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Within the past year, a combination of new legislation and the recent change of leadership in the White House and Congress stands to dramatically increase the taxes your loved ones will have to pay on inherited retirement accounts as well as increasing the taxes you owe on your taxable investments. However, purchasing life insurance may offer you the opportunity to minimize the effect of these developments.

To this end, if you hold assets in a retirement account, you need to review your financial plan and estate plan as soon as possible to determine if investing in life insurance or some other strategy may offer tax-saving benefits for you and your family. To help you with this process, here we’ll discuss how these new developments might affect the taxes owed by you and your heirs, and how investing in life insurance may help offset the tax impact of these new changes.

 

The SECURE Act

At the start of 2020, the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) went into effect, and the new law effectively put an end to the so-called “stretch IRA.” Under prior law, beneficiaries of your retirement account could choose to stretch out distributions of an inherited retirement account over their own life expectancy to minimize the income taxes owed on those distributions.

Under the new law, however, most designated beneficiaries of inherited IRAs and similar tax-deferred qualified retirement accounts are now required to withdraw all of the assets from the inherited account—and pay income taxes on those withdrawals—within 10 years of the account owner’s death. Those who fail to withdraw funds within the 10-year window face a 50% tax penalty on the assets remaining in the account.

 

Democrats Take Control

The recent election of Joe Biden as President and subsequent Democratic takeover of the Senate will likely result in the passage of new tax legislation that could have a significant impact on your family’s financial and estate planning considerations.

Specifically, it’s likely that within the next two years Democrats will pass legislation aimed at eliminating many of the tax cuts enacted through the 2017 Tax Cuts and Jobs Act. As part of this legislation, we’re expected to see significantly lower federal estate tax exemptions, the elimination of the step-up in cost basis on inherited assets, as well as an increase in the top personal income and capital-gains tax rates.

One way you may be able to minimize the new taxes on both your tax-deferred retirement accounts and taxable investments is by investing in cash-value life insurance. Let’s break down exactly what this strategy might look like.

 

The New Role of Life Insurance in Your Estate and Financial Planning

Given the new distribution requirements for inherited IRAs, you should consider whether it makes sense to withdraw funds from your retirement account now, pay the tax, and invest the remainder in cash-value life insurance. From there, you can access the accumulated cash-surrender value of the life insurance policy income-tax free during your lifetime via tax-free withdrawals and/or loans. And upon your death, the payout of your life insurance policy would be income-tax free for your heirs.

By annually investing what you would otherwise put into tax-deferred retirement accounts into a cash-value life insurance contract, or by taking taxable withdrawals from your tax-deferred retirement accounts over time and reinvesting them in cash-value life insurance, you can effectively move these funds into a tax-free, rather than tax-deferred, investment vehicle.

This strategy could not only minimize the income taxes you pay over your lifetime, but it could also significantly reduce the tax bill imposed on your designated beneficiaries after your death, since life insurance proceeds are income-tax free.

Additionally, by investing a portion of your investable assets in cash-value life insurance, you can offset the effects of the proposed loss of income tax basis step-up upon your death, which we’re likely to see enacted through Democrat-backed legislation. What’s more, this strategy would also minimize your current income taxes on what otherwise would have been taxable income from your investments, as growth on investments inside a life insurance policy are not subject to income tax, including any capital gains.

Finally, if you stand to be affected by the proposed decrease of the federal estate-tax exemption, which is currently set at $11.7 million, by placing the life insurance policy inside an irrevocable life insurance trust, you can remove the death benefit paid out to your beneficiaries from your taxable estate. In doing so, you would still be able to access the cash value of the insurance policy during your lifetime, either via a so-called “spousal access trust,” if you are married, or via a traditional irrevocable life insurance trust, if you are not married.

 

Rethink Your Planning

Although the SECURE Act and the proposed new legislation stands to have an adverse effect on the tax consequences for your retirement and estate planning, investing in life insurance may offer you a valuable tax-saving opportunity. That said, you can only take advantage of this opportunity if you plan for it.

 

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If you own a business, you almost certainly have intellectual property. However, because your intellectual property is intangible, it can be invisible to you and those who aren’t familiar with the nature of intellectual property and its value, so it often gets overlooked, especially when it comes to estate planning. Yet, if you fail to properly document your intellectual property, your estate plan will likely not protect it—and this could cause your loved ones to miss out on what can be among your most valuable assets.

