I have an existing mortgage on my home. Can I name the bank as beneficiary to my life insurance policy?
Total Comments: 28
Posted: Wed Jan 23, 2013 05:54 am Post Subject:
You can name anyone you choose to name as your beneficiary. But creditors, such as the lender on your mortgage, should NOT be named as beneficiaries unless there is a legal purpose or requirement.
If you die, and there is a balance owed on the mortgage, that is a matter for your estate to settle. If you have insurance and want the money to be used to pay of your mortgage, you leave instructions about that in a will or trust.
The real problem with naming your creditor as beneficiary . . . they don't have to use the money to payoff what you owe them. So why would you do that? Also, your life insurance money could be more than the mortgage balance, and they would be permitted to keep any excess funds.
DO NOT NAME CREDITORS AS BENEFICIARIES!!
In a worst case scenario, the creditor takes possession of the property for non-payment and disposes of it. The proceeds are used to extinguish the existing debt. If insufficient, the estate may have to make up the difference. If there is an overage, the creditor must refund the excess funds to the estate.
Posted: Wed Jan 23, 2013 02:23 pm Post Subject: bank as beneficiary
You can. But as Max has pointed out, it is definitely not recommended. Appoint one of your trusted survivors as beneficiary, who will receive the benefits and pay off your outstanding dues - mortgage or anything else.
Posted: Thu Jan 24, 2013 04:55 am Post Subject:
Appoint one of your trusted survivors as beneficiary, who will receive the benefits and pay off your outstanding dues - mortgage or anything else.
This is also not the best advice. Leaving life insurance money to anyone by name makes it their money, and they may do with it as they please . . . which means, despite any prior agreement, they don't have to use the money to pay off someone else's obligations.
If the intent is to pay off a mortgage, then this is one of the few occasions when a person might simply name "MY ESTATE" as the beneficiary, which is also something I don't normally recommend, since creditors get first "dibs" on the money, and a home, as a secured debt, does not have to paid off in probate -- instead, the court will simply order the property sold and what ever the proceeds of the sale are, up to the amount of the unpaid loan and loan interest, even if not enough to pay off the loan, is what the lender gets.
But when naming "MY ESTATE" (similar to naming minor children as beneficiaries) then the insured/policyowner still has one remaining responsibility . . . to write a will and specify what is to be done with the life insurance proceeds. But, guess what? The Probate Court is not legally bound to honor the will, and may redirect the life insurance money left to the estate to pay other debts.
So the BEST WAY to deal with this is to place one's property into a trust (such as a revocable living trust), and the life insurance proceeds in an IRREVOCABLE life insurance trust, with specific instructions to use the money to pay off the loan on the home.
Others may disagree and argue that there are other possible ways to deal with this situation, which there are, but all of them can be complex and problematic, like naming an attorney's trust account to receive the money with instructions to the attorney to use the money to pay the debt. What happens if the attorney dies a few moments before the insured? All the plans go down the drain.
Posted: Thu Feb 07, 2013 04:48 am Post Subject:
Great reply, Max. And yes... I'm back.
Another consideration in naming your estate as beneficiary of the life policy could be the unintended consequences of increasing (any) estate tax burden. This isn't at all likely for the vast majority of folks, but it could still happen. Couple that with the higher estate tax bracket (to 40% from 35% last year for taxable amounts above $5.25 mm) and it could get ugly without prior planning.
That's the federal whack. You also have to look at estate tax and inheritance tax in the individual states.
Even without a taxable estate, there's the possibility of probate... again, without proper planning. Probate's an easy-out. Max----> CHALLENGE! Get me out of probate costs!
Have you figgered out that I'm not a big fan of naming your estate as benny? :idea:
InsTeacher 8)
Posted: Thu Feb 07, 2013 02:03 pm Post Subject:
Have you figgered out that I'm not a big fan of naming your estate as benny?
.
