By: Arden Dale
Using life insurance to cover the death tax is common practice, but the strategy is blowing up some estate plans now.
The policies are imploding because of low interest rates. An insurance plan issued years ago, when interest rates were higher, may no longer be earning the investment returns it needs to pay premiums as drafted. That shortfall leaves the owner on the hook for unexpected costs.
If the worst happens and a policy collapses, its demise can even result in a big tax bill.
Estate planners are noticing the problem. (It is hardly limited to their arena. A policy can lapse no matter what it is used for.) Some expect it to get worse.
Donald Walters, general counsel for the Insurance Marketplace Standards Association, said IMSA has heard anecdotally of "growing concern" about troubled policies. The group is a nonprofit that develops best practices for the insurance industry.
Insurance consultant Bill Boersma, the founder and president of Opportunity Concepts in Grand Rapids, Mich., said he has worked with many troubled policies recently. He predicts a "tsunami" of lapses over the next few years.
"The worst are going to be from the 1980s and 1990s, when interest rates used for the projections were higher," said Mr. Boersma, who sees most trouble with universal and variable-life policies, although whole-life policies are starting to fail "at an alarming rate."
Problems stem largely from expectations about how well investments in a policy will perform. A policy may have been set up to self-pay premiums, based on the notion that investments will beat the interest rate used. Money then builds up and pays the premiums automatically.
But if interest rates decline over time, trouble can occur. The owner may not be aware that the policy is taking out internal loans to keep up with the premium payments.
Indeed, a lapsed policy often comes as a shock to its holder. Many assume the insurance is paid up or on automatic pilot so that they won't owe anything more out of pocket.
Jere Doyle, senior vice president at BNY Mellon Wealth Management, says he hasn't yet seen lapsing policies. But he says people do need to know that, if a policy doesn't perform as projected because of lagging investment returns, "the insured will have to pay the premium out of pocket longer than expected or for the duration of the policy."
Policies can be structured in many ways, and how the terms are laid out can determine a holder's liability. Knowing those terms is critical.
Advice to those using life insurance in an estate plan: Have an attorney check on the health of the plan. And don't be surprised if that person turns the matter over to an independent insurance expert. Policies are complicated enough that an estate planner or attorney may not feel comfortable vetting them.
Wall Street Journal, May 26, 2009, D2
Sunday, May 31, 2009
Friday, May 29, 2009
Choosing an Effective Estate Planning Attorney
This is a great article that everyone searching for an estate planning attorney should read.
A Values Based, Client Centered Attorney Will Help Clients Succeed
By Daniel P. Stuenzi
All successful estate planning is the result of several professions working together for the good of the client. However, professionals of one group sometimes have misconceptions of professionals belonging to other groups. For example, the financial advisor may see the estate-planning attorney as a deal killer or a document peddler. But this is far from the truth. There are hundreds of estate-planning attorneys who are willing to work together with other professionals to help their clients. The key is to find those who are values-based, relationship-driven, client-centered and counseling-oriented.
Searching for gold
So where do you find these rare creatures? How do you know if you’re dealing with the right kind of attorney? The right kind of attorney will have an orientation toward relationship building and counseling rather than document preparation. The first thing he will offer is the ability, through counseling, to draw out the client’s hopes, dreams, fears and aspirations for himself and his loved ones. The attorney will carry on a sensitive dialogue that will enable his client to make clear his wishes to maintain control over his affairs, to be cared for properly in the event of a disability and to provide meaningfully for his loved ones after he is gone.
The right attorney will inquire about:
** the complexities of the family relationships through multiple marriages
** special-health needs of a grandchild
** a son-in-law who is not to be trusted
** the spendthrift daughter
On a more positive note, the right kind of attorney will ask about:
** the client’s wishes to fund the education of his offspring for several generations
** grand philanthropic goals that provide the client with feelings of significance that surpass his
success
In-depth counseling forms the strong foundation on which a long-term relationship is built. The right attorney will involve the other advisors in this process to the degree that the client is comfortable with that arrangement. When a client shares what is really important to him now and after his death, he develops a strong bond with his professional advisors.
An interdisciplinary approach
Another trait of the right kind of attorney is a true commitment to the team approach in estate planning. A good estate-planning attorney recognizes that every member of the planning team (the investment advisor, the insurance professional and the CPA) is vital to the success of the plan.
Legal documents are not enough. Even documents that have been drafted from in-depth counseling and are custom-designed to meet the unique needs of the client are not enough. Documents standing alone are like the proverbial automobile without fuel; the documents’ instructions only apply to assets that are properly owned.
