Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Good morning to all. Craigshillig here and this is Safe Money.
I'm here every Saturday to talk with our listeners about
financial strategies we use to manage and protect assets safely.
I've been an insurance agent for over twenty four years.
During that time, I've learned a few insurance strategies, like
using annuities as safe money harbors, or using cash value
(00:23):
life insurance to supplement retirement income. Just remember, just a reminder.
You can call our office at five six three three
three two two two zero zero if you'd like to
enroll into one of my virtual Medicare community meetings I
give two every month via zoom, or you can email
(00:43):
me at Craig at Craigshillig dot com and that's my name,
cr Aig at cr AI G S C h I
L l ig dot com. September is Life Insurance Awareness Month.
Today i'd like to talk about a life insurance trust.
(01:08):
I'll talk about this section. I'm going to talk about
life insurance revocable trusts. Next week I'll talk about life
insurance irrevocable trusts. What is a revocable life insurance trust?
A revocable life insurance trust is a trust that is
funded at least in part by life insurance policies or proceeds.
(01:31):
It can be an effective planning tool that provides a
source of liquid funds to your estate for the payment
of taxes, debts, and expenses. Moreover, it allows you the
flexibility to control the trust assets or amend the trust
at any time prior to your death. A revocable life
(01:52):
insurance trust is not designed to minimize transfer taxes or
income taxes. A revocable life insurance trust does not remove
the future appreciation of assets in the trust from your
gross estate, nor does it remove the life insurance proceeds.
To minimize taxes. In these ways, you need to create
(02:14):
an islet that's an irrevocable life insurance trust. I'll talk
about those next week. If you're a business owner of
revocable life insurance trust can be a great way to
ensure that your heirs will be able to keep the
business running after you die, because they will have the
cash to keep paying the bills. I got an example here.
(02:38):
Adam owns a small but busy diner that he runs
with his sons, Eli and Jason. The business has grown
since Adam first started it and it continues to expand
and become more valuable. Although the business is thriving, it
generates very little extra cash because the cash is used
to pay the bills and buy the food. Adam wants
(03:01):
Eli and Jason to continue running the diner after he dies.
He's worried that when he dies there will not be
enough cash to pay his debts, taxes, and other costs,
and that the Boys will have to sell the diner. Also,
Adam wants to transfer ownership of the diner to Eli
and Jason now, but retain control of the diner during
(03:25):
his life. He contacts his insurance professional and together they
decide on a life insurance policy that suits Adam's needs.
Adam also contacts his attorney, who draws up a document
creating a revocable life insurance trust. Adam names his self
as a trustee, his spouse as co trustee, and the
(03:45):
boys as the beneficiaries. A provision in the trust document
permits the co trustee to pay the costs of settling
Adam's estate with the life insurance proceeds. Adam purchases life
insurance policy and funds the trust with it. In addition,
Adam transfers the diner's stock to the trust at Adam's death.
(04:10):
The value of the business and the life insurance proceeds
are included in Adam's grossest state. The co trustee collects
the life insurance policy proceeds, pays the costs incurred to
settle Adams the state, and distributes the remaining proceeds to
suns Eli and Jason. The two sons continue to pay
(04:30):
the bills and operate the diner with little interruption because
of Adam's death. A revocable life insurance trust is extremely
useful if you lack liquidity, meaning in your assets include
mainly a closely held business interest and or large real
estate holdings. What types of revocable life insurance trusts are there?
(04:55):
There's funded versus unfunded. A revocable life insurance trust can
be either funded or unfunded. Technically, an unfunded trust is
the one that either holds only a life insurance policy
and the other assets until your death, or is named
as the beneficiary of the life insurance policy and receives
(05:15):
the proceeds upon your death. Only after you die, the
trust receives the proceeds and administers them according to the
terms of the trust. In addition, other assets may be
received by the trust along with the insurance proceeds, such
as assets poured over from your will or death benefits
(05:37):
paid by your employer or employer benefit plan. On the
other hand, a funded trust holds not only the life
insurance policy, but other assets too. You may want to
put other assets in the trust in order to coordinate
their final disposition with the insurance proceeds. The main reason
(05:58):
for a funded trust is that property place in the
trust avoids probate. A revocable life insurance trust is typically
unfunded because the income that is earned by a funded
trust is subject to income tax, even though the income
itself is used to pay the premiums. Instead of the
trust holds the policy, you can make regular contributions to
(06:22):
the trust to provide the funds needed to pay the premiums. Alternatively,
you can simply name the trust as beneficiary and pay
the premiums yourself. Why would you want a revocable life
insurance trust, Well, it provides for your family. The most
important benefit of the revocable life insurance trust is that
(06:43):
can help provide for your family. Life insurance can provide
cash to help support your spouse and children. After you die.
