Wills, Trusts & Estates Prof Blog

Life Insurance Guide For Advisors

Harold D. Skipper, Ph.D. (Professor of Risk Management and Insurance, Georgia State University) recently published his book entitled The Advisor’s Guide to Life Insurance (2011). The book description is below:

The Advisor's Guide to Life Insurance is designed to assist advisors in making better informed life insurance recommendations to their clients, and it also serves as an expert training tool for advisors and their staffs. This clearly written book provides information essential to the exercise of due care in the purchase and retention of life insurance policies. In writing this Guide, the authors' primary objectives were to provide the necessary information for advisors to maximize the chances that policies purchased and maintained by your clients offer good value for the premiums paid, and that the insurance companies selected to back the policies are, and are likely to remain, financially sound.

The Guide serves as both a primer and a reference source, structured to address the needs of both those with less life insurance knowledge who are looking for a focused, integrated approach to the entire subject as well as more experienced practitioners who want to do quick research on a particular topic. Chapters can be read and used independently of each other. The authors are careful to define the major life insurance terms used, and when terminology is not standard, to list other terms understood in the industry to have the same meaning. For quick reference, a glossary of all defined terms is included in The Advisor's Guide to Life Insurance. Information "boxes" are interspersed throughout the text that offer key insights and practical advice on a particular topic, as well highlighting short examples, tables, and figures.

The book's 18 chapters are organized in six parts for ease of understanding and reference:

• Part I: The Life Insurance Purchase: an introduction to why and how it is purchased, the role of advisors in the process, and the terminology used in the industry
• Part II: Assessing Life Insurance Company Financial Strength: sets out the characteristics and importance of an insurer's financial strength, as well as the role of financial regulation of life insurers and accompanying policyholder protections. Also explains how ratings agencies work and other sources of information for assessing an insurer's financial strength.
• Part III: Life Insurance Policy Fundamentals: A common-sense, intuitive approach to how companies price their products, including the actuarial aspects of insurance policies. These chapters cover the most common types of individually issued life insurance policies and compare and contrast these policies. A concluding summary of the contractual provisions included in life insurance policies and of various optional benefits takes the reader beyond the standard treatment of the life insurance policy as a contract.
• Part IV: Determining the Appropriate Policy for Each Application: illustrates the various family, estate, and business uses of life insurance.
• Part V: Life Insurance Illustrations and the Sustainability of Policy Values: introduces how to understand and use life insurance policy illustrations, and then explains how to dig more deeply to recognize their underlying assumptions and assess their sustainability as well as insurers' intentions and practices in managing policy performance. Also covered is how to determine the appropriate funding level for various policies.
• Part VI: The Issues Involved in Ongoing Policy Management: examines both the desirability and necessity for regular policy reviews, as well as how to use an existing policy to provide values during an insured lifetime, not just at death.

Advisors who master this material will be able to make more informed and superior life insurance recommendations, which translate into a significant benefit for their clients.

 

Mother Receives Late Child Support 30 Years Later

A woman who cared for her two daughters without child support received over $93,000 in late child support almost 30 years later. Below is CNN’s video of the woman’s tearful acceptance of the money.   

See Mom Gets Child Support 30 Years Later, CNN, May 20, 2011. 

CLE on Qualifying for Medicaid

The National Business Institute is sponsoring a 90-minute teleconference on June 14 entitled Qualifying for Medicaid: Effective Asset Transfers and Income Planning. The program description is below:

Adopt Effective Asset Transfer Strategies When Planning for Medicaid The financial eligibility requirements for Medicaid are stringent, and time is often of the essence. This practical legal guide will help you properly plan for the clients' spenddown transfers to ensure their financial independence and minimize transfer taxes. Register today!

• Find out what financial tools help the clients keep the maximum financial resources while still fulfilling the spenddown requirements.
• Advise clients against actions that will restart the lookback period.
• Document each gift properly to ensure the intended tax allocation.
• Help clients manage sudden cash influxes that threaten their eligibility.