For example, a will only controls those things owned in the individual’s name—not jointly. The trust only controls those things owned by the trustee of the trust. An irrevocable life insurance trust works only if it is properly funded with a suitable insurance policy. Advanced entities require careful balancing of assets for maximum effectiveness. Accurate valuation of the client’s business interests is imperative. New planning tools often require additional accounting and tax advice.
Financial and insurance advisors, as well as accountants, provide the fuel that is needed to help ensure that appropriate financial assets are allocated and funded correctly, offer necessary valuations and tax returns, and provide the means for proper balance within the plan. The estate-planning attorney you work with should not only recognize these truths, he should also be communicating them to your client on your behalf.
Each member of the interdisciplinary team provides third-party credibility for the other members. If there is disagreement among the professionals on a strategy or its implementation, it can be discussed and worked out between them as a team. In this way, the client is served with unanimous agreement.
Mutual respect and clear protocols will characterize the interdisciplinary team that is working well together. Each team member will know exactly what is expected of him, and communication will be constant and clear.
A client-centered relationship
The right kind of attorney will be focused on a long-term (even multi-generational) relationship with the client and his family. The attorney will not have a transactional approach to the estate plan, but rather a process approach. The estate plan is never really done until the client has passed away and every instruction for every beneficiary of every subsequent generation has been carried out. Those who speak of the plan or the client in the past tense may have a shortsighted perspective.
The client-centered attorney wants to ensure that everything possible is done to make sure that the plan is carried to fruition and that the client’s expectations are met.
There is nothing as constant as change. The client’s personal, family and financial situations change all the time. Kids get married and have children; there are divorces and remarriages; and the market goes up or down.
In addition, laws (both tax and nontax) change constantly. We have an estate tax. Then we’re told the estate tax isn’t so bad. The estate tax is abolished. Oops, the estate tax is back. Assets in retirement accounts and trusts are protected from creditors and predators. Some protected assets may not be protected in certain circumstances.
The other thing that should be constantly changing is the growth and education of the attorney and every advisor working with that client. New planning strategies should be developed, new tools should be discovered, and there should be a better way to say something.
The right estate-planning attorney has systems in place to ensure he stays in touch with the client, that the planning team knows of changes, and that there are methods to adjust the plan in light of those changes.
The attorney will also be aware that for a plan to work well, the people who will help in the future need to know what’s going on. If the children will someday serve as trustees and personal representatives, the attorney might tell those children what to do. If ongoing trusts have been established to protect those children and grandchildren, the other advisors should be in a position to continue serving as advisors to the subsequent generations instead of losing those accounts. The client-centered interdisciplinary approach can make that happen.
The right attorney does exist, and is looking for the right financial advisor, insurance professional and CPA to work with. If you share the values and practices outlined, you should look for an attorney with beliefs similar to yours. You might also check with regional and national organizations of attorneys who specialize in this area of the law, visit their events and spend some time getting to know their members.
As every member of the planning team focuses on the needs of the client, the process will run more smoothly, the client will be more comfortable and the practices of all the professionals involved will prosper.
Dan Stuenzi is the director of member development for the National Network of Estate Planning Attorneys.
Posted with author's permission. Originaly printed in 'Advisor Today'.
A Values Based, Client Centered Attorney Will Help Clients Succeed
By Daniel P. Stuenzi
All successful estate planning is the result of several professions working together for the good of the client. However, professionals of one group sometimes have misconceptions of professionals belonging to other groups. For example, the financial advisor may see the estate-planning attorney as a deal killer or a document peddler. But this is far from the truth. There are hundreds of estate-planning attorneys who are willing to work together with other professionals to help their clients. The key is to find those who are values-based, relationship-driven, client-centered and counseling-oriented.
Searching for gold
So where do you find these rare creatures? How do you know if you’re dealing with the right kind of attorney? The right kind of attorney will have an orientation toward relationship building and counseling rather than document preparation. The first thing he will offer is the ability, through counseling, to draw out the client’s hopes, dreams, fears and aspirations for himself and his loved ones. The attorney will carry on a sensitive dialogue that will enable his client to make clear his wishes to maintain control over his affairs, to be cared for properly in the event of a disability and to provide meaningfully for his loved ones after he is gone.
