Newsletters – Page 2 – McFather Law Firm LLC

Three Steps to Helping Clients Find Their Happiness and Honor it with their Estate Plan

Not only is January the first month of a new year, it is also a time when many celebrate Hunt for Happiness Week (January 16-22, 2022). Happiness is something that humanity, in large part, has spent a tremendous amount of effort pursuing throughout history. Early on, happiness likely came from simple victories such as having a full belly, surviving another day, or simply staying warm. Over time, with the progress of civilization, happiness may have come from more complex sources such as art and literature, family and romantic relationships, religious worship, access to a wider variety of food and drink, education, and novel experiences. For many people, a lifetime is spent accumulating wealth in the effort to find happiness. But does the mere accumulation of wealth guarantee happiness? It depends on who you ask, of course. But most people will agree that happiness can be found from a variety of sources beyond total dollars reflected on a balance sheet.

When it comes to your clients finding happiness for themselves and their loved ones, consider how their estate planning might play a role in that process. The following steps can help ensure that the effort your clients put into their estate planning will contribute to their happiness and their family’s happiness rather than potentially diminish it.

Step 1: Ask your client to identify and prioritize the experiences and activities that bring them the most happiness.

Rather than simply assuming that property or cash will bring continuing happiness to your client and then their family when they are gone, it is important to think about how their money and property can be used to generate happiness. Here are some examples:

Is there a hobby that they and their families enjoy that they could more easily engage in as a result of the availability of money? Perhaps they have enjoyed hunting or fishing trips with their loved ones over the years. Maybe they have a love of live theater or musical performances that has brought them joy over the years as they have shared such experiences with their family.
Did they have international travel experiences that they look back on fondly and would like to repeat or extend to younger generations?
Was education a source of particular joy and satisfaction over the years that your clients would like their loved ones to be able to experience?
Is there a special vacation location or property that has many happy memories associated with it?

Whatever experiences or activities have brought your client and their loved ones happiness throughout their lives, the first step is to identify them and determine whether your client wants to make such experiences or activities a priority in their own estate planning.

Step 2: Review the client’s important documents to see if they reflect those priorities.

Once you have identified your client’s priorities, you should help them review their important estate documents, such as life insurance and retirement account beneficiary designations, wills, trusts, pay-on-death designations on accounts, and the deeds and titles on their property. Does your client understand how their accounts and property will be transferred or paid out when they die? If so, will the resulting payments and transfers realistically support the client’s priorities that you have helped them identify in Step 1? Or does their current estate plan risk allowing their accounts and property to be used or spent on things other than your client’s priorities? If so, is your client comfortable with that potential result?

Step 3: Encourage your client to contact us to make necessary changes or additions to their estate planning.

If your client is not comfortable with the way their current plan meets their priorities, then it is crucial that they do not delay in addressing these issues with their entire professional advisor team, including their attorney, CPA, and financial planner. As your client’s attorney, we can help them craft provisions in their will or living trust that will set aside a sum of money to fund education for successive generations, travel, hunting trips, family reunions, or other experiences that create happy memories the client would like to pass on. Further, in order for your client to protect their property from being squandered on material possessions or expenses that bring little happiness to their loved ones, your client may need to change beneficiary designations on life insurance, retirement accounts, or cash accounts to be payable to a trust, or make other protective arrangements that can help them achieve their priorities.

It is only with careful planning that your clients can turn something as mundane and inanimate as money and property into experiences and opportunities that can bring true and lasting happiness to them and their loved ones for generations. With proper planning using the tools at our disposal, a team of professional advisors can help your clients effectively meet this worthwhile goal. Such efforts will undoubtedly increase the likelihood that your clients and their loved ones will find the happiness and satisfaction in life that are readily available to those who diligently seek it.

Three Steps to Prioritize Your Happiness and the Happiness of Your Loved Ones

When it comes to finding happiness for both you and your loved ones, consider how your estate planning might play a role in that process. The following steps can help ensure that the effort you put into your estate planning will contribute to your and your family’s happiness rather than diminish it.

Step 1: Identify what makes you happy and prioritize it.

Rather than simply assuming that property or cash will bring continuing happiness to not just you but also your family when you are gone, it is important to think about how you can use your money and property to generate happiness. Here are some examples:

Is there a hobby that you and your loved ones enjoy that you could more easily engage in as a result of the availability of money? Perhaps you and your children have enjoyed hunting or fishing trips together over the years. Maybe you and your loved ones have a love of live theater or musical performances that has brought you joy over the years as you have shared such experiences.
Were your international travel experiences something that you will never forget and that you would like to help your loved ones experience as well?
Was your education a source of joy and satisfaction over the years that you would like your loved ones to be able to experience?
Is there a special vacation location or property that has many happy memories associated with it?

Whatever experiences and activities have brought you happiness throughout your life, the first step is to identify them and determine whether or not you would like to make them a priority in your estate planning.

Step 2: Review your important documents to see if they reflect your priorities.

Once you have identified your priorities, you should review your important estate documents, such as life insurance and retirement account beneficiary designations, wills, trusts, pay-on-death designations on accounts, and the deeds and titles on your property. Do you understand how your accounts and property will be transferred or paid out when you die? If so, will that process realistically result in your accounts and property supporting the priorities that you have identified in Step 1? Or does your current plan risk allowing the accounts and property to be used or spent on things other than your priorities? If so, are you comfortable with that potential result?

Step 3: Contact your advisor team to make necessary changes or additions to your planning.

If you are not comfortable with the way that your current plan meets your priorities, then it is crucial that you do not delay in addressing these issues with your professional advisors, such as your attorney and financial planner. Your attorney can help you craft provisions in your will or living trust that will set aside a sum of money to fund education for successive generations, travel, hunting trips, family reunions, or other experiences that create happy memories you would like to pass on. Further, in order for you to protect your property from being squandered on material possessions or expenses that bring little happiness to your loved ones, you may need to change beneficiary designations on life insurance, retirement accounts, or cash accounts to be payable to a trust, or make other protective arrangements that can help you achieve your priorities.

It is only with careful planning that you can turn something as mundane and inanimate as money and property into experiences and opportunities that can bring true and lasting happiness to you and your loved ones. With proper direction from you, your advisors have the tools to help you effectively meet this worthwhile goal. Such efforts will undoubtedly increase the likelihood that you and your loved ones will find the happiness and satisfaction in life that is readily available to those who diligently seek it.

