Beneficiaries and Owners
Your three children
What is Beneficiary and/or Owner.
Note: as owner all three children will need to agree on changes to the policy.
Designed to provide financial support for the sole benefit of an individual with physical or mental disabilities.
What Is a Special Needs Trust?
Special needs trusts are intended to preserve Medicaid and Supplemental Security Income (SSI) benefits, as these are both means-tested programs. (Food stamps and Section 8 housing vouchers may also be available on a means-tested basis.) Some individuals also receive Social Security Disability Insurance (SSDI), which is not based on assets but rather on previous contributions to Social Security.
The Annual Gift Tax Exempt for 2024.
What is $18,000 (single) or $36,000 (joint). This amount is the maximum you can give a single person without having to report it to the IRS.
If you gift more than the exclusion you will need to file tax form 709 to disclose those gifts to the IRS. However, you won't have to pay any taxes as long as you haven't hit the lifetime gift tax exemption.
Generally more expensive than other types of life insurance.
What is Whole Life?
The main components of every estate plan.
What is a a will or trust?
Even if you don't have substantial assets. Wills ensure property is distributed according to an individual's wishes (if drafted according to state laws). Some trusts help limit estate taxes or legal challenges such as probate.
Revocable Living Trust
What is Owner and/or Beneficiary?
However, in most cases, it is best to list your revocable trust as the primary beneficiary of your life insurance policy.
If your estate exceeds your state's estate tax exemption threshold, it may be wise to place your ownership of any life insurance in an irrevocable life insurance trust. Proceeds of a death benefit payout will not be included as part of your taxable estate if a trust, not an individual owns the policy
Person or entity that manages a trust's assets and is legally responsible for following the trust document's terms
What is a trustee?
Also know as administrators.
They act as the trust's legal owner, and are responsible for: Handling trust assets, Filing taxes for the trust, Distributing assets according to the trust's terms, and Ensuring the trust agreement is followed.
Trustees have a fiduciary responsibility to the trust's beneficiaries and must always act in their best interests. They carry out all transactions for the trust in their name.
Trustees can be friends, family, lawyer, attorney or a trust company
A person who is assigned to a generation at least two generations below that of the transferor.
What is the generation-skipping transfer tax?
This would include transfers from a grandparent to a grandchild or to other individuals who are more than 37½ years younger than the transferor (the "skip" generation). This tax is equal to the highest federal gift and estate tax rate at the time of the transfer (40% in 2024) and is in addition to any other federal gift or estate tax that may be owed.
The GSTT was introduced in 1976 and was implemented to prevent what the IRS perceived as wealthy families avoiding estate taxes at the death of each generation. Prior to this tax, it was possible to pass an unlimited amount of assets to a trust for the benefit of multiple generations, thus permanently avoiding estate taxes as each generation passed away.
The number of parties in a life insurance contract.
Insured / Owner / Beneficiaries
Costs associated with Estate Planning.
What is it depends?
Several factors are involved in the cost of estate planning. The number of documents in your plan, time spent in court executing your estate, and your attorney costs all factor into the total cost. While it is difficult to give an exact amount, a detailed estate plan can range between $900-$5,950.
Irrevocable Life Trust (ILIT)
What is Owner/Beneficiary?
Benefits of an ILITs:
Reduces the taxable estate by removing life insurance proceeds from the gross estate.
Protect legacy assets from creditors.
Ensure that inherited assets don't interfere with a beneficiary's eligibility for government benefits.
Allows beneficiaries to receive income and then transfers to a charity.
What Is a Charitable Remainder Trust (CRT)?
The donor irrevocably transfers property to the trustee of a charitable remainder trust (CRT) and qualifies for a federal income tax deduction for the present value of the charity's remainder interest, subject to limitations.
The trustee pays the donor (and/or one or more individuals designated by the donor) either a fixed percentage of the initial value of the trust (annuity trust) or a specified percentage of the trust assets as revalued each year (unitrust). Beneficiaries receive income from the trust for life or for a period of up to 20 years.
When the trust ends, the trust remainder is transferred to the charity.
A tax that is paid by the person receiving the inheritance.
What is an inheritance tax?
Inheritance and estate taxes are calculated by adding up all the assets titled in the name of the decedent and applying the applicable tax rate. Such assets may include
Since no federal inheritance tax exists, inheritance tax is imposed only by certain states.
2024: IA, KY, MD, NE, NJ and PA. MS also has estate taxes.
Life insurance proceeds are paid to the beneficiary.
What is a tax free death benefit?
Life insurance payouts generally aren't subject to income taxes or estate taxes. However, there are certain exceptions. The type of policy you have, the size of your estate, and how the benefit gets paid out can determine if life insurance proceeds can be taxed.
If your employer pays for a life insurance, the premium paid on policy amounts above $50,000 is considered part of your taxable income.
The legal process that distributes a deceased person's property to their beneficiaries after their death.
What is Probate?
Validates the will. Appoints an executor. Pays debts. Distributes assets.
In CA - it takes 9 months to a 1.5 years for the process. Probate is expensive: 4% to 7% of the estates value. And its public record.
Insured
What is Owner?
Allowing the insured to be the owner means they can control the policy - they can surrender the contract, change the beneficiaries as well as responsible for the premium payments.
Uses the Social Security Number of the grantor as its Tax ID.
What is a Revocable Living Trust?
Generally, grantor revocable trusts do not need an EIN. Any income taxes from a revocable trust is reported via the grantor's SSN since the grantor can revoke the trust at any time and regain possession of the property.
Irrevocable trusts, however, need their own EIN, which is required to file their own tax return (Form 1041).
Tax reform legislation enacted in 2017 set to expire in 2026.
What is the TCJA (Tax Cuts and Jobs Act).
Estate and Gift Tax (IRC §§ 2001 and 2010): The TCJA effectively doubled the gift and estate tax exclusion and the GSTT exemption from the limits in effect prior to its passage. The exclusion amount for 2024 is $13.61 million per person ($27.22 million for a married couple). Beginning January 1, 2026, the exclusion amount will be decreased approximately $6.4 million (due to inflation).
Standard Deduction reduces taxable income to create a zero rate tax bracket. Not available for taxpayers who itemize. Single: $14,600 Married: $29,200 Single: $8,300 Married: $16,600 Allow current law to take effect.
Marginal Tax Rates (IRC § 1): The TCJA lowered marginal tax rates. The marginal tax rate is the highest tax rate you pay on your income.
Under the TCJA, the tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. On January 1, 2026, the rates return to their pre-TCJA amounts of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. The income brackets to which those rates are to apply will also be different and are adjusted for inflation each year.
Trust Owned or Beneficiary of 401K, Roth IRA or Retirement Accounts.
What is beneficiary?
In general, you can't put a 401(k) or other retirement accounts into a living trust because changing the ownership structure is considered an early withdrawal by the IRS. This would result in the money being fully taxed in the year of the transfer, and if you're under 59 1/2, you'd also have to pay a 10% penalty. However, you can name the trust as the primary or secondary beneficiary of your account, which will ensure the funds are transferred to the trust when you die
How often to review your trust.
What is every 3-5 years
Name a state with no income taxes.
What is As of 2024, seven states—Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming—levy no state income tax at all?
States with no income tax often make up the lost revenue with other taxes or reduced services.