Term Life Insurance Becoming More Expensive

Many people like term life insurance, because it is less expensive than other types of insurance. A young couple can protect against the untimely death of the working spouse by purchasing term life. The only downside to term life is that you are insuring that you will survive a period of time (20 years is typical). Once that period expires, you generally have nothing to show for it (other than you outlived the term). Even though there is no savings aspect to term life, it is a very useful planning tool. If you have thought about term life as an option, you may want to pick up the pace. According to an Article in The Wall Street Journal, the premium rates are on the rise and are expected to continue.

Survivorship or “Second-to-die” Insurance

Most of us do not need to worry about planning for the federal estate tax. With the current exemption amount at $3.5M, a married couple can pass along $7M to their children without paying any federal estate tax.

What if you are one of the fortunate few who do need to plan for the federal estate tax? Also, what if in addition to having a large estate your estate contained illiquid assets, like real estate and/or a family business? One possibility is an irrevocable life insurance trust (ILIT). The idea is that you fund the trust with a life insurance policy and the proceeds can be used by your children to pay estate taxes.

This is where survivorship insurance, also referred to as second-to-die insurance, comes into play. Since there is typically no estate tax on the first estate due to the marital deduction, you are looking for the policy to pay after both spouses have died. The second-to-die policy pays the death benefit after the second person dies. Because this insurance covers two lives, it is cheaper than a single life policy.

In most instances, a second-to-die policy is used to fund an ILIT.

Franklin County Courthouse Construction Progress

This morning, I enjoyed a bird’s eye view of the ongoing construction of the new Franklin County Courthouse in downtown Columbus, Ohio. After concluding a status conference in Probate Court Judge Eric Brown’s chambers, he reminded me that the County has posted a webcam of the progress of the construction. You can enter any date and the image will come up for that date. From mid-March forward you can see the construction of the underground tunnel that will connect the existing courthouse to the new one.

Blog Article on the Truths and Myths of Alzheimer's Disease

We recently came across a very good Blog article on the truths and myths of Alzheimer's Disease. Brain Today is the Blog and the article is "5 Truths that Spawned Myths about Alzheimer's and Dementia".

Wolfram Alpha Launches Tonight

Wolfram Alpha, a computational knowledge engine, will be released tonight.  While the launching of a new type of search engine is a little off topic for this blog, the statistical research one could perform regarding income and estate taxes, intestacy, etc. is very appealing.  For an introduction to Wolfram Alpha click here.  The screencast gives a good demonstration of what the search engine can do.  You may want to save it to your favorites if you need or enjoy statistical comparisons.

High End Estate Tax Savings Strategies Being Eyed by White House

A recent Wall Street Journal article, Estate-Tax Strategies Could Survive Curbs, reports that the Obama administration is proposing to curtail the use of two estate planning techniques typically employed by high net worth individuals.  The two techniques are the grantor retained annuity trust (GRAT) and the family limited partnership (FLP).

A GRAT is an irrevocable trust in which the grantor retains the right to receive an annuity for a term of years with the balance at the end going to designated beneficiaries.  If the grantor survives the term, neither the assets nor any appreciation is included in the grantor’s taxable estate.  On the other hand, if the grantor dies before the end of the annuity term, all of the assets are included in the grantor’s gross estate at the fair market value as of date of death.  Since the technique only works if the grantor survives, some GRATs contain short annuity terms.  The White House is proposing the imposition of a minimum 10 year annuity term.  Even if that were to happen, wealthy individuals would no doubt continue to look at the GRAT as an option, because their estate would be no worse off even if they fail to survive the term.  Nonetheless, a minimum 10 year term would certainly dissuade the very elderly from using this technique.

The FLP is sometimes used to transfer family wealth from one generation to the next at a discounted value.  Valuation discounts usually exist because of lack of control and marketability.  The FLP has been under attack by the IRS for years.  The WSJ article indicates that the Obama administration does not like the situations where discounts are based upon restrictions that the family has the ability and intention to later remove.

Filing Deadline For Private Foundations

If your private foundation’s fiscal year is the same as the calendar year, tomorrow, May 15, 2009, is the deadline for filing IRS Form 990-PF.

CRAT, CRUT, CLAT, CLUT, GRIT, GRAT and GRUT…What Does It All Mean?