This may be especially important if you are young, do
not have any other significant assets, or are the primary
breadwinner in the family. Life insurance can help bring some
(07:03):
peace of mind because it can help improve the financial
security of your family even though you're no longer around
to provide that for them. It provides cash to your
heirs so your business can continue to operate. If you're
a business owner, is likely your business may experience a
temporary decline after you die. Your errors may have difficulty
(07:27):
with the day to day operations if there's not enough
cash to keep it going through this period. A revocable
life insurance trust can help provide the liquidity needed by
your errors in order to keep the business operating after
you die. It provides funds for the settlement of your estate.
(07:47):
A revocable life insurance trust can help provide liquidity to
your state so that there will be funds with which
to pay your final income taxes, death taxes, administrative expense debts,
and other costs associated with the settlement of your estate.
These costs can sometimes be significant and may take a
(08:09):
large bite out of your estate. If there is no
cash available, your personal representative may have to sell some
of your assets. This may deprive your heirs of property
that you intend for them to have. Also, if you're
a business owner, this can mean that your errors may
have to sell your business. Life insurance proceeds can be
(08:31):
used instead. Saving your assets and your business for your
heirs provides professional management of your assets. Although life insurance
can be given outright to a memory of your family,
there are advantages to putting the policy in a trust instead.
If the policy is in a trust, the trustee is
(08:54):
the legal owner who holds it for the benefit of
your errors. The trustee is responded for the management and
distribution of the trust income and principle. You select the
trustee and either determine when the beneficiaries receive the proceeds
or provide the trustee with discretion to decide the amount
(09:15):
of timing of distributions. A professional trustee can invest the
assets in the trust in a way that earns the
most income. This may be attractive if your beneficiaries are
miners or others who do not have the capacity or
judgment to manage the policy or the large proceeds. This
(09:39):
may also be attractive if you're in your golden years
and no longer want to bother with managing some of
your assets. It also avoids probate. Assets in the trust
are not subject to probate. This is true for any
other type of asset you transfer to the trust. Therefore,
trust to assets can be made available to your benef
(10:00):
fisheries more quickly than if they were to pass through
through your probated state. In addition, your state will avoid
probate costs for these assets. By avoiding probate, that creates privacy.
By having privacy, that means that the amount distributed won't
(10:23):
be public knowledge at the county courthouse. The big one
is this maintains privacy. Assets that pass through probate are
a matter of public record, open to anyone who cares
to look at it. Because the trust assets pass outside
of probate, distribution of this property remains private unless you
(10:47):
were to tell somebody, but it's not listed anywhere. Trust
assets may be protected from creditors claims. Assets you put
in a revocable life insurance trust may be protected against
the claims of your creditors, depending on the laws in
your state. However, because you retain control over or writes
to the assets in a revocable life insurance trust, they
(11:11):
may be vulnerable. Check with your state or attorney to
find out if assets and a revocable life insurance trust
are truly protected. It lets you retain control over the
trust and the trust assets. Or revocable life insurance trust
gives you some flexibility because you can alter, amend, and
or even terminate the trust if you so choose. This
(11:35):
may be attractive if the thought of losing complete control
over your assets troubles you. What are the trade offs?
Future appreciation of trust assets is not removed from your
state for a state tax purposes in order to avoid
potential of state tax liability, you can't retain any incidence
of ownership. By its very nature, you will retain some
(11:59):
incidents of ownership in a revocable life insurance trust. Therefore,
the full value of the trust, including any other assets
you transfer the trust, will be included in your state
for state tax purposes. Since you may or may not
be able to remove future appreciation of the assets you
transfer to the trust from your estate, you should consider
(12:22):
creating at irrevocable life insurance trusts instead. Insurance proceeds are
not removed from your state for a state tax purposes
because you retain incidents of ownership in the insurance policy
up until the data year death. The insurance proceeds will
be included in your state for state tax purposes. Only
(12:43):
proceeds on policy is transferred to a properly structured islet
irrevocable life insurance trust will be removed from your state calculation.
