“For many of the wealthy, the American Taxpayer Relief Act, passed this week by Congress, is aptly named.? For estate and gift taxes in particular, all but the richest of the rich will probably be able to protect their holdings from taxes, now that Congress has permanently set the estate and gift tax exemptions at $5 million (a level that will rise with inflation).”
Category Archives: Estate Planning
In light of current events, it?s fun looking back at the state of the industry when the Bush tax cuts were introduced.? The more things change, the more they stay the same.? From the article,??here are our fearless predictions on the impact that change ? whatever it is ? will have on the use of life insurance in the estate planning process and on planning in general.?? Near the end of the article we suggest a list of questions that clients and advisors might want to ask.
?There is a simple, little-known technique that can enable you to use your life insurance losses to save thousands of dollars in taxes.?
A private session presentation for the newest AEP?s and current ?AEP?s in Orlando in November at the 49th Annual Conference. ?You will not want to miss fellow designee Al Gibbons’ excellent presentation for active designees ONLY on Thursday 11/8/12 at 5:00 PM, “How AEP? Designees Can Work Effectively as Collaborative Teams and Why They Are Essential for High Net Worth Clients”. ?To read more about the conference and Al’s presentation, click here.
?there are a growing number of financial advisers and other professionals who themselves have special needs children or siblings.? Because they?ve been there, they know the practical steps that most families need to take.? What follows is a primer from those practitioners on the basics that families should consider when helping someone with special needs.
We are starting to see bulletins from several companies regarding price increases in no-lapse guarantee products due to new, higher reserve requirements.? Prices are going up, most likely effective 1/1/13.?
The Highlighted comments below show examples regarding re-pricing due, also, to low interest rates.? As you know, no-lapse guarantee products are very often trust-owned policies used for estate planning purposes for high net worth clients.? As Steve Leimberg and I correctly predicted in our January, 2010 article companies are withdrawing, compromising, or raising prices on no-lapse guarantee products.
If you have clients who are considering the purchase of new, trust-owned life insurance, they might be wise to do that sooner rather than later.
Penn Mutual ? Survivorship IUL (no longer accept formal applications for the Extended No-Lapse Guarantee (ENLG) Rider on the Survivorship Plus IUL product.? All pending applications of Survivorship Plus IUL that include the ENLG Rider, for which we make an underwriting offer, must be issued by December 7, 2012 and paid for by December 31, 2012 in order to receive the ENLG Rider)
Principal ? SUL Protector II (new; replaces SUL Protector; reprice consisting of price increase , with the most affecting being single and short pays; no single premium caps; illustration will haveguaranteed values only)
American General ? AG Secure Lifetime GUL (reprice; increased rates especially for limited-pay and single-pay cases;? will build cash value earlier than the original version of the product)
American General ? AG Secure Survivor GUL (single premium payments of $250,000 or more will no longer be accepted; this includes single payments of any type including one pay for the life of the policy, external or internal 1035 exchanges or dump-ins at any time during the first policy year)
Penn Mutual ? Accumulation Builder Choice IUL (new IUL; automatically includes a 30-year no-lapse guarantee for those ages 55 and younger, a to age 85 guarantee for ages 56-79 and a 5 ?year guarantee for ages 80-85.? choice of 3 indexed and 2 fixed accounts; 12-month DCA; 1% floor; guaranteed 100% participation rate; indexed loan option with a fixed loan rate; offers a Chronic Illness ADBR)
Aviva ? Guarantee UL Solution III, Advantage Builder IV w/NLG Rider and Survivorship Builder w/NLG rider (NLG rate premium increase; premium increase will range from 10% for most cases to upwards of 25% on single premium cases)
Nationwide ? YourLife IUL (guaranteed participation rate increased to 100% from 60%)
Prudential ? UL Protector (reprice; full pays will remain essentially unchanged on average; single-pay scenarios will increase approximately 13% on average; no change to comp or features)
Prudential ? SUL Protector (reprice; full pays will increase approximately 3% on average; single-pay scenarios will increase approximately 13% on average; no change to comp or feature)
Pacific Life ? Flexible Duration, Medium Duration, and Lifetime No-Lapse Guarantees Riders (reprice consisting of price increases; affects the Versa-Flex NLG, Pacific Prime UL-NLG, Pacific Prime IUL, Pacific Indexed Accumulator 4, Pacific Indexed Performer LT and Indexed Pacific Estate Preserver; reprice will have no effect on inforce policies or any products? short-term no-lapse guarantees)
An interesting article in today?s NY Times ? using property as a way take advantage of the gift-tax exemption that will be expiring the end of this year. ?How one family is making it work.
Steve Leimbergs Estate Planning Newsletters
(The following are posted with permissions)
Gordon Schaller & Maximizing 2012 Gifts: A New Concept for Procrastinators
The once-in-a-lifetime opportunity to gift $5 million without gift or GST tax will close on December 31, 2012. As of January 1, 2013, the gift tax exclusion will revert to $1 million and the gift and estate tax rate will revert to 55%, unless Congress takes action.
