For basic estate protection. Baby boomers who figure their estate will be large enough to be
subject to some sort of estate tax (state, federal or both) often turn to a survivorship life insurance
policy to provide liquidity (via the death benefit) to cover those taxes, as well as the deceased’s debts,
final expenses, etc., so they don’t have to dip into estate funds to do so.
Sometimes that life insurance policy resides in a vehicle such as a credit shelter trust, says Barzideh.
And in certain cases, he notes, it makes sense to set up such a trust for each spouse to house certain
assets. An irrevocable life insurance trust (ILI T) also provides very powerful estate-protection
benefits, he notes, due largely to the leveraged dollars provided by the life insurance policy that
underpins the ILIT. An ILIT can also protect assets from legal challenge.
To reckon with estate taxes at the state level. With the current federal estate tax
exemption at $5.34 million for individuals and double that amount for married couples,
avoiding the federal estate tax threshold is not an issue for most people, acknowledges Barzideh.
Nowadays, estate planners and their boomer clients are more concerned with state estate tax
thresholds, which merit attention in certain states because they are significantly lower than the
federal threshold — $1 million in Massachusetts, for example.
Trusts may also be a solid solution to address state estate taxes. Disclaimer trusts underpinned
by a life insurance policy such as whole life or indexed universal life are particularly popular in that context, for the
flexibility and control they offer, says Muldoon. “The beauty of the disclaimer trust is that in most states a spouse, in
addition to being the beneficiary [of the trust], can also be the trustee.” Thus, the surviving spouse/beneficiary in a
couple with a disclaimer trust can, for example, decide to take assets from their deceased spouse or disclaim them so
they go to the trust to eventually pass to their children.
To address privacy and probate concerns. Protecting the assets in an estate from probate is first
and foremost on the estate planning priority list for many baby boomers, says Ben Barzideh, a wealth
advisor at Piershale Financial Group in Crystal Lake, Illinois. That’s mainly due to a probate process
that can be confusing and slow, if not downright archaic, in many states, he says.
Thus, it’s important to consider moving certain assets, such as life insurance policies, a home,
bank CDs and holdings in taxable investment accounts into a vehicle such as a revocable living trust
so they reside outside the estate — and outside the reach of probate.
Privacy concerns are another factor driving boomers to consider vehicles such as revocable trusts, which they’re
increasingly using in tandem with “pour-over wills,” says Meg Muldoon, assistant vice president of advanced sales at
Penn Mutual Life Insurance Company. A pour-over will directs that certain assets transfer to a trust when the owner
of those assets dies. And since pour-over will and related trust documents are private (not necessarily filed in probate
court), “relatives can’t go down and look at them if you don’t want them to,” she notes. That can help defuse potentially
messy family estate-distribution situations.
Here’s a look at
9 areas where estate planning
action for boomers is especially hot.
Boomers are more inclined to want to organize their lives, do
something about planning their estates while they’re alive and
accept guidance on what they need to do to plan.
Stephen F. Lovell, AEP
Lovell Wealth Legacy
Walnut Creek, California