Trust-owned Life Insurance in your Estate Plan

Trust-owned life insurance is a useful tool to accomplish estate tax and long term care planning, but requires a sophisticated trustee to handle it.

Trusts are frequently used in the estate planning process. They help with in the distribution of assets, incapacity planning and probate avoidance, making certain that everything is distributed to the right people and entities, provide creditor protection and more.  Many people don’t know that you can even place a life insurance policy within a trust.  Some trusts, typically those designed to reduce estate taxes or perform long term care planning, use trust-owned life insurance (TOLI) to accomplish those goals.

Investopedia’s recent article entitled “Can You Trust Your Trustee?” explains that life insurance in a trust is called trust-owned life insurance (TOLI). A TOLI is like bank-owned and company-owned life insurance. Trustees often do a good job of completing basic tasks, but conflicts and problems can pop up when trustees don’t understand where their loyalties should be and how to deal with complex financial issues.  A trustee has a fiduciary responsibility to the beneficiaries of a trust. The trustee is required to manage the trust assets pursuant to the instructions of the trust for the beneficiaries.

The trustee must, therefore, actively manage the insurance policy, or policies, that are owned by the trust. This includes ensuring the trust’s purposes are being served, such as providing notice to beneficiaries of withdraw rights.  It also includes determining if the policy is performing up to the projections reflected in the original life insurance illustration and identifying alternatives more in line with the goals of the trust.  New life insurance products have made some policies sold in the past obsolete and an old under-performing policy can often be replaced. However, some trustees don’t possess the skills necessary to oversee trust-owned life insurance. A trustee should understand and be aware of:

  • The policy’s performance relative to expectations
  • The last time the life insurance policy was reviewed
  • If there are other policies that may do a better job of meeting wishes and stipulations expressed in the trust document
  • Whether the credit rating of the insurance company that issued the policy has decreased and
  • If the allocation of the sub-accounts is still aligned with the investment policy statement.

Now, not all insurance needs to be TOLI.  It is important to discuss this with your attorney to determined whether a trust which owns life a life insurance policy is beneficial to you, and whether to have your insurance owned by your trust.  See here for trust basics to address this topic.  https://galligan-law.com/how-do-trusts-work-in-your-estate-plan/

Trust-owned life insurance can have an important role in the estate plans of many people, but not all trustees have the bandwidth when it comes to insurance and estate planning to fulfill their fiduciary responsibilities. Ask an experienced estate planning attorney for assistance.

Reference: Investopedia (June 25, 2019) “Can You Trust Your Trustee?”

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Elder Abuse Continues as a Billion-dollar Problem

Elder abuse continues to be a problem for seniors, but individuals can take steps to protect themselves in their estate plans and finances.

Aging baby boomers are a giant target for scammers. A report issued last year from a federal agency, the Consumer Financial Protection Bureau highlighted the growth in banks and brokerage firms that reported suspicious activity in elderly clients’ accounts. The monthly filing of suspicious activity reports tied to elder financial exploitation increased four times from 2013 through 2017, according to a recent article from the Rome-News Tribune titled “Financial abuse steals billions from seniors each year.”

When the victim knew the other person, a family member or an acquaintance, the average loss was around $50,000. When the victim did not have a personal relationship with their scammer, the average loss was around $17,000.  See this recent blog for more background.  https://galligan-law.com/elder-financial-abuse-is-increasing/

What can you do to protect yourself, now and in the future, from becoming a victim? There are many ways to build a defense that will make it less likely that you or a loved one will become a victim of these scams.

First, don’t put off taking steps to protect yourself, while you are relatively young. Putting safeguards into place now can make you less vulnerable in the future. If you are suffer bad health and lack of capacity later, it may be too late.

Create a durable power of attorney as part of your estate plan. The power of attorney names a trusted person you name as your legal representative or agent, who can manage your financial affairs if need be.  You should also consider using a trust which owns assets during your lifetime.  While it is true that family members are often the ones who commit financial elder abuse, you’ll need to put your trust in someone. Usually this is an adult child or a relative. You may also consider a bank as a trustee.  They will charge for their services, but their professionalism makes a bank an excellent choice.

It may also help to bring your agent, trustee and other loved ones into the discussion about assisting with your finances well before incapacity and be open with them about what you want your fiduciaries to do.  Of course, many people are hesitant to discuss finances openly, but as Justice Brandeis remarked over a hundred years ago, “Sunshine is said to be the best of disinfectants.”  Having multiple people aware of what is happening and what your fiduciaries are doing may prevent one bad actor from attempting or getting away with elder abuse.

