JWJACOBLAW https://www.jwjacoblaw.com JWJACOBLAW Fri, 28 Feb 2020 21:35:53 +0000 en-US hourly 1 https://wordpress.org/?v=5.3.2 https://www.jwjacoblaw.com/wp-content/uploads/2019/05/cropped-slide1-32x32.jpg JWJACOBLAW https://www.jwjacoblaw.com 32 32 Avoid Drawbacks of The SECURE Act with These Strategies https://www.jwjacoblaw.com/avoid_drawbacks_of_the_secure_act_with_these_strategies/ https://www.jwjacoblaw.com/avoid_drawbacks_of_the_secure_act_with_these_strategies/#respond Fri, 14 Feb 2020 15:49:16 +0000 https://www.jwjacoblaw.com/?p=4270 The SECURE Act’s Impact on Estate and Retirement Planning—Part 2 |   If you are creating a new estate plan, or looking to update your pre-existing plan, it is important to understand the available strategies to avoid drawbacks of the new SECURE Act that may impact how your pass on your retirement account proceeds. On January […]

The post Avoid Drawbacks of The SECURE Act with These Strategies appeared first on JWJACOBLAW.

]]>
The SECURE Act’s Impact on Estate and Retirement Planning—Part 2 |

 

If you are creating a new estate plan, or looking to update your pre-existing plan, it is important to understand the available strategies to avoid drawbacks of the new SECURE Act that may impact how your pass on your retirement account proceeds.

On January 1, 2020, the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) went into effect, and it could have big implications for both your retirement and estate planning strategies—and not all of them are positive.

In Part One of this two part series, I discussed three of the SECURE Act’s most impactful provisions. I looked at the SECURE Act’s new requirements for the distribution of assets from inherited retirement accounts to your beneficiaries following your death.

In Part Two, below, I take a deeper look into additional strategies you may want to consider in light of the new legislation. Specifically, I cover the SECURE Act’s impact on your financial planning for retirement. In addition, I discuss strategies for maximizing your retirement account’s potential for growth, while minimizing tax liabilities and other risks that could arise in light of the legislation’s legal changes.

Let’s jump right in!

Tax-advantaged retirement planning

If your retirement account assets are held in a traditional IRA, you received a tax deduction when you put funds into that account. Now, the investments in that account grow tax free as long as they remain in the account. When you eventually withdraw funds from the account, you will pay income taxes on that money based on your tax rate at the time.

If you withdraw those funds during retirement, your tax rate will likely be quite low because you typically have much less income in your retirement years. The combination of the upfront tax deduction on your initial investment with the lower tax rate on your withdrawal is what makes traditional IRAs such an attractive option for retirement planning.

Benefits of the SECURE Act

Thanks to the SECURE Act, these retirement vehicles now come with even more benefits. Previously, you were required to start taking distributions from retirement accounts at age 70 ½. But under the SECURE Act, you are not required to start taking distributions until you reach 72, giving you an additional year-and-a-half to grow your retirement savings tax free.

The SECURE Act also eliminated the age restriction on contributions to traditional IRAs. Under prior law, those who continued working could not contribute to a traditional IRA once they reached 70 ½. Now, you can continue making contributions to your IRA for as long as you and/or your spouse are still working.

From a financial-planning perspective, you will want to consider the effect these new rules could have on the goal for your retirement account assets. For example, will you need the assets you’ve been accumulating in your retirement account for your own use during retirement, or do you plan to pass those assets to your heirs?

From there, you will want to consider the potential income-tax consequences of each scenario.

Consult with a financial advisor

Your retirement account assets are extremely valuable, and you will want to ensure those assets are well managed both for yourself and future generations. As such, you should discuss these issues with your financial advisor as soon as possible. If you do not already have a financial advisor, I will be happy to recommend a few I trust most.

If you meet with me for a Family Wealth Planning Session (or for a review of your existing plan) to discuss your options from a legal perspective, I can integrate your financial advisor into our meeting.  Together, we can look at the specific goals you are trying to achieve and determine the best ways to use your retirement-account assets to benefit yourself and your heirs.

Here are some things we would consider with you and your financial advisor

Converting to a ROTH IRA – In light of the SECURE Act’s changes, you may want to consider converting your traditional IRA to a ROTH IRA.  ROTH IRAs come with a potentially large tax bill up front, when you initially transition the account. However, all earnings and future distributions from the account are tax free.

Life insurance and trust options – Given the new distribution requirements for inherited IRAs, we can also look at whether it makes sense to withdraw the funds from your retirement account now, pay the resulting tax, and invest the remainder in life insurance. From there, you can set up a life insurance trust to hold the policy’s balance for your heirs.

By directing the death benefits of that insurance into a trust, you can avoid burdening your beneficiaries with the SECURE Act’s new tax requirements for withdrawals of inherited retirement assets as well as provide extended asset protection for the funds held in trust.

If you have charitable inclinations, we can consider using a charitable remainder trust (CRT). By naming the CRT as the beneficiary of your retirement account, when you pass away, the CRT would make monthly, quarterly, semi-annual, or annual distributions to your beneficiaries over their lifetime. Then, when the beneficiaries pass away, the remaining assets would be distributed to a charity of your choice.

The decision of whether to transition your traditional IRA into a ROTH IRA now, cash out and buy insurance, or use a CRT to provide for your beneficiaries is a solvable “math problem.”  Using the specific facts of your life goals as the elements that go into solving the problem, we can team up with your financial advisor to help you do the math and solve the equation.

Adjusting your plan to avoid drawbacks of the SECURE Act

While the SECURE Act has significantly altered the tax implications for retirement planning and estate planning, there are still plenty of tax-saving options available for managing your retirement account assets. These options are only available if you plan for them!

If you do not revise your plan to avoid the drawbacks of the SECURE Act and it’s new requirements, your family could pay the maximum amount of income taxes and lose valuable opportunities for asset-protection and wealth-creation.

To make sure this does not happen, schedule a Family Wealth Planning Session or an existing estate plan review today.

As your Personal Family Lawyer®, I will work with you and your financial advisor to analyze all of the ways in which your retirement accounts are impacted by the SECURE Act. Moreover, I can educate and empower you to choose the most suitable planning strategies for passing your assets to your loved ones in the most tax-advantaged and least risky manner possible.

You work too hard for your assets to be lost, squandered, or not passed to your heirs in the way you choose, so contact me right away!

The post Avoid Drawbacks of The SECURE Act with These Strategies appeared first on JWJACOBLAW.

