calls or you are served with a civil complaint. At that point you cannot simply move assets from a creditor's reach prior to a judgment. That will be viewed as fraudulent conveyance—remember, it is against the law to hide assets.

There are several exceptions to what a creditor can get at, and it takes a skilled attorney who specializes in this area to create effective vehicles to protect your assets within the confines of state and federal law. Talk to your estate planning attorney sooner rather than later. Make a point of setting up an appointment right away.

For more information about Estate Planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), please visit my Estate Planning website. 

Reference: Fort Meyers Florida Weekly (July 23, 2014) "Take measures to protect your assets into the future"

 

 

Insurance And Financial Planning Go Hand In Hand In Overland Park, KS

Discomfort with the details prevents many people from obtaining the necessary coverage.

The kinds of insurances we are “required” to buy help us with the minor bumps and scrapes in life and are sometimes easy to think about, shop for or ensure that we have adequate coverage. Auto and homeowners insurance, for example, come immediately to mind.

On the other hand, disability insurance, long-term care insurance and life insurance are another matter entirely. As USA Today points out in a recent article titled “Insurance is most ignored in financial planning,” these three insurances are all too often ignored, misunderstood and difficult to think about emotionally. Nevertheless, they are often essential.

Insurance is, quite literally, a product you purchase to solve a risk. It is peace of mind. Without fail, insurance is more cost effective than coping with a disaster. To become disabled, especially late in life, is to lose income that may be necessary for you and your loved ones. Disability insurance can mitigate this. Likewise, with the rising costs of medical care and seeming inevitability of requiring a good deal of elder care, long-term care insurance can step in when the medical needs are overwhelming. And finally, life insurance helps eliminate the risk your family faces without you and your income.

Each type of insurance is well worth your consideration, and each can be budgeted to fit within a comprehensive financial plan.

Reference: USA Today (November 10, 2013) “Insurance is most ignored in financial planning”

For more information on these Financial Planning  and related Estate Planning issues in Overland Park, KS, please visit my website.

What Will You Give To Charity? Consider A Life Insurance Policy - Especially iI You Are From Overland Park, KS

You have a whole or universal life-insurance policy that you or your heirs don't really need. What do you do? Well, you may want to donate it to your favorite charity. There are basically two ways to do it. 

Ask any widow or widower and they will tell you that it is better to be over-insured rather than under-insured. Consequently, if you have ample assets to provide for your loved ones, then you may have life insurance you really don't need. Have you ever considered donating your life insurance policy to charity?

Many of us tend to think of charity as an act of signing over an immediate gift. Nevertheless, even products like life insurance policies are important charitable contributions. What seems like a relatively small contribution now can have a big payoff later.

The Wall Street Journal considered the ins-and-outs of donating life insurance in a recent article titled “Donating a Life-Insurance Policy to a Charity.”

Basically, you have two fundamental options when it comes to being charitable with your life insurance policy. First, you can designate the charity as your primary beneficiary and the proceeds will pass upon your death. This approach provides a tax benefit to your estate, but no lifetime tax benefit to you.

Alternatively, you can give the life insurance policy itself to the charity right now and enjoy tax benefits right now just as with any other immediate charitable contribution. Once the policy is owned by the charity, the charity can designate itself as the primary beneficiary.

This latter alternative, gifting the ownership now, also means you can get further tax benefits by continuing to make cash gifts to the charity so it can continue to pay the life insurance premiums. This is pretty savvy, if you currently support the same charity with cash donations.

These are notions worth exploring, if you truly have life insurance that no longer serves the purpose for which it was acquired. However, do make sure your family security is assured before taking action.

Reference: The Wall Street Journal (September 18, 2013) “Donating a Life-Insurance Policy to a Charity”

For more information on these Charity issues in Estate Planning in Overland Park, KS, please visit my website.

Weekly Blog Digest - Overland Park, KS - Estate Planning

In review, here are the five Blog Posts from this past week for your convenience.  I welcome your feed back regarding any of these posts and your input regarding any of these areas of practice which you would like for me to address.

