Beyond Wills

Maybe it’s uncomfortable to think about where your assets will go after you pass. Maybe you don’t seem to have the time to work out a plan. Maybe you think that because you aren’t uber-wealthy, you don’t really need a plan. 

Think again – especially if you have a family. There’s likely to be more to your estate than the basics of a will, living will and power of attorney.

“So many of the entrepreneurs and executives I know put 110 percent into their work and give no attention to their personal business, including estate planning,” says David Seleski, president and CEO of Stonegate Bank. “You must acknowledge that estate planning is important to your family and find the time to make it happen. If you work 60 hours a week for most of the year, figure that you will work 50 hours per week for a few weeks to get it done.”

To find the right professionals to help, Seleski recommends talking to peers for recommendations. Then, interview some to make sure they mesh with your personality so you are certain they will understand your priorities.

Many estate planning experts agree that the most ignored asset in executives” portfolios is their 401(k) or IRA. But IRAs can be used more creatively in estate planning than most people think, says Kristen M. Lynch, an accredited estate planner, attorney and shareholder with Fowler White Burnett.

“Sadly, I’m often hired after someone has passed to fix problems that are mostly due to neglect: no beneficiaries assigned to it; the total amount being handed to an 18-year-old; and the tax burden that occurs when payments are taken from it,” she says. “As an alternative, IRAs can be structured as part of a trust and planned to extend payout periods for children and other beneficiaries.” (See box for other suggestions.)

Trusts are often useful tools for executives planning their estates, says Carlos A. Batlle, a wealth advisor at JP Morgan Private Bank in Miami. “A lot of my clients choose the grantor retained annuity trust (GRAT),” he says.

A GRAT minimizes the tax liability that exists when intergenerational transfers of estate assets occur. In these instances, an irrevocable trust is created for a certain period of time. The trust’s creator pays a tax when it is established. Assets are placed under the trust and an annuity is paid out every year. When the trust expires, beneficiaries receive assets tax-free.

A revocable trust is useful to keep your assets private, as opposed to a traditional will that becomes a public document, says Maria Mas Blet, managing principal and CEO of GSK Wealth Advisors. In this, income earned on assets in the trust is distributed to the grantor, who can alter or cancel its provisions. Only after death does the property transfer to its beneficiaries. It’s also helpful in making specific provisions for special needs beneficiaries, allocation of assets in the event of divorce, and planned charitable donations. “Pay attention to what your assets are and how they are titled,” Mas Blet says. “Think about where and to whom they are going. Always have a secondary beneficiary in mind for them.”  

Mas Blet also recommends that business owners create buy-sell agreements as part of their legacy planning. This requires that the business share of a deceased owner be sold according to a predetermined formula to the company or the remaining members of the business. Before the interest of a deceased partner can be sold to the company or remaining partners, the deceased’s estate must agree to sell. To ensure the availability of funds in the event of a partner’s death, most parties will purchase life insurance policies on the other partners. The proceeds from the policy are then used to purchase a portion of the deceased’s business interest. 

Payouts from life insurance can also be used to leverage the tax burden of estates, says Lenny Sklawer, a financial services professional at New York Life Insurance Company in Miami. “There is a strong possibility that the inheritance tax threshold, which is now $5.43 million per person, will soon roll back to somewhere between $2 million and $3 million per person,” he says. “We encourage people to plan for that now.”

To use life insurance in your plan as way of tying accumulation values to a stock market index, Grant Conness, managing director of Global Wealth Management, suggests an indexed universal life insurance policy. These typically contain a minimum guaranteed fixed interest rate component along with the indexed account option and give policyholders the security of fixed universal life insurance with the growth potential of a variable policy linked to indexed returns. 

Your estate plan should be a direct reflection of what you want to accomplish with your assets, both Mas Blet and Sklawer agree. They suggest having at least one family meeting about the documentation of it. “You really don’t want your heirs to have disagreements,” Sklawer says. “I’ve seen it happen, and it’s devastating.” ?


What executives should know about IRAs

by Kristen M. Lynch, Fowler White Burnett

IRAs are like any other asset, except for the fact that they are income tax deferred. Since they can be a large portion of personal wealth, here are some things to keep in mind:

Make sure you have a beneficiary properly named on the beneficiary designation form. This includes any qualified plans in which you may participate at work. 

If you are married and a participant in an ERISA covered plan, federal law requires that you designate your spouse as your primary beneficiary unless your spouse agrees to waive those rights. Always designate a contingent or secondary beneficiary, because it is impossible to predict which spouse might pass first or what events might occur.  

In an IRA, you can name any beneficiary you like, but your spouse is usually your best primary beneficiary because he or she can roll an IRA over upon the death of the owner and will have the same rights as the original owner.

If you are in a second or third marriage, consider leaving funds in a trust to benefit your spouse, and then revert to your other heirs upon his or her death.

If you are naming children who are minors, consider creating a trust for them, or the assets may be subject to a guardianship.

If you are naming adult children, consider creating a spendthrift trust that has protection from creditors for each child instead of naming each child directly.   

If you have a special needs beneficiary, consider naming a special needs trust to preserve any benefits he or she may be receiving.

IRAs are a great way to fund charitable bequests because charities can receive IRA assets without paying income taxes.


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