When we talk about intellectual property, we’re referring to creations of the mind, including inventions, literary and artistic works, designs, logos, brand names, and images, all of which are used in the course of a business.

 

Identifying, Valuing, and Protecting Your Intellectual Property

While you might think that identifying, protecting, and valuing your intellectual property is something that only applies to big companies, not small businesses, that’s definitely not the case. In fact, if you own a small business, your intellectual property can be of even greater value to your loved ones once you’re no longer around and able to financially provide for them.

For all of these reasons, it’s imperative that you take the proper steps to not only protect these intangible assets during your lifetime, but that you also use estate planning to ensure that your intellectual property is properly handled following your death, so your loved ones can continue to get the most value out of these most valuable assets.

 

Documentation and Registration
The first step to take in protecting your intellectual property is to formally document it in your business inventory of assets. When you create your business asset inventory, you are creating a record of its assets, including intangible assets like intellectual property.

The next step is to legally register trademarks, copyrights and patents with the U.S. Patent and Trademark Office, and ensure you have the proper legal agreements and contracts in place to ensure there’s no question about who owns these works. To this end, if you have not protected your intellectual property with copyrights, trademarks, patents, royalty and licensing agreements, non-competes for employees, and work-for-hire provisions in your existing agreements with independent contractors and vendors, now is the time to do so.

Don’t wait until your intellectual property gets stolen or you receive a cease-and-desist letter to put these protections in place. Registering a trademark or copyright might cost you time and money, but failing to register your brand can ultimately cost you far more than that in legal fees or the lost value of your assets, especially if you end up in court, trying to fight for what you thought you owned.

 

Address Your Intellectual Property in Your Estate Plan

After you have documented your intellectual property, review the operating agreement or bylaws of your business entity. And if you don’t have an operating agreement or bylaws, now is the time to put these essential legal agreements in place. Read through your governing documents to see what they say about what happens to your business and its intellectual property upon your death or incapacity.

If you think this all sounds overly complicated, imagine how much more difficult it will be for your loved ones to deal with it should something happen to you. In fact, it could prove impossible for your loved ones to handle these matters in your absence, which is why it’s so important for you and your legal team to take care of these issues now. That way, your family isn’t stuck trying to clean up a mess after your death.

 

How to Find an Old 401(k): 7 Ways - TheStreet

 

The days of working for a single employer for decades until you retire are over. Today, you are much more likely to change jobs multiple times during your career. According to the Bureau of Labor Statistics, today’s workers have held an average of 12 jobs by the time they reach their 50s.

Since people change jobs so frequently, it is easy to lose track of an old 401(k), especially if you only worked in a position for a short time. In fact, forgetting plans is quite common: it’s estimated that roughly 900,000 workers lose track of their 401(k) plans each year. And when you forget to cash out your 401(k) upon leaving a job, it may eventually be transferred to a bank, rolled into an IRA, or even sent to the state’s unclaimed property fund.

If you’re looking to increase your retirement savings, one way to start is to make sure you haven’t lost or forgotten about any old accounts. Here are 6 tips for tracking down a missing 401(k).

  1. Contact your previous employers: If your former employer is still in business, the easiest way to find an old 401(k) is to contact them. You can ask the human resources department or the plan administrator at the company to search their records to find out whether you participated in the plan, and if they still manage your account. Be prepared to provide the dates that you worked for the employer, your name, and your Social Security number.
  2. Find the plan administrator’s contact details: If your former employer has shut down or merged with another company, you can try to contact the organization that administered the plan to see if they still control your 401(k). If you have an old statement, it should contain the administrator’s contact information. You can also contact former co-workers and ask if they have copies of old statements from the plan.

    3. Review the plan’s annual tax return: If you can’t access your old plan statements, you can try to find the contact information for the plan administrator via the plan’s tax return. Most plans must file an annual tax return, Form 5500, with the Internal Revenue Service and U.S. Department of Labor. Search the website www.efast.dol.gov by entering the name of your old employer to find this form.

    4. Search unclaimed property databases: If you are unable to track down your account through your former employer or the plan administrator, you still have options. Depending on what happened to the company and how much money was in your account, there are a few different places to search.

    The National Registry of Unclaimed Retirement Benefits offers a database where employees can register names of former employees who left retirement funds with them. By entering your Social Security number, you can search this database for free to determine if you have any unclaimed retirement account balances.
    Additional online resources, such as missingmoney.com and unclaimed.org, similarly allow you to search for retirement assets in any states in which you’ve lived or worked.

