Life Insurance Planning
Life Insurance and Estate Planning Guidance in DuPage County
Sean Robertson and Robertson Legal Group, LLC concentrate in the areas of wills and trusts and wealth management. Robertson Legal Group, LLC focuses on estate planning and asset protection in the Western Suburbs of Chicago, servicing areas including Naperville, Lisle, Aurora, Plainfield, Oswego, Wheaton, Geneva, St. Charles, and Romeoville.
Life insurance death benefits are a major consideration in the area of estate planning. Typically, there are two common types of life insurance plans. Term life insurance is for a specific period and provides a death benefit upon the beneficiary’s death. Unlike whole life insurance, term life insurance does not provide guaranteed cash value accumulation nor earn dividends from the life insurance company. Whole life plans enable a person to build cash value, and whole life insurance policies are excellent asset protection tools for professionals because whole life insurance policies are exempt from creditor’s claims in the State of Illinois. Whole life insurance plans also provide payment of dividends and allow loans against the cash value accumulation.
A person names a primary beneficiary, which is a person or persons, to receive the life insurance death benefits upon the death. A primary beneficiary is the first choice to receive life insurance proceeds of the life insurance owner. A contingent beneficiary is the second choice of the life insurance owner to receive the life insurance death benefits. If the primary beneficiary or contingent beneficiary dies before the life insurance owner, then the life insurance proceeds will go to the next designated beneficiary. This can creates ambiguity, and ambiguity creates conflict. When life insurance death proceeds lack a contingent beneficiary, a probate proceeding may be necessary.
Attorney in Naperville for Families and Children with Special Needs
Life insurance mistakes are costly and designating the wrong beneficiaries can cause heartbreak and family chaos. There are six common mistakes that many people make when naming individuals primary and contingent beneficiaries. The first mistake is naming a child or disabled adult who is eligible for government benefits such as Medicaid or Social Security Disability Income (SSDI). Naming a special needs child as the beneficiary of a life insurance policy often has unintended consequences, as the beneficiary’s eligibility for government benefits may be jeopardized. One type of trust, a hird-Party Special Needs Trust, also known as a “Supplemental Needs Trust”, is a way to leave a gift or inheritance to a disabled adult and to maintain their eligibility for government benefits.
Planning for Children Using a Living Trust or Children’s Trust
The second mistake is naming a minor child or children as the direct beneficiary of a life insurance policy. Life insurance providers such as Met Life and Northwestern Mutual will not pay insurance death benefits directly to minors. Parents often name each other as primary beneficiaries and do not anticipate their early death or that they may die within a short time of each other—or at the same time, as in a car accident. Single parents tend to designate their minor child or young adults as their primary beneficiaries without understanding the financial consequences of such decisions. These scenarios cause problems because minor children cannot inherit life insurance benefits in the State of Illinois (and in most states). Furthermore, parents do not want their immature and young adults to receive a large inheritance. This can be a recipe for a disaster
Another consideration is newborn or adopted children. A well-thought out estate plan can automatically provide for new born or adopted children. Parents fail to update their life insurance and wills in a timely manner. Life insurance is a source of financial support that is intended to pay for college and the payment of death and estate taxes. Life insurance is also used to provide funeral expenses and payments towards one’s house. An inexperienced adult child may lack the financial understanding of a mortgage or house payment.
Minor children inheriting assets, such as life insurance, will force families to undergo guardianship proceedings which can cause conflict and be expensive. A guardianship procedure is a type of probate court proceeding which requires a lawyer and yearly accounting of assets. Third, families often fail to designate responsible guardians for their children. The role of a guardian is twofold. The first type of guardian for minor children is a Guardian of the Person. A guardian of the person is like a parent without spending ability. The guardian of the person makes education and parent-type decisions such as healthcare decisions. The second type of guardian is a Guardian of The Estate. A Guardian of the Estate is responsible for management of finances and financial decisions. A guardian must provide an accounting to the probate court. Probate court is complicated and likely requires a probate attorney. Guardianship court provides supervision over the estate and major decisions must be approved by the court. The process will likely cost thousands of dollars in attorney’s fees and court expenses, not to mention the necessary time and energy. Guardianship court also results in family conflicts over money and increases the likelihood of family disputes.