Have You Considered a Conservation Easement for Your Land?  Especially in Overland Park, KS?

When you make a charitable contribution of anything other than money or marketable securities, there will always be a valuation issue. At least, it will usually be clear what it is that you are giving away.  A conservation easement is different.  You are keeping the property as it is and giving up all the hypothetical possibilities.

A New Outlook on the “Trust Fund Baby” – especially in Overland Park, KS

Many wealthy people worry about the potentially corrosive effect of making their children superrich. Not Larry Ellison. The Oracle founder and CEO, the third richest man in the United States — worth $43 billion, according to FORBES’ latest estimates — has never pretended that his son David, 30, and daughter Megan, 27, were anything but trust fund babies.

Asset Planning with a Digital Twist – even in Overland Park, KS

Much has been written about how family members struggle to get access to the e-mail and social network accounts of loved ones who have died. They have sentimental value much the way photo albums and personal letters do. But far less attention has been paid to the logins, passwords and answers to security questions that will give access to an online financial life.

A Beneficiary Blunder: Can Your Ex-Spouse Inherit Your Life Insurance?  Even in Overland Park, KS?

Words to the wise: keep beneficiary forms up to date. To change a beneficiary — for example, if you get married or divorced or your spouse dies — make sure to file an amended form. Even if your state has a law designed to cover oversights (or procrastination), you can’t always count on it to work.

Taking Care of Your Elderly Parents’ Finances – especially in Overland Park, KS

"When they are having trouble understanding bills and writing checks it might be time to step in, slowly, at the ground level," Kolinsky said adding that if parents initiate a discussion, the ideal time would be when they are in their 70s and still healthy.

A Beneficiary Blunder: Can Your Ex-Spouse Inherit Your Life Insurance? Even in Overland Park, KS?

Words to the wise: keep beneficiary forms up to date. To change a beneficiary — for example, if you get married or divorced or your spouse dies — make sure to file an amended form. Even if your state has a law designed to cover oversights (or procrastination), you can’t always count on it to work.

While an up-to-date beneficiary form avoids uncertainty and probate, and oftentimes taxation, an out-of-date beneficiary form can induce controversy and distress. This teaching point was outlined in Hillman v. Maretta, a very recent case on beneficiary forms and the disaster that went all the way to the Supreme Court.

The case is considered in a recent Forbes article titled [spoiler alert] “Supreme Court Favors Ex-Wife Over Widow In Battle For Life Insurance Proceeds.”

You see, Warren Hillman left a life insurance policy behind amongst his other assets. Much of the estate simply passed to his then-current wife. Unfortunately for the current Mrs. Hillman, the life insurance policy was subject to a beneficiary designation form that still named his previous Mrs. Hillman, Judy Maretta. Judy and Warren had been divorced for some 10 years.

Despite the pleas of the current Mrs. Hillman, the court had to do it: they gave it all – every penny – to the ex-wife named as beneficiary.

Unlike a retirement account, the singular purpose of a life insurance policy is to provide financial protection to those depending on your life and income. This would seem to exclude a 10 years divorced spouse, absent an alimony requirement in the divorce decree.

Bottom line: the beneficiary form is a matter of contract between the policy owner and the insurance company. The courts can do nothing but enforce that contract.

Are your beneficiary forms ready to be followed to the letter? How will the rest of your estate keep out of the court system?

Reference: Forbes (June 3, 2013) “Supreme Court Favors Ex-Wife Over Widow In Battle For Life Insurance Proceeds”

For more information on properly structuring your Estate Plan in Overland Park, KS, please visit my website.

Weekly Blog Digest - Overland Park, KS - Estate Planning

In review, here are the five Blog Posts from this past week for your convenience.  I welcome your feed back regarding any of these posts and your input regarding any of these areas of practice which you would like for me to address.

Tax Savvy Financial Tools in the Form of Life Insurance and Annuities – even in Overland Park, KS

“Oftentimes these products are sold based on the moment in time,” said Richard Coppa, managing director of Wealth Health, a financial advisory firm. “A couple of years ago, they were sold on guaranteed returns of 6 or 7 percent because people were so fearful. Today, it’s uncertainty about taxes because many of the favorable tax treatments out there are subject to negotiation.”

