Difference between a Will and a Trust
Why Is Estate Planning Important?
A comprehensive and up-to-date Estate Plan is critical to have in place to protect you and your family. Here are some of the benefits:
#1 You decide who gets your assets
So, you don’t have a Will? No big deal, right? Wrong!
Without a Will state law dictates who gets your assets. This is true even if you have already told friends and family which assets you want them to have when you die. Regardless of how much or how little you may have, make sure your wishes are known by creating a Will.
#2 Takes care of your children
Who will take care of your minor children if something were to happen to you?
Without naming a Guardian in your Will, a judge will make the decision as to who will have the care, custody and control of your children and the inheritance they receive. Often times this can cause family turmoil, as different family members fight for custody of the child. The only way to let your wishes be known is by naming a Guardian in your Will.
#3 You Can Avoid Probate
Ask anyone who has dealt with the death of a family member who didn’t have a Will or Trust in place, and they’ll tell you how frustrating, time consuming, and expensive it is to get everything sorted out. By creating a Revocable Living Trust and transferring your assets to it, you can save your family the time and expense of the probate process.
#4 You Can Control Medical Decisions
With a Medical Power of Attorney and Living Will – Advanced Directive, you can decide who will make healthcare and end-of-life decisions for you, if you are unable to do so for yourself. Without this document, your loved ones will have to petition a court to be appointment to make these critical decisions.
Will vs. Living Trust
--------------------------------------------------------------------------------------------------------------------------------------------------
Life insurance need calculator
Let’s take a moment to think about your goals and needs.
--------------------------------------------------------------------------------------------------------------------------------------------------
LIFE INSURANCE
CREATING A FINANCIAL PLAN THAT’S JUST FOR YOU
It’s never too early or too late to plan for the future.
Preparing for your financial future begins with you identifying and prioritizing your needs and dreams, and maybe even acknowledging your fears for the future. This information combined with a review of your financial position will provide a solid base from which to explore financial strategies.
By mapping out and preparing for your financial future, you can spend less time worrying about uncertainty and instead start working toward your dreams.
Mapping your financial future with these key steps:
- Review your financial position
- Set financial goals
- Develop a plan
- Act on the plan
- Review and update the plan on a regular basis
Use this downloadable workbook to help keep your financial fitness in shape. Keeping your family and financial information, survivor, college funding and retirement needs, health risks factors, existing insurance, and cash and income needs organized may help you see the bigger picture and in creating a financial plan that’s just for you.
--------------------------------------------------------------------------------------------------------------------------------------------------
LIFE INSURANCE
DIFFERENCES BETWEEN EMPLOYER (GROUP) AND INDIVIDUAL LIFE INSURANCE
If you need more life insurance, you may be faced with a question:
Do I purchase an “Individual” life insurance policy? Or, do I just get it at work?
Sixty percent of employees have access to life insurance through work1 (commonly referred to as “group life insurance”). How does this coverage differ from an “Individual” life insurance policy (purchased separately from work)? When does it make sense to buy an individual policy?
Understanding Employer (Group) Life Insurance
BASIC Term Life Insurance Policy
For some, the policy coverage is a flat amount (e.g., $25K of coverage). For others, it is based on one’s salary (e.g., coverage = 1 x salary).
Advantages:
- Convenient—Sign up at work, premiums get deducted from paycheck
- Guaranteed coverage—No questions, no tests, no underwriting
- Free—Generally free, regardless of age, health, etc.
Disadvantages:
- Work-Related Restrictions—Coverage typically requires “active” working status. If you become ill and unemployed before dying, the insurance may not pay.
- Not Portable—Can’t take policy with you if you leave the employer. Next employer may not offer life insurance.
SUPPLEMENTAL Term Life Insurance Policy
Some employers offer the option to buy additional life insurance – which can be 2x salary, 3x salary, etc. This can be added to the “Basic” coverage.
Advantages:
- Convenient—Sign up at work, premiums get deducted from paycheck (if issued).
- Minimal Underwriting (if any)—There may be some high-level medical questions (e.g., “Have you ever had a heart attack?”) or a medical exam.
- Potentially Lower Costs for Unhealthy—Have health issues? Your premiums may be lower than for an “Individual” policy because they are based on covering a group (the young, old, healthy and unhealthy).
Disadvantages:
- Work-Related Restrictions—Like the “Basic” coverage, typically requires you to be “actively” working.
- Not Portable—Can’t take policy with you if you leave the employer. If your next employer doesn’t offer “Supplemental” insurance, then you may need to purchase an “Individual” policy to maintain the same level of coverage – paying higher premiums based on your age and health.
- Increasing Premiums—Typically, costs increase each year as you age.
- No Options—Employer coverage typically offers few or no bells and whistles that an “Individual” policy may include.
Understanding Individual Life Insurance
INDIVIDUAL Term Life Insurance Policy
A policy purchased from an insurance company or a licensed agent – outside of the workplace.
Advantages:
- Potentially Lower Costs for Healthy—Coverage is dependent on your circumstances via underwriting. Healthy people will typically experience significantly lower premiums compared to “Supplemental” insurance.
- Level Premiums—Term policies lock in the premium for a fixed period (e.g., 10 years, 20 years).
- Portable—Since this policy is not connected to your employer, it is completely portable, providing you continuous coverage.
- No Work-Related Restrictions—This means that an “Individual” insurance policy is more likely to pay out benefits than employer-provided coverage.