I'm with you 100%. Naming the estate, in my book, is only one rung on the ladder above "my creditors" (which is at the very bottom) as a named beneficiary. I sometimes have to "fight" clients who want to name "My Estate" because they think it will prevent bickering between their children, or they don't want to be accused of favoritism. I have to explain that almost nothing could be further from the truth -- that, believe it or not, the children are going to bicker anyway -- even if they get equal shares, and "My Estate" will easily cause more problems than it solves. But if only for the purpose of paying off a mortgage, it could work, but it's problematic.
We see it here frequently, when someone writes: "My mom told me I was going to be the sole beneficiary of her life insurance, but now my brothers have filed challenges with the insurance company . . ."
The sad fact is that, when money and property is involved, heirs frequently turn into werewolves and vampires and gargoyles. You're never going to prevent the bickering between heirs -- that's just the dark side of human nature which is often suspected about a person but not fully revealed until after someone dies.
And contrary to what the phone company used to tell us in their advertising, from the grave, you cannot "reach out and touch someone."
CHALLENGE! Get me out of probate costs!
There are actually a couple of great strategies that can work to prevent the burden of probate and the sting of estate / inheritance taxes.
The one most person(s) who are serious about avoiding the cost of probate use will involve spending some time and money to meet with a certified estate planning attorney and create one or more trusts for the purpose of distributing their assets and extinguishing their debts following their deaths. While not always perfect -- one must live a minimum of 36 months to make sure that the matter of federal estate tax is rendered moot -- trusts are much harder to overturn than a simple "Last Will and Testament".
One or more trusts to hold one's personal and business assets for the express purpose of disposing of them in an orderly fashion following death is typically necessary. The more complicated a person's life, the more complicated the trust(s). A separate trust may need to be established to hold life insurance, as the owner and beneficiary, to avoid the value of the insurance from being included in the decedent's estate. That money could be used to pay estate liabilities, care for a surviving spouse, efficiently wind down a business, fund children's or grandchildren's educational needs, or to simply leave a "legacy" to one's heirs or to other charitable purposes. That's something for the "grantor(s)" to decide in advance.
Changes may almost always be made unless the trust is described as "irrevocable" -- which is precisely what a life insurance trust would be. An "irrevocable" trust demonstrates to the IRS -- that dreaded demon of the federal government -- that no "incidents of ownership" have been retained in the property, and are thus, not ascribed to one's estate for tax purposes. Trusts may still be challenged in court, but trust provisions can be written to diminish the grant to a beneficiary in the event of an unsuccessful challenge -- usually as an incentive to accept what was provided.
Another method -- one little used but entirely valid -- involves more complex thinking and action during one's lifetime. It was carefully crafted in print by Stephen Pollan in his 1990s book, DIE BROKE! And it was roundly criticized by [insurance] folks who want people to put all their money into a single [then variable, now indexed] annuity, and later dismissed in the early 2000s as "unnecessary since estate taxes are going away in 2010".
LOL! They're baaaaaack.
Pollan's perfectly plausible, though not perfectly manageable, plan is based on (1) working and earning money (harder today because the government is encouraging sloth through nearly lifetime unemployment benefits these days), (2) saving one's earned money (Americans, as a whole, have not figured out how to do this or why it's necessary), (3) continuing to work part time in retirement (it actually lengthens one's lifespan), (4) having life insurance to cover one's debts (although no one should have debt in retirement), (5) gifting to one's heirs during one's lifetime rather than in death (which reduces the size of one's estate methodically, puts the money to use in a way one can monitor its use -- if not benefitting someone, gifting can be curtailed or redirected, unlike a bequest -- and allows the giftor the pleasure of seeing what happens) and (6) uses small Single Premium Immediate Annuities ("SPIAs") to shore up one's own monthly cash flow needs by doing what annuities are actually INTENDED to do -- "systematically liquidate a sum of money or an estate through a series of payments one cannot outlive".
He's talking about "life-only" income options which provide the largest payment in exchange for the money paid into the annuity. The older one is, the less money it takes to do create an extra few hundred dollars per month. Some of it will be taxable, some of it not. You have to factor that into the equation, but it should not result in a significant "bite".