]]>
https://www.jwjacoblaw.com/avoid_drawbacks_of_the_secure_act_with_these_strategies/feed/ 0
The SECURE Act May Impact Your Retirement Planning https://www.jwjacoblaw.com/the_secure_act_may_impact_estate_and_retirement_planning_part_1/ https://www.jwjacoblaw.com/the_secure_act_may_impact_estate_and_retirement_planning_part_1/#respond Tue, 28 Jan 2020 21:02:31 +0000 https://www.jwjacoblaw.com/?p=4135 The SECURE Act’s Impact on Estate and Retirement Planning – Part 1 | On January 1, 2020, the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) went into effect, and it represents the most significant retirement-planning legislation in decades. The changes ushered in by the SECURE Act may have dramatic implications on your […]

The post The SECURE Act May Impact Your Retirement Planning appeared first on JWJACOBLAW.

]]>
The SECURE Act’s Impact on Estate and Retirement Planning – Part 1 |

On January 1, 2020, the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) went into effect, and it represents the most significant retirement-planning legislation in decades.

The changes ushered in by the SECURE Act may have dramatic implications on your retirement and estate planning strategies. If you like to read, check out the exact language of the new law here. Not all of those changes are positive. The new law does include a number of taxpayer-friendly measures to boost your ability to save for retirement. However, the new law also contains provisions that could have disastrous effects on strategies that families have used for years to protect and pass on assets contained in retirement accounts.

If you hold assets in a retirement account, you need to review your financial and estate plan now!

To help you with this process, my latest two-part blog series will cover three of the SECURE Act’s biggest changes. This week’s article will explain how the new law may affect your retirement account during your lifetime and after your death. Next week, I will take a deeper look into additional planning strategies to consider in light of the SECURE Act.

Changes after implementation of the SECURE Act

1. Increased age for Required Minimum Distributions (RMD)

Prior to the SECURE Act, the law required you to start making withdrawals from your retirement account at age 70 ½. For people who haven’t reached 70 ½ by the end of 2019, the SECURE Act pushes back the RMD start date until age 72.

2. Repeal of the maximum age for IRA contributions

Under previous law, those who continued working could not contribute to a traditional IRA once they reached 70 ½. Starting in 2020, the SECURE Act removed that cap, so you can continue making contributions to your IRA for as long as you and/or your spouse are still working.

These two changes are positive. With our increased life spans, people are now staying in the workforce longer than ever before. The new rules allow you to continue contributing to your retirement accounts and accumulating tax-free growth for as long as possible.

However, to offset the tax revenue lost due to these beneficial changes – as you will see below –  the SECURE Act also includes some less-favorable changes to the distribution requirements for retirement accounts after your death.

3. Elimination of stretch provisions for inherited retirement accounts

The part of the SECURE Act that is likely to have the most significant impact on your heirs is a provision that makes significant changes to distribution requirements for inherited retirement accounts, and effectively ends the so-called “stretch IRA.”

Under prior law, beneficiaries of your retirement account could choose to stretch out distributions—and, therefore, the income taxes owed on those distributions—over their own life expectancy. For example, an 18-year old beneficiary expected to live an additional 65 years could inherit an IRA and stretch out the distributions for 65 years. That beneficiary would pay income tax on just a small amount of their inheritance every year. In that case, the income tax law would encourage the child to not withdraw and spend the inherited assets all at once.

Under the SECURE Act, most designated beneficiaries will now be required to withdraw all the assets from the inherited account—and pay income taxes on them—within 10 years of the account owner’s death. Those who fail to withdraw funds within the 10-year window face a 50% tax penalty on the assets remaining in the account.

Exemptions to the new law

The law does offer exemptions to the mandatory 10-year withdrawal rule for certain beneficiaries, known as “eligible designated beneficiaries” (EDB):

> A surviving spouse named as an outright beneficiary of a retirement plan still has the option of rolling over the benefits to his or her own IRA or taking distributions based on his or her own life expectancy.

> Beneficiaries who are less than 10 years younger than you can still take distributions based on their own life expectancy.

> Your minor children, who have not reached the “age of majority” don’t have to deplete the account until 10 years after they come of age. Yet that still would be a much shorter “stretch” than previously available.

> Disabled individuals and chronically ill individuals can take distributions based on their life expectancy.

Apart from these exceptions, opportunities for stretching an IRA over an extended period of time are no longer available. If you want your retirement account beneficiaries to benefit from long-term income tax deferral, and asset protection from lawsuits, creditors, or divorce, you must meet with me now to rework your plan.

The SECURE Act may impact previous estate planning strategies

Depending on the value of your retirement account, you may have already addressed the distribution of its assets using a “conduit” provision in your will or trust. Prior to the SECURE Act, a trustee of a trust that included a conduit provision would only distribute the required minimum distributions (RMD) to trust beneficiaries each year.

Using a conduit trust allowed the beneficiary to take advantage of the “stretch” based on their age and life expectancy. In this way, the conduit trust protected the account balance and exposed only the much smaller RMD amounts to creditors and divorcing spouses.

Under the SECURE Act, the 10-year limit for taking distributions will lead to the acceleration of income tax due. That acceleration of income tax due may bump your beneficiaries into a higher income tax bracket. This potentially hefty tax burden would likely result in your beneficiary receiving significantly less funds from the retirement account than you originally planned.

Moreover, because the SECURE Act requires all funds in your retirement account to be withdrawn within 10 years after your death, a conduit trust would be required to distribute all of its assets outright to the beneficiary within this shortened period. This means you would also lose any long-term asset protection you may have built into your plan.

Alternative options moving forward

Given the SECURE Act’s new rules, you may want to consider amending your trust to shift it from a “conduit trust” to an “accumulation trust.” An accumulation trust structure cannot extend the tax benefits any longer than 10 years, but it can ensure the assets are protected from your beneficiary’s future risky activities and/or a divorce.

One important thing to note: Retained distributions from a traditional IRA to an accumulation trust would be exposed to compressed income tax rates that apply to trusts. Currently, trusts reach the maximum 37% tax bracket with undistributed taxable income of $12,950. Facing such a tax hit, if you opt for this solution, your plan should include additional strategies to address the tax obligation. I will share some options for this strategy in next week’s article.

Update your estate plan now

As your Personal Family Lawyer®, I can update your plan to address all of the potential ramifications the SECURE Act might have on the distribution of your retirement account’s assets following your death. To accomplish this, we need to meet to consider your family dynamic and all of your assets. This way, we can thoroughly assess the big-picture impact that the SECURE Act stands to have on your estate.

Contact me today to discuss your estate planning options in light of the implementation of the SECURE Act.

Next week in the second part of this series, I will cover some of the ramifications the SECURE Act may have on your financial-planning strategies and how you can make the most of the new legal landscape.

The post The SECURE Act May Impact Your Retirement Planning appeared first on JWJACOBLAW.