The big number today is fifteen million for twenty twenty six.
If you have total assets or near or over fifteen million,
then you really needed to go see somebody about your
(13:07):
estate and what is state taxes are going to cost you.
Distributions may be subject to generation skipping transfer known as
the GST tax in or a gift tax. Distributions of
property from the trust may be taxable transfer for GST
tax in or a gift tax purposes, and may result
in tax liability subject to the application of the annual
(13:31):
gift tax exclusion. For this year, you can give nineteen
thousand dollars to anybody for any given reason. That's the
exclusion amount this year. The top end number this year
for married is going to be thirteen thirteen million, nine
hundred ninety thousand, and the tax exemption that so if
(13:53):
you're at fourteen million, you need to go see a professional.
Please do that. Next year that number goes to fifteen.
A revocable life insurance trust is ignored for income tax purposes.
The IRS does not treat a revocable life insurance trust
as a separate legal entity, as it does with most
forms of trust. All trust income deductions and credits will
(14:17):
flow through to you on your personal income tax return. Therefore,
you will be tax on any trust income. This may
be negligible if it's an unfunded trust, or if it
could be significant. If you transfer substantials amounts of property
to a revocable life insurance trust, it could be costly.
(14:41):
You will incur more costs if you put life insurance
in a trust than if you give life insurance outright.
You will have to pay legal fees to drop the
trust document, and perhaps accountants, tax preparers, and trustee fees
will be included there. How do you implement a revocable
(15:04):
life insurance trust? Assuming you have decided that you want
to make a transfer to a life insurance policy, and
that the transfer should be made in trust rather than outright,
there are specific steps you should follow for effective implementation.
You need to contact your insurance agent or insurance professional
to help guide you with this. If you're purchasing a
(15:26):
new policy, your agent will help decide what kind of
policy's best for you. You need to have an attorney involved.
There are many complex legal issues that can arise when
you set up a trust. You should hire an experience
as state planning attorney to draft the trust document and
advise you on these complex legal issues. You need to
(15:47):
choose your beneficiaries. Wisely, you will have to select beneficiaries
of the trust. Spouses are a common choice, but this
may not be the best. Typically it will be either
your children or your grandchildren. If your children or grandchildren
are miners, then you also need to have guardians appointed
for them. You need to select a trustee. The decision
(16:12):
of who serves as trustee and success or trustee is
an important one. You will probably want to name yourself
as trustee. Alternatively, you can choose an independent trustee such
as a bank officer's sibling, parent, or anyone else who
is not a beneficiary. When I have discussions with clients
about this, I'm just going to tell you that the
(16:35):
guardian of a miner and the person who handles your
money should be two different people, because that way there's
two different sections there. I really recommend a trust officer.
They would have to follow fiduciary rules so they would
preserve the money that is there, they wouldn't spend it lavishly.
(16:59):
You may want someone who has experienced administering a trust
and who understands that the purpose of the trust is
to hold life insurance on your life and or at
the time of distribution, transfer and buy the policy and
fund the trust if desired. You may transfer an existing
policy to a trust. You could buy a new policy
(17:19):
and transfer it to the trust, or you can have
your trustee purchase the policy. Alternatively, you may simply designate
the trust as the beneficiary of the life insurance policy.
In addition, you may want to transfer other assets to
the trust. Your insurance professional and your attorney should assist
you in transferring ownership. When we're talking about filing GST,
(17:46):
the generation skipping tax and or gift tax returns if necessary.
If you make distributions from the trust during your life,
then you may have to file a GST tax or
generation skipping tax and or a gift tax return if
you have. If you've exhausted all your unified credits, then
(18:11):
you may have to pay taxes too, or you can
pay it on behalf of the beneficiaries. If this is
the case, you may want to consult with your accountant
and or a tax attorney prior to making the distribution.