- Multiple Options—Can choose from large selection of term policies which offer variety of special features and riders that provide flexibility.
Disadvantages:
- Underwriting process—Policies are, typically, fully underwritten, meaning that your policy will be based on your health and other factors. There will be more questions than for the “Supplemental” insurance, and may include some medical tests.
How do I decide what to do?
1. Always take advantage of free “Basic” employer-provided coverage.
2. Determine how much insurance you’d like to have.
- Online calculators can help determine the right amount. Or, you can work with a licensed insurance professional.
3. Get quotes for both “Individual” and “Supplemental” group life insurance for the coverage needed in addition to the “Basic” employer policy.
- Get an “Individual” life insurance policy quote from a licensed insurance professional.
- Get the price for “Supplemental” coverage from your employer benefits office.
4. When making your decision, consider the features/benefits that are important to you.
- Supplemental employer insurance policy benefits:
- Convenient/least underwriting
- Best price for the less healthy
- Individual insurance policy benefits:
- Best price for the healthy
- Level premiums
- Portable
- No work-related restrictions
- Multiple options, features and riders
1 Employee Benefits in the United States - March 2018, Bureau of Labor Statistics, July 20, 2018
--------------------------------------------------------------------------------------------------------------------------------------------------
LIFE INSURANCE
BUILDING A LEGACY WITH IRA STRATEGIES USING LIFE INSURANCE
Many people who have been successful in saving for retirement have established a large enough nest egg to be able to create a legacy for their children, grandchildren and favorite charities; leaving them to wonder how to best leverage their qualified or tax-advantaged retirement plans. A common concern is whether financially successful retirees should make their children the beneficiaries of their IRA, leaving a likely income tax burden.
Over the next 25 years, an estimated $68 trillion will change hands from aging households to their heirs and charity.1
What will an IRA be worth when transferred?
If you plan to pass an unneeded IRA to a beneficiary, proper consideration should be given to IRA required minimum distributions and the resulting effect these can have on the amount a beneficiary may inherit upon IRA owner’s death.
- Beginning at age 72, the IRA owner is required to withdraw an increasing percentage of an IRA’s account value each year until the IRA is exhausted – “Required Minimum Distribution (RMD).”
- Eventually RMDs will be larger than the expected annual interest growth. When that happens, the IRA may well be at its peak value, typically between ages 80 and 90, as depicted in the chart below.2
- When an IRA owner dies, the beneficiary must include taxable amounts received in his or her gross income.
- Because IRAs are frequently transferred at or near their peak value, the higher values can cause increased taxable income for the beneficiaries.
It is not uncommon for retirees to die sometime between their 75th and 95th birthday. As the graph below depicts, when that happens IRAs are often passed to the next generation at-or-near peak values. Because these IRA inheritances are fully taxable to the beneficiaries as ordinary income, they may be taxed at very high rates.
Tax saving alternatives using life insurance
If an IRA owner is looking to protect loved ones and to help maximize wealth transfer, he/she can utilize life insurance to help minimize the tax burden that inheriting an IRA may impose on a beneficiary. With two different strategies identified, individuals can help maximize the after-tax value of their inheritance or even eliminate taxes paid on the IRA inheritance.3
Alternative 1: Offset IRA beneficiary income taxes
Options include the purchase of a life insurance policy equal to the anticipated income tax due from the beneficiary at the projected time of inheritance. Life insurance death benefits may be used to pay the income tax due, maintaining the full value of the IRA even after taxes are paid.
Alternative 2: Eliminate IRA beneficiary income taxes
By naming a charity as the IRA beneficiary, and funding a life insurance policy with your children as the beneficiaries, you can leave a significant legacy to both your children and your charities, while the federal income taxes on your children’s IRA inheritance can be completely eliminated.
The chart below provides a hypothetical comparison of what IRA distributions look like on the same IRA account before (“Current” bar) and after the two solutions were used (“Tax Offset” and “Tax Elimination” bars).
These strategies can help maximize the amount of money beneficiaries receive and provide greater flexibility in how the assets are ultimately put to use.
After-tax benefit amounts
Comparison of wealth transfer alternatives for a $500K IRA
1 Cerulli Associates, U.S. High-Net-Worth and Ultra-High-Net-Worth Markets 2018: Shifting Demographics of Private Wealth. 2018.
2 Depends on life expectancy factors, the assumed annual rate of return and additional deposits or withdrawals made.
3 American General Life Insurance Company and their distributors and representatives may not give tax, accounting or legal advice. Any tax statements in this material are not intended to suggest the avoidance of U.S. federal, state or local tax penalties. Such discussions generally are based upon the company’s understanding of current tax rules and interpretations. Tax laws are subject to legislative modification, and while many such modifications will have only a prospective application, it is important to recognize that a change could have retroactive effect as well. Individuals should seek the advice of an independent tax advisor or attorney for more complete information concerning their particular circumstances and any tax statements made in this material.
--------------------------------------------------------------------------------------------------------------------------------------------------
Index universal life
Provides upside potential with downside protection for valuable life insurance protection, supplemental retirement income, tax diversification, or long-term wealth accumulation.
Getting the right amount of coverage depends on a variety of factors. Use our calculator to help you estimate the range of coverage you need to make sure your loved ones are protected.
Index universal life insurance (IUL) provides valuable life insurance death benefits, in addition to building tax-deferred cash value that can be accessed for supplemental retirement income or other financial needs — without the risks of market volatility.