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?”

Continue ReadingTrust-owned Life Insurance in your Estate Plan

Warning Signs That There May a Will Contest After You Die

Address issues in your estate planning now to avoid a Will Contest later.
Address issues in your estate planning now to avoid a Will Contest later.

One of the goals of estate planning is to avoid conflict in the family, including a Will contest, after a loved one passes away.

Take a look at the following situations. If any of them apply to you, know that you can take steps now to minimize the chance of a Will contest in the future.

Here are 10 warning signs that there may be family conflict after you are gone:

  • There are step-parents and step-children – and you want to be fair to everyone
  • You have lent money during your lifetime to one child; or one child has needed more help from you during your lifetime than your other children.
  • You plan to leave all or a large portion of your estate to charity or to a non-relative.
  • You have a lifestyle certain members of your family don’t approve of.
  • You have children who don’t get along – it will get worse after you are gone.
  • Your children’s abilities to handle money differ – one is prudent, another is a spendthrift.
  • Your extended family members disagree on how your minor children should be raised if you are not there do to so yourself.
  • Some of your children work in the family business; others do not.
  • One child has moved into your house to take care of you (or has moved into your house because of a financial setback).
  • You have family heirlooms and have not left instructions on how they are to be divided.

Every family has its issues. While it may not always be possible to eliminate all conflict, there are ways to structure your estate plan so as to minimize the chance of a Will contest. If any of these situations apply to you, contact an estate planning attorney now to find out what steps you need to take to preserve family harmony in the future.

You may also be  interested in https://galligan-law.com/does-your-executor-know-what-to-do/.

Continue ReadingWarning Signs That There May a Will Contest After You Die

Your Nosy Neighbor Can Find Out About Your Probate

Your neighbor can find out all about your probate process and the assets you owned.
Your nosy neighbor can find out all about your probate process and the assets you owned.

Most people think of probate (the process of collecting, managing, and distributing a deceased person’s money and property) as a private process. However, because wills are filed at the courthouse, probated estates become a matter of public record. That means your nosy neighbor from down the street or a long lost family member can simply go down to the courthouse or hop online and find out about your probate and the assets you owned. Really.

And it’s not just your neighbor who has access to this information. After a death, Texas law requires that the person having possession of the deceased person’s will must file it with the probate court –even if there won’t be any probate court proceedings.

While your neighbor may be an annoyance and have no reason to view the information other than out of curiosity, others can get access to your public records and make your beneficiaries’ lives miserable.

Financial predators.

While today’s digital world is convenient, it’s also dangerous. Financial predators find ways to access sensitive personal information online. Since courts are part of a bureaucratic process that often moves slowly, months can elapse before you (or the court) realizes that your beneficiaries have been swindled.

Will Challengers.

Since a will that is filed with the probate court becomes a public record, those believing they have an interest (whether valid or invalid) can access the document and challenge the will. This can result in added costs and time defending the will from what could amount to a frivolous claim.

Avoid the “Nosy Neighbor” Factor with a Revocable Living Trust.

Revocable living trusts are almost never filed with a court, either before or after your death. Probate courts are not involved in supervising your trust administration. So, you can avoid intrusions by busy bodies and predators by creating a revocable living trust. A trust is the best way to keep your financial and family affairs private.

For more about estate planning issues see https://galligan-law.com/practice-areas/estate-planning/.

Continue ReadingYour Nosy Neighbor Can Find Out About Your Probate