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Life Insurance Is a Good Estate Planning Tool but Needs to Be Done Carefully
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Life Insurance Is a Good Estate Planning Tool but Needs to Be Done Carefully

With proper planning and the help of a seasoned estate planning or probate attorney, insurance money can pay expenses, like estate tax and avoid the need to liquidate other assets, says FEDweek’s recent article entitled “Errors to Avoid in Using Life Insurance for Estate Planning.”

As an example, let’s say that Reggie passes away and leaves a large estate to his daughter Veronica. There’s a big estate tax that’s due. However, the majority of Reggie’s assets are tied up in real estate and an IRA. In light of this, Veronica might not want to proceed directly into a forced sale of the real estate. However, if she taps the inherited IRA to raise cash, she’ll be required to pay income tax on the withdrawal and forfeit a very worthwhile opportunity for extended tax deferral.

If Reggie plans ahead, he could purchase insurance on his own life. The proceeds could be used to pay the estate tax bill. As a result, Veronica can retain the real estate, while taking only minimum required distributions (RMDs) from the inherited IRA.

If the insurance policy is owned by Veronica or by a trust, the proceeds probably won’t be included in Reggie’s estate and won’t increase her estate taxes.

Along these same lines, here are some common life insurance errors to avoid:

Designating your estate as beneficiary. When you make this move, it puts the insurance policy proceeds into your estate, exposing it to estate tax and your creditors. Your executor will also have to deal with more paperwork, if your estate is the beneficiary. Instead, name the appropriate people or charities.

Designating just a single beneficiary. You should name at least two “backup” beneficiaries. This will decrease any confusion, if the primary beneficiary predeceases you.

Throwing the copy of your life insurance policy in the “file and forget” drawer. You should review your policies at least once every few years. If the beneficiary is an ex-spouse or someone who’s passed away, make the appropriate changes and get a confirmation from the insurance company in writing.

Failing to carry adequate insurance. If you have a youngster, it undoubtedly requires hundreds of thousands of dollars to pay all her expenses, such as college bills, in the event of your untimely death.

Talk to a qualified and experienced estate planning attorney about the particulars of your situation.

Reference: FEDweek (Dec. 12, 2019) “Errors to Avoid in Using Life Insurance for Estate Planning”

How to Avoid Taxation on Life Insurance Proceeds

Read one of our previous blogs about How Life Insurance can Help your Estate Plan

 

Scams are Being Perpetrated on Veterans, Active Military and Their Families
VA Long-Term Care Benefits for Veterans

Scams are Being Perpetrated on Veterans, Active Military and Their Families

The scam victims who were military personnel, veterans or their spouses reported higher median losses than non-military consumers, the BBB said.

nj.com says in its recent article entitled “Veterans warned to beware of scams that target military families” that a common scam is “pension poaching,” which targets elderly and disabled veterans and their families.

The Better Business Bureau says that unethical financial planners, insurance agents, or other entities may claim they can help their marks apply for Veterans Affairs benefits programs, sometimes charging large advance fees.

These scammers may actually be trying to get veterans to move their assets to try to gain benefits they can’t qualify for, allowing the poacher to profit at the veteran’s expense.

New York recently passed legislation called the Pension Poaching Prevention Act that is designed to protect veterans from scammers. The bill restricts who can receive compensation for preparing benefits.

Senator Vin Gopal (D-Monmouth), who serves as chair of the Military and Veterans’ Affairs committee, was asked if New Jersey is working on similar legislation.

“Through their service and sacrifice, our veterans earn an array of well-deserved benefits – but that too often makes them prime targets for scammers and con artists,” Gopal said in an email. “Right now, we’re working to push a bill — S2838 — that would require telecom companies to warn their customers about potential scams or fraud risks. That’s an invaluable tool to many New Jerseyans – and especially older residents – who are finding themselves lost in an ocean of robocalls and scammers.”

Senator Gopal said he will review efforts by New York and other states “to see how New Jersey can continue to defend our veterans and keep their benefits safe.”

Reference: nj.com (Nov. 11, 2019) “Veterans warned to beware of scams that target military families”

For information related to Florida visit: Military and Veteran Consumer Protection

You can also read a previous blog we’ve posted entitled: What Types of Long Term Care is available for Veterans