The Fine Art of Flexible Estate Planning

Specialized trusts & private loans can help address some “what ifs.”

 

Estate planning professionals often contend with ambiguities. A plan may need to be modified in the future when some development in family life occurs – and there are some estate planning tools that may help to provide that kind of flexibility.

Standby trusts. These are unfunded revocable living trusts that go into effect when and if families need them. (Sometimes they are referred to as contingent trusts.)¹

In a common scenario, a family has a history of hereditary illnesses, and mom or dad worry about one day being mentally or physically disabled to the point where they cannot make financial decisions. So a standby trust is declared through a living trust document – or alternately, a will may contain a provision authorizing one when necessary.² 

A standby trust goes into effect upon a triggering event. It could be the death of the grantor; it could be a diagnosis of a terminal illness or a form of dementia for that individual. At that point, the revocable standby trust can become an irrevocable trust with assets transferred into it via a durable power of attorney.³

Should the grantor recover from a prolonged disability or illness, the standby trust can remain revocable and the grantor can regain control over the assets.⁴

From a life insurance standpoint, the mechanics work as follows. One spouse buys either a survivorship life insurance policy or a single life policy insuring the other spouse, naming the standby trust as the contingent owner of the policy. The policy owner has control plus access to the cash value of the policy. If the policy owner dies first, the policy is transferred to the trust and the trustee names the trust as the policy beneficiary. Only the fair market value of the policy is added to the estate of the decedent; the trust pays the policy premiums until the surviving spouse dies, at which point the trust receives the policy death benefit tax-free.⁵

 

Spousal lifetime access trusts. If it seems that one spouse might live decades longer than the other, a spousal lifetime access trust (SLAT) may offer a helpful estate planning option. A SLAT essentially gives a longer-living spouse access to a trust established by a spouse who passed away.⁶

A SLAT is actually a form of irrevocable life insurance trust (ILIT) that one spouse creates for the benefit of the other. One spouse is the grantor, and the spouse expected to live longer may be named the trustee (or another party can be named as such).⁵

Premiums on the life insurance policy are paid by the trust. These payments are funded by gifts of property from the grantor. A SLAT is funded with separate property of the grantor spouse rather than community property.⁵

Basically, this is an irrevocable life insurance trust (ILIT) with one key difference: the spouse is a beneficiary as well as the children/grandchildren. The surviving spouse (trustee) may distribute assets out of the trust for his/her own benefit as well as the benefit of the heirs. As a SLAT is also an ILIT, heirs receive a tax-free life insurance benefit when the longer-living spouse passes away.⁵ 

What if the spouse dies before the grantor dies? If that happens, the trust assets (including the life insurance policy) are usually inaccessible to the grantor as this is an irrevocable trust.⁵

    

Private demand loans. Similar to a SLAT, these are also arranged with the help of either a survivorship life insurance policy or a single life policy. In this instance, an ILIT is created but the grantor loans funds to the ILIT instead of gifting them. The trustee uses these loaned funds to pay premiums on a single life policy on the grantor or a survivorship policy on the grantor and the other spouse. (The annual gift to the ILIT may vary depending on required interest rates stipulated by the IRS.) The loan is payable on demand if the grantor needs the money; the trustee can do so using the cash value of the policy. So the couple retains indirect control over the policy while they live (with access to its cash value) while also establishing an irrevocable trust.⁵

 

Could these ideas work for you? They may be worth exploring. These flexible estate planning techniques all use life insurance creatively, offering couples access to cash value while aiming to keep the death benefit of the policy out of the taxable estate of the spouse.

         

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.   

    

Citations.

1 – http://ift.tt/1HWxRPK [3/16/15]

2 – http://ift.tt/1JbIu2A [3/16/15]

3 – http://ift.tt/1HWxOU3 [3/16/15]

4 – http://ift.tt/1JbIu2C [3/16/15]

5 – http://ift.tt/1HWxOU5 [9/11]

6 – tinyurl.com/mmfoqnz [1/18/13]

 

The post The Fine Art of Flexible Estate Planning appeared first on http://ift.tt/1zy8js2

Getting It All Together for Retirement

Where is everything? Time to organize and centralize your documents.

 

Before retirement begins, gather what you need. Put as much documentation as you can in one place, for you and those you love. It could be a password-protected online vault; it could be a file cabinet; it could be a file folder. Regardless of what it is, by centralizing the location of important papers you are saving yourself from disorganization and headaches in the future.

What should go in the vault, cabinet or folder(s)? Crucial financial information and more. You will want to include…

Those quarterly/annual statements. Recent performance paperwork for IRAs, 401(k)s, funds, brokerage accounts and so forth. Include the statements from the latest quarter and the statements from the end of the previous calendar year (that is, the last Q4 statement you received). You no longer get paper statements? Print out the equivalent, or if you really want to minimize clutter, just print out the links to the online statements. (Someone is going to need your passwords, of course.) These documents can also become handy in figuring out a retirement income distribution strategy.

Healthcare benefit info. Are you enrolled in Medicare or a Medicare Advantage plan? Are you in a group health plan? Do you pay for your own health coverage? Own a long term care policy? Gather the policies together in your new retirement command center, and include related literature so you can study their benefit summaries, coverage options, and rules and regulations. Contact info for insurers, HMOs, your doctor(s) and the insurance agent who sold you a particular policy should also go in here.

