Skip to main content

Life insurance and estate planning

When looking at life insurance, estate planning issues like taxes are important because a payout can affect the size of your estate, and thus the tax bill.

Inna Fershteyn | Sep 23, 2019

Estate Essentials: What Do I Include in My Explanatory Letter?

Explain Your Decision It is common to start off by explaining the purpose of the letter. You should mention that the letter is not legally binding, but will have answers to certain questions that your beneficiaries may have about the contents of your estate plan. If your estate plan indeed leaves more assets to one beneficiary than another, an explanatory letter gives you the chance to explain your decisions to your loved ones and potentially prevent future family disputes regarding the matter. Last Words Another use of an explanatory letter is less related to the distribution of your assets and more with the personal development of your beneficiaries. To close off the letter, you may want to include some words of sentiment to reassure your loved ones of your feelings towards them and, depending on your relationship, your hopes for their future development. This part of the letter is open to anything you’d like to convey, and since this is likely the last message your beneficiaries will receive from you, it is the perfect chance to convey something truly important. Life Lessons Often referred to as an “ethical will,” an explanatory letter is also great for passing down important life lessons that you believe may benefit your beneficiaries in the future. With this type of document, the sky’s the limit. You can talk about anything from personal development to values that you wish to pass down and even notable experiences that you think your loved ones can learn from. Pets Pet owners can also utilize an explanatory letter to express their wishes with regard to how their pet should be treated or taken care of. Again, it’s important to remember that an explanatory letter is not legally binding, so make sure that any designations you make in this letter are backed up in your will.

Peter John Fiorella III | Jul 24, 2019

Estate Proceeding Issue Guide

Probate General list of issues to keep in mind when in need of probating a propounded instrument set for as Last Will and Testament ... Meeting with an attorney who drafted the Will; determination if there are any prior Will(s); family tree with names, addresses and confirmation of deceased family members; timeline for probate proceeding; nominated fiduciaries; named beneficiaries and current addresses; possible testamentary trust for certain beneficiaries (for possible adults under disability or infants); estate accounting; creditor claims; distribution of assets; and formal vs. informal estate closure. Administration General list of issues to keep in mind when in need of opening an estate when there no Last Will and Testament or an invalid Will ... Meeting with an attorney to determine family tree with names, addresses and confirmation of deceased family members; review administration proceeding requirements; eligible fiduciaries; issue / distributees / next of kin needed to sign consents for appointment of estate administrator; estate accounting; creditor claims; distribution of assets; and formal vs. informal estate closure. Small Estate Proceeding General list of issues to keep in mind when in need of opening an estate regardless of whether there is a Last Will and Testament ... Meeting with an attorney to determine the type and value of estate assets as to personal property vs. real property; -eligible fiduciaries; estate assets; exempt property designation; creditor claims; distribution of assets; and formal vs. informal estate closure.

Antonio Gastelum Treviño | Jul 5, 2019

What Is the Best Alternative Solution to Estate Planning in The U.S. for Foreigners?

Life Insurance to Pay Estate Taxes Is Often the Solution The most efficient solution to pay estate taxes in the United States has always been a life insurance policy. A life insurance policy is the ideal financial instrument because the same event that triggers the tax triggers the payment of the death benefit of the policy: to wit, the death of the insured. In addition, the fact that the death benefit is not subject to income tax for the beneficiaries, and if the life insurance policy is protected by an ILIT (Irrevocable Life Insurance Trust) this death benefit can also be excluded from the insured’s estate. All of this makes life insurance very sought out and utilized for such purposes. Still, with the rapid increase in property and investment values of many foreigners, the amount of life insurance coverage that is required is also increasing by the day, along with the premiums needed to pay for such coverage. As a consequence, what can a foreigner do when his or her estate tax payment is projected to be in the millions at the time of his or her death? Premium Financing Programs for Life Insurance In principle, this type of foreign investor will require some sort of estate planning which may or may not be to his liking depending on whether he has to give up direct control of his investments or assets to unrelated third parties. Also, if the estate plan was created under civil law statutory regimes to which U.S. case law does not afford the same legal protection, or the estate plan is so complex that it requires a substantial amount of money, time, and attention from the client, it may not be effective. In these cases, we still need to answer the question posed by the title of this article: What is the best alternative solution for foreign investors who do not want to plan, or are dissatisfied with the results offered by an estate plan? As you can imagine, the answer is life insurance. We need to add, however, that for some of these foreign investors, the complete answer is life insurance purchased through premium financing programs. Since I wrote the first article on the subject, my opinion about these programs has changed or evolved. Previously, I was of the opinion that premium financing was a viable alternative for people who required coverages starting at around $10 million, and the sweet spot was around $25 million of coverage. However, due to the relative low-interest environment we now live in and the creation of new life insurance policies in the United States, I believe now that foreign investors can take advantage of these premium financing programs when sufficient insurance coverage to pay for estate taxes requires more than $250,000 in annual premiums. This is true even though insurance companies today consider premium financing starting at $100,000 worth of annual premium, and interest rates vary from 2.0% and 5.35%, approximately, depending on the insurance company and the bank with which the program is established. Occasionally, insurance companies allow the insured’s bank to provide the financing. Requirements for Premium Financing Programs Generally, premium financing programs require not only a health evaluation but also a financial evaluation to demonstrate the need for coverage and the ability to post collateral, usually over investment portfolios or in cash during the initial years of the program. These will eventually and gradually be released, prior to the loan being repaid by the cash-value accumulated by the policy, or with funds provided by the insured. All of this would be in addition to the cash-value of the life insurance policy being pledged. Some foreign investors end up paying 2.0% annually, for up to 15 years, on the cash-value accumulated, at which time some of it is taken out to repay the original loan by the bank. From this time, the insured or his trust becomes the only owner of the insurance policy whose beneficiaries will be able to collect upon it at his death to pay for the estate tax.