Consider the guaranteed income approach to retirement planning. Figuring out how to generate a steady stream of income as you face the cognitive declines that occur in later years might be a challenge. Planning for this in advance will be better.  Social Security is one of the most valuable sources of guaranteed income. If you will receive a pension, try not to do a lump sum payout with the intent to invest the money on your own. That lump sum makes you a rich target for scammers.

Consider rolling over 401(k) accounts into Roth accounts, or simply into one account. If you have one or more workplace retirement plans, consolidating them will make it easier for you or your representative to manage investments and required minimum distributions.

Make sure that you have an estate plan in place, or that your estate plan is current. Over time, families grow and change, financial situations change and the intentions you had ten, twenty or even thirty years ago, may not be the same as they are today. An experienced estate planning attorney can ensure that your wishes today are followed, through the use of a will, trust and other estate planning strategies.

Resource: Rome News-Tribune (April 27, 2020) “Financial abuse steals billions from seniors each year.”

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The Symptoms of Early-Onset Alzheimer’s Disease

Here are 7 key symptoms of early-onset Alzheimer’s Disease.

Many people face cognitive challenges as they age, such as memory loss.  Some suffer from dementia or Alzheimer’s disease, and some even have early-onset Alzheimer’s.  Considerable’s recent article entitled “7 surprising early signs of Alzheimer’s” provides us with some signs of early-onset Alzheimer’s disease.

Theft or other law-breaking. Any behavioral change as people age is of concern, but this can be a sign of Frontotemporal Dementia (FTD), another progressively damaging, age-related brain disorder. FTD usually hits adults aged 45-65. People’s executive function—their ability to make decisions—can be impacted by FTD, which may explain why they become unable to discern right from wrong.  I have had clients in the past discover this condition after an arrest or fine lead to a medical exam.

Frequent falls. A study of 125 older adults asked them to record how frequently in an eight-month period that they fell or tripped. Researchers examined the brain scans of those who fell most frequently and saw a correlation between falls and early-onset Alzheimer’s Disease.

Forgetting an object’s function. We all forget where we put the keys. However, if you can’t remember what a key is for, or where dirty dishes are supposed to go, then it may be the first signs of Alzheimer’s Disease or dementia.

Inappropriate diet. Prior to the onset of Alzheimer’s, patients typically to eat more (roughly 500 calories more a day) than their aging counterparts but they still tend to lose weight. Doctors think this is a metabolic change. Some elderly actually eat inanimate objects prior to their diagnosis, but researchers don’t know the reason. Because Alzheimer’s and dementia affect the brain’s memory, it may be because their brain receives hunger signals but is unable to discern how to react to them. Some patients eat paper or other inedible objects.

Inability to recognize sarcasm. If you fail to recognize sarcasm or take it very literally and seriously, it may be a sign of atrophy in your brain. A study at the University of California – San Francisco found that Alzheimer’s patients and those with Frontotemporal Disease were among those who couldn’t recognize sarcasm in face-to-face encounters. The brain’s posterior hippocampus is impacted, which is where short-term memory is stored and where a person sorts out such things, like sarcasm.

Depression. If someone has never suffered from clinical depression but develops it after age 50, it could be an early sign of Alzheimer’s. It doesn’t mean if you’re diagnosed with depression in older age that you will develop Alzheimer’s or other cognitive decline. However, get treatment soon because some researchers believe that hormones released in the depressed brain may damage certain areas of it, leading to the development of Alzheimer’s or other dementia.

Unfocused Staring. Alzheimer’s Disease is a change in cognitive and executive functioning in the brain. This means that your ability to recall facts, memories and information is compromised, as well as the ability to make decisions. The brain becomes unfocused and staring in a detached way may be an early sign of so-called “tangles” in your brain.

If you are interest in this topic, I also wrote a blog on early onset dementia more generally which you can find here.  https://galligan-law.com/what-do-we-know-about-early-onset-dementia/

These symptoms may be signs of early-onset Alzheimer’s Disease, or they may be the signs of other underlying issues. If you or any of your loved ones have any of these signs, consult your doctor.  This may be a sign of something else but talk to your doctor to be safe.

Reference: Considerable (May 12, 2020) “7 surprising early signs of Alzheimer’s”

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