The right attorney will inquire about:
** the complexities of the family relationships through multiple marriages
** special-health needs of a grandchild
** a son-in-law who is not to be trusted
** the spendthrift daughter
On a more positive note, the right kind of attorney will ask about:
** the client’s wishes to fund the education of his offspring for several generations
** grand philanthropic goals that provide the client with feelings of significance that surpass his
success
In-depth counseling forms the strong foundation on which a long-term relationship is built. The right attorney will involve the other advisors in this process to the degree that the client is comfortable with that arrangement. When a client shares what is really important to him now and after his death, he develops a strong bond with his professional advisors.
An interdisciplinary approach
Another trait of the right kind of attorney is a true commitment to the team approach in estate planning. A good estate-planning attorney recognizes that every member of the planning team (the investment advisor, the insurance professional and the CPA) is vital to the success of the plan.
Legal documents are not enough. Even documents that have been drafted from in-depth counseling and are custom-designed to meet the unique needs of the client are not enough. Documents standing alone are like the proverbial automobile without fuel; the documents’ instructions only apply to assets that are properly owned.
For example, a will only controls those things owned in the individual’s name—not jointly. The trust only controls those things owned by the trustee of the trust. An irrevocable life insurance trust works only if it is properly funded with a suitable insurance policy. Advanced entities require careful balancing of assets for maximum effectiveness. Accurate valuation of the client’s business interests is imperative. New planning tools often require additional accounting and tax advice.
Financial and insurance advisors, as well as accountants, provide the fuel that is needed to help ensure that appropriate financial assets are allocated and funded correctly, offer necessary valuations and tax returns, and provide the means for proper balance within the plan. The estate-planning attorney you work with should not only recognize these truths, he should also be communicating them to your client on your behalf.
Each member of the interdisciplinary team provides third-party credibility for the other members. If there is disagreement among the professionals on a strategy or its implementation, it can be discussed and worked out between them as a team. In this way, the client is served with unanimous agreement.
Mutual respect and clear protocols will characterize the interdisciplinary team that is working well together. Each team member will know exactly what is expected of him, and communication will be constant and clear.
A client-centered relationship
The right kind of attorney will be focused on a long-term (even multi-generational) relationship with the client and his family. The attorney will not have a transactional approach to the estate plan, but rather a process approach. The estate plan is never really done until the client has passed away and every instruction for every beneficiary of every subsequent generation has been carried out. Those who speak of the plan or the client in the past tense may have a shortsighted perspective.
The client-centered attorney wants to ensure that everything possible is done to make sure that the plan is carried to fruition and that the client’s expectations are met.
There is nothing as constant as change. The client’s personal, family and financial situations change all the time. Kids get married and have children; there are divorces and remarriages; and the market goes up or down.
In addition, laws (both tax and nontax) change constantly. We have an estate tax. Then we’re told the estate tax isn’t so bad. The estate tax is abolished. Oops, the estate tax is back. Assets in retirement accounts and trusts are protected from creditors and predators. Some protected assets may not be protected in certain circumstances.
The other thing that should be constantly changing is the growth and education of the attorney and every advisor working with that client. New planning strategies should be developed, new tools should be discovered, and there should be a better way to say something.
The right estate-planning attorney has systems in place to ensure he stays in touch with the client, that the planning team knows of changes, and that there are methods to adjust the plan in light of those changes.
The attorney will also be aware that for a plan to work well, the people who will help in the future need to know what’s going on. If the children will someday serve as trustees and personal representatives, the attorney might tell those children what to do. If ongoing trusts have been established to protect those children and grandchildren, the other advisors should be in a position to continue serving as advisors to the subsequent generations instead of losing those accounts. The client-centered interdisciplinary approach can make that happen.
The right attorney does exist, and is looking for the right financial advisor, insurance professional and CPA to work with. If you share the values and practices outlined, you should look for an attorney with beliefs similar to yours. You might also check with regional and national organizations of attorneys who specialize in this area of the law, visit their events and spend some time getting to know their members.
As every member of the planning team focuses on the needs of the client, the process will run more smoothly, the client will be more comfortable and the practices of all the professionals involved will prosper.
Dan Stuenzi is the director of member development for the National Network of Estate Planning Attorneys.
Posted with author's permission. Originaly printed in 'Advisor Today'.
Thursday, May 28, 2009
Check Back Soon
Dear Friends and Colleagues:
We will be posting more soon. This blog will be our way to share current articles and trends in the Life and Estate Planning Field with you. Thank you for visiting.
We will be posting more soon. This blog will be our way to share current articles and trends in the Life and Estate Planning Field with you. Thank you for visiting.
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