Irrevocable Life Insurance Trust, also called ILITs, are ideal vehicles for sheltering insurance proceeds from your taxable estate so long as the policy need not be adjusted or tampered with by the subject to whom the payout on death is based.  If a person is using the life insurance policy as an investment vehicle, there is a good chance that they will want to spend down that policy’s accrued value later in life.  The ILIT will not permit that. 

In that scenario, we usually recommend taking the accrued value out as a loan immediately and then transferring the new $0 cost basis policy into the ILIT or purchasing a new term policy through the ILIT and using that benefit to offset the tax consequence of the whole life or universal policy.

For more information on the estate tax and protecting your family’s financial future, please contact the estate planning attorneys of Wild Felice & Pardo, P.A. at 954-944-2855 or via email at info@wfplaw.com.  Let us protect what you value most.

For South Florida couples that are unmarried or same sex, unique estate planning issues need to be faced.  In Florida, unmarried unions are not legally protected which makes living trusts the estate planning vehicle of choice for most of the GLBT community.  Your South Florida estate planning attorney can fully inform you of the benefits and drawbacks of each estate planning option, but this article will discuss the advantages of having a living trust in place.

A South Florida living trust, in conjunction with a financial power of attorney, will provide your partner with the ability to manage your assets in the event that you become disabled or incapacitated.  Powers of attorney, health care surrogates, and living wills are ancillary documents that can insure that your partner will be in charge of all legal, financial, and medical decisions in the event of your disability or incapacitation.  Without these documents in place, your partner may not even be able to visit you in the hospital, much less make those important decisions about your care or treatment.

A South Florida living trust is superior to the antiquated last will and testament because wills are significantly easier to challenge than trusts, which makes for a very sloppy division of assets if any of your friends or family were not completely supportive of your life style or your choice of partner.  Moreover, if you distribute your assets via a will, a notice of the proceeding must be given to your closest legal heirs, providing them with an opportunity to object and instigating the fights previously talked about.  While South Florida trusts are protected from public viewing, a will is a public record, which eliminates privacy and aids in disputes.  Even if you are 100 percent certain that no one in your family will challenge your will, the avoidance of the probate process alone is worth having a trust in place.  Many people incorrectly believe that having a will avoids probate.  In actuality, all wills must be probated and the legal process will be time consuming possibly delaying the surviving party’s access to needed funds for over two years.

Many South Florida unmarried couples believe that these problems can be avoided by simply putting their partner’s name on their assets, or joint tenancy, until they learn of the many pitfalls.  For appreciated assets, such as stocks and real estate, there are tax disadvantages to receiving assets from a joint tenant.  While inheriting from a will or trust at death eliminates taxable capital gains for the survivor, joint tenancy only eliminates one-half of those capital gains since you are only “inheriting” one-half of the property.  Moreover, you may be exposed to the debts and liabilities of your partner.  An even worse result of this type of “title” planning is that you lose control over where the assets go after your surviving partner dies.  Perhaps your goal is to provide for your partner for life, but then to control where the unused assets will go after he or she passes.  Only a South Florida living trust would provide you with this ability.

For more on the benefits of living trusts, please contact the South Florida estate planning attorneys of Wild Felice & Pardo, P.A. at 954-944-2855 or via email at info@wfplaw.com.  Let us protect what you value most.

IRAs and Estate Planning

With a growing number of retired people in South Florida, not paying attention to how your IRA will be distributed after your death could cost your family a small fortune.  Your designated beneficiaries can still receive the IRA proceeds but they will be forced to empty the account and pay taxes on it much faster if it is not addressed as part of a comprehensive South Florida estate plan.

The beneficiaries of IRA plans may stretch out the distributions across their life expectancy.  Through aggressive and creative estate planning, an IRA of decent size could be converted into generational wealth.  You may be able to use your IRA to find your grandchildren’s college education while saving your children estate taxes in the process.  It all depends on the beneficiary forms and how they fit with the rest of your South Florida estate plan.

The key is to make certain that your IRA’s custodian rules allow your heirs to move the IRA to a different custodian via a trustee-to-trustee transfer that avoids triggering a taxable event.  Your South Florida estate planning attorney should make certain that your heirs are free to name successor beneficiaries which would allow your grandchildren to take distributions based on their life expectancies rather than on your children’s.

People assume that any lawyer is qualified to prepare their South Florida estate plan or worse yet, they attempt to do it themselves.  Wills don’t govern accounts with beneficiary designations such as 401(k) plans, life insurance policies, or IRA’s which could cost your heirs thousands of dollars.  Estate planning is a legal specialty and you should always consult your South Florida estate planning attorney for all of your estate planning needs.  Please call the South Florida estate planning attorneys of Wild Felice & Pardo, P.A. at 954-944-2855 to set up your free consultation, or email us at info@wfplaw.com for more information.  Let us protect what you value most.

Irrevocable Life Insurance Trusts

Many people don’t realize that the proceeds of a South Florida life insurance policy are added to your estate for estate tax purposes if the policy is owned by the deceased during their last 3 years of life.  This is the case for over 90 percent of all life insurance policies.  While the beneficiary is not taxed on the proceeds directly, the estate will be taxed at a level of 55 percent beginning in 2011.  Most of the time, the beneficiary of the life insurance is also the representative of the estate.  This means that the government can tax your family coming and going if your plan is not structured properly.