GST is going to fall into this if you're doing
more than nineteen thousand, so just keep that in mind.
(18:33):
Include trust income on your personal and or income tax return.
Any income earned by the trust must be included on
your personal income tax return for the year in which
it was earned. This sometimes gets a dicey subject if
you're moving assets into the trust because example, if you
(18:57):
have a non qualified brokerag's account and it receives dividends
and interest that's going to generate a ten ninety nine
at the end of that tax year, you have to
pay taxes on that come April fifteenth. So the same
thing as if you hold stocks in a brokerad's account.
(19:20):
They could still produce a dividend that may be payable
even if it's reinvested. You're going to pay taxes on
the interests or dividends that are derived in that tax here,
so keep that in mind. What are the tax implications
revocable insurance trust income tax implications. There's a state tax implications.
(19:40):
There's also gift tax implications. Because you retain the right
to revoke the trust, you're considered to be the owner
of the trust. Therefore, any income earned by the trust
must be included on your personal income tax return for
the year in which was earned. After your death, the
trust must become a separate taxpayer. You have to be
(20:01):
a separate tax number For that the full value of
your trust will be included in your estate for state
tax purposes. To avoid this result, you need to create
an ishlt irrevocable Life Insurance trust that I'll talk about
next week. Under the gift tax laws, a gift is
not taxable until it is complete. Because you retain the
(20:24):
power to revoke the trust at any time prior to
your death, any transfers of property you make to the
trust are incomplete and not subject to gift taxes. However,
if you make a distribution to a beneficiary during your life,
that distribution makes the gift complete and subject to gift taxes,
reduced by applicable deductions the exclusion amount and the annual
(20:49):
gift tax exclusion. So again, if it's over nineteen thousand,
then yeah, you're gonna have to file a GST. Changing
gears a little little bit. Medicare seasons coming up next month.
You guys know, I do some virtual meetings for Medicare.
My next dates for that are right now, are going
(21:10):
to be October ninth and October fourteenth. Please note, there's
going to be a lot of changes to Medicare. I'll
get more information on that in the coming weeks, changes
to the prescription drug Plan, changes to the Medicare advantage system.
Just know that I don't have pricing yet, but costs
(21:34):
are going to go up, so be prepared for premiums
to increase, be prepared for higher copays, deductibles, and max
out of pockets. If you're on a Medicare advantage plan,
the hospitalization copays are probably going to go up a
little bit, and I'm sure they're going to be lengthened.
(21:55):
So if you're a four to six day term for hospitalization,
you might see six or eight days for twenty twenty six.
But stay tuned on that. I'll get more of the
pricing the last week of September, so and I'm not
allowed to technically talk about pricing till October first, but
(22:20):
just be aware that you guys are all going to
get a bunch of mail, and the next week or
two it'll show. It's called your AINOC, your annual Notice
of change. It will show the plan you're on now,
what the price is, and what the new price will
be in January. If you do not make a change
(22:40):
by December seventh. Remember you can make changes between October
fifteenth to December seventh in fourth quarter unless you meet
some other criteria. Don't forget. I give monthly virtual meetings
regarding Medicare for two different companies every month. In one meeting,
(23:01):
I will cover the Medicare Supplement plan with a standalone
drug plan. That meeting is a sponsored by well Mark.
The United Healthcare is a sponsor. For the other virtual meeting,
I focus on the Medicare Advantage plan known as Medicare
Parts C, and I cover the benefits of that platform.
My next meeting dates again right now, are going to
(23:22):
be October ninth and October fourteenth. I do not have
any additional dates yet because I'm waiting to see who
and or if I'll have additional sponsors or do any
additional meetings, but I know I'll do some third and
fourth week of October and probably a couple of weeks
into November up until Thanksgiving. I'll probably do one or
(23:45):
two a week, and maybe i'll have another company in there.
We'll see. You can call our office at five six
three three three to two two two zero zero for
additional zoom meeting codes, dates in time times. You're also
welcome to email me at Craig at Craigshillig dot com
and that's my name, c R a I G at
(24:10):
c R a I G S c h I L
l I G dot com, and I'd be happy to
send you the virtual zoom link meeting codes and additional
dates and times. This is Craig Shillig with Safe Money.