Why You Might Not Want to Be a Client’s Beneficiary

Imagine the following scenario: As a professional advisor, you have worked with a married couple for decades. They have been ideal clients, have taken a genuine interest in you and your family, and have told you on multiple occasions how much they appreciate your professional advice and friendship for all of these years. The wife passed away recently, and the husband’s health is failing. With no children of their own and only distant and estranged relatives within their family, they spent a large portion of their wealth over the years supporting a number of charitable organizations, but they did not wish to provide any further gifts to the charities at death. As a result, you eventually learn from the husband that you have been named as a beneficiary of their trust to receive a sizable distribution at the husband’s death. When you express your surprise and gratitude for this kind gesture, your client confirms that he and his wife had discussed providing you with such a gift for years and that they are happy to do so as a reflection of the affinity they feel toward you.

What Could Go Wrong?
As professional advisors, we often spend hours with our clients becoming familiar with some of the most personal details of their lives. Being a good listener and helping your client achieve their financial and tax planning goals can create a natural closeness and high personal regard for one another. For clients in similar circumstances to the fictional scenario described above, naming a trusted advisor and friend as a beneficiary of their will, trust, insurance policy, or retirement account can feel very natural and desirable. So why would a professional advisor ever refuse such a generous gesture from a client?

For advisors from certain professional backgrounds, deciding how to act in the above scenario is easy because it is already made for you. In some cases, allowing yourself as a professional advisor to be named as a beneficiary in a client’s estate plan can lead to an ethics complaint and possible sanctions by your professional regulatory authority.

FINRA Registered Investment Advisers
For example, professionals who are registered with and regulated by the Financial Industry Regulatory Authority (FINRA) are subject to FINRA Rule 3241. This rule requires any person registered with FINRA to decline being named as a beneficiary of a client’s estate or receipt of a bequest (gift at death) except under very limited circumstances. Those limited circumstances include being a member of the client’s immediate family (as defined in the rules) or seeking and obtaining written approval from the member firm with which the registered advisor is associated to accept such a gift or bequest. The rule is fairly straightforward and leaves very little room for differing interpretations. In general, a registered investment adviser cannot accept such a gift from or otherwise be a beneficiary of a client’s estate as in the scenario described above.

Attorneys
State bar association rules of professional conduct govern the ethical and professional responsibilities of members of the legal profession and are frequently adapted from the American Bar Association’s Model Rules. Under these rules, attorneys are also generally prohibited from being named as a beneficiary in a client’s will or trust document that the attorney prepared.[1] For example, the Model Rules specifically prohibit a lawyer from “preparing on behalf of a client an instrument giving the lawyer or a person related to the lawyer any gift unless the lawyer or other recipient of the gift is related to the client.”[2]

Accountants
Certified public accountants (CPAs) are also subject to rules that dissuade accounting professionals from accepting gifts or bequests from clients unless it can be clearly shown that such gifts do not impact the CPA’s ability to exercise independent judgment.[3]

As the above-referenced professional rules of conduct demonstrate, in an estate planning context, the general principle is that a professional should seek to avoid profiting from the client’s death. Of course, there is nothing wrong with you providing the services you typically perform in the normal course of business, such as tax preparation or investment advice, to the executor or trustee appointed by your deceased client, as long as it is done within your profession’s rules of professional conduct. But where a professional obtains a windfall through a gift, bequest, or beneficiary designation that is clearly not compensation for services rendered, a professional should consider very carefully the wisdom of accepting such a gift.

If a client’s family member or another professional advisor were to learn of such a gift, there could be an assumption of impropriety or that you as the professional advisor have violated your fiduciary obligation to the client by seeking to exploit a relationship of trust for improper financial gain. Accusations of undue influence or questions surrounding your client’s mental capacity to make such gifts may arise. And even if it can be proven that you, as the professional, did not in fact engage in any pressure tactics or take advantage of your position of trust, there could nevertheless be significant controversy, professional complaints filed, and even litigation against you and your firm to get to the bottom of the situation or force some form of a financial settlement.

Beyond that, you may be jeopardizing your own professional licensure in your chosen profession, as well as significantly damaging the public’s perception of the ethical conduct of other members of your profession.

Professional advisors with clients who want to leave them gifts or bequests from their estates should almost always politely decline, explaining the practical and ethical reasons why accepting such gifts could be counterproductive to the client, the professional advisor, and the profession in general. The professional should then have a thoughtful discussion with the client about naming an appropriate alternative to the professional. The professional could also gently suggest a variety of charitable organizations that the client may find attractive as beneficiaries of a charitable gift, or even a charitable cause that is near to the heart of the professional advisor in lieu of the gift to the advisor.

Whatever the client ultimately decides, you will likely be able to sleep better at night knowing that a disgruntled heir of the client will not file a FINRA or ethical complaint against you long after the client has passed away. Furthermore, maintaining the integrity and ethical standards of your profession will undoubtedly pay dividends from a professional and reputational perspective that will far outweigh the financial benefits of accepting such gifts in the long run.

[1] Model Rules of Pro. Conduct r. 1.8(c) (Am. Bar Ass’n, 1983).

[2] Id.

[3] See AICPA Code of Pro. Conduct § 1.240.020 (AICPA, 2014).

Why You Might Not Want to Name Your Advisor as a Beneficiary

Imagine the following scenario: For years, you have worked with a valued professional advisor who has become a close friend, maybe even closer than some of your family members. You know her family, attend church with her, and know her to be a model citizen who contributes significant value to your community. This professional has suffered some truly unfortunate life circumstances with the loss of her spouse and children in a recent car accident, and the more you and your spouse discuss whom to leave your estate to, the more your professional advisor’s name comes up. Perhaps you have no children of your own and you are no longer close with anyone in your own family. You would rather see your property pass to someone whom you know and care for than to just another charity that may not properly use the funds you leave to them. Working with your estate planning attorney, you and your spouse decide to leave a significant share of your estate to this professional advisor, but as a surprise. Surely, this will be a much appreciated gift for this advisor for whom you feel such affinity.

What Could Go Wrong?
As professional advisors, we often spend hours with our clients, becoming familiar with some of the most personal details of their lives. Being a good listener and helping our clients achieve their financial and tax planning goals can create a natural closeness and high personal regard between clients and advisors. For individuals in similar circumstances to the fictional scenario described above, naming a trusted advisor who is also a friend as a beneficiary of your will, trust, insurance policy, or retirement account can feel very natural and desirable. So why would a professional advisor ever refuse such a generous gesture from you?

For advisors from certain professional backgrounds, deciding whether they can accept such a gift is easy because their professional licensing organization has already decided it for them.