]]>
https://www.jwjacoblaw.com/the_secure_act_may_impact_estate_and_retirement_planning_part_1/feed/ 0
Lifetime Asset Protection Trusts: Airtight Asset Protection of Your Children’s Inheritance – Part 2 https://www.jwjacoblaw.com/protect-your-childrens-inheritance-part-2/ https://www.jwjacoblaw.com/protect-your-childrens-inheritance-part-2/#respond Tue, 21 Jan 2020 16:43:03 +0000 https://www.jwjacoblaw.com/?p=4085 If you are planning to leave behind any amount of money or assets for your children, you likely want to do everything you can to protect your children’s inheritance from being lost or squandered. The most recent example of someone irresponsibly blowing through their inheritance because it was not properly protected is the case of […]

The post Lifetime Asset Protection Trusts: Airtight Asset Protection of Your Children’s Inheritance – Part 2 appeared first on JWJACOBLAW.

]]>
If you are planning to leave behind any amount of money or assets for your children, you likely want to do everything you can to protect your children’s inheritance from being lost or squandered.

The most recent example of someone irresponsibly blowing through their inheritance because it was not properly protected is the case of Clare Bronfman. Ms. Bronfman is the heiress to the Seagram’s liquor fortune who infamously used hundreds of millions of dollars from her trust fund to support the cult group Nxivm. Last year, she plead guilty in Federal court and is set to be sentenced later this month.

Are you leaving behind hundreds of millions of dollars to your children? Probably not. Are your children going to use their inheritance to fund a criminal cult? Probably not. But, if you are not around to teach your children how to be responsible with the money you leave behind for them, then you want to make sure there are proper safeguards in place to protect your children’s inheritance.

Most lawyers will advise you to distribute your assets to your children, outright and free of trust, at specific ages and stages, based on when you think they will be mature enough to handle an inheritance. However, there is a much better choice for safeguarding your family wealth.

A Lifetime Asset Protection Trust is a unique estate planning tool that is specifically designed to protect your children’s inheritance from unfortunate life events such as divorce, debt, illness, and accidents, while at the same time giving them the ability to properly and appropriately access and invest their inheritance.

Last week, I discussed how a Lifetime Asset Protection Trust differs from standard trusts.  Here, in Part 2, I will explain the Trustee’s role in the administration of a Lifetime Asset Protection Trust, as well as how this type of trust can teach your children to manage and grow their inheritance, so it can support them to become wealth creators and enrich future generations.

Total discretion for the Trustee to protect your children’s inheritance

As mentioned last week, most standard trusts require the Trustee to distribute assets to beneficiaries in a structured way, such as at certain ages or stages. Other times, a Trustee is required to distribute assets only for specific purposes, such as for the beneficiary’s “health, education, maintenance, and support” – also known as the “HEMS” standard.

In contrast, a Lifetime Asset Protection Trust gives the Trustee full discretion on whether or not to make distributions. The Trust leaves the decision of whether to release trust assets totally up to the Trustee. The Trustee has full authority to determine how and when the assets should be released. This decision is based on the beneficiary’s needs and the circumstances going on in his or her life at the time.

For example, if your child was in the process of getting divorced or in the middle of a lawsuit, the Trustee could refuse to distribute any funds. Therefore, in the event your child be ordered to pay damages resulting from a lawsuit, the Trust assets remain shielded from a future ex-spouse or a potential judgment creditor.

Because the Trustee controls access to the inheritance, those assets are not only protected from outside threats like ex-spouses and creditors, but also from your child’s own poor judgment.  For example, if your child develops a substance abuse or gambling problem, or wanted to use the money to fund a sadistic cult, the Trustee could either refuse to distribute any funds or withhold distributions until your child receives the appropriate treatment.

A lifetime of guidance and support

Given that distributions from a Lifetime Asset Protection Trust are 100% up to the Trustee, you may be concerned about the Trustee’s ability to know when to make distributions to your child and when to withhold them. Granting such power is vital for asset protection, but it also puts a lot of pressure on the Trustee. As such, you probably do not want your named Trustee making these decisions in a vacuum.

To address this issue, you can write guidelines to the Trustee, providing the Trustee with direction about how you would like the trust assets to be used for your beneficiaries. This ensures the Trustee is aware of your values and wishes when making distributions, rather than simply guessing what you would have wanted.

Leaving a Trustee to guess your intentions often leads to problems down the road.

Trustee guidelines describe how you would choose to make distributions in different scenarios during the beneficiary’s lifetime. These scenarios might involve the purchase of a home, payment of wedding expenses, the start of a business, and/or travel. Some clients choose to provide guidelines around how they would make investment decisions, as well. This is something I can assist you with if you decide to use a Lifetime Asset Protection Trust.

An educational opportunity

Beyond the benefits of being able to protect your child’s inheritance for their entire life, a Lifetime Asset Protection Trust can also give your child hands-on experience managing financial matters, like investing, running a business, and charitable giving. Your child will learn how to do these things with support from the Trustee you have chosen to guide them.

This is accomplished by adding provisions to the trust that allow your child to become a Co-Trustee at a predetermined age. Serving alongside the original Trustee, your child will have the opportunity to invest and manage the trust assets under the supervision and tutelage of a trusted mentor.

You can even allow your child to become Sole Trustee later in life, once he or she has gained enough experience and is ready to take full control. As Sole Trustee, your child would be able to resign and replace themselves with an independent trustee, if necessary, for continued asset protection.

Future generations

Regardless of whether or not your child becomes Co-Trustee or Sole Trustee, a Lifetime Asset Protection Trust gives you the opportunity to turn your child’s inheritance into a teaching tool.

Do you want to give your child the ability to leave trust assets to a surviving spouse or a charity upon their death? Or would you prefer that the assets are only distributed to his or her biological or adopted children? You might even want your child to create their own Lifetime Asset Protection Trust for their heirs.

I offer my clients a wide variety of options that can be tailored to fit their particular values and family dynamics. Be sure to ask which options might be best for your particular situation.

Is a Lifetime Asset Protection Trust right for you?

Of course, a Lifetime Asset Protection Trust is not for everyone. If your children are going to spend the vast majority of their inheritance on everyday expenses and consumables, then a Lifetime Asset Protection Trust probably does not make much sense. However, if you want to protect your children’s inheritance for their entire life, and ensure the assets you are leaving behind are able to be invested and grown over the long term, a Lifetime Asset Protection Trust can be immensely valuable.

Meet with a Personal Family Lawyer® like myself to see if a Lifetime Asset Protection Trust is the right option for your family. In the end, it is not about how much you are leaving your loved ones that matters. It is about ensuring that what you do pass on is there when it is needed most and put to the best use possible.

Schedule a Family Wealth Planning Session today to learn more!

The post Lifetime Asset Protection Trusts: Airtight Asset Protection of Your Children’s Inheritance – Part 2 appeared first on JWJACOBLAW.