Good morning to all. Craigshillig here and this is Safe Money.
I'm here every Saturday to talk with our listeners about
financial strategies we use to manage and protect assets safely.
I've been an insurance agent for over twenty four years.
During that time, I've learned a few insurance strategies, like
using annuities as safe money harbors, or using cash value
(00:23):
life insurance to supplement retirement income. Just remember, just a reminder.
You can call our office at five six three three
three two two two zero zero if you'd like to
enroll into one of my virtual Medicare community meetings I
give two every month via zoom, or you can email
(00:43):
me at Craig at Craigshillig dot com and that's my name,
cr Aig at cr AI G S C h I
L l ig dot com. September is Life Insurance Awareness Month.
Today i'd like to talk about a life insurance trust.
(01:08):
I'll talk about this section. I'm going to talk about
life insurance revocable trusts. Next week I'll talk about life
insurance irrevocable trusts. What is a revocable life insurance trust?
A revocable life insurance trust is a trust that is
funded at least in part by life insurance policies or proceeds.
(01:31):
It can be an effective planning tool that provides a
source of liquid funds to your estate for the payment
of taxes, debts, and expenses. Moreover, it allows you the
flexibility to control the trust assets or amend the trust
at any time prior to your death. A revocable life
(01:52):
insurance trust is not designed to minimize transfer taxes or
income taxes. A revocable life insurance trust does not remove
the future appreciation of assets in the trust from your
gross estate, nor does it remove the life insurance proceeds.
To minimize taxes. In these ways, you need to create
(02:14):
an islet that's an irrevocable life insurance trust. I'll talk
about those next week. If you're a business owner of
revocable life insurance trust can be a great way to
ensure that your heirs will be able to keep the
business running after you die, because they will have the
cash to keep paying the bills. I got an example here.
(02:38):
Adam owns a small but busy diner that he runs
with his sons, Eli and Jason. The business has grown
since Adam first started it and it continues to expand
and become more valuable. Although the business is thriving, it
generates very little extra cash because the cash is used
to pay the bills and buy the food. Adam wants
(03:01):
Eli and Jason to continue running the diner after he dies.
He's worried that when he dies there will not be
enough cash to pay his debts, taxes, and other costs,
and that the Boys will have to sell the diner. Also,
Adam wants to transfer ownership of the diner to Eli
and Jason now, but retain control of the diner during
(03:25):
his life. He contacts his insurance professional and together they
decide on a life insurance policy that suits Adam's needs.
Adam also contacts his attorney, who draws up a document
creating a revocable life insurance trust. Adam names his self
as a trustee, his spouse as co trustee, and the
(03:45):
boys as the beneficiaries. A provision in the trust document
permits the co trustee to pay the costs of settling
Adam's estate with the life insurance proceeds. Adam purchases life
insurance policy and funds the trust with it. In addition,
Adam transfers the diner's stock to the trust at Adam's death.
(04:10):
The value of the business and the life insurance proceeds
are included in Adam's grossest state. The co trustee collects
the life insurance policy proceeds, pays the costs incurred to
settle Adams the state, and distributes the remaining proceeds to
suns Eli and Jason. The two sons continue to pay
(04:30):
the bills and operate the diner with little interruption because
of Adam's death. A revocable life insurance trust is extremely
useful if you lack liquidity, meaning in your assets include
mainly a closely held business interest and or large real
estate holdings. What types of revocable life insurance trusts are there?
(04:55):
There's funded versus unfunded. A revocable life insurance trust can
be either funded or unfunded. Technically, an unfunded trust is
the one that either holds only a life insurance policy
and the other assets until your death, or is named
as the beneficiary of the life insurance policy and receives
(05:15):
the proceeds upon your death. Only after you die, the
trust receives the proceeds and administers them according to the
terms of the trust. In addition, other assets may be
received by the trust along with the insurance proceeds, such
as assets poured over from your will or death benefits
(05:37):
paid by your employer or employer benefit plan. On the
other hand, a funded trust holds not only the life
insurance policy, but other assets too. You may want to
put other assets in the trust in order to coordinate
their final disposition with the insurance proceeds. The main reason
(05:58):
for a funded trust is that property place in the
trust avoids probate. A revocable life insurance trust is typically
unfunded because the income that is earned by a funded
trust is subject to income tax, even though the income
itself is used to pay the premiums. Instead of the
trust holds the policy, you can make regular contributions to
(06:22):
the trust to provide the funds needed to pay the premiums. Alternatively,
you can simply name the trust as beneficiary and pay
the premiums yourself. Why would you want a revocable life
insurance trust, Well, it provides for your family. The most
important benefit of the revocable life insurance trust is that
(06:43):
can help provide for your family. Life insurance can provide
cash to help support your spouse and children. After you die.
