forefield life insurance and estate planning

Miles B. Kessler, CFP®Investment Representative

870 Kipling StreetSuite A

Lakewood, CO 80215-5826Direct: 303-290-8942

Branch: [email protected]

Life Insurance and Estate Planning

January 28, 2016 of 8, see disclaimer on final page

Life Insurance and Estate PlanningLife insurance has come a long way since thedays when it was known as burial insuranceand used mainly to pay for funeral expenses.Today, life insurance is a crucial part of manyestate plans. You can use it to leavemuch-needed income to your survivors,provide for your children's education, pay offyour mortgage, and simplify the transfer ofassets. Life insurance can also be used toreplace wealth lost due to the expenses andtaxes that may follow your death, and to makegifts to charity at relatively little cost to you.

To illustrate how life insurance can help youplan your estate wisely, let's compare whathappened upon the death of two friends:Frank, who bought life insurance, and Dave,who did not. (Please note that theseillustrations are hypothetical.)

Life insurance can protect yoursurvivors financially byreplacing your lost income

Frank bought life insurance to help ensure thathis survivors wouldn't suffer financially whenhe died. When Frank died and his paycheckstopped coming in, his family had enoughmoney to maintain their lifestyle and livecomfortably for years to come.

And since Frank's life insurance proceedswere available very quickly, his family hadcash to meet their short-term financial needs.Life insurance proceeds left to a namedbeneficiary don't pass through the process ofprobate, so Frank's family didn't have to waituntil his estate was settled to get the moneythey needed to pay bills.

But Dave didn't buy life insurance, so hisfamily wasn't so lucky. Even though Dave lefthis assets to his family in his will, those assetscouldn't be distributed until after the probate ofhis estate was complete. Since probatetypically takes six months or longer, Dave'ssurvivors had none of the financial flexibilitythat a life insurance policy would haveprovided in the difficult time following hisdeath.

Life insurance can replacewealth that is lost due toexpenses and taxes

Frank planned ahead and bought enough lifeinsurance to cover the potential costs of

By comparison, these expenses took a bigbite out of Dave's estate, which had to sellvaluable assets to pay the taxes andexpenses that arose as a result of his death.

Life insurance lets you give tocharity, while your estate enjoysan estate tax deduction

Using life insurance, Frank was able to leavea substantial gift to his favorite charity. Sincegifts to charity are estate tax deductible, thisgift was not subject to estate taxes when hedied. Dave always dreamed of leaving moneyto his alma mater, but his family couldn't affordto give any money away when he died.

Life insurance won't increaseestate taxes--if you plan ahead

Before buying life insurance, Frank talked tohis attorney about the potential taxconsequences. Frank's attorney told him that ifhis estate was large enough, it could besubject to federal and state estate taxes,depending on the applicable law at the time ofhis death. Frank and his attorney put a plan inplace that would allow Frank's survivors to usehis life insurance policy to help pay for someof the potential estate taxes that might beowed at his death.

Be like Frank, not like Dave

Throughout his life, Dave worked hard tosupport his family. Frank did, too, but wentone step further--he bought life insurance toprotect his family after his death. Here's howyou can be like Frank:

• Use life insurance to ensure that yourfamily has access to cash to help themmeet both their short-term and long-termfinancial needs

• Plan ahead--buy enough life insurance tocover the potential costs of settling yourestate and to ensure that the assets youleave to your survivors aren't less than youintended

• Consider using life insurance to give tocharity

• Consult an experienced attorney aboutincome and estate tax consequencesbefore purchasing life insurance

settling his estate, including taxes, fees, andother debts that his estate would have to pay.

of 8, see disclaimer on final page

Estate Shrinkage


Irrevocable Life Insurance Trust (ILIT): A WealthReplacement Trust

Definition

An irrevocable life insurance trust (ILIT;pronounced "eyelet" and also called a wealthreplacement trust) is a trust that is funded, atleast in part, by life insurance policies orproceeds. It is an effective estate planning toolthat, if properly structured, may help avoidgeneration-skipping transfer, gift, and estatetaxes, while providing a source of liquid fundsto your estate for the payment of taxes, debts,and expenses. An ILIT can be either funded orunfunded.

