People view life insurance as a contingency plan if something bad happens in life. That view, however, is not the whole picture when it comes to considering life insurance as a planning tool. Life insurance can be a solution to several challenges in estate, business and cottage planning situations. As such, it is not only a contingency plan, but it can be a primary tool to serve a specific purpose in a person's overall succession plan.
Periodically Dan Penning will appear in the local media to discuss various matters relating to Cottage Law, Estate Planning, Business Succession Planning and Asset Protection.
Families Preserve Their Best Memories of the Family Cottage Through Succession Planning
Spring triggers the annual migration of cottage/cabin owners back to their summer homes after the long, cold winter – or, for those more fortunate, spending time at warm climate retreats. Spring also brings the excitement and anticipation for a new season of warm, muggy nights, fishing, watersports, campfires, and the constant coming and going of family members and guests at the family cottage.
As life circumstances change (birth, marriage, divorce, death), it may become necessary to make changes to your estate planning documents. If estate planning documents are not kept up-to-date, they can become useless. The best way to make changes to estate planning documents is to either restate an estate plan in its entirety or make specific changes to documents like a will through a codicil or a trust through an amendment to the trust.
One of the most significant tax advantages to owning a home comes at the back end of ownership, when you decide to sell it for a profit. A homeowner can exclude up to $250,000 of such profit from their federal capital gains tax. For married couples filing a joint tax return, the exclusion jumps to $500,000. This big tax break, however, does come with some basic requirements. It applies to the sale of only a “principal residence,” not a vacation home or investment property.
As part of a recent series, I wrote an article about various issues involved with making sure beneficiary designations on such matters as Individual Retirement Accounts (IRAs), 401(k) accounts, life insurance policies and other similar retirement benefit accounts.
Over the past 20 years, many individuals established Qualified Personal Residence Trusts (QPRT) whereby an individual transferred title of his/her real estate to a QPRT, which essentially leveraged the value of the gift made to the trust by deducting the value of the transferor retaining use and enjoyment of the property for the term of years of the QPRT.
Like most attorneys, I was taught Estate Planning either by direct tutoring from my partners or by the traditions of those attorneys teaching seminars and speaking in related educational-type programs. The answer to the question of who should serve as a successor trustee in a trust for the individuals forming the trust (trust makers) is almost always an afterthought – it defaults to the kids, of course.
The Importance of “Trust Funding”
One of the significant benefits of utilizing a living trust as part of one’s estate plan is to avoid the necessity of a surviving spouse or heirs from having to probate your assets with a probate court after your death. However, this benefit is not achieved by simply drafting and signing a living trust. The title to assets actually has to be transferred from an individual and/or their spouse to the trust during their lifetime in order to achieve the goal of avoiding probate.