FINRA Registered Investment Advisors
For example, professionals who are registered with and regulated by the Financial Industry Regulatory Authority (FINRA) are subject to FINRA Rule 3241. This rule requires any person registered with FINRA to decline being named as a beneficiary of a client’s estate or receipt of a bequest (gift at death) except under very limited circumstances. Those limited circumstances include being a member of the client’s immediate family (as defined in the rules) or seeking and obtaining written approval from the member firm with which the registered advisor is associated to accept such a gift or bequest. The rule is fairly straightforward and leaves very little room for differing interpretations. In general, a registered investment advisor cannot accept such a gift from or otherwise be a beneficiary of a client’s estate as in the scenario described above.

Attorneys
State bar association rules of professional conduct govern the ethical and professional responsibilities of members of the legal profession and are frequently adapted from the American Bar Association’s Model Rules. Under these rules, attorneys are also generally prohibited from being named as a beneficiary in a client’s will or trust document that the attorney prepared.[1] For example, the Model Rules specifically prohibit a lawyer from “preparing on behalf of a client an instrument giving the lawyer or a person related to the lawyer any gift unless the lawyer or other recipient of the gift is related to the client.”[2]

Accountants
Certified public accountants (CPAs) are also subject to rules that dissuade accounting professionals from accepting gifts or bequests from clients unless it can be clearly shown that such gifts do not impact the CPA’s ability to exercise independent judgment.[3]

As the above-referenced professional rules of conduct demonstrate, in an estate planning context, the general principle is that a professional should seek to avoid profiting from the death of a client. Of course, there is nothing wrong with a professional continuing to offer the services that they provide in the normal course of business to the executor of the deceased client’s estate or the trustee of their trust. But where a professional obtains a windfall from a client through a gift, bequest, or beneficiary designation that is clearly not compensation for services rendered, a professional should very carefully consider the wisdom of accepting such a gift.

If one of your relatives or another professional advisor were to learn of such a gift, there could be an assumption of impropriety or that your professional advisor has violated their fiduciary obligation to you by seeking to exploit the relationship of trust for improper financial gain. Accusations of undue influence or questions surrounding your mental capacity to make such gifts may arise. And even if it can be proven that your professional advisor did not in fact engage in any pressure tactics or take advantage of their position of trust, there could nevertheless be significant controversy, professional complaints filed, or even litigation against your professional advisor to get to the bottom of the situation or force some form of a financial settlement with the advisor.

Beyond that, even innocently naming your advisor as a beneficiary of your accounts and property could jeopardize your advisor’s professional licensure in their chosen profession, as well as significantly damage the public’s perception of the ethical conduct of other members of that profession.

Professional advisors with clients who want to leave them gifts or bequests from their estates should almost always politely decline, explaining the practical and ethical reasons why accepting such gifts could be counterproductive to the client, the professional advisor, and the profession in general. The advisor should then have a thoughtful discussion with the client about naming an appropriate alternative to the advisor. The professional could also help the client identify alternative charitable organizations that they may find attractive in lieu of the gift to the advisor.

Whatever you ultimately decide, your professional advisor will likely be able to sleep much better at night knowing that a disgruntled family member will not someday file a FINRA or other ethical complaint against them long after you have passed away and the money is spent. Furthermore, helping your professional advisor maintain the integrity and ethical standards of their profession will undoubtedly pay dividends from a professional and reputational perspective that far outweigh the financial benefits of accepting even a generous gift from you.

[1] Model Rules of Pro. Conduct r. 1.8(c) (Am. Bar Ass’n, 1983).

[2] Id.

[3] See AICPA Code of Pro. Conduct § 1.240.020 (AICPA, 2014).

What to Do If You Are in a Fender Bender and How It Might Affect Your Estate Planning

In the words of George R. R. Martin’s fictional characters from the noble house Stark, “Winter is coming.”

Along with this change of seasons comes a change in driving conditions in much of North America—slippery roads, rain, snow, less sunlight during the morning and evening commutes, and a variety of other hazards. Unfortunately, with an increase in such hazards comes an increase in the likelihood of being involved in a motor vehicle accident. But few of us have ever really considered what should be done if we are actually involved in a fender bender.

While certainly no two car accidents are the same, there are some general guidelines that you should follow as soon as possible after an accident.

First, check yourself and your passengers for any injuries. Ask everyone if they are okay before anything else. If it becomes apparent that someone, including yourself, is injured, call 911 and report the accident and the fact that there may be injuries so emergency dispatchers can send appropriate first responder help. When safety and health are at risk, your first priority should be ensuring that everyone involved can get the medical help they need as quickly as possible. If you are injured and cannot make the 911 call yourself, ask anyone you can communicate with to get medical help.

Next, if you and all involved appear to be safe and uninjured and you are not at risk of further danger from nearby traffic, find a safe location to move your vehicles to. If the accident involves someone else, exchange contact and insurance information with the other driver. This will ensure that you can get in touch with the other party to the accident if your insurance company or the police need to get involved to resolve any issues that arise or process insurance claims.

Also, even when accidents result in what appears to be only minor damage, it is still advisable in most cases to have the local police respond before the other driver leaves the scene. When it is time to file a claim with your insurance company (or respond to claims from the other driver about damages you may have caused), it is important to have a police report detailing the damages and who law enforcement determines was at fault. This will help you avoid being unfairly stuck with the liability for repairs or medical injuries that arise later (such as back and neck injuries).

Additionally, it is important to contact your car insurance company as soon as possible. You may want to contact them even before getting out of the car. The insurance company can provide you with crucial advice and guidance at a very stressful time to make sure that you do not make mistakes in dealing with the other driver that could have significant consequences when it comes to liability. Many people mistakenly believe that it is better not to report minor accidents to your insurer in an effort to prevent their premiums from increasing. However, this can be a dangerous approach. Failing to report an accident and allowing the insurance company to immediately get involved to mitigate possible claims for damages could lead to much larger claims against you personally and could result in your insurance company refusing to cover such claims due to your failure to report in a timely manner.

How Car Accidents Can Impact Your Estate Planning

Healthcare decision-making. In the event of an accident where you become unable to speak or make decisions for yourself as the result of an injury, you will need to have someone who can speak to doctors and medical providers on your behalf. If you have planned in advance, a medical power of attorney will allow someone you have chosen previously (your healthcare agent) to speak with doctors and arrange for treatment until you regain consciousness. If you do not have a medical power of attorney in place, decision-making authority could be unclear and might result in delays in receiving certain types of medical treatment. Thus, it is important that you not only have a medical power of attorney in place and signed, but also that you inform those closest to you about where to obtain a copy of it should you need to be rushed to a hospital in the event of an accident.