    5. Search for default IRA accounts: If your old account had a fairly small balance, it may no longer be in a 401(k). For 401(k) accounts with balances of less than $5,000, a former employer might have rolled the funds into a default IRA account on your behalf. Default IRAs can be created when your former employer is unable to reach you to find out how you want the funds paid to you. You can search for such IRA accounts for free on the FreeERISA website.
    6. Search for terminated plans: If your former employer terminated its 401(k) plan, this doesn’t automatically mean your money is lost forever. The Department of Labor maintains a list of plans that have been abandoned or are in the process of being terminated. Search their database to find out whether the plan is in the process of—or has already been—terminated, and learn the contact details for the Qualified Termination Administrator (QTA) responsible for overseeing the plan’s shutdown.

    Keep track of your assets

The best way to keep track of your retirement accounts is to not lose them in the first place. Indeed, one of the most important parts of estate planning is to create a comprehensive inventory of all your assets, not just your retirement funds. By doing so, none of your assets will end up in our state’s Department of Unclaimed Property, and your family will know exactly what you have and how to find everything if something happens to you.

 

 

With the risks still posed by COVID-19, we all need to face the possibility that we could get sick, even if we take great care of ourselves through good nutrition, sleep, and exercise. And even if you don’t need to be hospitalized, if you do experience symptoms and test positive, you might have to stay quarantined for enough time that you’d lose income. These risks highlight the need for everyone, regardless of their age or current state of health, to have some form of disability insurance coverage.

You might think you don’t need disability insurance, especially if you’re young and in good health. Hopefully, you’re right. Unfortunately, though, becoming disabled can happen to anyone at any time. This isn’t specific to coronavirus either; it has always been true.

The sad fact is that, according to the US government’s statistics, one in four 20-year-olds become disabled before reaching retirement age. That makes it even more important that you consider how to protect yourself with insurance.

And this is especially important: you must get the actual insurance before something happens. If you’re already sick, you can’t buy disability insurance to make up for lost income.

So now is the time to prepare. Here’s some information to get you started.

What Qualifies You for Benefits (And What Doesn’t)
Let’s get clear on one thing that applies to the coronavirus pandemic: only medical quarantine qualifies you for disability benefits. That means only medical self-quarantine related to COVID-19, which is verified by a doctor, will qualify you. Socially quarantining to decrease your chance of contracting the virus in the first place won’t qualify you for your disability insurance benefits. Disability insurance also won’t cover you if you lose income or health insurance because your employer has closed or laid you off.

Also, disability insurance is not the same as health insurance. Though your failed health is the reason you’d get access to your disability insurance in the first place, disability insurance will not cover your medical bills. Disability benefits are basically to help you pay housing and food costs. But in a time when you’re dealing with disability, it’s good to have those bills covered while you are focused on healing and self-care.

There are two different types of disability insurance and knowing the difference will help you save a lot of time.

Short-Term Disability Insurance
Short-term disability insurance normally lasts around 3–6 months, sometimes up to a year or two. It covers about 60–70% of whatever your salary is. The premiums you pay are often higher than long term coverage, ranging from 1–3% of your annual income. So for someone making $50k a year, it would range between $60 to $125 every month. The percentage depends on what kind of health risks the insurance company determines you have. If you smoke, for instance, the premium will probably be higher, just like with many health insurance policies. If you have a risky job, such as dealing with heavy machinery, premiums will likely be higher as well. A major upside, though, is that payouts usually happen within two weeks, which can be a huge relief in an emergency.

Financial expert Dave Ramsey points out that, because of the higher premiums and shorter span of coverage time, you might want to consider building up a solid emergency fund with 3–6 months of expenses instead. You can consider that personal short-term disability coverage that you don’t have to pay premiums on. But if you’re living paycheck-to-paycheck and can’t foresee saving that much (like 80% of American workers, according to CNBC), and your employer doesn’t offer short-term disability insurance, it is something you may want to consider buying yourself.

Long-Term Disability Insurance
This is the type of insurance that is most important to get, no matter what. This is the type that will last through a long recovery or treatment period. Look for a “non-cancellable insurance policy”, which will keep the insurance company from being able to cancel your policy if you have any health changes.

