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The Wealth & Wisdom Blog

Information on Estate Planning, Estate and Trust Administration and Unique Asset Planning

Coordinating Life Insurance Policies with Your Estate Plan

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Not often does the United States Supreme Court, our nation’s highest court, rule on estate planning matters.   Last month, however, the Supreme Court ruled on a case, Connelly v. United States, involving the proper calculation of the estate tax liability when life insurance is paid to a business.  In a unanimous decision befitting the recent July 4th national holiday, the Supreme Court ruled that the company’s receipt of life insurance increased the value of the company ownership interest, and therefore increased the estate tax liability.  God Bless America.

By reason of the U.S. Supreme Court’s treatment of the estate tax issue, in this month’s update I offer a reminder of the importance of coordinating the ownership and beneficiary designations on life insurance as part of a comprehensive estate plan.  While life insurance should always be coordinated with estate planning documents, this coordination is particularly important in the following three situations:

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Follow On Family Gifting

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“A boat is a hole in the water into which one pours money.” 1 One of my sons recently celebrated his 14th birthday.  To celebrate his own day of birth, my son cut himself a piece of birthday cake, the size of which could have fed a small village, and consumed the entire piece in one sitting.  We have adjusted our grocery budget accordingly.

In the estate planning and gift planning space, certain gifts made to a charity or a family member are sometimes called “gifts that eat.”  Once a child becomes the owner of a gifted asset, the gift will “eat into” the child’s personal expense budget.  In this month’s update, I briefly summarize the legal and tax issues of “follow-on” family gifting—that is, gifts made to support previous gifts given.

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The Five Vehicles for the Transfer of Assets

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My family recently purchased a new vehicle.  To organize all the variables factoring into our decision, my wife Heather created a spreadsheet.  The variables included fuel efficiency, trunk size, headroom, and cost.  While my two sons lobbied extensively for a larger, sportier vehicle, Heather and I were not quite ready to “Die With Zero,” and so we opted for a medium-sized SUV instead.

In this month’s update, I briefly summarize the five separate legal means (“legal vehicles”) for the transfer of an asset at death, and the importance of categorizing one’s assets in one of these legal vehicles.  An asset is transferred by the first of the following five legal vehicles:

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Corporate Transparency Act

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In a few weeks, many of us will complete online NCAA Basketball Tournament brackets for office or family pools.  My team selections are generally not based on any knowledge of a team’s merits, but instead on their geographic location, conference membership or, if my daughter is looking over my shoulder at the time of my selections, her appreciation for a team’s mascot or colors.  All told, it will take me no less than 5-10 minutes to complete the NCAA bracket.  Of course, I don’t anticipate winning prizes based on my “mascot and colors” approach.

A few weeks ago, I completed a Beneficial Interest Ownership Report.  As an owner of a “Registered Company,” I am required to report my interest in accordance with the Corporate Transparency Act.1  In my case, I gathered the necessary information to report on the federal website (“Fin Cin”) ahead of time.  It took me about 10 minutes to complete the online Beneficial Ownership Report on the Fin Cen website, about as long as the completion of my NCAA Basketball bracket. 2

In this month’s update, I briefly describe who is required to file a Beneficial Interest Ownership Report and what information needs to be gathered to complete the Beneficial Ownership Report.

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Die with Zero: The Benefits of Lifetime Gifts to Family

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Here is an engaging question for your next dinner party: If you knew with certainty the date of your death, would you die with nothing left?    In his book, “Die With Zero,” author Bill Perkins makes a case for maximizing personal life experiences, even at the cost of optimizing one’s financial net worth. Perkins argues that we should use our human and financial capital to optimize opportunities for desired life experiences, even if it means “zeroing out” our financial accounts.  Perkins is not the first to point out the qualitative superiority of lifetime transfers over post-death, or “testamentary,” gifts.

On a related note, I am pleased to share that I have self-published a book summarizing the distinctives of a Bible-based estate plan, which I have entitled, “Our Eternal Inheritance: A Guide to a Biblically-Integrated Estate Plan.” Among other estate planning topics covered in my book, I summarize the spiritual and relational benefits of lifetime gifts. In this month’s update, I summarize three personal benefits of lifetime gifts, and then briefly address legal and tax implications of lifetime gifts to family.

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Candidates for Fiduciary Offices

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On January 15, 2024, Iowa Republicans kick off the 2024 political season by voting for a Republican candidate for President.  In honor of the Iowa Caucus, in this month’s update I offer my thoughts on how to choose a candidate.  But rather than offering any opinions or endorsements for any political candidates, in this month’s update I summarize how to choose the appropriate key individuals, often referred to as “fiduciaries,” to implement your estate plan.

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A 2024 Estate Planning Prospective

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Compared to world events expected to occur in 2024, upcoming tax law changes are, admittedly, relatively tame.  Perhaps you are looking forward to the Paris Summer Olympics, or hold guarded optimism about your child or grandchild’s big game or musical performance.  You certainly know about the newest season of your favorite streaming television show.  You also understand you must endure coverage of the upcoming presidential election.

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Qualified Personal Residence Trusts

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This was a great Thanksgiving, but who will host Thanksgiving next year?  Based on calls we receive from clients in the weeks following Thanksgiving, we know that home and cabin ownership planning is a common discussion topic during Thanksgiving.  In this month’s update, I provide a brief overview of a Qualified Personal Residence Trust (“QPRT), which is one of several legal strategies a family might consider to transfer ownership of a home or cabin to a child or children during lifetime.

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Family Partnership Planning

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The IRS announced last month that it plans to increase audits of wealthy individuals and partnerships, with a special focus on the seventy-five largest partnerships.  According to the IRS announcement, the purpose of the audits will be to, “identify sophisticated schemes intended to avoid taxes.”  In response to this IRS announcement, in this month’s update I briefly summarize how a family partnership plan is generally implemented as well as the resulting legal and tax benefits of the planning.

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Generation-Skipping Trusts

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“Our kids are wealthier than we are!”  Some of my clients emphasize the wealth of their children as we customize their multi-generational estate plan.  “How can we help our grandchildren instead?”

As noted in a recent Wall Street Journal article, many wealthy families are implementing plans to lock in current federal exemption amounts to save estate and gift taxes at multiple generations.  One strategy is to implement a certain type of trust, known variously as a generation-skipping transfer trust, a dynasty trust, or a GST Trust. Contrary to what may be inferred by these monikers, a GST Trust can be a blessing in disguise to the very children who are ostensibly skipped by the GST Trust. In this month’s update, I summarize the benefits and costs of the GST Trust planning strategy.

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This blog is intended to provide the reader with assistance in understanding various estate planning and trust estate planning concepts. In an effort to keep things as digestible as possible, I have tried to keep each blog post as short as possible.  As a result, an astute reader would see that I often fail to address various exceptions to rules or principals, or how various principles relate to one another.  There are a number of moving parts associated with various planning structures summarized on this blog.  In order to achieve your estate planning objectives, it is important that you receive the assistance of an experienced estate planning attorney.  Otherwise, your family may be in a worse position for your having attempted these strategies on your own.  Until we form an attorney-client relationship, you should be aware that your visiting this blog has not formed an attorney-client relationship, and none of this information can be taken as legal advice.  To contact my office about scheduling an appointment, contact us at 612-465-0080.