Adequate insurance coverage. Many people do not realize that carrying adequate insurance coverage is one of the most effective ways to protect themselves from lawsuits that would place their savings and property at risk. Ensuring that you carry adequate car insurance is one of the simplest ways to ward off a lawsuit. Beyond increasing your insurance limits on your car insurance, you may also want to discuss with your insurance broker whether it would make sense for you to purchase an umbrella insurance policy. Umbrella policies act as a form of backup insurance to your car insurance policy. Essentially, if you are involved in a car accident where the damages you caused exceed the limits of your car insurance policy, an umbrella insurance policy can step in and cover such excess liability. With both policies in place, you are providing a large enough pool of insurance money that your insurance companies will have a much greater ability to settle any lawsuit against you as a result of the car accident before it ends up in court where the plaintiff could seek payment from you directly.

As part of your estate planning, you should meet with your insurance advisor to discuss the limits of your car insurance and any umbrella policy that you may already have (or intend to purchase) and the types of protections that they provide. Adequate insurance can go a long way toward protecting your accounts and property from loss to a lawsuit as a result of a car accident.

Be Careful of Fraudulent Transfers
After a car accident where there are significant property damages and medical injuries, it can be tempting to take steps to protect what you own if you fear that a lawsuit may result from the accident. But it is important to resist the temptation to begin transferring your property and accounts to friends or family in an effort to hide what you own. In many states, taking such steps after an accident has occurred in which you are liable is considered to be a fraudulent transfer that can be ignored by the courts.[1] In other words, even though you may have made an otherwise legal gift or transfer of your accounts and property to someone else, the courts are likely to allow the party in a successful lawsuit against you to go after and seize the property that you have transferred to someone else in an effort to avoid having it used to pay the judgement against you. Furthermore, you could be liable for additional damages for causing the prevailing party in the lawsuit to expend extra effort and expense to pursue the fraudulently transferred property.

No, Revocable Trusts Do Not Protect Your Property from Lawsuits
Another very common misconception is that if you create a revocable living trust for estate planning purposes, you have also protected your assets from lawsuits and creditors. Unfortunately, this is simply not the case. While it is possible to design a revocable living trust that will protect your assets after you have died from the creditors and lawsuits of your named beneficiaries of your trust (usually your loved ones), revocable trusts in general offer no protection against your own creditors or lawsuits filed against you. This is because you have complete control over the property placed in your revocable trust. And because you retain the power to revoke the trust, a judge can order you to revoke the trust and use the trust property to pay your creditors and lawsuit judgements.

That being said, there are certain types of irrevocable trusts and other asset protection strategies that, if designed properly, can greatly enhance the level of protection you can obtain for your property. However, you should explore these with the assistance of an experienced asset protection and estate planning attorney to ensure proper creation and implementation.

When it comes to protecting your accounts and property, the time for taking the necessary steps is well before an accident occurs. Doing so will help you maximize the amount of asset protection that is available to you through purchasing insurance or designing estate planning features that have a much better chance of warding off successful lawsuits in the event of an accident.

We hope that we have given you some things to consider and encouraged you to revisit some aspects of your estate planning. Protecting your hard-earned accounts and property is a worthwhile investment of time and effort. But remember, the time to do so is before an accident occurs. If you are not sure where to start, give us a call. We would be happy to help you take the next step in preparing for the perils that winter can bring.

[1] To date, twenty-four states have enacted or introduced model legislation referred to as the Uniform Voidable Transactions Act (Formerly Uniform Fraudulent Transfer Act). The full text is available on the website of the Uniform Law Commission at https://www.uniformlaws.org/committees/community-home?CommunityKey=64ee1ccc-a3ae-4a5e-a18f-a5ba8206bf49.

How a Fender Bender Might Impact Your Clients’ Finances and Estate Plan

In the chilling words of several George R. R. Martin’s Game of Thrones characters, “Winter is coming.”

Along with this change of seasons comes a change in driving conditions in much of North America—slippery roads, rain, snow, less sunlight during the morning and evening commutes, and a variety of other hazards. Unfortunately, with an increase in such risks comes an increase in the likelihood of your clients being involved in a car accident. But far too few have given much thought to what steps should be taken if they are actually involved in a fender bender.

How Car Accidents Can Impact a Client’s Estate Plan

Healthcare decision-making. In the event of an accident where a client becomes unable to speak or make decisions for themselves due to an injury, they will need to have someone who can speak to doctors and medical providers on their behalf. If a client has planned in advance, a validly executed medical power of attorney will allow someone the client has chosen previously (a healthcare agent) to speak with doctors and arrange for treatment until the client regains consciousness. If a client does not have a medical power of attorney in place, decision-making authority could be unclear and might delay them receiving certain types of medical treatment. Thus, it is important that your clients not only have a medical power of attorney in place and signed, but also that they inform those closest to them about where to obtain a copy of it should they need to be rushed to a hospital in the event of an accident.

Adequate insurance coverage. Many people do not realize that carrying adequate insurance coverage is one of the most effective ways to protect themselves from lawsuits that would place their savings and property at risk of loss. Ensuring that your client carries adequate car insurance is one of the simplest ways you can help them ward off a lawsuit. Beyond increasing their car insurance limits, you may also want to discuss whether it would make sense for them to purchase an umbrella insurance policy. Umbrella policies act as a form of backup insurance to other types of primary casualty insurance policies. Essentially, if a client is involved in a car accident where the damages they caused exceed the limits of their car insurance policy, an umbrella insurance policy can step in and cover such excess liability. With both policies in place, there will be a large enough pool of insurance money that the insurance companies will have a much greater ability to settle any lawsuit against your client as a result of the car accident before it ends up in court where the plaintiff could seek payment from the client directly.

As part of your client’s estate planning review, you should discuss the limits of their car insurance policy and any umbrella policy that they may already have (or that they intend to purchase) and the types of protections that those policies provide. Adequate insurance can go a long way toward protecting their accounts and property from loss to a lawsuit as a result of a car accident.

Disability insurance. Clients should be reminded that in addition to the risks of being inadequately insured from a liability perspective, a car accident that results in their own injury could have both short- and long-term financial consequences from a disability perspective. Without the ability to engage in gainful employment, a family can suffer significant financial hardships in a very short period of time. Being unable to pay a mortgage, rent, car payments, utility bills, or healthcare expenses because of lost income can be devastating. Short-term and long-term disability insurance can therefore offer incredibly important protection against loss of income from such an accident. If your clients have not yet considered purchasing disability insurance to protect against this kind of risk, you may want to raise the topic with them sooner rather than later.