In Pollan's plan, a person who works and saves will have both invested in liquid assets (stocks, bonds, mutual funds/ETFs, not real estate) and in retirement income (possibly also money from Social Security -- which is less likely in the future than it is today since Congress continues to ignore the massive unfunded liability it has created in SS and Medicare), but inflation will chip away at the spending power of that money over time, and additional monthly income will be needed.
Voila! Cash out some stocks (or other liquid assets) and take the money to an insurance company and purchase an SPIA that provides a lifetime income in the amount of extra funds one needs today. In a year or two, the process will probably have to be repeated to create additional cash flow. Done repeatedly over a number of years, one's invested assets are being "systematically liquidated" at the same time they are also being gifted out to one's favorite charities (taking tax deductions that will also likely disappear in the future as the final means of funding the lost cause known as Obamacare) and to one's heirs and others.
According to Pollan, if done perfectly, the last check written from a person's checking account will be to the funeral director . . . and it will bounce! Because the estate has been perfectly depleted during one's own lifetime, leaving nothing for state or federal governments to confiscate.
As difficult as it may be to do perfectly, my whole concept of annuities was overturned in 1997 or 1998 when I found Pollan's book in a $1 book sale. His plan makes perfect sense and it runs counter to what every insurance company marketing department wants agents to believe about annuities -- to find people with money and get all their money into a single annuity.
That never made sense to me, but it wasn't until I saw Pollan's plan on paper that I knew why not. Obviously, things have changed some since the 1990s when Die Broke was first written, but the strategy remains viable. Estate taxes and probate are here to stay. The only way to avoid them is to have nothing remaining in your "column" at the time of your death.
Pollan's plan is not the exclusive path to this. Trusts also offer many of the same possibilities, including income (through charitable remainder trusts). Both require a certain amount of effort to bring to fruition. Neither are quite perfect, but they each represent perhaps the most viable solutions to the problem of government intrusion into the affairs of dead folks and their families.
America is not the most amenable place in which to live with no money in your pocket -- although some are rather successful at it, earning $30,000-$100,000 per year standing at the ends of the freeway off-ramps of America. But having exactly $0 at death has two distinct and specific benefits. (1) The taxman must necessarily turn to someone else for his tribute and (2) heirs have nothing over which to fight -- they already got theirs and they either still have it or they don't. The decedent, at least, solves the two biggest challenges that families face when someone dies, and may go into the afterlife with a smile on their face.
Meet me, with a smile on my face, at the all-you-can-eat buffet at the end of the Golden Street -- where calories, carbs, and cholesterol no longer mean a thing.
Posted: Fri Feb 08, 2013 01:12 pm Post Subject:
Another consideration in naming your estate as beneficiary of the life policy could be the unintended consequences of increasing (any) estate tax burden. This isn't at all likely for the vast majority of folks, but it could still happen. Couple that with the higher estate tax bracket (to 40% from 35% last year for taxable amounts above $5.25 mm) and it could get ugly without prior planning.
Naming your estate as beneficiary will have no impact on estate taxes.
Ex. Jim and John are identical twins. They die on the same day. They both are owners of $10,000,000 life insurance policies. Jim names his estate as beneficiary. John names his wife. The estate taxes will be identical.
The difference is that Jim's policy will be subject to probate.
Posted: Fri Feb 08, 2013 02:38 pm Post Subject:
Naming your estate as beneficiary will have no impact on estate taxes.
InsTeacher can ably defend himself, but until he stops by again, I'll happily do his bidding on this one.
As you have often done in the past, once again you obscure the point of a post by nitpicking without good cause.
Aside from the fact that your statement is false on its face -- as your wildly exaggerated example clearly shows -- that wasn't his point, as his closing comment clearly shows:
Even without a taxable estate, there's the possibility of probate... again, without proper planning.
"Proper planning" was the point. Few individuals, relatively speaking, even have $10,000,000 policies, let alone own them. If it weren't so, the average individual policy in force would have a face amount much higher than the current $235,000. But why base any of your comments on fact, when a ridiculous exaggeration seemingly serves your purpose?
