First Step of Estate PlanningOne of the first steps in estate planning is to make yourlife insurance more effective. Estate taxes must be paidon all assets, including life insurance proceeds. If the lifeinsurance is outside the estate, all ofthe proceeds are available to your heirs. For example:Amounts Outside Estate are policies that have ownershipand beneficiary designations that remove the deathproceeds from both estates. Amounts Inside Estate arepolicies in which the owner or beneficiary designationcauses the death proceeds to be included in the taxableestate of one of the clients. Changes in ownership mustbe in effect for three years to avoid estate taxation.
Why use a Living TrustAllows greater flexibility May provide greater privacy (probate is a public record)May minimize probate expenses (at death) Can provide effective asset managementMay save the expense of guardians Can provide desired restrictions, limitations,- Trustee acts of behalf of minor beneficiaries and incentives- May save expenses of guardianship, such as - Rules for use of trust funds bonding requirements - May protect trust assets from the creditors ofMay reduce or eliminate estate taxes trust beneficiaries- May remove some assets (including lifeinsurance proceeds) from the taxable estate Types of Trusts- May reduce or eliminate estate taxes atspouses death There are several types of trusts, including the revocable living trust and the irrevocable life insurance trust. Different trusts meet different needs. Consult with your legal/tax advisor to determine whether a particular type of trust would be beneficial for you
Estate Tax: Repeal Sunset ProvisionsTax Relief Act Of 20011A controversial aspect of this Act is the future p hase-In Rates and Schedules repeal of the estate tax. The Act is a compromise between substantial estate tax Starting in 2002 the maximum rate for estate reductions and full repeal. However, there tax, gift tax, and generation-skipping transfer were concerns that the cost of full repeal tax became 50%. It was reduced by 1% in would use too much of the money needed for each of the following years until it was 45% other tax cuts and spending priorities. The for years 2007 through 2009. The gift tax resulting compromise uses a slow phase-in rate continues after 2009 at a maximum through the year 2009 with a full repeal of amount equal to the maximum income tax the tax in 2010. rate which would be 35%."Sunset Provisions" Immediate estate, gift and generation-skipping transfer relief started in 2002 whenThe Act contains a "sunset provision" that $1,000,000 became an applicable exclusion repeals this Act as of December 31, 2010. for these taxes. For gift tax purposes it Consequently, the estate tax, gift tax, and remains at $1,000,000 for 2009. For estate generation-skipping transfer tax in effect in taxes and generation-skipping transfers it 2001 will become the law once again on increased in 2004 to $1,500,000; in 2006 to January 1, 2011. Unless there is future $2,000,000; and in 2009 to $3,500,000. This legislation the Tax Relief Act will only be exclusion reduces the amounts subject to effective through the year 2010. these taxes until repeal in 2010. Of course, the law in 2001 becomes the law again in 2011 unless Congress intervenes.
Estate TaxMany Other Significant ProvisionsOne of many new provisions of this complex tax actdeals with the elimination of step-up in basis forinherited property. This means that appreciatedproperty inherited after estate tax repeal in 2010may be subject to capital gains taxes when sold.Each estate will be allowed a $1.3 million step-up inbasis and an additional $3 million step-up forproperty transferred to a surviving spouse. To assistthe IRS, the executors and trustees will havesignificant new reporting requirements. These newprovisions require special planning for the closely-held business owner. The Act contains many otherprovisions.Continued Need for PlanningThe complexities of this new legislation and theuncertainties of many of its provisions require carefulplanning with your tax and legal advisors.
Life InsuranceAdva nt a ge s• Proceeds are generally paid income tax free• No interest costs• Flexible outlay options (a retirement outlay, business capital, emergency cash )• Cash value accumulation (Look for 7% ROR or more)• Proceeds can be estate tax freeConc e rns• Requires annual premiums• Must qualify for insurance• Proceeds may not be estate tax free (if owned by the insured)
Annuities (payments..retirement..lifetime income)What is an annuityAnnuity contracts provide a series of payments, usually guaranteed for a lifetime. Only life insurance companies can offer contracts based on life expectancies. Strict rules and regulations of the insurance industry provide you with the assurance that the issuer of the annuity will fulfill the obligations in the contract.Opposite of life insuranceWith life insurance, you make monthly payments (premiums) to the insurance company until death: at your death, the company pays your beneficiary a large payment. With an annuity, you make a large payment to the insurance company (which can be in a single payment or a series of payments) and the insurance company makes monthly payments to you for as long as you live.Characteristics of annuitiesAnnuities have two main characteristics: when payments begin, and how the values are determined.
Annuities (payments..retirement..lifetime income)Lifetime incomeThe basic form of annuity income is the life only. Payments are guaranteed for as long as the annuitant lives regardless of whether that is one month or to age 115! Lifetime income usually results in the highest monthly payment, but you risk receiving only a portion of your total payments back.Guaranteed payment periodsPayments may have various guaranteed payment periods; for example, payments guaranteed for the longer of 10 years or life. This option provides smaller monthly payments in exchange for the guaranteed payment period.Based on two livesJoint payment options pay as long as either of two people is alive. Often these options will pay 25% to 30% less than a single life only option, but assures the survivor of a lifetime income.
Annuities (payments..retirement..lifetime income)Ways annuities pay lifetime incomesLifetime incomeThe basic form of annuity income is the life only. Payments are guaranteed for as long as the annuitant lives regardless of whether that is one month or to age 115! Lifetime income usually results in the highest monthly payment, but you risk receiving only a portion of your total payments back.Guaranteed payment periodsPayments may have various guaranteed payment periods; for example, payments guaranteed for the longer of 10 years or life. This option provides smaller monthly payments in exchange for the guaranteed payment period.Based on two livesJoint payment options pay as long as either of two people is alive. Often these options will pay 25% to 30% less than a single life only option, but assures the survivor of a lifetime income.
AnnuitiesWhen payments beginImmediate annuities start paying benefits as soon as the contract is issued.Deferred annuities delay the payments of benefits until some time in the future. The value continues to grow during this period and provisions in the contract may allow for withdrawals prior to the time annuity payments begin.More info on list of Living Trust lawyers in the bayarea and more info on life insurance with index strategy and annuities to increase your retirement income and stretch your retirement, contact Connie Dello Buono CA Life Ins Lic 0G60621 at 408-854-1883 email@example.com. She is a member of Silicon Valley National Association of Insurance and Financial Advisors.