Personal Injury Settlements
In some cases, a personal injury settlement may be paid to your client in a lump sum. If your client has received such a settlement, it is important that you work with them to suggest prudent investment options that will protect the settlement funds from both the risk of major market losses as well as unnecessary diminishment from inflation. These funds should be protected and invested in a manner that will ensure that they are available to your client to provide for their needs, particularly when the client’s needs have increased as a result of the injuries sustained in the accident.

Be Careful of Fraudulent Transfers
After a car accident where there are significant property damages and medical injuries, a client can be tempted to take steps to protect what they own if they fear that a lawsuit may result from the accident. But it is important to help your clients resist the temptation to begin transferring or retitling their property and accounts to friends or family in an effort to hide what they own to protect it from their creditors. In many states, taking such steps after an accident has occurred in which a client is liable is considered to be a fraudulent or voidable transfer that can be ignored by the courts.[1] In other words, even though a client may have made an otherwise legal gift or transfer of their accounts and property to someone else, the courts are likely to allow the party in a successful lawsuit against the client to seize the property that your client has transferred to someone else in an effort to avoid having it used to pay the judgment against them.

No, Revocable Trusts Do Not Protect a Client’s Property from Personal Lawsuits
A very common misconception is that if your client creates a revocable living trust for estate planning purposes, they have thereby protected their assets from lawsuits and creditors. Unfortunately, this is simply not the case. While it is possible to design a revocable living trust that will protect a client’s assets after they have died from the creditors and lawsuits of the named beneficiaries of their trust (usually their loved ones), revocable trusts in general offer no protection against the client’s own creditors or lawsuits filed against them. This is because the client has complete control over the property placed in their revocable trust. And because they retain the power to revoke the trust, a judge can order them to revoke the trust and use the trust property to pay their creditors and lawsuit judgments.

That being said, there are certain types of irrevocable trusts and other asset protection strategies that, if designed properly, can greatly enhance the level of protection a client can obtain for their property. However, these should be explored with the assistance of an experienced asset protection and estate planning attorney to ensure proper creation and implementation.

When it comes to protecting a client’s accounts and property, the time for taking the necessary steps is well before an accident ever occurs. Doing so will help your clients maximize the amount of asset protection that is available to them through purchasing insurance or designing estate planning features that have a much better chance of warding off potential lawsuits in the event of an accident.

We hope that we have given you some things to consider along with your clients that will help you encourage them to revisit their estate planning. Protecting a client’s hard-earned accounts and property is a worthwhile investment of time and effort. If you or your clients are not sure where to start, give us a call. We would be happy to help them take the next step in preparing for the perils that winter can bring.

Estate Planning Awareness Week: Don’t Fall Victim to These Common Myths

Next week is Estate Planning Awareness Week (October 18–24, 2021). To that end, this month’s newsletter is geared toward helping you become aware of and better understand common estate planning myths. Left unaddressed, these myths can create serious trouble for your loved ones, often leading to intrafamily conflict, permanently damaged relationships, and lengthy and expensive court battles.

Myth #1: I did my estate plan a couple of years ago. I’m good!
If you have worked on your estate plan with an experienced estate planning attorney within the last few years, then you are way ahead of most people, and you should give yourself a pat on the back. Way to go!

However, life moves quickly, and even a couple of years can make a significant impact on the effectiveness of your estate plan to help you achieve your goals:

Children can get married and have children of their own.
People who you have named in your estate planning documents can move out of state, making them unable to handle those responsibilities when called upon.
Your relationships with your chosen fiduciaries or beneficiaries can change or become complicated.
Your beneficiaries can develop harmful addictions, marry financially exploitative spouses, or run into financial difficulties of their own.
Your spouse could die or you could get divorced.
The amount and types of property that you own can change.
Changes in the law can cause your estate plan to have unintended tax or other consequences.

Any one of the above circumstances may be a good reason to meet with your estate planning lawyer again to determine whether changes should be made to your estate plan. In many cases, even a quick phone call to discuss any changes with your lawyer is advisable.

It is also essential to understand that some estate planning documents like your power of attorney or healthcare directive can, over time, become less effective from the perspective of certain financial institutions, business entities, or healthcare providers. If your circumstances change, it can be beneficial to review, update, and reexecute your estate planning documents. This will keep these documents relevant and effective when they need to be used.

Beyond the considerations above, a well-rounded estate plan requires a number of steps to ensure that the estate plan will work effectively when needed.

First, if you have a trust, have you funded it? Funding your trust means you have coordinated the ownership and beneficiary designations of your accounts and property to work with the trust. For real estate, a deed must have been recorded with the proper government recorder’s office. Most bank and brokerage accounts should be titled in the name of the trust if you want your trustee to control those accounts should something happen to you.

Second, have you checked the beneficiary designations on your retirement accounts and insurance policies to make sure they name the correct people or your trust? Life insurance policies should usually name the trust as beneficiary. Retirement plans may name a trust as a beneficiary, but be careful! Naming a trust as the beneficiary of an individual retirement account or 401(k) has significant tax consequences and may not be advisable in many situations. Speak with your tax advisor before changing the beneficiary designations on your retirement accounts.

Third, have you shared copies of your medical power of attorney and healthcare directive with your doctor and local hospital? Doing so can alleviate family members’ worries about digging through your documents should you have a healthcare issue in the future.

Fourth, in many states, a financial power of attorney document that names an agent to act on your behalf must be accompanied by a signed acceptance document from the agent before it can be used. Has this step been taken? If not, your estate plan may not be complete.

Fifth, writing things down does not guarantee that misunderstandings will not arise among your loved ones or beneficiaries. In addition to the important work of documenting your wishes, you should talk with your loved ones to help them understand the kind of plan you have put in place as well as the roles you want them to fulfill. Having open, honest communication with those individuals involved in your estate plan will minimize the chances for miscommunication and hurt feelings.

Myth #2: Avoiding taxes is the only reason to create an estate plan.
It can be easy to dismiss the need for an estate plan considering today’s historically high estate tax exemption ($11.7 million per person in 2021). Most Americans do not need to worry about estate taxes.[1] However, tax avoidance is only one of many goals of estate planning, and in many cases it is not the most important goal. For example, planning for the orderly passing of your treasured heirlooms to avoid family discord may be far more important than tax planning in the long run. Alternatively, you may have children who are struggling financially or with substance abuse challenges, are in a rocky marriage, or work in high-liability professions. As a result, it may be crucial for you to ensure that whatever inheritance is left to those children is protected from loss to lawsuits, creditors, or divorcing spouses.