Many people, however, do own $1,000,000 to $2,000,000 policies, and that, in conjunction with the value of a home, retirement accounts, personal property, non-retirement investments, and business assets (as a sole proprietor, LLC, or S-corp), could easily put a person's estate over the (2013) $5.25 million estate tax threshold, and subject it to $2,100,000 or more in estate taxes that a combined value of $5,249,999 would not. Putting the life insurance policy into a trust as owner and beneficiary gives the estate that much more breathing room before the imposition of estate tax would occur.
InsTeacher's whole point, which you undoubtedly realize but fail to acknowledge, was intended to contrast naming one's estate compared to putting the policy and proceeds in a trust that shelter the proceeds from the decedent's estate. (And in the past, you have also frequently poo-pooed the idea of using ILITs as expensive and unnecessary. So who knows what runs through your mind.)
Posted: Fri Feb 08, 2013 02:55 pm Post Subject:
Jim names his estate as beneficiary. John names his wife. The estate taxes will be identical.
Now I could easily tear this statement apart by saying, "Since John has a surviving spouse, there is absolutely no federal estate tax consequence when John dies." and could go on to thoroughly explain why that statement is completely and utterly incorrect. And I could further state, "By omission, Jim must obviously have no surviving spouse." and go on to thoroughly explain what that difference means.
But I won't do that because I get your point.
Posted: Fri Feb 08, 2013 03:58 pm Post Subject:
I was assuming that everything about the two of them are the same. They are both married.
The point is that it is the ownership of the policy that keeps it out of the insured's estate and not the beneficiary designation.
If Max owns a policy and dies, it is in his estate regardless of who or what is named as beneficiary.
I don't doubt that Ins Teacher knows this, but for others reading, it is easy to think that he is saying that the choice of beneficiary will impact whether it is part of one's taxable estate.
Posted: Fri Feb 08, 2013 06:06 pm Post Subject:
I was assuming that everything about the two of them are the same.
Just because they are identical twins? LOL.
I don't doubt that Ins Teacher knows this, but for others reading, it is easy to think that he is saying that the choice of beneficiary will impact whether it is part of one's taxable estate.
Then learn to say something like that as a response instead of using wild examples that fail to prove anything.
Posted: Wed Jan 23, 2013 05:54 am Post Subject:
You can name anyone you choose to name as your beneficiary. But creditors, such as the lender on your mortgage, should NOT be named as beneficiaries unless there is a legal purpose or requirement.
If you die, and there is a balance owed on the mortgage, that is a matter for your estate to settle. If you have insurance and want the money to be used to pay of your mortgage, you leave instructions about that in a will or trust.
The real problem with naming your creditor as beneficiary . . . they don't have to use the money to payoff what you owe them. So why would you do that? Also, your life insurance money could be more than the mortgage balance, and they would be permitted to keep any excess funds.
DO NOT NAME CREDITORS AS BENEFICIARIES!!
In a worst case scenario, the creditor takes possession of the property for non-payment and disposes of it. The proceeds are used to extinguish the existing debt. If insufficient, the estate may have to make up the difference. If there is an overage, the creditor must refund the excess funds to the estate.
Posted: Wed Jan 23, 2013 02:23 pm Post Subject: bank as beneficiary
You can. But as Max has pointed out, it is definitely not recommended. Appoint one of your trusted survivors as beneficiary, who will receive the benefits and pay off your outstanding dues - mortgage or anything else.
Posted: Thu Jan 24, 2013 04:55 am Post Subject:
Appoint one of your trusted survivors as beneficiary, who will receive the benefits and pay off your outstanding dues - mortgage or anything else.
This is also not the best advice. Leaving life insurance money to anyone by name makes it their money, and they may do with it as they please . . . which means, despite any prior agreement, they don't have to use the money to pay off someone else's obligations.
If the intent is to pay off a mortgage, then this is one of the few occasions when a person might simply name "MY ESTATE" as the beneficiary, which is also something I don't normally recommend, since creditors get first "dibs" on the money, and a home, as a secured debt, does not have to paid off in probate -- instead, the court will simply order the property sold and what ever the proceeds of the sale are, up to the amount of the unpaid loan and loan interest, even if not enough to pay off the loan, is what the lender gets.