Prerequisites

• You want to avoid generation-skippingtransfer, gift, and estate taxes or provideliquidity to your estate

• You are insurable• You execute an ILIT agreement• You transfer title to all contributed assets• You amend any existing contracts and

documents to reflect the trust as the realparty in interest

Key strengths

• May help avoid generation-skippingtransfer, gift, and estate taxes

• Takes advantage of the annual gift taxexclusion

• Replaces wealth to provide for your family• Provides cash to your beneficiaries so that

your business can continue to operate afteryour death

• May provide funds for the costs of settlingyour estate (if the estate is in a position tosell assets to the trust or repay a loan, withinterest)

• Provides for professional management ofyour assets

• Avoids probate• Maintains your privacy• Trust assets may be protected from estate

creditor's claims

Key tradeoffs

• Transfers may be subject to GSTT and/orgift tax

• Trust document must include a Crummeywithdrawal provision if you want to qualifyfor the present interest gift tax exclusion

• Beneficiaries may have to include lapsedgifts in taxable estate

• You lose control of your assets• May be costly (trusts incur up-front costs

and often have ongoing administrativefees)

Variations from state to state

• In community property states, couplesowning community property and whoqualify can give $28,000 (in 2015 and2016) per beneficiary under the presentinterest exclusion for gift tax withoutelecting gift-splitting. Couples in commonlaw states must affirmatively elect to splitgifts.

How is it implemented?

• Contact your insurance agent• Hire an attorney• Choose your beneficiaries• Select a trustee• Fund the trust• Serve proper Crummey notice on the

beneficiaries• File gift tax returns, if necessary


Comparison of Types of Life Insurance

Term Whole Life Universal Life Variable Life VariableUniversal Life

Premium Premiumsincrease ateach renewal

Level Flexible Level Flexible

Coverage Usuallyrenewableuntil at leastage 70; forsome policies,up to age 95

For life For life For life For life

Death benefit Guaranteed1 Guaranteed1 May beguaranteed,depending onpolicy1

Guaranteed1 May beguaranteed,depending onpolicy1

May increasewithdividends2

Can beincreased ordecreased

Varies relativeto cash valueinvestmentreturns

Can beincreased ordecreased;varies relativeto cash valueinvestmentreturns

Cash value None Guaranteed Guaranteedminimuminterest rate

Notguaranteed

Notguaranteed

May increasewithdividends2

Varies basedon interestrates

Fluctuates withsubaccountperformance

Fluctuateswithsubaccountperformance

Policy loansallowed?

Not applicable Yes Yes Yes Yes

May be able toborrow up to100% of totalcash surrendervalue lessannual loaninterest rate

Same aswhole life, butusuallyavailable atlower netinterest rate(i.e., pay theinterest rateand get acredit back tothe policy)



Cashwithdrawalsallowed?

Not applicable No Yes No Yes

Cash valueaccountgrowth

No cash valueaccount

Insurerdeterminesguaranteedcash valueand declaresdividendsbased onperformanceof its generalinvestmentportfolio2

Insurerdeterminescash valueinterestcrediting ratesbased oncurrent interestrate returns tothe company

Cash valueaccountgrowthdepends uponthe investmentperformanceof thesubaccountsyou choose

Cash valueaccountgrowthdepends uponthe investmentperformanceof thesubaccountsyou choose

Note: Any guaranteesassociated with payment ofdeath benefits, incomeoptions, or rates of returnare subject to theclaims-paying ability andfinancial strength of theinsurer. Policy loans andwithdrawals will reduce thepolicy's cash value anddeath benefit and maycause the policy to lapse.Withdrawals may be subjectto surrender charges andincome tax, and a 10%penalty may apply towithdrawals from a modifiedendowment contract if madeunder age 59½.

Note: Variable life andvariable universal lifeinsurance policies areoffered by prospectus,which you can obtain fromyour financial professionalor the insurance company.The prospectus containsdetailed information aboutinvestment objectives, risks,charges, and expenses. Youshould read the prospectusand consider thisinformation carefully beforepurchasing a variable life orvariable universal lifeinsurance policy.

1 Death benefit is onlyguaranteed as long aspremiums are paid to keepthe policy in force.

2 Dividends are notguaranteed.


Comparison of Men's and Women's LifeExpectancy and MortalityWhen it comes to life and death, men and women are not created equal. Couples should takethis into consideration when evaluating the need for life insurance. The following charts illustratethe differences between male and female life expectancy and death rates (U.S. population).Source: National Vital Statistics Report, Volume 61, Number 4, May, 2013.

Life Expectancy: Male vs. Female

Number of Years By Which Female Life Expectancy Exceeds Male Life Expectancy


Rate of Death Per 100,000 Population


Miles B. Kessler, CFP®Investment Representative

870 Kipling StreetSuite A

Lakewood, CO 80215-5826Direct: 303-290-8942

Branch: [email protected]

January 28, 2016Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016

Specializing in benefits and retirement strategies for Federal employees.Personalized financial services designed to meet your individual needs and objectives.

Securities and investment advisory services offered through Royal Alliance Associates, Inc., memberFINRA/SIPC and a registered investment advisor. Insurance services offered through Kessler & Associates,Inc., which is not affiliated with Royal Alliance Associates, Inc.

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