Collecting Social Security Benefits From Your Ex-Spouse – even in Overland Park, KS

Robin Brewton, who advises clients on Social Security benefit strategies, has boosted retirees' financial security with a single question: Are you divorced?

Estate Planning Does Not End at the “Unified Credit” – also in Overland Park, KS

This post concerns potential estate tax saving from establishing a separate revocable trust for each spouse and dividing the marital estate between the two trusts.

Time for a Family Meeting Regarding Your Elderly Loved Ones? Good or Bad, It’s a Must! Especially in Overland Park, KS!

People are calling "family meetings" nowadays not only to deal with their parents' health issues but increasingly to sort out their finances as well.

Can a Promissory Note Help You Qualify for Medicaid? – even in Overland Park, KS?

Promissory notes can be a valuable tool in Medicaid planning, as illustrated by a recent federal district court case.

Tax Savvy Financial Tools in the Form of Life Insurance and Annuities - even in Overland Park, KS

HAPPY MEMORIAL DAY!!

“Oftentimes these products are sold based on the moment in time,” said Richard Coppa, managing director of Wealth Health, a financial advisory firm. “A couple of years ago, they were sold on guaranteed returns of 6 or 7 percent because people were so fearful. Today, it’s uncertainty about taxes because many of the favorable tax treatments out there are subject to negotiation.”

Many financial products are created with the intention of easing your fears about the future financial health of your loves ones and a means to retire. So it really is no surprise that two increasingly popular financial products on the market today are life insurance and annuities.

Turns out these products may be tax savvy, too. But are they right for you?

Regardless, you really need to do your due diligence when it comes to life insurance and annuities. A recent article in The New York Times titled “Getting the Full Picture on Annuities and Insurance” points out the obvious – both of these products are heavily marketed. Beyond the hype, much of the marketing focuses on their tax savings characteristics.

Can these tools be tax savings devices? Indeed, if placed within a solid overall plan. Nevertheless, it is important not to lose sight of the true purpose behind these products and the cost-benefits of any particular policy.

At the very least, it would be worth your time to read the original article. It will help you understand how powerful these products can be, how you can use them, and where they might fit into an overall plan.

Reference: The New York Times (May 10, 2013) “Getting the Full Picture on Annuities and Insurance”

For more information on the various aspects of Life Insurance in Overland Park, KS, please visit my website.

Weekly Blog Digest - Overland Park, KS - Estate Planning

In review, here are the five Blog Posts from this past week for your convenience.  I welcome your feed back regarding any of these posts and your input regarding any of these areas of practice which you would like for me to address.

IRS Dissects Trusts with Pass-Through Entities – even in Overland Park, KS

So make sure the trustee is one of the officers of the company, which in a family business is pretty likely anyway, and you are all set right?  Not so fast according to the IRS’ Associate Area Counsel who authored TAM 201317010.

 Estate Planning for Your Digital Assets – especially in Overland Park, KS

Let's face it: Your e-mail account, Facebook page and online photo albums are likely to outlive you. Deciding how to manage your digital legacy just may be your trickiest estate-planning task.

 Estate Planning Tools Affected by President’s Budget Proposal – even in Overland Park, KS

… The new budget proposal targets various estate planning tools utilized by taxpayers in an effort to limit tax loopholes and generate revenue

 Spring Cleaning Applies to Estate Plans Too – even in Overland Park, KS

Consider the people who fill out forms designating who inherits assets like an insurance policy and then never go back and revise the forms when, for instance, they divorce and remarry. And then, there are the parents who have not determined who will serve as guardians for their children.

 If Death Occurs, What Becomes of the RMD on an Inherited IRA?  What if you are in Overland Park, KS 

If the IRA owner died before their RBD, there is no year of death RMD that you need to take. However, if the IRA owner died after their RBD, there may be an RMD that you as their beneficiary have to take that year.