The third mistake is people may unknowingly designate former spouses as their primary beneficiaries. Failure to update your life insurance policy leads to unintended consequences. Updating your estate plan is important because failure to update beneficiaries or deceased individuals can cause significant pain. Owners of insurance policies should update their policies upon major life events, such as divorce, marriage, having a child or children, and/or a disability of one beneficiaries. Failure to update policies, especially if you have a blended family or step children, causes major conflicts and creates negative consequences.
The fourth mistake is naming only a primary beneficiary. This is a major mistake because a lack of a living or eligible beneficiary causes probate issues. Intestate succession is the process through which the state of Illinois determines how an asset should be distributed when a person has no will or any legal plan in place. Estranged family relationships can cause problems in probate court. Money and assets bring out bitterness and unforeseen consequences. Hiring a qualified estate planning attorney protects couples and individuals plan against their family conflicts and avoids estate litigation and disputes. Neglecting key details and family conflicts causes family disharmony and could cost thousands of dollars in attorney’s fees and court costs. Most spouses fail to consider that it is possible that they may die before their spouse or other named beneficiary. Moreover, naming multiple beneficiaries can cause problems if one of the beneficiaries is not alive. Should the surviving beneficiaries split the inheritance equally or should the deceased person’s children, or branch of their family, receive their inheritance “per stirpes”?
The fifth mistake is failure to plan for natural conflicts in the family. Many families have at least one adult child who resides with their parents. A natural conflict often arises between adult children that are independent and an adult child that resides with their adult parents. An experienced estate planning attorney understands this type of conflict and can develop an appropriate plan. For example, a living trust can provide life insurance for the adult children and provide the home to an adult that resides with his or her parents. This reduces the likelihood of a family dispute and creates a realistic plan to address a complex problem. Another example is leaving a house to five children and expecting five children to figure out the details. A Living Trust can provide a plan for five children to work together. Furthermore, a Living Trust designates a successor Trustee who is responsible for carrying out the wishes of the creator of the living trust.
Gift and Tax Planning Lawyer in Aurora IL
The sixth mistake is failure to plan for estate taxes, especially estate taxation in the State of Illinois. Illinois has its own estate tax, which applies to a deceased person’s estate with a value of more than $4 million (as of 2018). Families fail to consider that life insurance proceeds are a major asset. In contrast to Illinois, the federal estate tax exemption is $11.2 million in 2018. A credit shelter trust, also known as an “A/B” Trust enables a surviving spouse to maximize their estate tax exemption by automatically using their state and federal tax exemption. The credit shelter trust utilizes each spouse’s state and federal tax exemption to protect one’s assets against estate and gift taxation
Irrevocable Life Insurance Trusts
Another planning strategy is called an Irrevocable Life Insurance Trust, or ILIT. An Irrevocable Live Insurance Trust is created by a grantor, also called a “maker” or “trustor.” An ILIT is irrevocable which means that a person cannot revoke, alter or amend their trust with certain limitations. The Grantor or Maker picks a Trustee or co-Trustees to manage the life insurance proceeds. Another element of an ILIT is the beneficiaries. Some of the benefits of an ILIT are asset protection and estate taxation minimization. Generally, a person’s life insurance proceeds are transferred to their Trust, with the Maker as the insured, and the beneficiaries of the ILIT as the beneficiaries. The life insurance proceeds may pay for estate and administrative expenses upon a death, such as attorney’s fees, debts, probate costs, and income taxes. A major concern for parents, now, is asset protection against their in-laws. Second, their beneficiaries’ inheritances are protected from business lawsuits, divorce proceedings, child custody conflicts, and foreclosure lawsuits among other creditor concerns. Parents can combine an ILIT with a bloodline trust which keeps a family’s assets and trust assets in the blood families name. This avoids in-laws re-directing a parent’s hard-earned assets away from the intended recipients.
Contact a Naperville Estate Planning Attorney
Sean Robertson is a graduate of DePaul University College of Law and University of Illinois at Urbana-Champaign for his undergraduate degree. He and the rest of the team at Robertson Legal Group, LLC concentrate in the areas of wills and living trusts in Northern Illinois. Mr. Robertson has more than 14 years of experience, but he is relatively young, which means that he will be available to work and grow with you and your family for many years to come. A major consideration when picking an estate planning attorney for many couples is whether the living trust lawyer will be around when their children will need an estate planning lawyer. Sean Robertson may be reached at 630-882-9117 or via our online contact form. Call today for a free initial consultation.