]]>
https://www.jwjacoblaw.com/protect-your-childrens-inheritance-part-2/feed/ 0
Lifetime Asset Protection Trusts: Providing Airtight Protection of Your Children’s Inheritance – Part 1 https://www.jwjacoblaw.com/protect-your-childrens-inheritance-part-1/ https://www.jwjacoblaw.com/protect-your-childrens-inheritance-part-1/#respond Thu, 09 Jan 2020 17:46:44 +0000 https://www.jwjacoblaw.com/?p=4032 A Lifetime Asset Protection Trust can safeguard a child’s inheritance from being lost to common life events, such as divorce, serious illness, lawsuits, or even bankruptcy. But, that is not all it does. As a parent, leaving your children an inheritance is likely one of the motivating factors driving your life’s work. Without taking the proper […]

The post Lifetime Asset Protection Trusts: Providing Airtight Protection of Your Children’s Inheritance – Part 1 appeared first on JWJACOBLAW.

]]>
A Lifetime Asset Protection Trust can safeguard a child’s inheritance from being lost to common life events, such as divorce, serious illness, lawsuits, or even bankruptcy. But, that is not all it does.

As a parent, leaving your children an inheritance is likely one of the motivating factors driving your life’s work. Without taking the proper precautions, the wealth you pass on is at serious risk of being lost or squandered. In some instances, receiving an inheritance can wind up doing more harm than good to your children!

Creating a will or a revocable living trust does offer some protection. In most cases, a will or trust directs that your assets be distributed to your children outright, in their pocket, at a specific age or stage (such as at 18 or graduation from college), or at staggered ages (such as one-third at age 25, half the remaining balance at age 30, and the rest at age 35).

If you have already created estate planning documents, you should check to see if one of these methods is how your assets are being left to your children. If so, you may not have been told about another option that can give your children access, control, and airtight asset protection for whatever assets they inherit from you.

In my planning process, I always offer parents the option of creating a Lifetime Asset Protection Trust for their children’s inheritance.

The best part of a Lifetime Asset Protection Trust is that it offers you—and your children—the best of both worlds: airtight asset protection AND use and control of the inheritance. You can even use the trust to incentivize your children to invest and grow their inheritance!

A Lifetime Asset Protection Trust is not just for the über rich

Contrary to what you might think, Lifetime Asset Protection Trusts are not just for the super wealthy. These protective trusts are even more useful if you are leaving a relatively modest inheritance and they can be used to educate your children about how to grow your family wealth, instead of quickly blowing through it.

Without such guidance, most children blow through their inheritance very quickly. In fact, one study found that, on average, an inheritance is totally gone in about five years due to debt and poor investment. Another study found that one-third of people who receive an inheritance actually had a negative savings within just two years.

Not to mention, the smaller the inheritance, the more at risk it is of getting wiped out by a single unfortunate event like a medical emergency.

Regardless of how much financial wealth you have (or don’t have), if you plan to leave your children anything at all, you should do everything you can to ensure they grow what is left to them, instead of losing it. This way, your resources can have a truly beneficial effect on their lives—and even the lives of future generations.

A Lifetime Asset Protection Trust can achieve each of those goals and so much more.

Not all trusts are created equal

Most lawyers will advise you to put the assets you are leaving your kids in a revocable living trust—and this is the right move. However, as mentioned above, most lawyers would structure the trust to distribute those assets outright to your children at certain ages or stages.

Why? Because this requires the least amount of work to design and the least amount of work for the trustee to follow when it comes time for distribution.

If you have used an online do-it-yourself will or trust-preparation service like LegalZoom®, Rocket Lawyer®, or any of the newer online options, you will most likely be offered only two distribution choices: outright distribution of the entire inheritance to your children, or partial distributions when they reach specific ages and stages as described above. Either of those options leaves your children’s inheritance—and your hard-earned and well-saved money—at risk.

Once assets pass into your child’s name, all of the protection previously offered by your trust disappears.

Despite what you may have heard about an inheritance remaining separate property, once it is in your child’s hands, outright and unprotected, those assets are at risk.

For example, say your son racked up debt while in college, which can sometimes happen. If he were to receive one-third of his inheritance at age 25, creditors could take his inheritance if it is paid to him in an outright distribution. The same thing would be true if your daughter gets a divorce after receiving her inheritance, only it would be her soon-to-be ex-spouse who would claim a right to the funds in a divorce settlement.

There is just no way to foresee what the future has in store for your children. These kind of events happen to families every day. This does not even take into consideration that your children might simply blow through the money and spend it all on unnecessary luxuries.

Airtight asset protection—and easy access

A Lifetime Asset Protection Trust is specifically designed to prevent your hard-earned assets from being wiped out by such risks. At the same time, your children will still be able to use and invest the funds held in trust as needed.

For example, even though the assets are held in trust, your children would be able to invest those funds in stocks, start a new business, or purchase real estate, provided they do so in the name of the trust. Plus, if your child needs to pull money out to pay for college, a new home, or medical bills, they can do that by asking a Trustee—who is chosen by you to oversee the money—for a distribution.

As I will cover next week, you may even allow your child to become the Sole Trustee at some point in the future, allowing him or her to make their own decisions about their trust’s management.

Obviously, creating a Lifetime Asset Protection Trust requires significant understanding of how to properly draft the trust, so do not attempt to do create one without the guidance of an experienced estate planning lawyer.

As you will see next week, Lifetime Asset Protection Trusts offer additional benefits that can be used to teach your children how to invest and grow their inheritance, so that the assets you leave behind can be passed on to their children and beyond.

As your Personal Family Lawyer®, I can guide you to make informed, educated, and empowered choices to protect yourself and the ones you love most. Contact me today to get started with a Family Wealth Planning Session.

The post Lifetime Asset Protection Trusts: Providing Airtight Protection of Your Children’s Inheritance – Part 1 appeared first on JWJACOBLAW.

]]>
https://www.jwjacoblaw.com/protect-your-childrens-inheritance-part-1/feed/ 0
Are Millennials Prepared for a Massive Transfer of Wealth? https://www.jwjacoblaw.com/are-millennials-prepared-for-a-massive-transfer-of-wealth/ https://www.jwjacoblaw.com/are-millennials-prepared-for-a-massive-transfer-of-wealth/#respond Tue, 19 Nov 2019 16:25:33 +0000 https://www.jwjacoblaw.com/?p=4011 It is a fact that over the next few decades a tremendous amount of wealth will pass from aging Baby Boomers to Millennials.  In fact, it is said to be the largest transfer of intergenerational wealth in history. Now, do not let anyone tell you that being a Millennial is all that bad! Because no […]

The post Are Millennials Prepared for a Massive Transfer of Wealth? appeared first on JWJACOBLAW.

]]>
It is a fact that over the next few decades a tremendous amount of wealth will pass from aging Baby Boomers to Millennials.  In fact, it is said to be the largest transfer of intergenerational wealth in history.

Now, do not let anyone tell you that being a Millennial is all that bad!

Because no one knows exactly how long Baby Boomers will live, or how much money they will spend before they pass on, it is impossible to accurately predict just when or how much wealth will be transferred.  However, studies suggest it is somewhere between $30 and $50 trillion that will be passed on.  Yes, that’s a “trillion” with a “T.”