Long-term disability insurance may pay you benefits for a few years or until your disability ends. Most policies cover 40–60% of your salary, but ones that pay up to 70% do exist, and you should try to find one. These policies also cost 1–3% of your yearly income, but they tend to be on the lower side than short-term. A major difference between the two forms of insurance is that it can take up to 6 months to see a payout. This means that it’s not the best option for covering costs if you have to go into medical quarantine for COVID-19.

We recommend that, even if you decide to pass on short-term disability in favor of emergency fund savings (or if your employee already covers it), you should definitely consider a long-term policy to protect your earnings. Remember, though, it will only pay a percentage of the income you’d be taking in otherwise. Make sure you also have health insurance and as much savings as you can get to protect yourself as well.

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Following the death of the policy holder, the way in which proceeds from a life insurance policy are paid to the beneficiary (or beneficiaries) is known as the settlement option. And you might be surprised to learn that there are a variety of settlement options available besides the most common method—a lump-sum payout.
 
Depending on the life insurance company and policy, these options may be selected by the policy holder ahead of time or chosen by the beneficiary upon the insured’s death. Whether you’re the policy holder or beneficiary, it’s important that you understand these options in order to maximize the policy’s financial benefit and reduce potential taxes.

Here are six popular life-insurance settlement options:

1. Lump sum: The beneficiary receives the full death benefit all at once in a single payment.

2. Interest Income: The insurance company retains the original death benefit and makes interest-only payments to the beneficiary. The original benefit may be paid in full to the beneficiary after a certain time period or to a contingent (alternate) beneficiary upon the primary beneficiary’s death.

3. Fixed Amount: The beneficiary is paid a fixed amount on a regular basis until the total death benefit (plus any interest accrued) has been paid out. If the beneficiary dies before all the funds have been paid, a contingent beneficiary may receive the remaining amount.

4. Fixed Period:  The beneficiary receives regular payments of both principal and interest over a fixed period, typically up to 30 years. If the beneficiary dies before the time period is over, the remaining balance may pass to a contingent beneficiary.

5. Life Income: The beneficiary receives guaranteed payments over the remainder of his or her life. The amount of the payments is determined by the insurance company and based on the beneficiary’s age and gender. The payments continue until the beneficiary dies. If he or she dies earlier than expected, the insurance company keeps the unpaid amount.

6. Life Income Period Certain: Unlike the life income option above, where payments stop when the beneficiary dies, this option guarantees fixed payments for a certain time period such as 10 or 20 years. If the beneficiary dies before the term expires, a contingent beneficiary may receive the remaining payments.

What about taxes?
Life insurance payouts made in a lump sum are not subject to income taxes. With other settlement options that pay out in installments over time, the original death benefit (principal) is not taxed, but any interest that accrues IS taxed as income when it is paid to the beneficiary.

Choosing a settlement option
We work with your trusted life insurance adviser (or if you don’t have one, introduce you to someone you can trust) to select the settlement option that’s best suited for your particular needs. And if you receive a life insurance payout it’s a great time to review your current estate plan to ensure it properly protects that gifted asset.  Please feel free to get in touch if you have questions about any of this.

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While most people assume only the uber wealthy need to worry about asset protection, those with less wealth and fewer assets may be at even greater risk. For example, if you’re a multi-millionaire, a $50,000 judgment against you might not be that big of a burden. But for a family with a modest income, home, and savings, it could be catastrophic.

Asset protection planning isn’t something you can put off until something happens. Like all planning, to be effective, you must have asset protection strategies in place well before you actually need them. Plus, your asset protection plan isn’t a one-and-done deal: It must be regularly updated to accommodate changes to your family structure and asset profile.

There are numerous planning strategies available for asset protection, but three of the most common include the following:

1. Insurance
Purchasing different forms of insurance—health, auto, watercraft, and homeowner’s—should always be the first line of defense to protect your assets. Whether you’re ultimately found at fault or not, if you’re ever sued, defending yourself in court can be extremely costly.

Insurance is designed not only to help you pay damages if a lawsuit against you is successful, but the insurance company is also responsible for hiring you a lawyer and paying his or her attorney’s fees to defend you in court, whether you lose or win. However, insurance policies come with various amounts of coverage, which can be exceeded by large judgments, so you should also seriously consider buying umbrella insurance.

Should your underlying insurance policy max out, an “umbrella” policy will help cover any remaining damages and legal expenses. We can help evaluate your current policies and ensure you have the right types and amounts of insurance for maximum asset protection.