This may be especially important if you are young, do
not have any other significant assets, or are the primary
breadwinner in the family. Life insurance can help bring some
(07:03):
peace of mind because it can help improve the financial
security of your family even though you're no longer around
to provide that for them. It provides cash to your
heirs so your business can continue to operate. If you're
a business owner, is likely your business may experience a
temporary decline after you die. Your errors may have difficulty
(07:27):
with the day to day operations if there's not enough
cash to keep it going through this period. A revocable
life insurance trust can help provide the liquidity needed by
your errors in order to keep the business operating after
you die. It provides funds for the settlement of your estate.
(07:47):
A revocable life insurance trust can help provide liquidity to
your state so that there will be funds with which
to pay your final income taxes, death taxes, administrative expense debts,
and other costs associated with the settlement of your estate.
These costs can sometimes be significant and may take a
(08:09):
large bite out of your estate. If there is no
cash available, your personal representative may have to sell some
of your assets. This may deprive your heirs of property
that you intend for them to have. Also, if you're
a business owner, this can mean that your errors may
have to sell your business. Life insurance proceeds can be
(08:31):
used instead. Saving your assets and your business for your
heirs provides professional management of your assets. Although life insurance
can be given outright to a memory of your family,
there are advantages to putting the policy in a trust instead.
If the policy is in a trust, the trustee is
(08:54):
the legal owner who holds it for the benefit of
your errors. The trustee is responded for the management and
distribution of the trust income and principle. You select the
trustee and either determine when the beneficiaries receive the proceeds
or provide the trustee with discretion to decide the amount
(09:15):
of timing of distributions. A professional trustee can invest the
assets in the trust in a way that earns the
most income. This may be attractive if your beneficiaries are
miners or others who do not have the capacity or
judgment to manage the policy or the large proceeds. This
(09:39):
may also be attractive if you're in your golden years
and no longer want to bother with managing some of
your assets. It also avoids probate. Assets in the trust
are not subject to probate. This is true for any
other type of asset you transfer to the trust. Therefore,
trust to assets can be made available to your benef
(10:00):
fisheries more quickly than if they were to pass through
through your probated state. In addition, your state will avoid
probate costs for these assets. By avoiding probate, that creates privacy.
By having privacy, that means that the amount distributed won't
(10:23):
be public knowledge at the county courthouse. The big one
is this maintains privacy. Assets that pass through probate are
a matter of public record, open to anyone who cares
to look at it. Because the trust assets pass outside
of probate, distribution of this property remains private unless you
(10:47):
were to tell somebody, but it's not listed anywhere. Trust
assets may be protected from creditors claims. Assets you put
in a revocable life insurance trust may be protected against
the claims of your creditors, depending on the laws in
your state. However, because you retain control over or writes
to the assets in a revocable life insurance trust, they
(11:11):
may be vulnerable. Check with your state or attorney to
find out if assets and a revocable life insurance trust
are truly protected. It lets you retain control over the
trust and the trust assets. Or revocable life insurance trust
gives you some flexibility because you can alter, amend, and
or even terminate the trust if you so choose. This
(11:35):
may be attractive if the thought of losing complete control
over your assets troubles you. What are the trade offs?
Future appreciation of trust assets is not removed from your
state for a state tax purposes in order to avoid
potential of state tax liability, you can't retain any incidence
of ownership. By its very nature, you will retain some
(11:59):
incidents of ownership in a revocable life insurance trust. Therefore,
the full value of the trust, including any other assets
you transfer the trust, will be included in your state
for state tax purposes. Since you may or may not
be able to remove future appreciation of the assets you
transfer to the trust from your estate, you should consider
(12:22):
creating at irrevocable life insurance trusts instead. Insurance proceeds are
not removed from your state for a state tax purposes
because you retain incidents of ownership in the insurance policy
up until the data year death. The insurance proceeds will
be included in your state for state tax purposes. Only
(12:43):
proceeds on policy is transferred to a properly structured islet
irrevocable life insurance trust will be removed from your state calculation.