A blessing or a curse?
While most experts are talking about the benefits this asset transfer might have for younger generations and the economy, few are talking about its potential negative ramifications. Yet, there is plenty of evidence suggesting that many people, especially younger generations, are woefully unprepared to handle such an inheritance.

An Ohio State University study found that one third of people who received an inheritance had a negative savings within two years of getting the money. Another study by The Williams Group found that intergenerational wealth transfers often become a source of tension and dispute among family members, and 70% of such transfers fail by the time they reach the second generation.

Whether you will be inheriting or passing on this wealth, it is crucial to have a plan in place to reduce the potentially disastrous effects such transfers can lead to.  Without proper estate planning, the money and other assets that get passed on can easily become more of a curse than a blessing.

Get proactive

There are several proactive measures you can take to help stave off the risks posed by the big wealth transfer. Beyond having a comprehensive estate plan, openly discussing your values and legacy with your loved ones is an important step to ensure your planning strategies work exactly as you intended.  Here are some of my suggestions:

1) Create a plan: If you have not created your estate plan yet—and far too many of you have not—it is essential that you put a plan in place as soon as possible. It does not matter how young or old you are, whether or not you have kids, and/or the amount of assets you own – all adults over 18 should have, at least, some basic planning vehicles in place.

From there, be sure to regularly update your plan on an annual basis and immediately after major life events like marriage, births, deaths, inheritances, and divorce.

I maintain a relationship with all my clients long after their initial planning documents are signed, and my built-in systems and processes will ensure my client’s plans are regularly reviewed and updated throughout their lifetime.

2) Discuss wealth with your family early and often: Do not put off talking about wealth with your family until you are in retirement or nearing death.

While it may seem untimely, the upcoming holidays are the best time to have these discussions with your family.

Of course, no one likes talking about death, especially during the holidays, but what other time will you all be together?  These important discussions do not have to treated as something negative or depressing, but rather an opportunity to express to your children and grandchildren what wealth means to you and how you would like them to use the assets they inherit when you pass away.  

Making such discussions a regular event will allow you to address different aspects of wealth and your family legacy as they grow and mature.

Pro tip: These discussions probably should be done over coffee or drinks rather than while the turkey, stuffing and mashed potatoes are being served, or while presents are being opened!

When discussing wealth with your family members, clearly communicate and focus on the values you want to instill, rather than what and how much they can expect to inherit.  Let them know what values are most important to you and try to mirror those values in your family life as much as possible. 

Whether it is saving money, charitable giving, or community service, having your kids understand your values while growing up is often the best way to ensure they carry them on when you are gone.

3) Communicate your wealth’s purpose: Outside of clearly communicating your values, you should also discuss the specific purpose(s) you want your wealth to serve in your loved ones’ lives.  You worked hard to build your family wealth, so you have more than earned the right to stipulate how it gets used and managed when you are gone.

Though you can create specific terms and conditions for your wealth’s future use in estate planning tools like a living trust, do not make your loved ones wait until you are dead to learn exactly what you want their inheritance used for.

If you want your wealth to be used to fund your children’s college education, provide the down payment on their first home, or invested for their retirement, tell them so.  By discussing such things while you are still around, you can ensure your loved ones know exactly why you made the planning decisions you did.  Doing so can greatly reduce future conflict and confusion about what your true wishes really are.

Secure your wealth, your legacy, and your family’s future

Regardless of how much or how little wealth you plan to pass on—or stand to inherit—it is vital that you take steps to make sure that wealth is protected and put to the best use possible. As your Personal Family Lawyer®, I have unique processes and systems to help you put the proper planning tools in place to ensure the wealth that is transferred is not only secure, but that it is used by your loved ones in the very best way possible.

Moreover, every plan I design with my clients has built-in legacy planning services, which can greatly facilitate your ability to communicate your most treasured values, experiences, and stories with the ones you are leaving behind.

By working with me, you can rest assured that the coming wealth transfer offers the maximum benefit for those you love most. Schedule a Family Wealth Planning Session today to get started.

The post Are Millennials Prepared for a Massive Transfer of Wealth? appeared first on JWJACOBLAW.

]]>
https://www.jwjacoblaw.com/are-millennials-prepared-for-a-massive-transfer-of-wealth/feed/ 0
Blended Families Can Learn from Tom Petty’s Estate Planning Mistakes https://www.jwjacoblaw.com/blended-families-can-learn-from-tom-pettys-estate-planning-mistakes/ https://www.jwjacoblaw.com/blended-families-can-learn-from-tom-pettys-estate-planning-mistakes/#respond Thu, 14 Nov 2019 18:26:00 +0000 https://www.jwjacoblaw.com/?p=4006 There is a lot to be learned about estate planning following the death of a celebrity. Whether it be the celebrity’s failure to plan, or the celebrity’s family actions during post-death administration.  I have written articles in the past that discuss estate planning lessons learned from celebrity deaths that you can check out here. Earlier […]

The post Blended Families Can Learn from Tom Petty’s Estate Planning Mistakes appeared first on JWJACOBLAW.

]]>
There is a lot to be learned about estate planning following the death of a celebrity. Whether it be the celebrity’s failure to plan, or the celebrity’s family actions during post-death administration.  I have written articles in the past that discuss estate planning lessons learned from celebrity deaths that you can check out here.

Earlier this year, Tom Petty’s daughters escalated the battle over their late father’s estate by filing a lawsuit against Petty’s second wife that seeks $5 million in damages. In the lawsuit, Adria Petty and Annakim Violette, claim their father’s widow, Dana York Petty, mismanaged their father’s estate, depriving them of their rights to determine how Petty’s music should be released.

Petty died in 2017 of an accidental drug overdose at age 66. He named Dana as sole trustee of his trust, but the terms of the trust give the daughters “equal participation” in decisions about how Petty’s catalog is to be used. The daughters, who are from Petty’s first marriage, claim the terms should be interpreted to mean they get two votes out of three, which would give them majority control.

Alex Weingarten, an attorney for Petty’s daughters, issued a statement to Rolling Stone magazine, asserting that Perry’s widow is not abiding by Petty’s wishes for his two children.

“Tom Petty wanted his music and his legacy to be controlled equally by his daughters, Adria and Annakim, and his wife, Dana. Dana has refused Tom’s express wishes and insisted instead upon misappropriating Tom’s life’s work for her own selfish interests,” he said.

In April, Dana filed a petition in a Los Angeles court, seeking to put Petty’s catalog under control of a professional manager, who would assist the three women in managing the estate’s assets. Dana alleged that Adria had made it difficult to conduct business by acting abusive and erratic, including sending angry emails to various managers, record label reps, and even members of Petty’s band, the Heartbreakers.

Since Petty’s death, two compilations of his music have been released, including “An American Treasure” in 2018 and “The Best of Everything” in 2019. Both albums reportedly involved intense conflict between Petty’s widow and daughters, over “marketing, promotional, and artistic considerations.”