2. Business entities
Owning a business can be an incredible wealth-generating asset for your family, but it can also be a serious liability. Indeed, without the proper protection, your personal assets are extremely vulnerable if your company ever runs into trouble. For example, if your business is currently a sole proprietorship or general partnership, you are personally liable for any debts or lawsuits incurred by your business.

Structuring your business as a limited liability company (LLC) or S corporation is typically the best way to go for many small businesses. When properly set up and maintained, both entities create an impenetrable barrier between your personal assets and your business activities. Creditors, clients, and other potentially litigious individuals can go after assets owned by your company, but not your personal assets.

If you own any kind of business, even just a side gig to earn extra income, you should seriously consider creating a protective entity to ensure any liabilities incurred by your company won’t affect your personal assets. We can help you select, put in place, and maintain the proper entity structure for your business operation.

3. Estate Planning
While each of the asset-protection scenarios shared above are “maybes,” there is one certainty in life—death. It’s going to happen to all of us. And your death, or an incapacity before it, is the biggest risk to your family’s assets. Planning in advance for what is certain to come is a gift to the people you love the most.

So, if you’ve been putting it off, now is the time to get it handled, and we’ve made it easy for you to do that.

You work way too hard to leave your assets at risk. Call us to schedule a Family Estate Planning Session, and let’s get this taken care of now. During your Session, you’ll become educated, informed, and empowered.

We don’t just draft documents; we ensure you make the very best legal decisions about life and death, for yourself and the people you love.

Dedicated to empowering your family, building your wealth and defining your legacy,

In the first part of this series, we discussed the first three of six questions you should ask yourself when selecting a life insurance beneficiary. Here we cover the final half.

Selecting a beneficiary for your life insurance policy sounds pretty straightforward. But given all of the options available and the potential for unforeseen problems, it can be a more complicated decision than you might imagine.

For instance, when purchasing a life insurance policy, your primary goal is most likely to make the named beneficiary’s life better or easier in some way in the aftermath of your death. However, unless you consider all the unique circumstances involved with your choice, you might actually end up creating additional problems for your loved ones.

4. Are any of your beneficiaries minors?
While you’re technically allowed to name a minor as the beneficiary of your life insurance policy, it’s a bad idea to do so. Insurance carriers will not allow a minor child to receive the insurance benefits directly until they reach the age of majority.

If you have a minor named as your beneficiary when you die, then the proceeds would be distributed to a court-appointed custodian tasked with managing the funds, often at a financial cost to your beneficiary. And this is true even if the minor has a living parent. This means that even the child’s other living birth parent would have to go to court to be appointed as custodian if he or she wanted to manage the funds. And, in some cases, that parent would not be able to be appointed (for example, if they have poor credit), and the court would appoint a paid fiduciary to hold the funds.

Rather than naming a minor child as beneficiary, it’s better to set up a trust for your child to receive the insurance proceeds. That way, you get to choose who would manage your child’s inheritance, and how and when the insurance proceeds would be used and distributed.

5. Would the money negatively affect a beneficiary?

When considering how your insurance funds might help a beneficiary in your absence, you also need to consider how it might potentially cause harm. This is particularly true in the case of young adults.

For example, think about what could go wrong if an 18-year-old suddenly receives a huge windfall of cash. At best, the 18-year-old might blow through the money in a short period of time. At worst, getting all that money at once could lead to actual physical harm (even death), as could be the case for someone with substance-abuse issues.

If you set up a trust to receive the insurance payment, you would have total control over the conditions that must be met for proceeds to be used or distributed. For example, you could build the trust so that the insurance proceeds would be kept in trust for beneficiary’s use inside the trust, yet still keep the funds totally protected from future creditors, lawsuits, and/or divorce.

6. Is the beneficiary eligible for government benefits?
Considering how your life insurance money might negatively affect a beneficiary is critical when it comes to those with special needs. If you leave the money directly to someone with special needs, an insurance payout could disqualify your beneficiary from receiving government benefits.Under federal law, if someone with special needs receives a gift or inheritance of more than $2,000, they can be disqualified for Supplemental Security Income and Medicaid. Since life insurance proceeds are considered inheritance under the law, an individual with special needs SHOULD NEVER be named as beneficiary.

