Monday, 20 May 2019
BREAKING NEWS

Column: Five things to know about life insurance – Wicked Local Dedham

Life insurance companies are giving away free Apple Watches to people who share fitness data with them and meet their fitness goals. New York state is allowing life insurance companies to scroll through your pictures on Instagram to determine your premiums. The digital age has made it possible to decrease premiums by installing fitness apps and posting pictures of yourself running. When thinking about life insurance as your family grows or your term life insurance expires, you will want to keep the following five things in mind.

• What is life insurance? Life insurance provides a payout after your death (called a death benefit) to the people you designate as beneficiaries. It is an important safety net if anyone depends on you financially. Life insurance benefits can pay debts such as mortgages, replace your income and provide funds to pay for college tuition. Life insurance can provide for dependents such as children or a younger spouse. It can help a business owner buy out the interest of a deceased business partner.

•Is group life insurance enough? Free life insurance at work is a great benefit. You sign up, and your employer pays. More Americans are covered by work-based life insurance than by policies they purchase outside work. Most people rarely revisit their life insurance needs. Free coverage is typically one to two times your annual salary. However, you may want to replace more than two years of income upon your death. Our firm does not advise clients as to the amount of insurance to obtain, but we work with financial advisors to make sure that ownership and beneficiary designations for insurance policies are in line with your estate plan. If you have questions about your life insurance, speak with a financial advisor as to whether work coverage is sufficient depending on your goals.

• Is life insurance taxable? Beneficiaries do not have to pay income tax on death benefits they receive. However, proceeds of insurance policies are subject to estate tax upon your death if you control the policy – that is, if you can cancel, surrender, or assign the policy or change the policy’s beneficiary. When life insurance proceeds are payable to your spouse, a marital deduction will apply. However, if the proceeds are payable to children or others, an estate tax may be due. As an example, if my sister designates me as beneficiary of a policy with a $50,000 death benefit, I will not pay income tax on the proceeds, but the $50,000 proceeds will be included in my sister’s estate for purposes of calculating the estate tax payable by her estate at her death.

• Can you avoid estate tax? Life insurance proceeds can escape estate tax if you transfer the policy to an irrevocable life insurance trust. Once the trust owns the policy, you cannot get it back or make changes to the provisions of the trust that will specify how the death benefit will be distributed at your death. Also, you cannot be a trustee of an irrevocable trust that owns a policy insuring your life. If you transfer an irrevocable policy to a trust but die within three years of the transfer, you lose the estate tax break, but if you create an irrevocable trust and the trust buys a new policy, the three-year rule does not apply.

• What is the catch? The irrevocable trust as the policy owner must pay premiums. You cannot pay premiums directly but may make gifts to the trust. The trustee must give the beneficiaries notice of their right to withdraw amounts contributed to the trust so they qualify as present gifts. These notices, called Crummey notices, are named after a court case that fleshed out these requirements and allow contributions to qualify for the annual gift tax exclusion, relieving you of the need to file gift tax returns.

If you have purchased a life insurance policy or are contemplating purchasing a policy and would like to structure ownership to decrease the estate tax owed at your death, contact an estate planning attorney.

Natalene Ong Esq. is an estate planning attorney at Samuel, Sayward & Baler LLC, a law firm that is based in Dedham. The firm focuses on advising clients in the areas of estate planning, administration of estates and trusts and elder law. For more information, visit http://ssbllc.com or call 781-461-1020. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit http://ssbllc.com or call 781-461-1020.

Source: http://dedham.wickedlocal.com/news/20190405/column-five-things-to-know-about-life-insurance

« »