Put Your Trust In Life Insurance … and Your Life Insurance In Trust

Posted by on Feb 28, 2010 in asset protection, estate planning, Legal News, tax, Trusts, Wills |

While the benefits received from a life insurance policy are not treated as income for tax purposes, if the life insurance policy was owned by the deceased within three years of his death, the estate of the deceased will be taxed on any amount of the insurance proceeds above the estate tax threshold.  Okay, now in plain English.  If you take out a life insurance policy on your own life, fund the policy during your life, and leave the proceeds to your spouse or other family member, they will owe big time taxes.  So what can you do to avoid this tax?

Creating an Irrevocable Life Insurance Trust (or “ILIT”) will protect your family from the burden of estate taxes upon receiving the benefits of the life insurance policy.  This estate tax savings can be accomplished either by the insured establishing an ILIT and giving existing life insurance policies to the trust, or by the trust itself purchasing a new policy on the insured’s life.  The insurance will be excluded from the insured’s estate because the insured will not own the policy at the time of death.

There are three requirements: (1) the insured must not own or retain any incidents of ownership in the insurance, (2) the proceeds must be payable to the trust rather than the estate, and (3) if policies are given by the insured to the trust, the insured must survive the gift by 3 years.  To avoid any gift tax consequence, simply borrow against the existing life insurance policy for the amount of equity/value already attained by the policy since instituting it.

An ILIT also provides the benefit of instructing who gets the money, at what age they get the money, and under what conditions they can get the money.  For instance, you wouldn’t want your 7 year old to inherit $2 million in one lump sum.  How much candy and video games do they actually need?  Instead, the ILIT can name a trustee and pay for the needs of the child until the child reaches a suitable age for inheritance, such as 18, 21, or 25.  You can see that your child is cared for but not given the opportunity to frivolously spend away the inheritance.

For more information on the benefits of life insurance and your ability to save your family hundreds of thousands of dollars in estate taxes, please contact the attorneys of Wild Felice & Pardo for your free consultation at 954-944-2855 or via email at info@wfplaw.com.

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Crummey Trust and Estate Planning

Posted by on Feb 15, 2010 in asset protection, estate planning, Legal News, tax, Trusts, Wills |

Although the name sounds like a description for a poorly drafted trust, a Crummey trust is actually an estate planning tool that allows the settlor to utilize the annual gift tax exclusion when gifting into the trust.  The trust beneficiary must have notice of the gift into the trust and retain the right to withdraw the gift from the trust.  However, this right can expire after a reasonable length of time, usually 30 or 60 days.

The Crummey trust allows the buildup of a large trust fund over a number of years if the beneficiary does not withdraw the annual gifts into the trust.  Another good use of the Crummey trust occurs when the trustee purchases life insurance on the life of the settlor and pays the premiums with the annual gift into the trust.  This creates the potential that a large trust fund will be created when the insurance is paid to the trust on the settlor’s death.  Because the Crummey Trust is irrevocable, the trust is not considered part of the settlor’s estate and thus is not subject to the Federal estate tax.

To learn more about the Crummey Trust and other estate planning techniqes that can be implemented to preserve your wealth, please contact our estate planning attorneys at 954-944-2855 or via email at info@wfplaw.com.

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The True Danger Facing Americans

Posted by on Feb 9, 2010 in asset protection, estate planning, Legal News, tax |

Florida Residents: Protect Your Assets

While the nation still debates health care reform, a larger problem faces Americans.  Seventy-eight percent of Americans own a home and fifty-five percent of Americans have minor children living at home, yet less than half of the country has even executed a will, much less the other documents that make up a complete estate plan.  Some of us may need long-term health care and some of us might not but the only two certainties in this life are death and taxes.  While we at Wild Felice & Pardo are unable to help you live forever, we are very good at limiting the amount of taxes your family will have to pay after you are gone.

Did you know that the estate tax threshold could be as low as $1 million in 2011 and the estate tax could be as high as 55%?  $1 million seems like a lot of money but when you consider that the amount of life insurance you have is added to your estate immediately upon death, $1million can quickly sneak up on you.  You work your whole life earning a wage.  The government taxes that wage somewhere between 20 and 35 percent.  Then, after you are gone the government takes an additional 45 to 55 percent of what you left behind.  Almost 80 percent of what you earn in your lifetime will go directly to taxes unless you take the time to sit down with an attorney and draft your estate plan.

There are five components to a basic estate plan.
Will: A legal declaration by which a person, the testator, names one or more persons to manage his or her estate and provides for the transfer of his or her property at death.
Living Will: A written document that states a person’s wishes regarding life-support or other medical treatment in certain circumstances, usually when death is imminent
Power of Attorney: A written authorization to an agent to perform specified acts on behalf of his principal. This may be granted as either a general or a limited power.
Health care surrogate: An adult who is appointed to make healthcare decisions for you when you become unable to make them for yourself.
HIPAA designation: A written document that allows certain designated individuals to have access to your medical records.

In addition, there are also multiple trusts and other products for further control and estate tax reduction.  If you have a spouse, a child, own a home, or want to leave behind a legacy of any kind, you need to talk to an attorney about getting your will and other estate planning documents in order.  It is crucially important that you not put this off any longer.  None of us can control how much time we have left but we can control how are loved ones are cared for when that time comes.

Wild Felice & Pardo is a law firm specializing in asset protection with a focus on wills, trusts, and estate planning.  Between now and March 31, 2010, the attorneys of Wild Felice & Pardo will complete any level of estate planning (including wills and trusts) for 25 percent off our regular rate in order to get you protected as quickly as possible.  For more information and to schedule a free consultation, please contact the offices of Wild Felice & Pardo at 954-944-2855 or via email at info@wfplaw.com.
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The Death of the Estate Tax Breathes Life Into Your Wallet

Posted by on Feb 1, 2010 in asset protection, estate planning, Legal News, tax |

Since the Federal estate tax lapsed at the end of 2009, an opportunity arose for high-net-worth individuals to benefit from a rather confusing situation.  The Federal estate tax, also referred to as the “death tax”, was scheduled to be repealed for the year 2010 but no one in the industry expected Congress to allow this to occur.  Now, those who die this year will be able to escape a federal tax of up to 45% on estates valued at $3.5 million or more.  The tax is currently set to be reinstated in 2011 at a rate of 55%, which means that wealthy individuals better walk behind their children when descending the staircase for the time being.

For years, legislators in our nation’s capital have said they would make sure the estate tax law didn’t lapse by passing new legislation by the end of last year.  However, with the debate over health care reform bogarting most of the attention on Capitol Hill, Congress has yet to address the estate tax issue.  When Congress finally does get around to addressing the estate tax law issue this year, it is highly likely that they will make it retroactive to Jan. 1.  This could cause mass confusion for any estates probated or executed in the meantime as the Federal Government could come knocking to collect past-owed estate taxes.

Even if legislation is retroactive, this temporary loophole provides a once in a lifetime opportunity for high-net-worth individuals to leave massive amounts of money to their heirs at a much lower tax rate than they will undoubtedly pay once legislation is in place.  Specifically, with the expiration of the estate tax law, the generation skip tax also disappears. This means that during this time of no estate tax, individuals can gift up to $3.5 million to grandchildren and pay only gift tax on the money.  A good estate planning attorney will also add language that allows the individual to make a gift to grandchildren but stipulate that they can take the gift back if the law changes forcing additional retroactive taxes.

For more on how you and your family might benefit from the temporary repeal of the Federal estate tax, please contact our South Florida estate planning attorneys at 954-944-2855 or via email at info@wfplaw.com.

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