Due to the massive tax implications, an Irrevocable Life Insurance Trust (“ILIT”) is quite useful for South Florida estate planning purposes.  An ILIT a legal instrument drafted by a South Florida estate planning attorney for the purpose of removing the life insurance from your estate in order to reduce taxes and increase asset protection.  You may designate your spouse, child, or other appropriate party as the beneficiary of the trust.  You may also provide detailed directions to the trustee of the ILIT, including how the life insurance payout should be distributed, when the trustee should make payments, loans, or investments, what to do with the family business, who receives the assets at the death or disability of your original beneficiaries, and when to terminate the trust.  The ILIT gives you control of the money from beyond the grave and protects your children from unnecessary liability.

As you can see, the structuring of your life insurance policy so that the ILIT holds the life insurance benefit is useful to achieve a number of goals, including:

1.    limiting or eliminating the estate tax;
2.    increasing the level of assets available to your spouse, children, and other loved ones or entities after you are gone; and
3.    providing extra liquidity to a cash strapped estate or business.

Since the ILIT is a separate South Florida legal entity that is outside your estate, the IRS is unable to levy an estate tax on the assets within the ILIT since they are out of your control.  Due to the fact that you are able to lay out all of your goals and desires in the trust document, and because normally the only asset inside the trust during your lifetime is your life insurance, it is logical to trade off giving up control in exchange for all of the tax benefits.  The trustee will be the applicant, owner, and beneficiary of your life insurance, so the proceeds will never pass through your taxable estate and the estate tax will be reduced by 55 percent of the life insurance benefit total.

Having your spouse or child own and act as the beneficiaries of a South Florida life insurance policy on your life is another way to avoid the estate tax on your life; however, the ILIT has the added benefit of also keeping the undistributed proceeds out of the taxable estates of your beneficiaries.  Properly planned ILITs will avoid estate taxes and generation skipping taxes for multiple generations.

An ILIT can also help you increase the assets available for your beneficiaries because it makes it easy to own one or more policies of life insurance.  The South Florida trustee has the trust document as an efficient road map to follow concerning the purchase, premium payments and distribution of the proceeds.  The ILIT infuses cash into your estate by making distributions, purchases, or loans as needed.  The trustee of the ILIT makes appropriate distributions of cash proceeds to cover debts, taxes, and funeral expenses.  The trustee could even purchase some or all of the business with the cash proceeds and professionally run the business until the children were old enough to take over.  The trustee could also make appropriate loans to the spouse, children, and business.

The early stages of estate planning are critical.  If you would like to arrange a free consultation, please contact the South Florida estate planning attorneys of Wild Felice & Pardo, P.A. at 954-944-2855 or via email at info@wfplaw.com.  Let us protect what you value most.

Estate Planning Information for Cohabitating Unmarried Couples

Living together while remaining unmarried has never been more popular. Over 6.4 million opposite-sex unmarried couples currently live together.  This translates into 12.8 million people. There are an additional 750,000 same-sex unmarried couples in the United States which translates to an additional 1.5 million people. This is a whopping 92% increase since 1990. Over half of all unmarried households have children. If you are part of a cohabitating unmarried couple, it may be comforting to know that you have plenty of company. However, this doesn’t mean that you can ignore how the law affects your relationship. Here are some tools that unmarried and same-sex couples can use to avoid the “grave” danger of intestacy.

Domestic Partnership Agreements: Domestic partnership agreements set out the parameters of a relationship and specify the rights and responsibilities of each partner. They are similar to prenuptial agreements and are well-advised for unmarried couples who live together, be they same-sex or opposite sex.

Last Will and Testament: When you die without a formal will, the state of Florida will provide a will for you and distribute your assets as they see fit. This is known as “intestate succession” and it provides the least amount of protection to your family. Same-sex or unmarried couples are not recognized by Florida intestacy statutes. Thus, upon your death, your partner will have no rights to your estate. The chance for a will contest may be greater in same sex and unmarried relationships, as family members may not understand the choices you have made.

Revocable Living Trust: A living trust may be a good option for same-sex or unmarried couples, due to its private and expeditious nature. A living trust also helps to avoid probate in multiple venues if you own property in more than one state. A living trust can hold both individual and shared property and goes into effect as soon it is funded. In a revocable trust, you (as the “grantor”) retain control over the trust and its assets while you are alive. If you do not wish for creditors to access the trust assets, an irrevocable trust is a better option. A pour over can supplement a living trust and should be used to distribute any property not previously placed into the trust.

Durable Power of Attorney: A power of attorney for legal or financial matters allows you to appoint your partner to manage your affairs, should you become unable to do so. It is also helpful as evidence of your testamentary intentions and the nature of the relationship, in the event of a will contest.

Living Will and Health Care Surrogate: A living will specifies your wishes for medical care and artificial life support. Without specifically declining artificial life support through a properly executed living will, the hospital must keep you alive by any means necessary, no matter how much it costs or what your true desire is. A health care surrogate designation should accompany the living will because it appoints someone to make medical decisions on your behalf in the event that you are unable to communicate your wishes and specifies your wishes regarding artificial nourishment. It is crucial to have the health care surrogate in place because your partner will have no legal rights regarding your care without one.

Joint Tenancy: Same sex and unmarried couples can benefit from owning real estate together as joint tenants with rights of survivorship, which means that when one partner dies the other can take sole ownership of the property even without a will. This designation can avoid estate taxes, capital gains taxes, gift taxes, and probate.

For more information about the legal rights and protections of unmarried couples, please contact the estate planning attorneys of Wild Felice & Pardo, P.A. at 954-944-2855 or via email at info@wfplaw.com.  Let us protect what you value most.

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.