No area of law practice has created more acronyms than estate planning.  The following is a brief description of these irrevocable trusts.

CRAT – Charitable Remainder Annuity Trust – A trust where payments are made to an income beneficiary for a set term with the remainder going to charity.  The income beneficiary, a private person(s), will receive at least an annual distribution of not less than five percent (5%) nor more than fifty percent (50%) of the initial net fair market value of the trust.  The payments to the income beneficiary are a set amount.

CRUT – Charitable Remainder Unitrust – A trust where payments are made to an income beneficiary for a set term with the remainder going to charity.  Instead of a fixed sum, the income beneficiary receives a fixed percentage of not less than five percent (5%) nor more than fifty percent (50%) of the initial net fair market value of the trust.  The trust must be valued annually.

CLAT – Charitable Lead Annuity Trust – The reverse of a CRAT, where the charitable interest comes first and the charity gets the income for a set term and the grantor's heirs receive the remainder interest after the expiration of the term.

CLUT – Charitable Lead Unitrust – The reverse of a CRUT, where the charitable interest comes first and the charity gets the income for a set term and the grantor's heirs receive the remainder interest after the expiration of the term.

GRIT – Grantor Retained Interest Trust - An irrevocable gifting trust for high net worth individuals.  There is a transfer of property to a trust for a specified period of years.  The Grantor retains a qualified annuity interest or unitrust interest in the trust.  When the trust term ends, the trust terminates and all of the assets are distributed to the beneficiaries.

GRAT – Grantor Retained Annuity Trust - An irrevocable split interest trust in which the grantor retains the right to receive an annuity with a set amount for a term of years with the balance remaining at the end going to designated beneficiaries.

GRUT – Grantor Retained Unitrust - the right to receive annual amounts that are a fixed percentage of the FMV of the trust determined annually.

A Charitable Alternative to Cashing in Your Life Insurance

In our prior post, we addressed the possibility of a life settlement as an alternative to taking the cash surrender value of an unneeded life insurance policy.  Another alternative is gifting the policy to a charity and taking an income tax charitable deduction.  The charity becomes the beneficiary of the policy and the ownership is transferred to the charity as well.

If you do not need an income tax charitable deduction and you do not want to part with the ownership of the policy, you can simply designate the charity as the beneficiary of the policy.  Your estate will receive an estate tax charitable deduction for the death benefit passing to the charity.

The Life Settlement Alternative

If a life insurance policy is no longer needed, then most people elect to take the cash surrender value.

An alternative is to sell the policy to an institution through a life settlement.  Life settlement companies will be interested in the type of policy, the amount of the policy, and the insured’s life expectancy.  If the circumstances are good, the policy can be sold for many times over the cash surrender value.

Ohio Charitable Trusts Need to be Registered

All charitable trusts established or active in Ohio are required to register with the Ohio Attorney General’s Charitable Law Section.  The registration form is filed with a copy of the instrument creating the charitable organization and the IRS letter granting exempt status.

In addition to the registration requirement, the charity must file an annual report, attaching a copy of IRS Form 990.  The filing deadline is the same date as the Form 990 filing deadline, i.e., the fifteenth day of the fifth month following the close of the fiscal year end.  If the Form 990 is on extension, the registration deadline is automatically extended.  One does not want to file the financial report late.  The Attorney General assesses a $200 late fee.

529 Savings Plan Briefing

On the heels of the recent high ranking of the Ohio CollegeAdvantage 529 Savings Plan, Investment News is reporting that Jacqueline Williams, the executive director of the Ohio Tuition Trust Authority is leaving to become director of New America Foundation’s College Savings Initiative, effective June 1.  There is no word yet on who might take her place.

Back in the "good news" category, PR Newswire reports that according to Savingforcollege.com's newest 529 Fee Comparison Study, the Ohio CollegeAdvantage 529 Savings Plan is the lowest-cost, nationally-sold 529 plan.

Skip your IRA minimum distribution for 2009

Is your IRA suffering due to the stock market?  You can skip taking a required minimum distribution (RMD) for 2009. 

Investors over the age of 70½ are normally required to take an annual minimum distribution amount from their IRA’s.  The required minimum distribution amount is calculated by using a life expectancy factor published by the IRS.

Federal law permits skipping the RMD for 2009.