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January 23, 2009 by admin.
Today’s post is the first in what I expect to be a series devoted to answering some of my readers’ E-Mail to me.
(Note that my Disclaimers in my first post and on my Notices page are still in full force. The following is neither legal advice nor financial advice – and is not intended as such. An attorney-client relationship is neither created nor intended in this and other blog posts. I merely present the below for entertainment and educational purposes for friends and clients.)
This first E-Mail comes from Geri, who runs a law firm marketing company. Geri has been very kind in offering me advice, and here is one such piece of it.
is there a way you can make your hyperlinks open another window rather than take you away from your site? i had to use my back button to get back to your site. usability standards consider hyperlinks that take you away from the original site to result in people reading less. . .especially if they then use another hyperlink in the site you’ve taken them to. (does that make any sense?)
Dear Geri,
That definitely does make sense. Wordpress has been frustrating at times to figure out. Additionally, it has been years since I’ve done any HTML programming, so I have only recently picked it up again. I appreciate my readers bearing with me as I strive to make and keep this blog excellent.
That said, I have recently figured out how to make my links open in a new window. All of the links on the Blogroll should now open in a new window, and all links included in future entries should do so as well. The next time I update the About page, I will similarly update the links within it. Links in blog posts prior to this one have not been updated to include this feature (at least, not yet).
Thanks for your feedback. I appreciate it – and continue to invite my readers to contact me.
- Joe Stanganelli, Esq.
The next correspondence I address comes from a new friend of mine, Richard. Richard works in the financial services industry. In response to my remarks on Suze Orman’s estate plan, Richard writes (over the course of multiple E-Mails):
All life insurance is term insurance. Take a look at those whole, universal, and variable policies, there is a section regarding the cost of either the Annual Renewable TERM or Decreasing TERM insurance that the company pays for.
All life insurance falls under those 2 categories. Yes ART can have a level period, but they all boil down to one of those 2.
…
It’s that one bone in my body that must have everything right.
Dear Richard,
Not being someone who is a life insurance expert (I deal with it only as it pertains to estate planning), I defer to the wisdom of those who are when it comes to life insurance definitions and the like. I haven’t discussed the above with others who know more about life insurance than I do because whether you are technically correct or not is irrelevant for my purposes (i.e., offering an estate planning perspective); I only meant “term insurance” in the “pure” sense, i.e., for a specifically enumerated, limited period of time, as a pure insurance tool (a.k.a. the sense just about everybody usually means when they use the term “term insurance”).
One of the ultimate purposes (albeit not the only one) of estate planning is to pass on the greatest amount of wealth possible to those you care about. I want to emphasize that I am looking at this strictly from an estate planning point of view – and when it comes to estate planning, pure term insurance is usually not as useful as those “impure term” policies.
I am aware that some “pure term” policies can offer better yields than whole, universal, or variable policies. Life insurance, after all, pays out when – and if – you die during the policy period. If your loved one has a “pure” term insurance policy on your life, and you’re still alive when it runs out, then it was useless from the estate planning viewpoint; it passed on zero wealth to said loved one. (True, some term insurance policies, such as an ART, are renewable, but often the premiums go up each year.)
In any case, thank you for educating me more about life insurance.
- Joe Stanganelli, Esq.
Next we have a comment from “SaxophoneMan” in response to my January 16 post. Saxophone Man writes:
“The law will arbitrarily decide who gets your assets” if you don’t have a will? That is not actually true. The law of intestacy is actually designed to prevent the arbitrary allocation of assets in the absence of a will. Rather, intestacy rules seek to provide order in the allocation of the estate. While such allocation may not be the deceased’s preference, it is far from arbitrary.
Dear SaxophoneMan,
I realize that one of the many dictionary definitions of the word “arbitrary” is: “established by a court or judge rather than by a specific law or statute.” That is not how I use the word here.
Rather, I use the word in accordance with the following, alternative definition: “based on preference, bias, prejudice, or convenience rather than on reason or fact.”