Myth #3: My spouse will get everything when I die.
This is another myth that is partially true but can lead to unfortunate conflicts and misunderstandings among family members. Under most state laws, if you are married and pass away, your spouse will inherit your property. Default laws that exist to divide up a deceased person’s property if they have never made a will or a trust (called intestacy laws) typically allow the surviving spouse to inherit 100 percent of the deceased spouse’s property. But in many states, if the surviving spouse is not the biological parent of one or more of the deceased spouse’s children, then those children will typically have a right to some percentage of their deceased parent’s property. In many states, that can be as much as 50 percent.[2] As a result, your spouse could get a very unpleasant surprise shortly after the funeral from your children from another relationship when they demand their share of the estate.

Myth #4: A will avoids probate.
An all-too-common misconception is that having a will helps you avoid probate. This is simply not true—in fact, the opposite is true. For a will to be effective after your death, it must be submitted to the court to prove its validity. Only after the probate court has verified that the will is valid can the individual named in the will (the executor or personal representative) distribute the decedent’s money and property during the probate process. People often confuse the benefits of a will with those of a trust. Trusts can avoid probate, but only if the trustmaker names the trust as owner of the accounts and property during the trustmaker’s life or as the beneficiary of the accounts and property upon the trustmaker’s death.

What You Can Do to Be Prepared
Understanding these myths can help you identify those areas of your estate plan that may need attention. Taking these essential steps to ensure that your estate plan is complete is crucial to its success. As your estate planning professionals, we are here to help you think through these challenges, avoid mistakes, and complete the necessary paperwork. Give us a call today so we can help you take these important steps in your estate planning.

[1] However, this historically high estate tax exemption is set to expire in 2026 and reset back to $5 million per person (adjusted for inflation); see I.R.S., Estate and Gift Tax FAQs (Feb. 19, 2021), https://www.irs.gov/newsroom/estate-and-gift-tax-faqs.

[2] For example, in Florida, the amount in this example that would go to the decedent’s children from another marriage would be as much as 50 percent (see Fla. Stat. § 732.102(3) (2021)).

Estate Planning Awareness Week: Don’t Let Your Clients Fall Victim to These Common Myths

Next week is Estate Planning Awareness Week (October 18–24, 2021). To that end, this month’s newsletter is geared toward helping you, as a professional advisor, gain awareness and understanding of the most common estate planning myths. Left unaddressed, these myths can create serious trouble for families and individuals, often leading to intrafamily conflict, permanently damaged relationships, and lengthy and expensive court battles.

Myth #1: Estate planning is only for the wealthy.
When the topic of estate planning comes up, professional advisors often hear their clients respond with phrases like “Oh, estate planning is only for rich people,” or “Why do I need an estate plan? I plan to spend it all before I die!”

Unfortunately, this kind of response, perhaps subconsciously, allows the person making the statement to avoid having to expend any further energy thinking about the uncomfortable reality of their own mortality and the consequences of not having planned for their incapacity or death. As their professional advisor, consider whether you have a responsibility to gently push back on such responses from a client. Most things worth doing are going to involve some effort, and estate planning is no exception.

Incapacity Planning
Even individuals and couples of modest means may suddenly become incapacitated. When an individual cannot speak or make decisions during a period of incapacity, someone else will need to carry out that responsibility. Without estate planning documents in place (for example, a healthcare directive, trust, and financial power of attorney), a court will need to appoint a conservator or guardian to make decisions on behalf of the incapacitated client. Furthermore, the court will decide who will be placed in charge of your client’s accounts and property, resulting in additional expenses, delays, and significantly less privacy for your client. If the client wants to choose who will make financial and healthcare decisions for them, estate planning must be completed beforehand that names the appropriate individuals to carry out those responsibilities.

Planning with Trusts
We have heard of professional advisors telling a client that only wealthy individuals need a trust. However, such advice is too simplistic. When an individual dies owning real estate, even if they are of modest means, the probate court will need to authorize the sale or transfer of that property, which can result in additional expenses, delays, and loss of privacy. Establishing a trust and titling real estate in the name of the trust can be an effective way to eliminate the need for probate. For many people, avoiding probate is an important estate planning goal, particularly when the client desires to keep the distribution of their accounts and property private and efficient, even if they have what most would consider modest wealth. Probate avoidance may actually be more important for those of modest means because probate is not the most cost-effective way to transfer property at death.

Myth #2: Joint ownership is sufficient.
A client may declare to you that they do not need to engage in estate planning because they have already added their children to their accounts or on the title to their property. At first impression, it can be tempting to agree that this is sufficient to avoid probate; and while this can be one method for avoiding probate (both during life and at death), there are serious risks associated with joint ownership that are commonly overlooked. For example, adding children to an account or to the title of property can result in those accounts or property getting tangled up in that child’s divorce proceeding, lawsuit, or bankruptcy.

Furthermore, there could be gift tax consequences for adding a child to the ownership of certain property, particularly if that child received instructions from the client to divide and distribute that property to others after the client has passed away. Additionally, the joint owner may be under no legal obligation to follow the client’s instructions on how to divide the accounts and property after the client’s death. The joint owner could decide to keep the money or property rather than follow your client’s instructions with no legal consequences.

Myth #3: Avoiding taxes is the only reason to create an estate plan.
It can be easy to dismiss the need for an estate plan considering today’s historically high estate tax exemption ($11.7 million per person in 2021). Most Americans do not need to worry about estate taxes.[1] However, tax avoidance is only one of many goals of estate planning, and in many cases it is not the most important goal. For example, planning for the orderly passing of your client’s treasured heirlooms to avoid family discord may be far more important than tax planning in the long run. Alternatively, your client may have children who are struggling financially or with substance abuse challenges, are in a rocky marriage, or work in high-liability professions. As a result, it may be crucial for your clients to ensure that whatever inheritance is left to those children is protected from loss to lawsuits, creditors, or divorcing spouses.

Myth #4: I can just name my loved ones on beneficiary designations.
In some states, accounts such as retirement accounts, life insurance, and bank accounts can be left to loved ones through beneficiary designations, while transfer-on-death deeds can be used to leave real property to loved ones. Utilizing such tools can avoid probate in most cases. However, when these types of accounts and property get transferred at death, they are direct transfers that cannot be protected from lawsuits, creditors, divorcing spouses, or other threats from third parties. In addition, if minor children are named as designated beneficiaries, a conservatorship must hold the property until the minor child reaches the age of majority (usually eighteen or twenty-one years old, depending upon state law). Once the child reaches that age, the accounts and property are transferred directly to the child, and a more mature loved one or financial manager will be unable to protect the funds for the child.