The big number today is fifteen million for twenty twenty six.
If you have total assets or near or over fifteen million,
then you really needed to go see somebody about your
(13:07):
estate and what is state taxes are going to cost you.
Distributions may be subject to generation skipping transfer known as
the GST tax in or a gift tax. Distributions of
property from the trust may be taxable transfer for GST
tax in or a gift tax purposes, and may result
in tax liability subject to the application of the annual
(13:31):
gift tax exclusion. For this year, you can give nineteen
thousand dollars to anybody for any given reason. That's the
exclusion amount this year. The top end number this year
for married is going to be thirteen thirteen million, nine
hundred ninety thousand, and the tax exemption that so if
(13:53):
you're at fourteen million, you need to go see a professional.
Please do that. Next year that number goes to fifteen.
A revocable life insurance trust is ignored for income tax purposes.
The IRS does not treat a revocable life insurance trust
as a separate legal entity, as it does with most
forms of trust. All trust income deductions and credits will
(14:17):
flow through to you on your personal income tax return. Therefore,
you will be tax on any trust income. This may
be negligible if it's an unfunded trust, or if it
could be significant. If you transfer substantials amounts of property
to a revocable life insurance trust, it could be costly.
(14:41):
You will incur more costs if you put life insurance
in a trust than if you give life insurance outright.
You will have to pay legal fees to drop the
trust document, and perhaps accountants, tax preparers, and trustee fees
will be included there. How do you implement a revocable
(15:04):
life insurance trust? Assuming you have decided that you want
to make a transfer to a life insurance policy, and
that the transfer should be made in trust rather than outright,
there are specific steps you should follow for effective implementation.
You need to contact your insurance agent or insurance professional
to help guide you with this. If you're purchasing a
(15:26):
new policy, your agent will help decide what kind of
policy's best for you. You need to have an attorney involved.
There are many complex legal issues that can arise when
you set up a trust. You should hire an experience
as state planning attorney to draft the trust document and
advise you on these complex legal issues. You need to
(15:47):
choose your beneficiaries. Wisely, you will have to select beneficiaries
of the trust. Spouses are a common choice, but this
may not be the best. Typically it will be either
your children or your grandchildren. If your children or grandchildren
are miners, then you also need to have guardians appointed
for them. You need to select a trustee. The decision
(16:12):
of who serves as trustee and success or trustee is
an important one. You will probably want to name yourself
as trustee. Alternatively, you can choose an independent trustee such
as a bank officer's sibling, parent, or anyone else who
is not a beneficiary. When I have discussions with clients
about this, I'm just going to tell you that the
(16:35):
guardian of a miner and the person who handles your
money should be two different people, because that way there's
two different sections there. I really recommend a trust officer.
They would have to follow fiduciary rules so they would
preserve the money that is there, they wouldn't spend it lavishly.
(16:59):
You may want someone who has experienced administering a trust
and who understands that the purpose of the trust is
to hold life insurance on your life and or at
the time of distribution, transfer and buy the policy and
fund the trust if desired. You may transfer an existing
policy to a trust. You could buy a new policy
(17:19):
and transfer it to the trust, or you can have
your trustee purchase the policy. Alternatively, you may simply designate
the trust as the beneficiary of the life insurance policy.
In addition, you may want to transfer other assets to
the trust. Your insurance professional and your attorney should assist
you in transferring ownership. When we're talking about filing GST,
(17:46):
the generation skipping tax and or gift tax returns if necessary.
If you make distributions from the trust during your life,
then you may have to file a GST tax or
generation skipping tax and or a gift tax return if
you have. If you've exhausted all your unified credits, then
(18:11):
you may have to pay taxes too, or you can
pay it on behalf of the beneficiaries. If this is
the case, you may want to consult with your accountant
and or a tax attorney prior to making the distribution.