To avoid disqualifying an individual with special needs from receiving government benefits, you would create a “special needs” trust to receive the proceeds. In this way, the money will not go directly to the beneficiary upon your death, but be managed by the trustee you name and dispersed per the trust’s terms without affecting benefit eligibility.

Make sure you’ve considered all potential circumstances
These are just a few of the questions you should consider when choosing a life insurance beneficiary. Consult with us a trusted advisor to be certain you’ve thought through all possible circumstances and named your beneficiaries in the best way possible.


Dedicated to empowering your family, building your wealth and defining your legacy,

Selecting a beneficiary for your life insurance policy sounds pretty straightforward. You’re just deciding who will receive the policy’s proceeds when you die, right?

But as with most things in life, it’s a bit more complicated than that. Keep in mind that naming someone as your life insurance beneficiary really has nothing to do with you: It should be based on how the funds will affect the beneficiary’s life once you’re no longer here.

It’s very likely that if you’ve purchased life insurance, you did so to make someone’s life better or easier in some way after your death. But unless you consider all the unique circumstances involved with your choice, you might actually end up creating additional problems for the people you love.

Given the potential complexities involved, here are a few important questions you should ask yourself when choosing your life insurance beneficiary:

1. What are you intending to accomplish?

The first thing to consider is the “real” reason you’re buying life insurance. On the surface, the reason may simply be because it’s the responsible thing for adults to do. But I recommend you dig deeper to discover what you ultimately intend to accomplish with your life insurance.

Are you married and looking to replace your income for your spouse and kids after death? Are you single without kids and just trying to cover the costs of your funeral? Are you leaving behind money for your grandkids’ college funds? Are you intending to make sure your business continues after you’re gone? Or perhaps your life insurance is in place to cover a future estate-tax burden?

The real reason you’re investing in life insurance is something only you can answer. The answer is critical, because it is what determines how much and what kind of life insurance you should have in the first place. And by first clearly understanding what you’re actually intending to accomplish with the policy, you’ll be in a much better position to make your ultimate decision—who to select as beneficiary.

2. What are your beneficiary options?

Your insurance company will ask you to name a primary beneficiary—your top choice to get the insurance money at the time of your death. If you fail to name a beneficiary, the insurance company will distribute the proceeds to your estate upon your death. If your estate is the beneficiary of your life insurance, that means a probate court judge will direct where your insurance money goes at the completion of the probate process.

And this process can tie your life insurance proceeds up in court for months or even years. To keep this from happening to your loved ones, be sure to name—at the very least—one primary beneficiary.

In case your primary beneficiary dies before you, you should also name at least one contingent (alternate) beneficiary. For maximum protection, you should probably name more than one contingent beneficiary in case both your primary and secondary choices have died before you. Yet, even these seemingly straightforward choices are often more complicated than they appear due to the options available.

For example, you can name multiple primary beneficiaries, like your children, and have the proceeds divided among them in whatever way you wish. What’s more, the beneficiary doesn’t necessarily have to be a person. You can name a charity, nonprofit, or business as the primary (or contingent) beneficiary.

It’s important to note that if you name a minor child as a primary or contingent beneficiary (and he or she ends up receiving the policy proceeds), a legal guardian must be appointed to manage the funds until the child comes of age. This can lead to numerous complications, so you should definitely consult with an experienced Family Law attorney like us if you’re considering this option.

3. Does your state have community-property laws?

If you’re married, you’ll likely choose your spouse as the primary beneficiary anyway. But what if you want to choose a close friend, your favorite charity, or simply the person you think needs the money most.

In California, community-property laws dictate that your spouse is entitled to the policy proceeds and will have to sign a form waiving his or her rights to the insurance money if you want to name someone else as beneficiary. Sometimes it makes sense to name your trust as the primary beneficiary instead of your spouse. If you go that route, you’ll definitely want to talk to a trusted estate planning attorney before you sign anything because of the extra complications.

The team at my firm doesn’t just draft documents; we guide you to make informed, educated, and empowered choices to plan for yourself and the ones you love most. Contact us today if you have any questions about life insurance or other estate planning options.

Dedicated to empowering your family, building your wealth and defining your legacy,

It’s no secret that we live in a litigious society. And though our right to a fair trial is one of the hallmarks of American democracy, it has also led to a lawsuit-crazy culture.

In this atmosphere, you’re at near-constant risk for costly lawsuits, many times even when you’ve done nothing wrong. This is especially true if you have substantial wealth, but even those with relatively few assets can find themselves in court.