Ten Bizarre Will Requests

Many well-known individuals leave behind strange requests in their wills after they pass. Below are ten celebrities, heiresses, and inventors who each made bizarre requests in their wills.

1. Harry Houdini died on Halloween in 1926. Prior to his death, Houdini became infatuated with the afterlife and made plans with his wife, Bess, to visit her after his death. To ensure regular opportunities to visit his wife from the grave, Houdini’s will stated that his wife should hold a séance every year on the anniversary of his death.

2. The will of Star Trek creator Gene Roddenberry contained a request that his ashes be taken into and scattered throughout space by a satellite. In 1977, his request was carried out.

3. Charles Vance Miller, a Toronto attorney, passed away in 1926. In life, Miller was known as a practical jokester, and he “lived” up to his reputation even in death. Miller’s will promised a large sum of money to any woman in Toronto who could produce the most children in the ten years after his death. The four winners of the “Great Stork Derby” produced nine children each and each received around $125,000.

4. Leona Helmsley, a real estate investor and hotel owner (better known as the “Queen of Mean”), left instructions in her will for the establishment of a $12 million trust for her Maltese dog. In contrast, she left her two grandsons only $5 million each with the stipulation that they make yearly visits to their father’s gravesite.

5. Heiress Eleanor Ritchey’s will left $14 million to 150 stray dogs. Following the death of the last dog, the remaining funds went to the Auburn University Research Foundation where the money was to aid in the research of canine disease.

6. Thomas Shewbridge, a California prune rancher, made his two dogs the owners of his 29,000 stock shares in the local electric company following his death. Both dogs attended the board of directors’ and stockholders’ meetings regulary.

7. Nina Wang, an Asian woman who was dubbed the richest woman in Asia, left her $12.8 billion estate to a charity she and her late husband founded in 1988. After her death, her lover, Tony Chan, disputed Wang’s will. Chan, a married man and a fortune teller, was later accused of creating a fake will in his attempt to get his hands on Wang’s money.

8.The will of Dusty Springfield, a British singer, instructed that her cat be serenaded by Springfield’s songs, fed imported baby food, and marry the cat of his new guardian.

9. Doris Duke, the daughter of the founder of the American Tobacco Company and Duke University, created a $100 million trust for her dogs through her will. For four years, the matter was disputed in court. In the end, the judge awarded the two former servants who had been caring for the dogs $20,000.

10. Mark Gruenwald, Executive Editor of Captain America and Iron Man, requested that his ashes be mixed with the ink used to create the Marvel Comics. His request was carried out following his death.

See 10 Strange Will and Testaments, Forbes, Apr. 12, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.

Article on Aid-In-Dying Around the World

Kristina Ebbott (2010 J.D. candidate, William Mitchell College of Law) recently published her article entitled A “Good Death” Defined By Law: Comparing the Legality of Aid-In-Dying Around the World, 37 Wm. Mitchell L. Rev. 170 (2010). The introduction is below:

Aid-in-dying is a complex issue that incites heated global debate. This issue will become more substantial throughout the next fifty years as the elderly population increases because the elderly are more likely to face decisions regarding end-of-life care. Despite polarized views on this subject, four countries have enacted laws that provide specific regulatory systems that permit a person to seek aid-in-dying from a physician. An additional country permits aid-in-dying, not by statute, but by providing exemptions to prosecution in its penal code. These cases all provide examples of how changes in social acceptance and medical technology affect the way the law treats the concept of human dignity at the end of life. To learn from these examples, we must study them and analyze which regulatory structures work best and why.

Part I of this article introduces the reader to the various terms used in discussions regarding this topic. Part II gives the historical background of euthanasia practices around the world and the movements that have sought to legalize different forms of euthanasia. Part III examines the five countries that have legalized aid-in-dying and the different regulatory systems those countries have employed in an attempt to provide patients with choices while avoiding abuses. Finally, in Part IV, I provide an assessment of the changing cultural climate that has contributed to the legalization of aid-in-dying in certain countries and whether it is preferable to enact laws that explicitly permit certain forms of aid-in-dying. Part IV also sets forth the author's perception of the most functional attributes of each law.