GST is going to fall into this if you're doing
more than nineteen thousand, so just keep that in mind.
(18:33):
Include trust income on your personal and or income tax return.
Any income earned by the trust must be included on
your personal income tax return for the year in which
it was earned. This sometimes gets a dicey subject if
you're moving assets into the trust because example, if you
(18:57):
have a non qualified brokerag's account and it receives dividends
and interest that's going to generate a ten ninety nine
at the end of that tax year, you have to
pay taxes on that come April fifteenth. So the same
thing as if you hold stocks in a brokerad's account.
(19:20):
They could still produce a dividend that may be payable
even if it's reinvested. You're going to pay taxes on
the interests or dividends that are derived in that tax here,
so keep that in mind. What are the tax implications
revocable insurance trust income tax implications. There's a state tax implications.
(19:40):
There's also gift tax implications. Because you retain the right
to revoke the trust, you're considered to be the owner
of the trust. Therefore, any income earned by the trust
must be included on your personal income tax return for
the year in which was earned. After your death, the
trust must become a separate taxpayer. You have to be
(20:01):
a separate tax number For that the full value of
your trust will be included in your estate for state
tax purposes. To avoid this result, you need to create
an ishlt irrevocable Life Insurance trust that I'll talk about
next week. Under the gift tax laws, a gift is
not taxable until it is complete. Because you retain the
(20:24):
power to revoke the trust at any time prior to
your death, any transfers of property you make to the
trust are incomplete and not subject to gift taxes. However,
if you make a distribution to a beneficiary during your life,
that distribution makes the gift complete and subject to gift taxes,
reduced by applicable deductions the exclusion amount and the annual
(20:49):
gift tax exclusion. So again, if it's over nineteen thousand,
then yeah, you're gonna have to file a GST. Changing
gears a little little bit. Medicare seasons coming up next month.
You guys know, I do some virtual meetings for Medicare.
My next dates for that are right now, are going
(21:10):
to be October ninth and October fourteenth. Please note, there's
going to be a lot of changes to Medicare. I'll
get more information on that in the coming weeks, changes
to the prescription drug Plan, changes to the Medicare advantage system.
Just know that I don't have pricing yet, but costs
(21:34):
are going to go up, so be prepared for premiums
to increase, be prepared for higher copays, deductibles, and max
out of pockets. If you're on a Medicare advantage plan,
the hospitalization copays are probably going to go up a
little bit, and I'm sure they're going to be lengthened.
(21:55):
So if you're a four to six day term for hospitalization,
you might see six or eight days for twenty twenty six.
But stay tuned on that. I'll get more of the
pricing the last week of September, so and I'm not
allowed to technically talk about pricing till October first, but
(22:20):
just be aware that you guys are all going to
get a bunch of mail, and the next week or
two it'll show. It's called your AINOC, your annual Notice
of change. It will show the plan you're on now,
what the price is, and what the new price will
be in January. If you do not make a change
(22:40):
by December seventh. Remember you can make changes between October
fifteenth to December seventh in fourth quarter unless you meet
some other criteria. Don't forget. I give monthly virtual meetings
regarding Medicare for two different companies every month. In one meeting,
(23:01):
I will cover the Medicare Supplement plan with a standalone
drug plan. That meeting is a sponsored by well Mark.
The United Healthcare is a sponsor. For the other virtual meeting,
I focus on the Medicare Advantage plan known as Medicare
Parts C, and I cover the benefits of that platform.
My next meeting dates again right now, are going to
(23:22):
be October ninth and October fourteenth. I do not have
any additional dates yet because I'm waiting to see who
and or if I'll have additional sponsors or do any
additional meetings, but I know I'll do some third and
fourth week of October and probably a couple of weeks
into November up until Thanksgiving. I'll probably do one or
(23:45):
two a week, and maybe i'll have another company in there.
We'll see. You can call our office at five six
three three three to two two two zero zero for
additional zoom meeting codes, dates in time times. You're also
welcome to email me at Craig at Craigshillig dot com
and that's my name, c R a I G at
(24:10):
c R a I G S c h I L
l I G dot com, and I'd be happy to
send you the virtual zoom link meeting codes and additional
dates and times. This is Craig Shillig with Safe Money.
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