In reply to the new lawsuit, Dana’s attorney, Adam Streisand, issued a statement claiming the suit is without merit and could potentially harm Petty’s legacy.

“This misguided and meritless lawsuit sadly demonstrates exactly why Tom Petty designated his wife to be the sole trustee with authority to manage his estate,” he said. “Dana will not allow destructive nonsense like this to distract her from protecting her husband’s legacy.”

Destructive disputes
The fight over Petty’s music demonstrates a sad but true fact about celebrity estate planning. When famous artists leave behind extremely valuable—yet highly complex—assets like music rights, contentious court disputes often erupt among heirs, even with planning in place.

The potential for such disputes is significantly increased for blended families like Petty’s. If you’re in a second (or more) marriage, with children from a prior marriage, there is always a risk for conflict, as your children and spouse’s interests often aren’t aligned. In such cases, it’s essential to plan well in advance to reduce the possibility for conflict and confusion.

Petty did the right thing by creating a trust to control his music catalog, but the lawsuit centers around the terms of his trust and how those terms divide control of his assets. While it’s unclear exactly what the trust stipulates, it appears the terms giving the daughters “equal participation” with his widow in decisions over Petty’s catalog are somewhat ambiguous. The daughters contend the terms amount to three equal votes, but his widow obviously disagrees.

Reduce conflict with clear terms and communication
It’s critical that your trust contain clear and unambiguous terms that spell out the beneficiaries’ exact rights, along with the exact rights and responsibilities of the trustee. Such precise terms help ensure all parties know exactly what you intended when setting up the trust.

What’s more, you should also communicate your wishes to your loved ones while you’re still alive, rather than relying on a written document that only becomes operative when you die or should you become incapacitated. Sharing your intentions and hopes for the future can go a long way in preventing disagreements over what you “really” wanted.

For the love of your family
While such conflicts frequently erupt among families of the rich and famous like Petty, they can occur over anyone’s estate, regardless of its value. As your Personal Family Lawyer®, I can help you draft clear terms for all of your planning documents and facilitate family meetings, where you can explain your wishes to your loved ones in person and answer any questions they may have.

Doing both of these things can dramatically reduce the chances of conflict over your estate and bring your family closer at the same time. And, if you have a blended family (meaning children from a prior marriage), I have more ideas about how you can head off future conflict at the pass with proper planning now. Contact me today to learn more and schedule a Family Wealth Planning Session.

The post Blended Families Can Learn from Tom Petty’s Estate Planning Mistakes appeared first on JWJACOBLAW.

]]>
https://www.jwjacoblaw.com/blended-families-can-learn-from-tom-pettys-estate-planning-mistakes/feed/ 0
5 Tips for Estate Planning Around Divorce – Part 2 https://www.jwjacoblaw.com/5-tips-for-estate-planning-around-divorce-part-2/ https://www.jwjacoblaw.com/5-tips-for-estate-planning-around-divorce-part-2/#respond Thu, 25 Apr 2019 11:58:22 +0000 https://jwjacoblaw.com/?p=1325 In Part 1 of this series, I discussed the first two critical estate planning updates you must consider if you are getting divorced. Here, in Part 2, I will cover the last three of these must-do planning tasks. Because getting divorced can be overwhelming on so many different levels, updating your estate plan often takes […]

The post 5 Tips for Estate Planning Around Divorce – Part 2 appeared first on JWJACOBLAW.

]]>
In Part 1 of this series, I discussed the first two critical estate planning updates you must consider if you are getting divorced. Here, in Part 2, I will cover the last three of these must-do planning tasks.

Because getting divorced can be overwhelming on so many different levels, updating your estate plan often takes a back seat to other seemingly more-pressing priorities. But, failing to update your plan for divorce can have negative consequences, some of which you may have never even considered before.

In fact, it is critical that you update your plan as soon as you know the split is inevitable. This is something your divorce attorney probably will not think to bring up, but it is literally one of the most critical matters you need to handle if you are ending your marriage.

Last week, I discussed the first two estate planning changes you must make – updating your power of attorney documents and beneficiary designations – and today I will share the remaining three.

3. Create a new will

In Florida, your will is automatically revoked by default after the divorce is final. However, you should not wait until the divorce is over before creating a new will, because once you file for divorce, you may not be able to change the provisions in your current will during the divorce proceedings.

As previously mentioned, Florida law considers you to be legally married until the judge signs the final judgment ending the marriage. This means if you die or become incapacitated while the divorce is still ongoing and you have not updated your estate plan, your soon-to-be-ex spouse could end up inheriting everything or take complete control of your legal, financial, and healthcare decisions.

As such, before filing for divorce is the best time to rethink how you want your assets divided upon your death. This most likely means naming new beneficiaries for any assets that you would have previously left to your future ex and his or her family. And unless it is your wish, you will probably no longer want your ex – or any of his or her family – listed as your will’s executor or administrator, either.

Updating your will as soon as possible once divorce is inevitable will ensure the proper individuals inherit the remaining percentage of your estate should you pass away while your divorce is still ongoing.

In light of this uncertain legal landscape, it is critical that you consult with me as soon as you know divorce is on the horizon. I can help you understand the law and how to best navigate it when creating your new will – whether you do so before or after your divorce is over.

4. Amend your existing trust or create a new one

If you have a revocable trust set up, you will want to review and update it, too. In addition to reconsidering what assets your soon-to-be-ex spouse should receive through the trust, you will probably want to replace him or her as a successor trustee (if they have been assigned that power).

If you do not have a trust in place, you should strongly consider creating one, especially if you have minor children.

Trusts provide a wide range of powers and benefits unavailable through a will, and they are particularly well-suited for blended families. Given the likelihood that both you and your spouse will eventually get remarried – and perhaps have more children with a new spouse – trusts are an invaluable way to protect and manage the assets you want your children to inherit.

By using a trust, for example, should you die or become incapacitated while your kids are minors, you can name someone of your choosing to serve as successor trustee to manage their money until they reach adulthood, making it impossible for your ex to meddle with their inheritance.

Beyond this key benefit, trusts afford you several other levels of enhanced protection and control not possible with a will. So, you should at least discuss creating a trust with me before ruling out the option entirely.

5. Revisit your plan once your divorce is final

During the divorce process, your main planning concern is limiting your soon-to-be ex’s control over your life and assets should you die or become incapacitated before the divorce is final.

Accordingly, the individuals to whom you grant power of attorney, name as trustee, designate to receive your retirement benefits, or add to your estate plan in any other way while the divorce is ongoing, are often just temporary.

Once the divorce is final and your marital property has been divided up, you should revisit all of your estate planning documents and update them accordingly based on your new asset profile and living situation. From there, your plan should continuously evolve along with your life circumstances, particularly following major life events, such as getting remarried, having additional children, and/or when close family members pass away.

Do Not Wait. Act Now!

Even though divorce can be one of life’s most difficult transitions, it is vital that you make the time to update your estate plan during this trying time. Meet with me as your Personal Family Lawyer® to review your plan immediately upon realizing that divorce is unavoidable.