If you’re sued, your traditional homeowner’s and/or auto insurance will likely offer you some liability coverage, but those policies only protect you up to certain limits before they max out. Given this, you should consider adding an extra layer of protection by investing in personal liability umbrella insurance.

What is umbrella insurance?

Umbrella insurance offers a secondary level of protection against lawsuits above and beyond what’s covered by your homeowners, auto, watercraft, and/or other personal insurance policies. For instance, if someone is injured in your home, they might sue you for their medical bills and lost wages.

Once your homeowners insurance maxes out, the umbrella policy will help pay for the resulting damages and legal expenses if you lose the case. If you win, it can help cover your lawyer’s fees.

Who should purchase it?

Umbrella insurance is particularly important for those with a high net worth. But seeing that everyone has the potential to be sued, it’s a good idea even for those without substantial assets.

Indeed, if you’re sued and lose, the judgment against you may exceed the value of your current assets. In such a case, the court can allow the plaintiff to go after your future earnings, potentially garnishing your wages for years. To this end, umbrella insurance not only protects your current assets, but your future ones as well.

How much coverage do I need?

Most people will be adequately covered with a $1 million umbrella policy. If you earn more than $100,00 a year or have more than $1 million in assets, you may want to invest in additional coverage.

A good rule of thumb is to buy an umbrella policy with coverage limits that are at least equal to your net worth.

How much does umbrella insurance cost?

Umbrella insurance is fairly inexpensive. You can buy a $1 million umbrella liability policy for between $150 and $300 per year. An additional million in coverage will run you about $100, and roughly $50 for every million beyond that.

Umbrella policies are inexpensive because they only go into effect after your underlying homeowners or auto policy is exhausted. In light of this, most insurers require you to have at least $250,000 in liability on your auto policy and $300,000 on your homeowners before they’ll sell you a $1 million umbrella policy.

How can I purchase umbrella insurance?

You can buy an umbrella policy from the same insurance company you use for your other policies. In fact, some companies require you to purchase all of your policies from them in order to obtain umbrella coverage.

If your current insurance agent offers umbrella coverage, you may qualify for a discount for bundling all your policies. Of course, you can also purchase a stand-alone umbrella policy, so shop around for the best rates.

Dedicated to empowering your family, building your wealth and defining your legacy,

InsuranceLife insurance products can be complicated, and because they often come with high commissions for the people selling them, it can be hard to know what to buy and who to trust when you are making that decision. The place to start is to think about whether and why you need life insurance. The most basic reason is if you have an obligation or need to provide income replacement for others who depend on you. That means if you have anyone dependent on you, you probably want some kind of life insurance–as they say, “insurance says I love you.”

The type of life insurance you should buy depends on your family goals and circumstances. The two main types of insurance you’ll hear about are “term” and “whole life.”

Term insurance is in effect for a specific period of time and if you do not die during that period, the insurance doesn’t pay. For example, you may have a 10-year term policy. Each year, you pay your premium and if you don’t die during that year, you’ve lost the premium (but gained your life, which is nice!) Because it’s 10-year term, the rate will remain the same for 10 years, at which point you have to re-apply for the insurance, which means full application and health exam and a rate increase because you are 10 years older.

In contrast, whole life is designed to be in effect until death. That means that no matter when you die, if your policy is paid up, your insurance will pay out. Whole life policies have an investment component that accumulates a cash value while also guaranteeing a death benefit. So each year that you pay your premium and don’t die, part of the premium you paid is gone, but part of it is allocated to the investment part of your policy, which means you are building up an investment.

Here’s the thing about that … sometimes (maybe often) insurance is not the best investment vehicle, primarily because of how much of the premium goes to pay commissions on the policy rather than to your investment account.

But, if your spouse or child or business is going to need insurance when you die, you will want to get a permanent, whole life type policy.

The bottom line with life insurance is to make sure you realistically assess your needs and then purchase an amount of insurance that meets those needs. I recommend running your insurance decisions by a trusted advisor who is objective, not paid a commission, and shares the same goal as you–keeping your family out of court, out of conflict and well-cared for when you can’t be there.

I believe in developing relationships with families for life. That’s why my firm not only helps identify the best legal strategies for you and your family; we also incorporate insurance, financial, and tax strategies into our holistic approach to estate and legacy planning.

Dedicated to your family’s wealth, health, and happiness,
Marc Garlett 91024