Life insurance info. Do you have a straight term insurance policy, no potential for cash value whatsoever? Keep a record of when the level premiums end. If you have a whole life policy, you need paperwork communicating the death benefit, the present cash value in the policy and the required monthly premiums.

Beneficiary designation forms. Few pre-retirees realize that beneficiary designations often take priority over requests made in a will when it comes to 401(k)s, 403(b)s and IRAs. Hopefully, you have retained copies of these forms. If not, you can request them from the account custodians and review the choices you have made. Are they choices you would still make today? By reviewing them in the company of a retirement planner or an attorney, you can gauge the tax efficiency of the eventual transfer of assets.¹

Social Security basics. If you have not claimed benefits yet, put your Social Security card, your W-2 form from last year, certified copies of your birth certificate, marriage license or divorce papers in one place, and military discharge paperwork and a copy of your W-2 form for last year (or Schedule SE and Schedule C plus 1040 form, if you work for yourself), and military discharge papers or proof of citizenship, if applicable. Take a look at your Social Security statement that tracks your accrued benefits (online or hard copy) and make a screengrab of it or print it out.²

Pension matters. Will you receive a bona fide pension in retirement? If so, you want to collect any special letters or bulletins from your employer. You want your Individual Benefit Statement telling you about the benefits you have earned and for which you may become eligible; you also want the Summary Plan Description and contact info for someone at the employee benefits department where you worked.

Real estate documents. Gather up your deed, mortgage docs, property tax statements and homeowner insurance policy. Also, make a list of the contents of your home and their estimated value – you may be away from your home more in retirement, so those items may be more vulnerable as a consequence.

Estate planning paperwork. Put copies of your estate plan and any trust paperwork within the collection, and of course a will. In case of a crisis of mind or body, your loved ones may need to find a durable power of attorney or health care directive, so include those documents if you have them and let them know where to find them.

Tax returns. Should you only keep your 1040 and state return from the previous year? How about those for the past 7 years? Have you kept every one since 1982 or 1974? At the very least, you should have a copy of returns from the prior year in this collection.

A list of your digital assets. We all have them now, and they are far from trivial – the contents of a cloud, a photo library, or a Facebook page may be vital to your image or your business. Passwords must be compiled too, of course. 

This will take a little work, but you will be glad you did it someday. Consider this a Saturday morning or weekend project. It may lead to some discoveries and possibly prompt some alterations to your financial picture as you prepare for retirement.

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – http://ift.tt/1GHDWkj [9/12/11]

2 – http://ift.tt/1RrTD2h [3/18/13]

The post Getting It All Together for Retirement appeared first on http://ift.tt/1zy8js2

Eight habits of financially successful people you should mimic

Time is enduringly elastic. 

Moulding to one's prevailing mindscape, an hour can stretch into a millennia or contract into a moment.

For ET Wealth, time has swung similarly in tandem with the economic turmoil and its readers' fortunes, moving between the stress of recession and the sanguinity of an upturn. Even as we dispelled ways to tackle each situation with advice and information, we came upon a simple truth: the mind impacts not just time, but also our financial decisions.

This knowledge helped us compress the volatility of these past four years into an important learning. The affluent and successful people have a common thread running through their financial weft: good fiscal habits. As ET Wealth celebrates its fourth anniversary, we bring to you this distilled wisdom in the form of 8 Habits of Financially Successful People.

As your pore through the following pages, you will realise that more than a secret strategy or investing tips, you need to streamline your behavioural and emotional patterns to secure your financial future. So, you may need to make goals on time, learn not to react impulsively and avoid today's pleasures for future gains.

You may, of course, run into the wall of behavioural biases, which prevent one from developing these habits, but there are ways to overcome these. "Financial behaviour is part of normal behaviour and it is difficult to reorient completely in one vertical. So if you need to unlearn a bad habit, give it time," says Jayant Pai, Mumbai-based financial planner.

There is a good chance that you may not have to alter all your habits. After all, the chaos of the past few years has helped evolve the investing instincts of many a reader. This was evident in the mature responses of most of the 6,785 people who undertook the recent Economictimes. com survey on managing money.

If you do need to inculcate these habits, try to understand the consequences of your actions, which is what we have highlighted for you in this package. We hope time flies as you try to imbibe the good habits, but holds still as you achieve financial success.

They make a plan
By failing to prepare, you are preparing to fail,' said Benjamin Franklin. Planning is clearly the unstated commonality among winners and the first step to formulating a successful strategy. Its two vital components are budgeting and framing goals.

Unless you know your current location, you will never understand where you are headed. Writing down income and expenses will tell you how much you can save to build your future and the way you can increase this amount by cutting down on discretionary expenses.

"Budgeting helped me undertake course correction in order to achieve my goals. It also enabled me to understand many things, such as the difference between investment and expense, and the necessity to reduce expenses if I was overshooting them," says Arun Mathur, who is in his mid-40s.

He began planning only in his 30s, but has caught up since. In fact, according to the Economictimes. com survey, as many as 49 per cent of the respondents started planning in their 30s, but it may not be too bad a place to start if you stay on course subsequently.

Read the rest of the article: http://articles.economictimes.indiatimes.com/2014-12-22/news/57316757_1_habits-expenses-future

Related article: The retirement researcher