Putting off updating your plan during a divorce can make it legally impossible to change certain parts of your plan, so take action now. And if you have yet to create any estate plan at all, an impending divorce is the perfect time to finally take care of this important life task. Contact me today to get the process underway with a Family Wealth Planning Session.

The post 5 Tips for Estate Planning Around Divorce – Part 2 appeared first on JWJACOBLAW.

]]>
https://www.jwjacoblaw.com/5-tips-for-estate-planning-around-divorce-part-2/feed/ 0
5 Tips for Estate Planning Around Divorce – Part 1 https://www.jwjacoblaw.com/5-tips-for-estate-planning-around-divorce-part-1/ https://www.jwjacoblaw.com/5-tips-for-estate-planning-around-divorce-part-1/#respond Thu, 25 Apr 2019 11:57:10 +0000 https://jwjacoblaw.com/?p=1322 Did you know the current divorce rate among married couples in America is 40-50%? Wait, what!? Yes, that’s right. Half of all Americans will get divorced in their lifetime. Divorce can be traumatic for the whole family. Even if the process is amicable, it involves many tough decisions, legal hassles, and painful emotions that can […]

The post 5 Tips for Estate Planning Around Divorce – Part 1 appeared first on JWJACOBLAW.

]]>
Did you know the current divorce rate among married couples in America is 40-50%?

Wait, what!?

Yes, that’s right. Half of all Americans will get divorced in their lifetime.

Divorce can be traumatic for the whole family. Even if the process is amicable, it involves many tough decisions, legal hassles, and painful emotions that can drag out over several months or years.

While you probably do not want to add any more items to your to-do list during this trying time, it is absolutely critical that you review and update your estate plan as soon as possible once you know the split is inevitable.

Florida law considers you to be legally married until the judge signs the final judgment ending the marriage.

This means if you die while the divorce is still ongoing and you have not updated your estate plan, your soon-to-be-ex spouse could end up inheriting everything. Maybe even worse, in the event you are incapacitated before the divorce is final, your spouse would be in complete control of your legal, financial, and healthcare decisions.

Given the fact that the relationship is ending, you probably do not want soon-to-be-ex spouse having that much control over your life and assets. If that is the case, you must take action.

Unless they also handle estate planning, your divorce attorney is probably not thinking about these matters on your behalf. This could be problematic as updating your estate plan is one of the most critical matters you need to handle if you’re ending your marriage (Side note: My law office provides family law counseling and services in addition to family estate planning. Just sayin’!).

When divorce is on the horizon, the following are a few of the most important updates you should consider making to your estate plan as soon as possible:

1. Update your power of attorney documents for healthcare, financial, and legal decisions

If you are incapacitated during the divorce proceedings, who would you want making life-and-death healthcare decisions on your behalf? If you are in the middle of divorce, chances are you will want someone other than your soon-to-be-ex making these important decisions for you. If that is the case, you must take action. Contact me now – do not wait until it is too late.

Similarly, who would you want managing your finances and making legal decisions for you? In light of the impending split, you will most likely want to select another trusted individual if things are anything less than friendly between you and your soon-to-be-ex. Again, you have to take action if you do not want your spouse making these decisions for you.

2. Update your beneficiary designations

Failing to update beneficiary designations for assets that do not pass through a will or trust – such as life insurance policies and retirement accounts – is one of the most frequent, and tragic, planning mistakes made by those who get divorced.

For example, if you get remarried after your divorce but have not changed your retirement account or life insurance beneficiary designation to name your new spouse, your ex-spouse could end up with your retirement savings upon your death.

Daaaaaaaaamn! Not good.

Most retirement plans allow you to freely change your beneficiary without your current spouse’s written approval, such as Individual Retirement Accounts (IRA) and qualified pensions. However, for a 401(k) retirement plan, no matter what, you must first receive your current spouse’s written approval before naming someone else as your beneficiary. As such, you can opt to move funds out of a 401(k) into another retirement account, but this is not always advisable or even possible, so you must contact an estate planning lawyer before making this decision.

Furthermore, in Florida, like most other states, once a spouse files for divorce and until the divorce is final, neither party can legally amend their beneficiaries without the other spouse’s written permission. Given this, if you are anticipating a divorce, and if permitted by law and/or the account administrator, you may want to consider changing your beneficiaries prior to filing divorce papers. If your divorce is already filed, you should consult with me to see if changing beneficiaries is legal and in your best interest.

Finally, if naming new beneficiaries is not an option for you before the divorce proceeding are started, once the divorce is finalized it should be your first estate planning priority. In fact, put it on your to-do list right now!

Next week, I will continue with Part 2 in this series on the critical estate planning updates that you should make when divorce is inevitable.

The post 5 Tips for Estate Planning Around Divorce – Part 1 appeared first on JWJACOBLAW.

]]>
https://www.jwjacoblaw.com/5-tips-for-estate-planning-around-divorce-part-1/feed/ 0
Consider Your Estate Plan Before You Travel https://www.jwjacoblaw.com/consider-your-estate-plan-before-you-travel/ https://www.jwjacoblaw.com/consider-your-estate-plan-before-you-travel/#respond Tue, 16 Apr 2019 11:49:49 +0000 https://jwjacoblaw.com/?p=1317 Already thinking about your summer vacation plans? Heading abroad for your honeymoon? Invited to a friend's destination wedding...

The post Consider Your Estate Plan Before You Travel appeared first on JWJACOBLAW.

]]>
Already thinking about your summer vacation plans? Heading abroad for your honeymoon? Invited to a friend’s destination wedding?

Preparing to travel entails lots of planning: packing luggage, buying plane tickets, making hotel reservations, and confirming rental vehicles. One thing many people forget to do is ensure their estate planning documents are up-to-date. Traveling – especially in foreign destinations – means you will likely be at greater risk than usual for illness, injury, and even death.

In light of this reality, it is critical to have your estate plan legally sound and updated to avoid any legal nightmares if something should happen to you while you are traveling. The following are four (4) most important estate planning tasks to take care of before you depart:

1. Make sure your beneficiary designations are up-to-date

Some of your most valuable assets, like life insurance policies and retirement accounts, do not transfer through a will or trust. Instead, they have beneficiary designations that allow you to name the person(s) you would like to inherit the asset upon your death. It is vital that you name a primary beneficiary and at least one alternate beneficiary in case the primary dies before you. Moreover, these designations must be regularly reviewed and updated, especially following major life events like marriage, divorce, and having children.

2. Create power of attorney documents

Outside of death, unforeseen illness and injury can leave you incapacitated and unable to make critical decisions about your own well-being. Given this, you must grant someone the legal authority to make those decisions on your behalf through power of attorney. You need two such documents: (i) medical power of attorney, and (ii) financial durable power of attorney. A medical power of attorney gives the person of your choice the authority to make your healthcare decisions for you, while a durable financial power of attorney gives someone the authority to manage your finances. As with beneficiary designations, these decision makers can change over time, so before you leave for vacation, be sure both documents are up to date.

