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The wrong people own life insurance January 22, 2012

Posted by forwardfinancialplanning1 in Estate Planning, Life Insurance.
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There are a lot of things in life that don’t make sense.  Often, one would expect a certain pattern to prevail, when in reality, things are exactly the opposite.  A recent study by the Aite Group entitled “The Elusive Life Insurance Purchaser” identifies one of those anomalies. 

Aite conducted an on-line survey of 1,024 consumers.  Thirty seven percent of the respondents reported having no life insurance while five percent were unsure (….now there’s a group that could benefit from financial planning!!).  Only two age groups reported ownership rates at or above 50 percent —-65 to 69 year olds at 50% and aged 75+ at 62%. 

When considering that the most common and logical reason to own life insurance is to protect those who depend on one’s income, this is surprising .  Clearly, people who have young children should constitute what the marketing world refers to as “the heavy user segment” for life insurance.  Yet, obviously this is not the case.  

And, why such a high rate of ownership in the 75+ segment?  While it’s true that some life insurance is appropriately held by this age group to provide liquidity for handling estate taxes, this is a tiny fraction of the total.  How many families are depending on the regular income of a septegenarian??

Some things in life just don’t make sense!!!


Special needs children have special financial planning needs, too September 21, 2011

Posted by forwardfinancialplanning1 in Estate Planning.
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Special needs children must often be supported by parents for their entire lives.  However, many parents have failed to take the necessary actions to ensure that their child will be properly cared for after the deaths of the parents.  According to a study of more than 1,700 parents by MetLife, two thirds of parents with special needs children have not prepared wills and nearly a third have done nothing to plan for the child’s financial future.

And, these special circumstances dictate more than just the preparation of simple wills.  In order for the special needs child to maintain eligibility for entitlement programs such as Medicaid, it is crucial that some extremely low thresholds of property ownership are not exceeded.  Wills which do not consider this fact can result in assets passing to the special needs child and create benefits eligibility nightmares.  Likewise,  the process of naming a beneficiary for a parent’s IRA can be fraught with missteps resulting in unnecesary legal and tax expenses.  To avoid these mistakes, it is critical that parents with special needs children enlist the help of attorneys and financial planners with expertise in this area.

Don’t forget about the state’s tab……… July 4, 2011

Posted by forwardfinancialplanning1 in Estate Planning.
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When Congress passed the two year extension of the Bush tax cuts in December of 2010, a new wrinkle was added to estate planning.  The legislation introduced the concept of “portability” that allows a surviving spouse to utilize the unused portion of the deceased spouse’s federal estate tax exemption.  Previously, the first spouse to die would often leave all of his/her assets to the surviving spouse.  Since the federal estate tax exemption is unlimited for bequests to a surviving spouse, this arrangement would in essence, “waste” the first-to-die’s” exemption.  Only the “second-to-die” spouse would actually utilize any of the couple’s combined exemption amount with the result being unnecessary federal estate taxes being assessed at the death of the second spouse.

Because of the aforementioned circumstance, good estate planners drafted revocable living trusts, or bypass trusts to make sure that both spouses utilized all of their estate tax exemptions. 

With the advent of portability (at least for 2011 and 2012) and the exemption now set at $5 million for both spouses, some observers have concluded that bypass trusts no longer make sense.  This would be true were it not for estate taxes and inheritance taxes still levied within many states.  For instance, here in Illinois we have an inheritance tax levied for estates greater than $2 million.  Hence, it’s possible to avoid the bite at the federal level and still incur substantial estate tax liability to Springfield.  

So, don’t discard traditional estate planning tools such as bypass trusts just yet………………………………..

Unfair to an extreme June 23, 2010

Posted by forwardfinancialplanning1 in Estate Planning.
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The  US Tax code has often been characterized as unfair but the current estate tax situation has taken this to an extreme.  Consider the fact that due to congressional inaction, there is no estate tax liability for those who die in 2010.  However, should one’s death take place on January 1, 2011 (or any time thereafter), the estate will be taxed under the rates in place in 2001.  This means that the $9 billion estate of the recently deceased Dan L. Duncan will pass to his heirs completely free of federal estate tax.  Conversely, the estate of  someone dying in 2011 will face estate taxation on amounts exceeding  $1 million at rates as high as 55%.    While $1 million is not an insignificant sum, many middle class estates will breach this threshhold.  Long time homeowners on either U.S. coast having modest amounts of life insurance and reasonable retirement savings will fall victim to this inequity, as will many family farms throughout the midwest.  Incurring estate taxes of several hundred thousand dollars will clearly be a painful revelation to the heirs.  If Congress doesn’t soon address this gross inequity, they may find themselves responsible for an inordinate number of life support systems becoming “mysteriously” unplugged on New Years Eve.

We’re only worried about the present….. May 16, 2010

Posted by forwardfinancialplanning1 in Estate Planning.
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Perhaps it’s due to financial losses caused by the “great recession”; or possibly it can be explained by the uncertainty created by the temporary repeal of the federal estate tax.  Nonetheless, a recent survey released on the web site Lawyers.com found that the number of respondents who said that they had estate planning documents decreased significantly from a similar 2007 survey.  Just 35% of the respondents stated that they had wills, 29% said they had created a power of attorney and only 18% had a living trust or other trust agreement.  The 18% figure for trusts is not surprising as many people with simple estates probably don’t require them.  However, virtually everyone needs a will as well as a power of attorney in the event they become incapacitated.  It appears that much like our congressional approach to the federal deficit, the majority of Americans would prefer to postpone dealing with the issues.