Archive for February, 2009

« Older Entries

Are you a trustee of an ILIT?

Friday, February 27th, 2009

Irrevocable life insurance trusts (“ILITs”) are popular estate planning tools used to shelter life insurance proceeds from estate taxes. While the insured is alive, generally the only asset owned by an ILIT is a life insurance policy.  However, trustees of an ILIT have a duty to make sure that the policy is a prudent investment and may be liable to the beneficiaries if it is not.

So, in light of the recent financial difficulties facing insurance companies, a trustee of an ILIT should ask the following questions (at least annually):

  • What is the insurance company’s present financial strength? Life insurance companies are rated for financial strength and stability by ratings services such as Moody’s A.M. Best and Standard & Poors.
  • Is the policy performing as illustrated? Policy illustrations make certain assumptions for rates of return and the like. If the initial illustrations used interest rates that were not attained, then the policy could require additional premium payments beyond those anticipated to avoid lapsing.
  • Is the policy satisfying current needs? Policies purchased years ago usually satisfied then current needs. Changes in the tax law and circumstances of the trust grantor and beneficiaries may warrant revisiting the type and amount of insurance coverage to address current needs.
  • Can a more competitive policy be purchased? With longer life expectancies and lower mortality costs, a new life insurance policy, despite the fact that the insured may be years older, could result in a significant premium reduction without sacrificing the death benefit.

An ILIT trustee should engage the help of an insurance advisor to conduct annual policy reviews to make sure that he or she is fulfilling his or her fiduciary duties as a trustee.

Posted in Business Planning, Estate Planning | Comments Off

Are all C.D.’s created equal?

Tuesday, February 24th, 2009

When you hear someone say “C.D.,” you probably think, like I do, that it is a reference to a plain vanilla Certificate of Deposit from a bank that is insured by the Federal Depository Insurance Corporation (better known as “FDIC”).  Turns out that this thinking is naive. 

Last week, the Securities and Exchange Commission accused a Texas financier of fraud.  Investigators alleged that he developed a scheme around the sale of about $8 billion of suspiciously high-yielding C.D.’s through Stanford International Bank.  Those “C.D.’s” were not insured, causing many individuals much loss and a monkey wrench in anyone’s plan to park their life savings in certificates of deposit.

 With that in mind the New York Times has a good article on C.D. basics that worth a quick review, especially if your portfolio includes these assets. 

It’s also important to remember that the FDIC insurance is limited to $250,000 per owner on bank accounts at one institution (and going back to the old rule of $100,000 at the end of this year, unless the government acts to extend this coverage into 2010).  Of course, planning around this amount can permit larger sums at one bank to garner complete coverage.

For example, a bank account in the sole name of John Smith is distinct from a bank account in the name of John Smith payable on death to Jane Smith.  As a result, with these two simple designations, Mr. Smith may deposit up to $500,000 at one bank with full insurance protection.  Unfortunately, this may frustrate his estate planning, especially if it includes a living trust.  Trust planning, if properly executed, avoids probate and provides for successor beneficiaries if the primary beneficiary does not survive.  Payable on death designations seldom have successor beneficiaries, thus making them undesirable in many cases.  

Fortunately, bank accounts titled in the name of a living trust can obtain FDIC insurance protection, although the protection amount is based not on the trust maker, but rather, the trust beneficiaries.  For example, if Mr. Smith’s trust names his wife and two children as beneficiaries, his trust may have fully insured deposits up to $750,000 at one bank.  Based on these rules, trusts can remain in the forefront of one’s planning.  A wealth of useful information on FDIC insurance can be found at the FDIC’s website or by contacting our office to review or update your estate plan. 

Posted in Estate Planning | 2 Comments »

What’s in the Stimulus Bill?

Thursday, February 19th, 2009

The President signed into law a $787 billion stimulus package this week that contains hundreds of provisions.  In fact, the legislation is over 1,000 pages long!

Some of the key provisions for individual taxpayers are:

  • $2,400 of unemployment benefits will not be subject to federal income tax
  • $400 payroll tax credit for workers earning up to $75,000; married couples filing jointly get $800 for income up to $150,000
  • A tax credit for first-time homebuyers increases from $7,500 to $8,000, and will not have to be repaid
  • Tax credit of up to $2,500 for tuition and college expenses

Some of the key provisions for business taxpayers are as follows:
  • C-corporations converting into S-corporations will have a 7-year holding period for assets subject to built-in gains tax (old rule was 10 year holding period)
  • Small businesses will be allowed to write-off up to $250,000 of capital expenditures in the year of acquisition

The Wall Street Journal has a great breakdown of the spending in the Stimulus legislation.  It can be viewed by clicking here.

Posted in Business Planning, Estate Planning | Comments Off

« Older Entries