Why Estate Planners Should Not Rely on Portability

Portability, the concept of ensuring for the preservation and passing on of a deceased spouse’s estate or gift tax exclusion amount to his or her surviving spouse, appears in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. In the past, estate planners have ensured that a surviving spouse will retain a deceased spouse’s tax exclusions through the use of one or more trusts.

Though it appears that IRC § 2010 acts as a sufficient substitute for trusts, many estate planners are recommending that advisors not rely on portability alone. The reasons estate planners suggest the continued use of trusts, as opposed to relying on portability, are below:

• Portability is not permanent, and it applies only to situations where the deceased spouse and the surviving spouse both die after December 31, 2010 and before January 1, 2013.
• Portability only applies to federal estate tax and does not incorporate possible state estate tax. Additionally, state estate tax regimes are subject to change.
• A deceased spousal unused exclusion amount will not be indexed for inflation starting in 2013. Also, a credit shelter trust that is invested in a portfolio will likely appreciate more than an inflation-indexed deceased spousal unused exclusion.
• The executor of the deceased spouse must make a timely affirmative election for portability to occur. This poses a problem if the deceased spouse’s estate is too small to require the filing of a federal tax return or if the executor fails to make an affirmative election.
• The generation-skipping transfer tax exemption amount is not portable.
• If the surviving spouse remarries and outlives the second spouse, then the original deceased spouses’ unused exclusion will be wasted if the surviving spouse failed to use it by making gifts before the second deceased spouse’s death.
• Trusts provide more benefits than portability, including protecting assets from creditors, managing the distribution of trust funds, and, at the trust’s termination, the ultimate disposition of the trust fund.

See Daniel S. Rubin, Seven Good Reasons Credit Shelter Trusts Remain Relevant: Estate Planners Should Rarely, If Ever, Rely on Portability, Journal of Accountancy, June 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.

Tips For Bargaining For Long-Term Care

Typically when a family member begins to look into long-term care for a loved one, he or she will not have a good grasp on what are reasonable prices or services to expect. Additionally, many family members do not realize that some long-term care facilities are willing to negotiate prices or amenities under certain circumstances.

One bargaining tip to keep in mind when looking for long-term care facilities is that facilities without waiting lists may be more willing to negotiate costs or forego move-in fees. If you receive a lower rate quote from one prospective facility, inform other prospective facilities to persuade them to meet the quoted rate. Additionally, though nursing homes typically will not discount their rates, they may be open to negotiating for extra amenities.

Many online resources now provide area-specific information regarding the cost of long-term care. Both Genworth.com/costofcare and MetLife’s MatureMarketInstitute.com provide information for families looking into long-term care costs. Medicare and Home Health Care, another useful resource, describes Medicare covered home-health benefits.

See Kelly Greene, Driving a Bargain For Long-Term Care, The Wall Street Journal, May 28, 2011.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

Legal Battles Over Farrah Fawcett’s Documentary, Farrah’s Story.

The production of Farrah Fawcett’s documentary, Farrah’s Story, was surrounded by legal battles almost from the beginning. Fawcett originally began working on the documentary with producer Craig Nevius. Nevius claims that Farrah’s vision for the documentary was to have “the film address shortcomings she saw in American cancer treatment and to present it in art-house style.”

Fawcett’s long time on-and-off again boyfriend, Ryan O’Neal, did not see eye to eye with Nevius when it came to the film. O’Neal instructed Nevius to hand the documentary over to Robert Greenwald, another producer. O’Neal allegedly told Nevius “I’ll kill you with Farrah and then I’ll kill you in real life.” O’Neal maintains that he said “I’ll kill ya” in a joking manner. Nevius refused to hand over the documentary, and the two men continued to fight over the film.

Further complicating the project, NBC (who had bid $1.5 million for the film) continually prodded Nevius to hand over scenes, and began to question some of Nevius’ production strategies. On April 15, NBC informed Nevius that the network would broadcast the documentary about three weeks later. Nevius told NBC that he would work overtime, but that he would not give NBC a final version of the film before getting Fawcett’s approval. However, O’Neal and Richard Francis, an employee of the firm that managed Fawcett’s finances, would not allow Nevius to visit the dying actress.