As a Massachusetts attorney, I am well aware of the existence of Mass.Gen.Laws ch. 190 (the Massachusetts intestacy laws). To say that the intestacy laws were “designed to prevent the arbitrary allocation of assets” is not really correct. While they may have been designed to prevent probate judges themselves from divvying up estate assets arbitrarily, that does not make the intestacy laws any less arbitrary themselves.
In writing and enacting the intestacy laws, the legislature has arbitrarily decided for you the succession of your estate assets without a valid will in force. You yourself acknowledge that “such allocation may not be the deceased’s preference.” It is hard to imagine how that is something other than arbitrary.
After all, what is the basis for “such allocation”? Why, nothing more than the discretion of a group of state legislators huddled around a consanguinity chart! Yes, blood relations can be definitively shown and proven (and are therefore more convenient from a legal perspective), but that doesn’t change the fact that they make for no less arbitrary a standard than anything else that is not the deceased’s wishes.
Add the spousal elective share into the mix, and things become even more wild. As I stated in an earlier post, one of the common goals of estate planning for a couple is to avoid estate taxes until the second death (i.e., the death of the surviving spouse). This is because all estate taxes can be avoided by way of the marital deduction (assuming that the decedent is married to a United States citizen) and the Unified Credit (i.e., the $2,000,000 estate tax exemption). The logical thing for the married decedent-to-be with a greater than $2,000,000 estate is to leave $2,000,000 to the kids (or whomever s/he wishes), and the rest to his/her spouse (and/or a qualified 501(c)(3) charity to take advantage of the Qualified Charitable Deduction).
When a married person with children dies without a will in Massachusetts, the spouse gets half of their estate and the children get the other half. Even if we set aside personal circumstances that would make this a ridiculous distribution, if the decedent’s estate exceeds $4,000,000, then this is a wholly illogical distribution for tax purposes; the portion of the children’s half that exceeds $2,000,000 would be subject to federal estate tax.
(This is even setting aside the fact that the Massachusetts state estate tax exemption is less than that of the federal estate tax exemption.)
There are many, many more cases where the intestate statutes just quite clearly fail to dispose of assets in the best possible manner – let alone succeed at indicating that they are anything other than arbitrary distinctions.
While the laws of intestacy, spousal shares, and the like do serve their purpose of providing a default (so that probate judges aren’t just left to wing it), it is hard to argue that the way they were written is anything other than arbitrary. What is more, the certainty of the intestate laws pale in comparison to the certainty a well-written will provides.
Thanks for your comment.
- Joe Stanganelli, Esq.
Beacon Hill Law is on its way to being officially open for business. I have but about half a dozen forms left to fill out, plus the construction of the website. Please keep visiting this blog for updates – and don’t hesitate to contact me if you have any feedback or if you think there is something I can do for you.
- Joe Stanganelli, Esq.
Posted in Wills, Unified Credit Trust, Children, Probate, Reader Mail, Preventative Law, Charitable Giving, Marital Deduction, LinkedIn, Disclaimers, Intestacy, Marriage, Estate Taxation, Life Insurance, estate planning | Print | No Comments »
January 13, 2009 by admin.
A drop of water landed directly in my eye yesterday.
I was walking down School Street in Boston when it happened. It must have dripped off a building ledge. It was pretty gross.It reminded me that I need more eye drops, so I went to CVS. While shopping, I flipped through a copy of Suze Orman’s new book, Suze Orman’s 2009 Action Plan (you can download a free PDF version of the book until January 19, 2009, online here courtesy of Oprah.com).
(Suze Orman, for those of you who live under a rock, is the woman on TV who yells at people for spending too much money.)
I saw, as I flipped through the book near the pharmacist’s counter, that Suze Orman recommends to her readers that, in almost all cases, they opt for term life insurance over any other kind of life insurance.
To me, this is pretty ridiculous.
When I think of a life insurance agent, I think of Ned Ryerson, the ineffectual insurance salesman from the movie Groundhog Day. As grating as old “Ned the Head” may be, however, non-term life insurance is often a key component of a good estate plan.
Obviously, a young, healthy, single person with no dependents most likely has little need for any kind of life insurance. Indeed, because of the very nature of life insurance, the longer you can wait to get it, the better.
Nonetheless, the unexpected does happen; that is why people have estate plans.