3. Name guardians for your minor children and/or pets

If you are the parent of minor children, your most important planning task is to legally document guardians to care for your kids in the event of your death or incapacity. These guardians are the people whom you trust most to care for your children – and potentially raise them to adulthood – if something should happen to you. Given the monumental importance of this decision, I have created a comprehensive system called the Kids Protection Plan® that guides you step-by-step through the process of creating the legal documents naming these guardians. You can get started with this process right now for free by visiting my user-friendly website.

Similar to naming guardians of minor children, you can also name legal guardians and caretakers of your beloved pets. With the proper legal documents in place, you can rest assured that your furry family members will always be taken care of.

4. Organize your digital assets

If you’re like most people, you probably have dozens of digital accounts like email, social media, cloud storage, and cryptocurrency. If these assets are not properly inventoried and accounted for, they will likely be lost forever if something happens to you. At minimum, you should write down on paper the location and passwords for each account, and ensure someone you trust knows how to access this information and what to do with these digital assets in the event of your death or incapacity.

Complete your travel plans now

If you have travel plans, be sure to add these four (4) items to your to-do list before leaving. And if you need help completing any of these tasks—or would simply like me to double check the plan you have in place—consult with me as your Personal Family Lawyer®.

While I normally recommend you complete these tasks no less a month before you depart, if your trip is sooner than that, call and let me know you need a rush Family Wealth Planning Session and I will do my best to fit you in as soon as possible. Contact me today to get started.

The post Consider Your Estate Plan Before You Travel appeared first on JWJACOBLAW.

]]>
https://www.jwjacoblaw.com/consider-your-estate-plan-before-you-travel/feed/ 0
Who is Your Life Insurance Policy Beneficiary? (Part Two) https://www.jwjacoblaw.com/who-is-your-life-insurance-policy-beneficiary-part-two/ https://www.jwjacoblaw.com/who-is-your-life-insurance-policy-beneficiary-part-two/#respond Mon, 08 Apr 2019 11:46:45 +0000 https://jwjacoblaw.com/?p=1313 In the first part of this series, I discussed the first three of six questions you should ask yourself when selecting a life insurance beneficiary. Here I will cover the final half. Selecting a beneficiary for your life insurance policy sounds pretty straightforward. But, given all of the options available and the potential for unforeseen […]

The post Who is Your Life Insurance Policy Beneficiary? (Part Two) appeared first on JWJACOBLAW.

]]>
In the first part of this series, I discussed the first three of six questions you should ask yourself when selecting a life insurance beneficiary. Here I will cover the final half.

Selecting a beneficiary for your life insurance policy sounds pretty straightforward. But, given all of the options available and the potential for unforeseen problems, it can be a more complicated decision than you might imagine.

For instance, when purchasing a life insurance policy, your primary goal is most likely to make the named beneficiary’s life better or easier in some way in the aftermath of your death. However, unless you consider all of the unique circumstances involved with your choice, you might actually end up creating additional problems for your loved ones.

Last week, I discussed the first three of six questions you should ask yourself when choosing a life insurance beneficiary. Here I will cover the remaining three:

4. Are any of your beneficiaries minors?

While you are technically allowed to name a minor as the beneficiary of your life insurance policy, it is a bad idea to do so. Insurance carriers will not allow a minor child to receive the insurance benefits directly until they reach the age of majority—which can be as old as 21 depending on the state.

If you have a minor named as your beneficiary when you die, then the proceeds would be distributed to a court-appointed custodian tasked with managing the funds, often at a financial cost to your beneficiary. And this is true even if the minor has a living parent. This means that even the child’s other living birth parent would have to go to court to be appointed as custodian if he or she wanted to manage the funds. And, in some cases, that parent would not be able to be appointed (for example, if they have poor credit), and the court would appoint a paid fiduciary to hold the funds.

Rather than naming a minor child as beneficiary, it is better to first set up a trust for your child to receive the insurance proceeds. That way, you get to choose who would manage your child’s inheritance, and how and when the insurance proceeds would be used and distributed.

5. Would the money negatively affect a beneficiary?

When considering how your insurance funds might help a beneficiary in your absence, you also need to consider how it might potentially cause harm. This is particularly true in the case of young adults.

For example, think about what could go wrong if an 18-year old suddenly receives a large sum of money. At best, the 18-year old might blow through the money in a short period of time on clothes, jewelry, cars, or on their friends. At worst, getting all that money at once could lead to actual physical harm (even death), as could be the case for someone with substance-abuse issues. Now, these are worst case scenarios. However, we can probably agree that no 18-year old is prepared to manage a windfall of cash in their pocket!

To help mitigate these potential complications, some life insurance companies allow your death benefit to be paid out in installments over a period of time, giving you some control over when your beneficiary receives the money.

However, as discussed earlier, if you set up a trust to receive the insurance payment, you would have total control over the conditions that must be met for proceeds to be used or distributed. For example, you could build the trust so that the insurance proceeds would be kept in trust for beneficiary’s use inside the trust, yet still keep the funds totally protected from future creditors, lawsuits, and/or divorce.

6. Is the beneficiary eligible for government benefits?

Considering how your life insurance money might negatively affect a beneficiary is absolutely critical when it comes to those with special needs. If you leave the money directly to someone with special needs, an insurance payout could disqualify your beneficiary from receiving government benefits.

Under federal law, if someone with special needs receives a gift or inheritance of more than $2,000, they can be disqualified for Supplemental Security Income and Medicaid. Since life insurance proceeds are considered inheritance under the law, an individual with special needs should never be named as beneficiary.

To avoid disqualifying an individual with special needs from receiving government benefits, you should first create a “special needs” trust to receive the proceeds. That way, the money will not go directly to the beneficiary upon your death, and instead it will be managed by the trustee you name and dispersed per the trust’s terms without affecting benefit eligibility.

The rules governing special needs trusts are quite complicated and can vary greatly from state to state, so if you have a child or family member who has special needs, meet with me to ensure you have the proper planning in place, not just for your insurance proceeds, but for the lifetime of care your child may need.

Make sure you have considered all potential circumstances

These are just a few of the questions you should consider when choosing a life insurance beneficiary. Consult with me as your Personal Family Lawyer® to be certain you have thought through all possible circumstances.

And if you think you may need to create a trust—special needs or otherwise—to receive the proceeds of your life insurance, meet with me, so I can properly review all of your assets and consider how to best leave behind what you have in a way that will create the most benefit—and the least challenges—for the people you love. Schedule your Family Wealth Planning Session today!

The post Who is Your Life Insurance Policy Beneficiary? (Part Two) appeared first on JWJACOBLAW.

]]>
https://www.jwjacoblaw.com/who-is-your-life-insurance-policy-beneficiary-part-two/feed/ 0