Fawcett, while bed-ridden in her condominium, signed over creative control of the documentary to O’Neal. Though Fawcett’s signature appears shaky on the documents, O’Neal maintains that the “[t]here was nothing going on that was underhanded.” O’Neal then gave NBC almost free rein to finish the documentary. The final version of the documentary did not contain much of the footage addressing America’s cancer treatment shortcomings.

Nevius sued O’Neal and Francis in an attempt to regain control of the production company he and Fawcett created. Nevius also wanted to produce the documentary he claims Fawcett had wanted to make. Francis countersued Nevius, claiming that he embezzled company funds (no proof was ever offered to validate this claim).

After being told that the suit could last for over two years, Nevius decided to enter into settlement negotiations. Nevius said “I’m fighting at least two multi-millionaires…[a]nd at some point I don’t know that it’s honoring Farrah. I just don’t think she’d want us all destroying each other, which is pretty much how it’s going.”

Jim Rutenberg, The Long Goodbye, The New York Times, May 27, 2011.

IRS Examining Real Estate Gifts

The IRS is currently attempting to use state land-transfer records as a way to seek out individuals who failed to report family gifts of real estate. Though the current lifetime gift cap is at $5 million, individuals are still required to report a gift that is over $13,000.

The IRS requested a California judge to hand over a John Doe summons. The IRS wanted the data to serve on California’s State Board of Equalization, claiming that California’s Propositions 58 and 193 complicated the IRS’s retrieval of real-estate transfer information. Since the IRS could not prove it could not receive the date another way, the judge denied the service of the summons.

A court document, dated December 21, evidences the IRS’s attempt to find individuals who failed to report U.S. gift and generation-skipping transfer taxes by not filing Form 709. The document states that the IRS has examined 323 taxpayers in the last two years for not reporting possible gifts and was considering examining another 250. Two hundred and seventeen more taxpayers were under examination.

The document further states that ninety-seven taxpayers did not report gifts, and twelve of these instances resulted in the taxpayer incurring penalties or taxes since the gift put them over the lifetime gift cap.

According to the same document, Connecticut, Florida, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia, Washington, and Wisconsin have all given the IRS information on gift-like transfers.

See Arden Dale, IRS Scrutinizes Gifts of Real Estate, Wall Street Journal, May 26, 2011.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

Five Common Mistakes of Careless Trustees

It is easy for individual trustees to make mistakes. Below are five common mistakes that careless individual trustees can make:

1. Not Keeping Updated Records

Many state laws require trustees to give beneficiaries regular accountings. Both income and remainder beneficiaries are entitled to these accountings. The best way to ensure that accountings are accurate is to keep accurate and updated records.

2. Failing to Diversify

Trustees have the obligation to diversify trust investments. States have varying rules regarding diversification, but a good practice for any trustee is to read the Uniform Prudent Investor Act.

3. Distributing in a Biased Manner

Not only do trustees owe a fiduciary duty to current beneficiaries, but they also owe a fiduciary duty to remainder beneficiaries. These multiple fiduciary duties can create a problem when the interests of one beneficiary conflicts with those of another. The best way to ensure against future legal problems regarding distribution decisions is to make a written record of your distribution decisions and the considerations made during the process.

4. Expecting an Ensured Payday

While it is true that trustees will receive a trustee fee, it is not true that the fee will always be paid at a reasonable rate or in a reasonable time. It is important to discuss the trustee fee structure early on to ensure that payment is adequate and comes at regular intervals.

5. Having a False Sense of Security

A trustee can be liable for a number of different reasons; there are many risks involved when deciding to act as a trustee. It is important to keep in mind that, as a trustee, your legal fights will not be with the individual who asked you to act as a trustee. Instead, it will likely be with the children or grandchildren of the requesting party.

See Lauren Foster, The Five Biggest Ways to Bungle a Trust, Barron’s Penta, May 21, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for brining this article to my attention.