But when naming "MY ESTATE" (similar to naming minor children as beneficiaries) then the insured/policyowner still has one remaining responsibility . . . to write a will and specify what is to be done with the life insurance proceeds. But, guess what? The Probate Court is not legally bound to honor the will, and may redirect the life insurance money left to the estate to pay other debts.
So the BEST WAY to deal with this is to place one's property into a trust (such as a revocable living trust), and the life insurance proceeds in an IRREVOCABLE life insurance trust, with specific instructions to use the money to pay off the loan on the home.
Others may disagree and argue that there are other possible ways to deal with this situation, which there are, but all of them can be complex and problematic, like naming an attorney's trust account to receive the money with instructions to the attorney to use the money to pay the debt. What happens if the attorney dies a few moments before the insured? All the plans go down the drain.
Posted: Thu Feb 07, 2013 04:48 am Post Subject:
Great reply, Max. And yes... I'm back.
Another consideration in naming your estate as beneficiary of the life policy could be the unintended consequences of increasing (any) estate tax burden. This isn't at all likely for the vast majority of folks, but it could still happen. Couple that with the higher estate tax bracket (to 40% from 35% last year for taxable amounts above $5.25 mm) and it could get ugly without prior planning.
That's the federal whack. You also have to look at estate tax and inheritance tax in the individual states.
Even without a taxable estate, there's the possibility of probate... again, without proper planning. Probate's an easy-out. Max----> CHALLENGE! Get me out of probate costs!
Have you figgered out that I'm not a big fan of naming your estate as benny? :idea:
InsTeacher 8)
Posted: Thu Feb 07, 2013 02:03 pm Post Subject:
Have you figgered out that I'm not a big fan of naming your estate as benny?
.I'm with you 100%. Naming the estate, in my book, is only one rung on the ladder above "my creditors" (which is at the very bottom) as a named beneficiary. I sometimes have to "fight" clients who want to name "My Estate" because they think it will prevent bickering between their children, or they don't want to be accused of favoritism. I have to explain that almost nothing could be further from the truth -- that, believe it or not, the children are going to bicker anyway -- even if they get equal shares, and "My Estate" will easily cause more problems than it solves. But if only for the purpose of paying off a mortgage, it could work, but it's problematic.
We see it here frequently, when someone writes: "My mom told me I was going to be the sole beneficiary of her life insurance, but now my brothers have filed challenges with the insurance company . . ."
The sad fact is that, when money and property is involved, heirs frequently turn into werewolves and vampires and gargoyles. You're never going to prevent the bickering between heirs -- that's just the dark side of human nature which is often suspected about a person but not fully revealed until after someone dies.
And contrary to what the phone company used to tell us in their advertising, from the grave, you cannot "reach out and touch someone."
CHALLENGE! Get me out of probate costs!
There are actually a couple of great strategies that can work to prevent the burden of probate and the sting of estate / inheritance taxes.The one most person(s) who are serious about avoiding the cost of probate use will involve spending some time and money to meet with a certified estate planning attorney and create one or more trusts for the purpose of distributing their assets and extinguishing their debts following their deaths. While not always perfect -- one must live a minimum of 36 months to make sure that the matter of federal estate tax is rendered moot -- trusts are much harder to overturn than a simple "Last Will and Testament".
One or more trusts to hold one's personal and business assets for the express purpose of disposing of them in an orderly fashion following death is typically necessary. The more complicated a person's life, the more complicated the trust(s). A separate trust may need to be established to hold life insurance, as the owner and beneficiary, to avoid the value of the insurance from being included in the decedent's estate. That money could be used to pay estate liabilities, care for a surviving spouse, efficiently wind down a business, fund children's or grandchildren's educational needs, or to simply leave a "legacy" to one's heirs or to other charitable purposes. That's something for the "grantor(s)" to decide in advance.