One obvious benefit of whole, universal or a similar life insurance plan is to maximize the transfer of wealth tax-free. Life insurance is usually not subject to estate taxes when it pays out. Thus, a substantial policy is often a great way to transfer wealth.
Additionally, estate liquidity can be a major issue in estates – especially those that are just barely large enough to be subject to estate tax. Estate representatives sometimes have to sell the family home, the family business, and other valuable and/or sentimental assets to pay estate taxes that are due. With a sufficient life insurance policy in place, the problem is easily solved; the taxes can be paid with the life insurance money without having to sell the estate’s major assets.
Life insurance is also commonly used in business succession plans, wherein the business partners are designated the beneficiaries, and then use that money to buy the decedent’s share of the business back from the spouse, children, or whomever received the business in the will.
Life insurance is not for everybody, and there are many different types of life insurance that can be used for many different things. Life insurance has a great many uses for estate planning (but term life insurance – while it has its uses – can tend to be of limited utility for estate planning needs). For more information on this topic, you should contact a competent attorney, CPA, CFP, or similar, neutral professional who won’t be compensated when you purchase a life insurance policy (unlike an insurance agent).
But not Suze Orman. At least, not on this issue.
(In all seriousness, I admire Suze Orman. She started off as a waitress living in a van and is now a multimillion-dollar success. To me, she is a living Horatio Alger story and an embodiment of the American Dream, and has earned my respect.)
Speaking of Suze Orman, apparently her own financial concerns could in fact be solved with life insurance and other estate planning mechanisms.
According to an interview with The New York Times, Suze Orman is concerned about losing lots of money to estate taxes. More specifically, according to the interview, she is in a committed same-sex relationship with another wealthy individual (her producer). She is concerned that, because she and her partner cannot legally be married, they cannot make use of the marital deduction – and therefore a substantial portion of their substantial estates will be lost to estate taxes.
This presents an important, burgeoning issue in the estate planning field: GLBT planning. Neither the federal government nor any other jurisdiction in the United States (save Massachusetts) recognizes same-sex marriages (although some states have other, similar mechanisms, such as civil unions). This presents an additional challenge when it comes to estate planning for people in committed same-sex relationships. Typically, because of the marital deduction (i.e., the mechanism by which you can give things to your spouse tax-free), one common goal of estate planning is to reduce or eliminate estate taxes at the second death – because upon the first death between the married couple, the decedent spouse has presumably left everything (save for their initial $2,000,000 estate tax exemption) or most everything to their surviving spouse, tax-free. For couples who cannot enter into a marriage recognized by current federal law, like Suze Orman and her female producer, this is not an option.
First and foremost, Suze and her partner could each benefit from substantial life insurance policies, respectively (and it’s not like they can’t afford it, either; according to the same interview, Suze Orman’s liquid net worth is in the $25,000,000 neighborhood). This policy easily turns a few million dollars into several million dollars once it pays out. Furthermore, the life insurance payouts would be tax-free. This could easily make up for the loss to estate taxes.
Furthermore, Suze and her partner would each benefit from irrevocable living trusts set up for their partner’s benefit, set up to not pay out until the first death between them. This is especially ironic because Suze recommends to her readers in her 2009 Action Plan that they set up revocable living trusts. The problem with revocable living trusts is they are still subject to taxation as part of the grantor’s estate; because of their revocability, the grantor is still deemed to “control them,” and therefore own them as part of her estate.
Because Suze Orman is a good sport (I am assuming), I am going to give her some fun, free “legal advice” (I put “legal advice” in quotation marks so nobody can sue me later; this is all rhetorical and hypothetical, and not intended or presented as actual advice forming an attorney-client relationship. Please see the Notices Page for more information). Based upon the limited information I have, with all other things being equal, I would advise Suze to and her partner to each do the following:
And Suze, if you’re reading this and this information helps, feel free to mention my blog on your show.
- Joe Stanganelli, Esq.
Posted in Estate Taxation, Marital Deduction, Charitable Giving, Unified Credit Trust, Living Trust, Life Insurance, LinkedIn, Marriage, LGBT, estate planning | Print | No Comments »