In addition, beneficiary designations and transfer-on-death deeds are useless in the case of the client’s disability or incapacity. Should the client become incapacitated, a conservator must be named through the court system to manage the property for the client’s benefit until the client dies and the transfer-on-death deeds or beneficiary designations become operable.

What You Can Do to Help Your Clients
Understanding these myths will put you in an excellent position to dispel them for your clients. By correcting these erroneous beliefs about estate planning, you can help your clients begin the estate planning process in a truly responsible and effective manner. As your clients begin to see the value of careful estate planning, your value to them as a professional advisor will undoubtedly grow. We would love to help you and your clients better understand the value of careful estate planning and how to avoid falling victim to these and many other estate planning myths. Give us a call today.

Preparing for the Reduction in the Estate Tax Exemption

In late May of this year, the U.S. Treasury released a publication detailing a number of the proposed tax code changes that the Biden administration would like to usher through Congress in an ambitious effort to modernize the US tax system to meet its citizens’ needs. While reasonable minds may differ strongly on the best way to stimulate the US economy and create wealth and security for the American people, one thing is certain: the need for individuals to engage in careful estate and tax planning to avoid paying more tax than necessary is not going away.

This IRS publication,[1] sometimes referred to as the Green Book, outlines a number of key proposals that—if ultimately passed—have the potential to significantly shake up the estate planning world as we know it today by sidelining a number of tried and true estate planning strategies while potentially increasing the frequency of use and usefulness of others.

As some commentators have observed, any direction to reduce the estate and gift tax exemption amount from its current historically high level of approximately $11.7 million per taxpayer is noticeably absent from these proposals.[2] Although there is certainly no guarantee that such a proposal will not be made in the future, we can nevertheless focus for now on what we do know about the law as written today and what steps we can take to address the coming changes.

One of the first things to understand is that, even with no action whatsoever by Congress, estate tax laws passed under the Trump administration will expire and reset to the prior laws in 2026. This reset will restore the estate and gift tax exemption amount to $5 million, as it was in 2016 (though it will be indexed for inflation, resulting in an exemption amount of approximately $6.6 million in 2026). Again, this is the law as it stands today; without further action from Congress, it will remain the law.

It is therefore important to consider the average rates of return on your current investments, compounded annually, to determine what kind of return on your investments you can expect within the next five to ten years. Using a basic calculator or spreadsheet, many of our clients and their advisors are surprised to see that, even with a moderately healthy return of approximately 7 percent annually, their net worth could easily double in ten to twelve years. If the estate tax exemption amount is halved in 2026 and increases only with inflation at a rate of approximately 2.5 percent per year, you could very quickly find yourself at risk of paying significant estate taxes (currently at a 40 percent rate) if you are still in the mindset of having an $11.7 million estate tax exemption ($23.4 million for married couples) available when either you or your spouse passes away in the next one to two decades.

What should we be doing now?
Given the current uncertainty, trying to predict the future and determine which strategies will best accommodate your tax and estate planning goals can be frustrating. This is particularly true when we consider some of the other Green Book proposals:

Raising the top income tax rates
Taxing capital gains as ordinary income for people who earn more than $1 million per year
Treating any transfers of appreciated property (including gifts and inheritances) as a sale of the property, thus triggering capital gains taxes on the property, instead of allowing the traditional carryover basis for gifted property or stepped-up basis for property inherited at the death of the property owner
Limitations on deferral benefits for like-kind exchanges of real estate

You should still consider certain strategies, however, because these changes have not yet been implemented and may ultimately never be enacted. For example, the following strategies are still effective tools under current tax law, and if you implement them now, you could realize significant tax savings.

Grantor Retained Annuity Trust
A grantor retained annuity trust (GRAT) enables you to transfer appreciating accounts and property to chosen noncharitable beneficiaries (usually children or other family members) using little or none of your gift tax exemption (depending on the value of your retained interest in the trust). To accomplish this, you would transfer some of your property to the GRAT and retain the right to receive an annuity. After a specified period of time, the noncharitable beneficiaries will receive the amount remaining in the trust.

Installment Sales to an Intentionally Defective Grantor Trust
Another useful strategy that can still be used today is to gift seed capital (usually cash) to an intentionally defective grantor trust (IDGT) and then sell appreciating or income-producing property to the IDGT. The IDGT makes installment payments back to you over a period of time. If the account or property increases in value over the period of the sale, the accounts or property in the trust will appreciate outside your taxable estate and will therefore avoid estate taxes. Additionally, because you will pay income taxes on the income generated and accumulated in the trust, which is an indirect (nontaxable) gift to the trust (and, therefore, to its beneficiaries), the trust itself does not have to pay income taxes on the income that it retains.

Spousal Lifetime Access Trust
A spousal lifetime access trust (SLAT) strategy calls for you to gift property to a trust created for the benefit of your spouse (and potentially other beneficiaries like children or grandchildren). An independent trustee can make discretionary distributions to those beneficiaries, which can benefit you indirectly, while an interested trustee should be limited to ascertainable standards when making distributions (i.e., health, education, maintenance, or support). This strategy allows you to use the currently high lifetime gift tax exemption amount by making gifts to your spouse; pay income taxes for the trust, which allows for indirect, nontaxable future gifts to the value of the trust for the trust beneficiaries; and still benefit indirectly from the trust through your spouse. Because the trust is designed to avoid using the marital deduction, the money and property in the SLAT will not be included in either your or your spouse’s gross estate for estate tax purposes.

Irrevocable Life Insurance Trust
Irrevocable life insurance trusts (ILITs) are still a tried-and-true method for leveraging life insurance to ease the burden placed on your estate if it will be subject to estate tax at your death. This type of trust is established by transferring an existing life insurance policy into the ILIT (or a new policy is purchased with money gifted to the trust). You would then make annual cash gifts to the ILIT to pay the premiums on the life insurance policy. At your death, the trust receives the insurance death benefit and distributes it according to the trust’s terms. Because the trust receives the death benefit and the premiums gifted to the trust are completed gifts, your estate would not include any of the trust’s value. This strategy can be a powerful method of leveraging relatively small gift tax exemption usage to create both liquidity for your taxable estate as well as significant accounts or property outside the estate to benefit your beneficiaries.

We Are Here to Help You
You can still implement these strategies today to significantly benefit yourself and your loved ones. If you feel that you can benefit from a deeper understanding and exploration of these and other strategies, please let us know. We would love to sit down with you and discuss whether any of these strategies make sense for your particular situation. Call us today!

