Trust (RLT) as Life Insurance Beneficiary
The recent discussion of ‘Trust as a IRA Beneficiary’ prompts me to expand the discussion to Life Insurance.
I was recently pitched the need for a Trust. There are good reasons I think I need one. My spouce is incapable of managing our assets if I was to die.
But I am wondering what really needs to be inside the Trust.
So I am convinced my roll over IRA will remain outside the Trust but also think I would like to keep my life insurance policies outside too.
Both the IRA and the Life Insurance Policies use “primary beneficiaries” to distribute the assets after my death to my heirs in a very simple straight forward way. So why put either of them inside a RVT?
Permalink Submitted by Bruce Steiner on Sun, 2012-10-14 16:58
You don’t necessarily need a revocable trust. However, if your wife can’t manage her assets, you should make appropriate provisions for trustees of the credit shelter trust under your Will; and you should leave the marital share (the amount in excess of the estate tax exempt amount) to her in a marital trust rather than outright, with appropriate provisons for trustees.
The more difficult issue is the management of her assets. She could create a revocable trust so someone can manage her assets. However, she could also give you a power of attorney so you can manage her assets. She could also name one or more backup persons who could manage her assets if you die first, or you’re otherwise disabled during her lifetime. You should consult with tax/estates counsel (other than one who “pitches” revocable trusts).
You are correct that your life insurance passes by beneficiary designation. However, since your wife can’t manage her assets, you wouldn’t want to name her the beneficiary. If you would otherwise want to provide for her, you could name the credit shelter trust under your Will as the beneficiary. If the amount of the insurance is or could be more than the estate tax exempt amount (it’s $5,120,000 now, and scheduled to revert to $1 million next year, though no one knows what Congress might do), it can be complicated, though if you have that much insurance you might want to consider a separate insurance trust which, assuming you live for at least 3 years, will keep the insurance proceeds out of your estate, while having them available for your wife if she needs them.
The IRA is complicated as well. You can’t give away an IRA during lifetime. There are benefits to naming the spouse as beneficiary. She can roll them over, name new beneficiaries, get a longer stretchout, and possibly convert to a Roth if you didn’t already do so. She’ll have to give someone other than you a power of attorney so someone can do these things if she survives you. The power of attorney will have to be customized. Again, you should consult with competent tax/estates counsel (other than one who “pitches” things).
Finally, you may want to consider converting to a Roth IRA, either all at once or over a number of years if converting all at once would bunch the income into a higher income tax bracket. While you’re married you can file joint returns, which may (or may not) give you a lower tax bracket for the conversion.
Permalink Submitted by Richard Rea on Sun, 2012-10-14 22:09
“…you should consult with competent tax/estates counsel (other than one who “pitches” things).”
Great idea but how does a layman like me tell who is “competent”?
So far I have gone to three “free estate planning seminars” and the guy I am currently dealing with impressed me the most. After the seminar we did a free hour of one on one session and he concluded that I needed a trust and other things.
But a lot of why he impressed was the fact that we are very similar persons. We are both ex-military pilots, him Air Force and me Navy. He was a Boeing 747 captain for United Airlines. I helped design the B-747 when I worked for Boeing. We are approximately the same age. When United filed for bankruptcy he represented the pilots union of which he was a member. He has written a book on Estate Planning and is a member of The American Academy of Estate Planning Attorneys. I find the fact that he is an attorney and military/commercial pilot unusual. Most pilots are “engineering types” and not “word smiths”.
So does that all make him “competent”?
He seem very convinced/basised that a Trust is the best way to go and we have started down that road.
Is there a comsumer web site I can check on his professional reputation?
Thanks
Permalink Submitted by Bruce Steiner on Mon, 2012-10-15 00:06
What you described doesn’t sound promising. If you go to the free lunch seminar, and you’re the one who buys the annuity, the living trust, the bridge, or the timeshare, not only did you pay for your free lunch, you paid for the free lunches for everyone else in the room. You also paid for the free hour for everyone else in the room. That doesn’t leave much of a budget for much else.
Being a member of the outfit you mentioned likewise doesn’t sound promising.
In general, you could look for a lawyer in the same way you would look for a doctor, dentist, auto mechanic, plumber, or any other service provider. You could ask people whom you think might be able to make a good recommendation, such as accountants, business associates, lawyers in other practice areas. We have to do this all the time (though we mainly ask other lawyers) when we’re recommending lawyers in practice areas in which no one in our firm handles, or for lawyers in other geographical areas where it’s not practical for us to handle the matter.
There are a few other things you can do. While there is no one indicator that’s foolproof, the combination of several indicators should give you a sense of whether you’re in a reasonable place.
Martindale publishes a multi-volume set of books each year, including ratings of A, B, C or not rated, for each lawyer. The ratings are based on peer reviews. For many years this was only available to lawyers or in libraries, but it’s now online at http://www.martindale.com .
Avvo also rates lawyers, on a scale from zero to 10, with 10 being highest. Their website is http://www.avvo.com . Their ratings are based on profiles that lawyers fill out, and they give weight to professional accomplishments such as speaking at continuing legal education programs, and writing for professional journals.
Just about every law firm has a website. You can go to the firm’s website and look at the bios and professional accomplishments of the lawyers you’re considering, as well as of the other lawyers in the firm. You can also get a sense of the firm’s primary practice areas.