Estate Planning | The Chicago Financial Planner

My fellow Baby Boomers and I have been told that life insurance is generally not needed once we retire. The thought was that we would have accumulated sufficient assets and our dependents are grown and self-sufficient. This is great in theory, but may not hold true in practice. Here are a few thoughts as to why you might need life insurance as you approach retirement.

An estate-planning tool

Life insurance can be used to help your heirs pay any estate taxes that might be due. At the federal level, the exemption is scheduled to fall to $1 million in 2013 and the estate tax rate is scheduled to increase. In addition there may also be estate taxes at the state level to consider. Life insurance can be used by your heirs to pay the estate taxes and allow the rest of your assets to pass to them as you intended. There are many considerations in using life insurance as an estate planning tool, including how the policy is owned.

A bridge to “final” retirement

Retirement continues to evolve for Baby Boomers and will be different than the retirement our parents experienced. By this I mean that many of us will continue to work into what were traditionally retirement years, either because we want to stay active and connected or out of financial need (or sometimes both). Perhaps working a few more years will allow you to amass the nest egg that you need to be able to retire “cold turkey.” If you die prior to being able to accumulate enough assets, life insurance can fill the financial gap for your surviving spouse.

Assistance for a child with special needs

If you have a child or grandchild with special needs, life insurance can be a means to provide funds for his or her care after you are gone.

A means to fund charitable intentions

You can leave a charitable bequest by making the organization the beneficiary of your life insurance policy.

A tool to help pass on a business

Life insurance can be used to fund a buy/sell or similar business succession arrangement. The life insurance proceeds can be used to buy out your heirs and to allow the business to go to the remaining owners.

If you die this business ownership interest will be a part of your estate and could be subject to estate taxes. Life insurance can be used to pay those taxes and allow the business to remain in the family if so desired.

As a supplemental retirement plan

Cash value life insurance is often touted by life insurance agents and commissioned financial representatives as a supplemental retirement savings vehicle. They tout the ability to borrow against the policy’s cash value in retirement without having to pay the money back. Besides potentially reducing the policy’s death benefit, you have to manage the amount borrowed. Additionally you need to ensure that that all premiums are paid as required to ensure that you don’t trigger an unintended taxable event.

Further you really need to understand the underlying growth assumptions in the policy illustrations you will be shown. Often the rate of growth of the underlying investments is unrealistic and this can lead to a need to fund the policy to a greater extent than you had planned while working in order to build the level of supplemental retirement assets you had intended. While this can be a viable strategy, make sure that you understand all of the underlying assumptions before heading down this path.

Whether or not to own life insurance during retirement will be dependent upon having a risk to insure against. It can be easy to be sucked in by life insurance agents portraying it as an investment or a tax shelter. While everyone’s situation is different, in my opinion, life insurance should be viewed as a death benefit. This should drive your decision, whether this involves keeping a policy in force or purchasing a new policy.

Questions about your need for life insurance or about retirement planning in general? Please feel free to contact me with to discuss your unique situation.

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Should You Accept That Estate Planning Seminar Invitation?

I recently received such an invitation in the mail. Clearly this was a mass mailing of some sort. I’ve received several similar invitations in recent years. While tempted to check one of these sessions out from a professional curiosity perspective, in the end I always opt not to attend because I don’t want to stick the presenter for dinner when I’m clearly not interested.

Should you go to one of these sessions? In deciding you should think about what you would hope to get out of such a session and perhaps do a little critical reading of the invitation.

A few points about the invitation that I received:

One of the topics to be covered was “…new developments in estate planning.” What struck me here was that one of the major discussion topics in the area of estate planning is the expiration of many of the provisions of the estate tax rules and the utter chaos this might lead to with some estates. The lack of any new rules is clearly the problem.
I Googled the attorney who would be presenting. All I could find about this individual was that he seems to give a very large number of talks on estate planning during the course of a year. A question that you should ask yourself is whether or not this individual would be the one to either draft your estate planning documents or at least oversee the drafting by another attorney in his firm.
Further down the body of the invitation, there was a mention of a special presenter to talk about issues in the stock market. Not sure exactly how this relates to estate planning.
What I found interesting is that the guest speaker was not named.
Moving to the end of the invitation, I noticed that current clients of a well-know brokerage firm were not eligible to attend. I therefore surmised that several brokers from this firm were likely sponsoring the event and one of them was likely our mystery guest speaker.
The invitation did promise that no products would be sold at the session.
The invitation went on to say that if attendees brought their current estate planning documents that a representative would review them on the spot after the presentation.

Reasons to attend

If you are interested in learning more about estate planning, the speaker might provide the some good information.
You either like the restaurant or would like to check it out.

Don’t attend if you are susceptible to sales pressure. While the invitation specifically says there will be no financial products sold at the session, you can bet that you will be solicited to do business with both the estate planning attorney and the brokerage firm sponsoring the event. I’ve got to believe that the on-site review of your current documents generally results in a gap in your planning being uncovered. Further, ask yourself if you want your estate planning documents reviewed in this type of setting.

Whether or not you attend this type of session, you should be skeptical as to the connection between the estate planning attorney giving the presentation and the brokerage firm. Both a properly constructed estate plan and proper insurance coverage are key elements of one’s overall financial plan. I am very leery, however, when the providers of these services seem to have some sort of connection. You should ask whether there is any sort of financial arrangement here.

The fact that this estate planning attorney’s main claim to fame seems to be giving estate planning seminars should also raise a red flag. A question to ask is whether or not this attorney is the person with whom you would be working.

Often brokerage firms try to sell insurance and annuity products to the “leads” they generate from seminar attendees. Again there is nothing wrong with insurance or annuity products per say, as long as these vehicles fit your particular situation. Also, I suspect that annuities sold by this type of firm are generally not low cost products. Buyers of annuities should shop for the product with the lowest expenses and least onerous surrender charges that will meet their needs.

In my opinion, a better method to find an estate planning attorney and/or an insurance agent who deserves your business and your trust is via a referral from a trusted advisor like your accountant or your financial planner. Personally, I work with several trusted professionals in both areas and refer my clients to these people when there is a need. I also remain part of the process to review the proposed insurance products or the estate planning documents and to ultimately advise my clients through the process.

Please feel free to contact me with your financial planning questions.