Changes may almost always be made unless the trust is described as "irrevocable" -- which is precisely what a life insurance trust would be. An "irrevocable" trust demonstrates to the IRS -- that dreaded demon of the federal government -- that no "incidents of ownership" have been retained in the property, and are thus, not ascribed to one's estate for tax purposes. Trusts may still be challenged in court, but trust provisions can be written to diminish the grant to a beneficiary in the event of an unsuccessful challenge -- usually as an incentive to accept what was provided.
Another method -- one little used but entirely valid -- involves more complex thinking and action during one's lifetime. It was carefully crafted in print by Stephen Pollan in his 1990s book, DIE BROKE! And it was roundly criticized by [insurance] folks who want people to put all their money into a single [then variable, now indexed] annuity, and later dismissed in the early 2000s as "unnecessary since estate taxes are going away in 2010".
LOL! They're baaaaaack.
Pollan's perfectly plausible, though not perfectly manageable, plan is based on (1) working and earning money (harder today because the government is encouraging sloth through nearly lifetime unemployment benefits these days), (2) saving one's earned money (Americans, as a whole, have not figured out how to do this or why it's necessary), (3) continuing to work part time in retirement (it actually lengthens one's lifespan), (4) having life insurance to cover one's debts (although no one should have debt in retirement), (5) gifting to one's heirs during one's lifetime rather than in death (which reduces the size of one's estate methodically, puts the money to use in a way one can monitor its use -- if not benefitting someone, gifting can be curtailed or redirected, unlike a bequest -- and allows the giftor the pleasure of seeing what happens) and (6) uses small Single Premium Immediate Annuities ("SPIAs") to shore up one's own monthly cash flow needs by doing what annuities are actually INTENDED to do -- "systematically liquidate a sum of money or an estate through a series of payments one cannot outlive".
He's talking about "life-only" income options which provide the largest payment in exchange for the money paid into the annuity. The older one is, the less money it takes to do create an extra few hundred dollars per month. Some of it will be taxable, some of it not. You have to factor that into the equation, but it should not result in a significant "bite".
In Pollan's plan, a person who works and saves will have both invested in liquid assets (stocks, bonds, mutual funds/ETFs, not real estate) and in retirement income (possibly also money from Social Security -- which is less likely in the future than it is today since Congress continues to ignore the massive unfunded liability it has created in SS and Medicare), but inflation will chip away at the spending power of that money over time, and additional monthly income will be needed.
Voila! Cash out some stocks (or other liquid assets) and take the money to an insurance company and purchase an SPIA that provides a lifetime income in the amount of extra funds one needs today. In a year or two, the process will probably have to be repeated to create additional cash flow. Done repeatedly over a number of years, one's invested assets are being "systematically liquidated" at the same time they are also being gifted out to one's favorite charities (taking tax deductions that will also likely disappear in the future as the final means of funding the lost cause known as Obamacare) and to one's heirs and others.
According to Pollan, if done perfectly, the last check written from a person's checking account will be to the funeral director . . . and it will bounce! Because the estate has been perfectly depleted during one's own lifetime, leaving nothing for state or federal governments to confiscate.
As difficult as it may be to do perfectly, my whole concept of annuities was overturned in 1997 or 1998 when I found Pollan's book in a $1 book sale. His plan makes perfect sense and it runs counter to what every insurance company marketing department wants agents to believe about annuities -- to find people with money and get all their money into a single annuity.
That never made sense to me, but it wasn't until I saw Pollan's plan on paper that I knew why not. Obviously, things have changed some since the 1990s when Die Broke was first written, but the strategy remains viable. Estate taxes and probate are here to stay. The only way to avoid them is to have nothing remaining in your "column" at the time of your death.
Pollan's plan is not the exclusive path to this. Trusts also offer many of the same possibilities, including income (through charitable remainder trusts). Both require a certain amount of effort to bring to fruition. Neither are quite perfect, but they each represent perhaps the most viable solutions to the problem of government intrusion into the affairs of dead folks and their families.
America is not the most amenable place in which to live with no money in your pocket -- although some are rather successful at it, earning $30,000-$100,000 per year standing at the ends of the freeway off-ramps of America. But having exactly $0 at death has two distinct and specific benefits. (1) The taxman must necessarily turn to someone else for his tribute and (2) heirs have nothing over which to fight -- they already got theirs and they either still have it or they don't. The decedent, at least, solves the two biggest challenges that families face when someone dies, and may go into the afterlife with a smile on their face.