[1] Dep’t. of the Treasury, General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals (May 2021), https://home.treasury.gov/system/files/131/General-Explanations-FY2022.pdf.

[2] Allyson Versprille & Ben Steverman, Biden Targets Two Weapons the Richest 0.1% Use to Avoid Taxes, Bloomberg Tax Daily Tax Report (June 28, 2021, 7:06 AM), https://news.bloombergtax.com/daily-tax-report/biden-targets-two-weapons-the-richest-0-1-use-to-avoid-taxes.

Preparing Your Clients for the Reduction in the Estate Tax Exemption

In late May of this year, the U.S. Treasury released a publication detailing a number of the proposed tax code changes that the Biden administration would like to usher through Congress in an ambitious effort to modernize the US tax system to meet its citizens’ needs. While reasonable minds may differ strongly on the best way to stimulate the US economy and create wealth and security for the American people, one thing is certain: the need for individuals to engage in careful estate and tax planning to avoid paying more tax than necessary is not going away.

The IRS publication,[1] sometimes referred to as the Green Book, outlines a number of key proposals that—if ultimately passed—have the potential to significantly shake up the estate planning world as we know it today by sidelining a number of tried and true estate planning strategies while potentially increasing the frequency of use and usefulness of others.

As some commentators have observed, any direction to reduce the estate and gift tax exemption amount from its current historically high level of approximately $11.7 million per taxpayer is noticeably absent from these proposals.[2] Although there is certainly no guarantee that such a proposal will not be made in the future, we can nevertheless help our clients focus for now on what we do know about the law as written today and what steps we and they can take to address the coming changes.

One of the first things that clients need to understand is that, even with no action whatsoever by Congress, estate tax laws passed under the Trump administration will expire and reset to the prior laws in 2026. This reset will restore the estate and gift tax exemption amount to $5 million, as it was in 2016 (though it will be indexed for inflation, resulting in an exemption amount of approximately $6.6 million in 2026). Again, this is the law as it stands today; without further action from Congress, it will remain the law.

It is therefore important to consider with your clients the average rates of return on their investments, compounded annually, to determine what kind of return on their investments they can expect within the next five to ten years. Using a basic calculator or spreadsheet, many of your clients may be surprised to see that, even with a moderately healthy return of approximately 7 percent annually, their net worth could easily double in ten to twelve years. If the estate tax exemption amount is halved in 2026 and increases only with inflation at a rate of approximately 2.5 percent per year, clients could very quickly find themselves at risk of paying significant estate taxes (currently at a 40 percent rate) if they are still in the mindset of having an $11.7 million estate tax exemption ($23.4 million for married couples) available when they pass away in the next one to two decades.

What should we be doing now?
Given the current uncertainty, trying to predict the future and counsel your clients on which strategies will best accommodate their tax and estate planning goals can be frustrating to both you and your clients. This is particularly true when we consider some of the other Green Book proposals:

Raising the top income tax rates
Taxing capital gains as ordinary income for those earning over $1 million per year
Treating any transfers of appreciated property (including gifts and inheritances) as a sale of the property, thus triggering capital gains taxes on the property, instead of allowing the traditional carryover basis for gifted property or stepped-up basis for property inherited at the death of the property owner
Limitations on deferral benefits for like-kind exchanges of real estate

You and your clients should still consider certain strategies, however, because these changes have not yet been implemented and may ultimately never be enacted. For example, the following strategies are still effective tools under current tax law, and if your clients implement them now, they could realize significant tax savings.

Grantor Retained Annuity Trust
A grantor retained annuity trust (GRAT) enables a client to transfer appreciating accounts and property to chosen noncharitable beneficiaries (usually the client’s children) using little or none of the client’s gift tax exemption (depending on the value of the client’s retained interest in the trust). To accomplish this, the client transfers property to the GRAT and retains the right to receive an annuity. After a specified period of time, the noncharitable beneficiaries will receive the amount remaining in the trust.

Installment Sales to an Intentionally Defective Grantor Trust
Another useful strategy that can still be used today is to have the client gift seed capital (usually cash) to an intentionally defective grantor trust (IDGT) and then sell appreciating or income-producing property to the IDGT. The IDGT makes installment payments back to the client over a period of time. If the accounts or property increases in value over the period of the sale, the accounts or property in the trust will appreciate outside the client’s estate and will therefore avoid estate taxes. Additionally, because the client pays income taxes on the income generated by the trust, which is an indirect gift to the trust, the trust itself does not have to pay income taxes on the income that it retains.

Spousal Lifetime Access Trust
The spousal lifetime access trust (SLAT) strategy calls for one spouse to gift property to a trust created for the benefit of the other spouse (and potentially other beneficiaries like children or grandchildren). An independent trustee can make discretionary distributions to those beneficiaries, which can indirectly benefit the donor spouse, while an interested trustee should be limited to ascertainable standards when making distributions (i.e., health, education, maintenance, or support). This strategy allows the donor spouse to use the currently high lifetime gift tax exemption amount by making gifts to their spouse; pay income taxes for the trust, which allows for indirect, nontaxable future gifts to the value of the trust for the trust beneficiaries; and still benefit indirectly from the trust through the other spouse. Because the trust is designed to avoid using the marital deduction, the accounts and property in the SLAT will not be included in either spouse’s gross estate for estate tax purposes.

Irrevocable Life Insurance Trust
Irrevocable life insurance trusts (ILITs) are still a tried-and-true method for leveraging life insurance to ease the burden placed on a client’s estate if it will be subject to estate tax at their death. With this strategy, the client transfers an existing life insurance policy into the ILIT (or a new policy is purchased with money gifted to the trust). The client then makes annual cash gifts to the ILIT to pay the premiums on the life insurance policy. At the client’s death, the trust receives the insurance death benefit and distributes it according to the trust’s terms. Because the trust receives the death benefit and the premiums gifted to the trust are completed gifts, the client’s estate will not include any of the trust’s value. This strategy can be a powerful method of leveraging relatively small gift tax exemption usage to create liquidity for the client’s taxable estate as well as significant assets outside the estate to benefit the beneficiaries.

We Are Here to Help You
You can still implement these strategies today for the benefit of your clients. If you feel that you and your clients can benefit from a deeper understanding and exploration of these and other strategies, please let us know. We would love to sit down with you and discuss whether any of these strategies make sense for your clients’ particular situations. Call us today!

[1] Dep’t. of the Treasury, General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals (May 2021), https://home.treasury.gov/system/files/131/General-Explanations-FY2022.pdf.

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