Steve Breitstone: Lapsing 2012 Estate Planning Opportunities & Large Estates Holding Businesses and Real Estate
The Obama Administration?s proposals to eliminate the current favorable treatment of grantor trusts may, if enacted, put an end to much of estate planning as we know it for the wealthier client who owns a business or actively managed real estate. These types of assets are typically illiquid.? Moreover, these clients may have estates that are too large to plan for with straightforward annual exclusion gifts or even gifts of the current lifetime exemption of $5,120,000.
To plan for these clients, it is necessary to leverage the exemptions. Most leveraging transactions (such as installment sales to intentionally defective grantor trusts and grantor retained annuity trusts) depend in large part on the ability to transfer assets to a grantor trust without incurring an income tax at the time of such transfer
Steve Leimberg’s Estate Planning Email Newsletter – Archive Message #1960
Date: | 14-May-12 |
From: | Steve Leimberg’s Estate Planning Newsletter |
Subject: | Slavutin on French v. Wachovia Bank: Beneficiaries of ILIT Unsuccessfully Sue Trustee for Breach of Fiduciary Duty Over 1035 Exchange Causing ILIT to Lose $846,000 in Cash Value |
“ILIT trustees and life insurance advisors can take home a few key lessons from the French case. First, disclose and document the disadvantages or downsides of any insurance recommendation. Bannen’s memorandum describing the low cash values and inflexibility of GUL made it almost impossible for French to claim that he did not understand exactly what he was buying.
Second, a trustee clearly has added protection when a disinterested party reviews an insurance replacement transaction. In this case, the client’s lawyer had a particular expertise in evaluating life insurance products, undertook an extensive analysis of the proposed replacement and documented his findings in a detailed memorandum. Third, always ask yourself – is the proposed replacement based on a rational process which serves the best interests of the trust? The trust in this case had substantial non-insurance assets and would not likely ever need the policy cash values for the beneficiaries. Also, the trust beneficiaries had substantial personal assets after the family business was sold. Finally, always freely disclose any potential conflicts of interest.” LISI has provided members with significant commentary through the years dealing with the suitability of trust-owned life insurance. Now, Lee Slavutin provides members with his analysis of a fascinating case that contains some very important lessons for insurance processionals, attorneys and trust officers who are asked to opine on “annual policy reviews” where the suitability of a particular life insurance product is on the table. Lee J. Slavutin, MD, CLU is a principal in Stern Slavutin 2, Inc., an insurance and estate planning firm in New York. He graduated from Monash University Medical School in Melbourne, Australia in 1974 and became a Fellow of the Royal College of Pathologists of Australia and a Diplomat of the American Board of Pathology in 1981. Dr. Slavutin left the practice of medicine in 1982 and entered the life insurance business in 1983. He is a member of the Association of Advanced Life Underwriting and the Million Dollar Round Table and is a Chartered Life Underwriter with the American College. Dr. Slavutin has published over 160 articles on insurance and estate planning topics for CCH, Warren Gorham and Lamont, Practitioners Publishing Company (PPC), New York Law Journal and others. He is a member of the CCH Estate and Financial Planning Advisory Board, and the Tax Advisory Panels of PPC and Tax Hotline. He is the Author of “PPC’s Guide to Life Insurance Strategies”, 13th edition (2011), published by Thomson Reuters. Dr. Slavutin has spoken before the American Law Institute/American Bar Association, the New York County Lawyers’ Association, the American Institute of Certified Public Accountants (CPAs), the New Jersey State Society of CPAs, the Association of Advanced Life Underwriting, the Million Dollar Round Table, and the UJA-Federation Annual Tax and Estate Planning Conference, as well as many New York accounting and law firms. He was invited to testify before the New York State Senate on the effectiveness of the insurance rating firms and worked with the U.S. General Accounting Office on a similar project. He is married to Dee and they have two children, Aaron and Lydia. Here is Lee’s commentary: EXECUTIVE SUMMARY: In this case, Wachovia Bank National Association (WBNA) acted as trustee for the James French Trust. French’s children, the beneficiaries of the trust, claimed that WBNA breached its fiduciary duties by exchanging two whole life policies for two no lapse guaranteed universal life (GUL) policies, through its affiliate, Wachovia Insurance Services (WIS). The beneficiaries sought to obtain lost cash value of the surrendered policies and the commissions earned by WIS. WBNA was vindicated and granted summary judgment. Another fiduciary ILIT case, Cochran v. KeyBank, was reported in LISI Estate Planning Newsletters 1486 (Patrick Lannon & Barry Flagg) and 1499 (Barry D. Flagg and Patti S. Spencer). This case has some very practical take-home lessons for trustees, life insurance advisors and attorneys. FACTS: James French founded the J. L. French Company in 1968. JL French is a global manufacturer of high pressure aluminum die casting for the transportation industry. Jim French created two irrevocable trusts in 1991: Trusts 1 and 2. Trust 1 held life insurance policies and more than $5 million of assets. The beneficiaries of the trusts were Jim’s four children. French gifted stock in the company to his children. The company was sold in 1996 for approximately $200 million. The children received more than $17 million each. Trust 1 held two life insurance policies with Pacific Life and Prudential. Each policy provided $5 million of coverage. The premium for the Prudential second-to-die whole life policy was scheduled to increase by $40,000 to maintain its death benefit. The policies had a combined cash value of $2.2 million. In 2004, the French family was looking to replace the Northern Trust Company as trustee and was introduced to WBNA by one of the French children who was active in investment management for the family. French asked WBNA to investigate the insurance policies held in Trust 1. WBNA enlisted the help of an insurance broker with WIS. The insurance review process started in May 2004 and continued off and on until May 2005 when the 1035 exchange for the new policies was completed. Here are the salient features of the insurance review:
The Court looked at three issues: duty of loyalty and self dealing, good faith and the prudent investor rule. The Frenchs claimed that the 1035 exchange was a self-dealing transaction because it resulted in a $512,000 commission for WBNA’s affiliate, WIS. The Court pointed out that when the fiduciary is a trustee, the tasks that the trustee agrees to undertake are set out in a trust agreement. The French trust provided “without limiting powers incidental to the purposes of the trust or otherwise existing by law, the trustees and all successors shall have, without approval of any court, the power…to continue as trustee and to deal with any trust hereunder without regard to conflicts of interest…” The Court concluded that the specific authority to self deal controls over the general obligation to act as a fiduciary. Having found that WBNA was authorized to act in a self-interested transaction, the Court then had to analyze whether the transaction was executed in good faith. A self interested transaction does not preclude the possibility that it was undertaken in the best interests of the trust. The Court pointed out that:
The Court then turned to the Prudent Investor Rule:
COMMENT: ILIT trustees and life insurance advisors can take home a few key lessons from this case:
o Bannen’s memorandum describing the low cash values and inflexibility of GUL made it almost impossible for French to claim that he did not understand exactly what he was buying.
o In the Cochran case, KeyBank retained an independent insurance consultant to review the proposed replacement before moving forward. o In the French case, the client’s lawyer had a particular expertise in evaluating life insurance products, undertook an extensive analysis of the proposed replacement and documented his findings in a detailed memorandum.
o The French trust had substantial non-insurance assets and would not likely ever need the policy cash values for the beneficiaries. o The trust beneficiaries had substantial personal assets after the family business was sold. o The GUL policies had superior rates of return at death and became an attractive investment in the trust’s portfolio.
HOPE THIS HELPS YOU HELP OTHERS MAKE A POSITIVE DIFFERENCE!
Lee Slavutin
CITE AS: LISI Estate Planning Newsletter #1960, (May 15, 2012) at http://www.leimbergservices.com/ Copyright 2012 Leimberg Information Services, Inc. (LISI). Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission CITES: French v. Wachovia Bank, N.A., 2011 U.S. Dist. LEXIS 72808 (E.D. Wisconsin 2011); In re Stuart Cochran Irrevocable Trust, 901 N.E.2d 1128 (Indiana Court of Appeals, March 2, 2009).
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Al Gibbons is the past President of the Philadelphia Estate Planning Council and Recipient of their 2005 Distinguished Estate Planner Award.
Al is expanding his social network and looks forward to offering his services nationwide.
More about Al Gibbons:
• Creator of The 80/20 Estate Plan
• A talented thinker, speaker and writer with a national reputation, Al is often sought after to explain what he does and why his unique process is so effective for clients.
• Offering the right solutions to advisors
• Helping you exceed your clients’ expectations
• Newsletters, video and audio available to assist you with complicated clientele matters
1288 Valley Forge Road, #53 | Phoenixville, PA 19460 | 610-917-8940
h3>Here’s our latest post on LinkedIn..
Which definition would you prefer for your clients – “any permanent life insurance product currently available” or “will be able to convert to a permanent product of our choosing”? The consequences for picking the product with the wrong definition can be severe. Two recent client situations: First, the uninsurable client wanted to convert and keep the policy or do a life settlement (the conversion product was so inferior to other products that conversion was impractical) and Second, a potential $40 million conversion, the product was inferior to other products within the same company; but luckily the client is insurable and will get better coverage elsewhere. I would like to publicize this issue. Have you run into issues regarding conversion for your clients?
Albert E. Gibbons
Al Gibbons is the past President of the Philadelphia Estate Planning Council and Recipient of their 2005 Distinguished Estate Planner Award.
Al is expanding his social network and looks forward to offering his services nationwide. More about Al Gibbons: • Creator of The 80/20 Estate Plan • A talented thinker, speaker and writer with a national reputation, Al is often sought after to explain what he does and why his unique process is so effective for clients. • Offering the right solutions to advisors • Helping you exceed your clients' expectations • Newsletters, video and audio available to assist you with complicated clientele matters
1288 Valley Forge Road, #53
Phoenixville, PA 19460
610-917-8940