Meet me, with a smile on my face, at the all-you-can-eat buffet at the end of the Golden Street -- where calories, carbs, and cholesterol no longer mean a thing.
Posted: Fri Feb 08, 2013 01:12 pm Post Subject:
Another consideration in naming your estate as beneficiary of the life policy could be the unintended consequences of increasing (any) estate tax burden. This isn't at all likely for the vast majority of folks, but it could still happen. Couple that with the higher estate tax bracket (to 40% from 35% last year for taxable amounts above $5.25 mm) and it could get ugly without prior planning.
Naming your estate as beneficiary will have no impact on estate taxes.
Ex. Jim and John are identical twins. They die on the same day. They both are owners of $10,000,000 life insurance policies. Jim names his estate as beneficiary. John names his wife. The estate taxes will be identical.
The difference is that Jim's policy will be subject to probate.
Posted: Fri Feb 08, 2013 02:38 pm Post Subject:
Naming your estate as beneficiary will have no impact on estate taxes.
InsTeacher can ably defend himself, but until he stops by again, I'll happily do his bidding on this one.As you have often done in the past, once again you obscure the point of a post by nitpicking without good cause.
Aside from the fact that your statement is false on its face -- as your wildly exaggerated example clearly shows -- that wasn't his point, as his closing comment clearly shows:
Even without a taxable estate, there's the possibility of probate... again, without proper planning.
"Proper planning" was the point. Few individuals, relatively speaking, even have $10,000,000 policies, let alone own them. If it weren't so, the average individual policy in force would have a face amount much higher than the current $235,000. But why base any of your comments on fact, when a ridiculous exaggeration seemingly serves your purpose?Many people, however, do own $1,000,000 to $2,000,000 policies, and that, in conjunction with the value of a home, retirement accounts, personal property, non-retirement investments, and business assets (as a sole proprietor, LLC, or S-corp), could easily put a person's estate over the (2013) $5.25 million estate tax threshold, and subject it to $2,100,000 or more in estate taxes that a combined value of $5,249,999 would not. Putting the life insurance policy into a trust as owner and beneficiary gives the estate that much more breathing room before the imposition of estate tax would occur.
InsTeacher's whole point, which you undoubtedly realize but fail to acknowledge, was intended to contrast naming one's estate compared to putting the policy and proceeds in a trust that shelter the proceeds from the decedent's estate. (And in the past, you have also frequently poo-pooed the idea of using ILITs as expensive and unnecessary. So who knows what runs through your mind.)
Posted: Fri Feb 08, 2013 02:55 pm Post Subject:
Jim names his estate as beneficiary. John names his wife. The estate taxes will be identical.
Now I could easily tear this statement apart by saying, "Since John has a surviving spouse, there is absolutely no federal estate tax consequence when John dies." and could go on to thoroughly explain why that statement is completely and utterly incorrect. And I could further state, "By omission, Jim must obviously have no surviving spouse." and go on to thoroughly explain what that difference means.
But I won't do that because I get your point.
Posted: Fri Feb 08, 2013 03:58 pm Post Subject:
I was assuming that everything about the two of them are the same. They are both married.
The point is that it is the ownership of the policy that keeps it out of the insured's estate and not the beneficiary designation.
If Max owns a policy and dies, it is in his estate regardless of who or what is named as beneficiary.
I don't doubt that Ins Teacher knows this, but for others reading, it is easy to think that he is saying that the choice of beneficiary will impact whether it is part of one's taxable estate.
Posted: Fri Feb 08, 2013 06:06 pm Post Subject:
I was assuming that everything about the two of them are the same.
Just because they are identical twins? LOL.
I don't doubt that Ins Teacher knows this, but for others reading, it is easy to think that he is saying that the choice of beneficiary will impact whether it is part of one's taxable estate.
Then learn to say something like that as a response instead of using wild examples that fail to prove anything.Add your comment