OCTOBER 2017 OCTOBER 2017
CURRENT ISSUES IN THE AREAS OF ESTATE, TAX AND PERSONAL AND BUSINESS PLANNING
The information that follows summarizes some of the current issues in the areas of estate, tax and personal and business planning which may be of interest to you. Although this information is accurate and authoritative, it is general in nature and not intended to constitute specific professional advice. For professional advice or more specific information, please contact my office.
28th Annual EBA Estate And Business Planning Institute. On Friday, November 10, 2017, I will be speaking on special needs trusts for asset protection, including planning, implementation, recent developments, and a comparison of ABLE accounts at the 28th Annual EBA Estate and Business Planning Institute. This program is designed primarily for estate and financial planning professionals, including attorneys, accountants, financial planners, and life insurance underwriters. I will be addressing alternative ways of structuring special needs trusts, the Medicaid transfer of assets rules, benefit programs that special needs trusts can be designed to qualify for, and a number of other issues relating to asset protection in the context of special needs trusts. For readers who are interested in attending this program, you may contact Susan Vollmer at the Evansville Bar Association: email Susan@evvbar.org; telephone 812/463-3201.
Business Succession – Keeping The Business In The Family. Business owners frequently wish to keep the business in the family after the retirement or death of the founder, but there are not always family members who have the ability to continue successfully business operations after the death or retirement of the founder. Fewer than half of all businesses survive the second generation, and each successive generation results in a significantly reduced likelihood of success. Pending the grooming of a family member successor, it may be necessary to hire qualified executives or managers, or implement a board of directors which will consist of professional business people who can properly guide the next generation toward a successful business transition. Occasionally a family council will be initiated to provide advisory assistance during the course of grooming the next successor. A major pitfall of a successful business transition to the next generation is the inclusion of both active children and non-active children in the ownership of the enterprise. Conflicts often develop between the insiders and the outsiders over such issues as compensation, payment of dividends, and similar financial matters. There are various options for transferring a family business down to the next generation, some of which will be discussed in the next issue of this newsletter.
Insurance Mistakes – Continued. The September 2017 issue of this newsletter commenced a discussion of common mistakes that are made through utilization of life insurance. Another common error is to name a minor or incapacitated person as a beneficiary of a policy. This might result in the necessity of establishing a guardianship. Ways of addressing such issues vary from the simple to the more complex. If there is the potential for a minor or a disabled beneficiary, then the beneficiary designation can make reference to a custodian under a Uniform Transfers to Minors Act, with the direction that the insurance proceeds be held until the minor attains 21 years of age (even though the age of majority in Indiana and many states is 18). Similarly, if a beneficiary is or may be incapacitated, there could be a reference to a custodial trustee under the Uniform Custodial Trust Act. It is not uncommon for an insured to name the insured’s children as either the primary or contingent beneficiaries, and if a per stirpital distribution is used, then the death of a child would result in the deceased child’s children receiving the life insurance proceeds. If there is any possibility that a beneficiary could be a minor, then that eventuality should be contemplated. If a trust is utilized in conjunction with the estate plan of the insured, then the beneficiary could be designated to be the trust. The proceeds would then be paid to the trustee of the trust, and the proceeds would then be held, used and invested in accordance with the provisions of the trust applicable to a younger or an incapacitated beneficiary. Problems can also result if an insured transfers the ownership of a policy to several individuals, such as two or more children. There are many risks involved in multiple ownership, some of which may be tax related, or problems resulting from death, divorce, bankruptcy, lawsuits, tax liens, etc. If a transfer of ownership of a life insurance policy is being considered, and if multiple owners are a possibility, then consideration should be given to utilizing a trust, a partnership or a limited liability company to deal with such issues as paying premiums, dealing with policy loans, coordinating beneficiary designations, etc.
Funding Long Term Care. The July 2017 issue of this newsletter addressed the use of life insurance and hybrid insurance products as a means of paying for long term care. It was noted that the cash surrender value of a life insurance policy could be used to fund long term care, and that certain hybrid products would allow a portion of the death benefit to be used to pay for long term care, thereby reducing the balance of the death benefit that would be payable following the actual death of the insured. Because life insurance policies can be transferred, another option is a viatical settlement, which is sometimes referred to as a life insurance settlement, involving the sale by the owner of the policy itself for more than its cash value but less than the death benefit. The market has expanded considerably for life insurance settlements. If an ill person is the insured under a life insurance policy which does not have a living benefit rider, then the ill person might be able to sell the policy and use the proceeds to help fund his or her long term care or other health needs. In general, if a policy is sold in a qualified viatical settlement transaction, there will generally be no income tax associated with the transfer. However, there can be tax consequences to result from the sale of a life insurance policy if it does not meet certain technical tax requirements.
Additional Information. Future issues of this Newsletter will address other issues of current interest. Please contact my office with any questions that you might have.