Annuity Payout Denied
I’m working on an interesting case now involving a nonqualified annuity and the payout thereof.
A woman in her 40’s invested in an annuity contract and named her fiancee as beneficiary.
The woman died only a few years after the contract was issued, and the fiancee goes to collect on the contract.
Of course the insurer asks for a certified copy of the death certificate, and a notarized statement from the claimant/fiancee.
However, the insurer is also asking for a tax waiver from the state of New Jersey. The insurer is protecting themselves in the event New Jersey inheritance taxes are not paid: the insurer would be (or might be) on the hook for inheritance taxes due to New Jersey if the estate of the decedent did not pay.
In this case, the fiancee and the decedent’s family didn’t like each other when the decedent was alive; after her death they are bitter enemies. Since the fiancee was just that: a fiancee, and not a spouse, the decedent’s brother, her closest living relative, is entitled to Letters of Administration for the decedent’s estate. The fiancee has no legal standing.
The Administrator, the decedent’s brother, has basically told the fiancee to ‘get lost,’ and the Administrator is not helping the fiancee in any way whatsoever to obtain the tax waiver.
Without the tax waiver, the insurer is simply not paying out the annuity. Why should they? We’ve tried to have the insurer payout half the annuity, and retain half as a reserve against potential tax liability, so the fiancee can move forward with his life (and pay me), and we have time to figure out how to proceed. The insurer rejected this proposal, so right now we’re weighing all of our options.
Importantly, the sales representative had no idea this was a requirement, and is taking hell from the fiancee. My guess is all insurers have the same policy, and as well all financial institutions would with respect to ‘transfer on death’ or ‘payable on death’ accounts.
Further on this issue, more or less, I’ve had situations where the beneficiary of a decedent’s life insurance policy collected the proceeds (no tax waivers are required in New York), and refused to tell the executor how much the death benefit was. This is a problem, since the death benefit must be included on the decedent’s tax return (even though the proceeds are included as gross income). We had a bit of a hard time getting form 712 from the insurer (which is sort of like a 1099, a form which reports information to the IRS) to attach to the estate tax return.
Which led then to the further thought as to the situation where someone owned life insurance on the decedent’s life (which thus must be reported on the estate tax return, form 706), yet the executor was not aware the contract even existed. I’ll bet this situation is more common than we know, because we don’t know what we don’t know.
Eventually, I suppose, the IRS will catch up because the insurer is required to send in the form 712 to the IRS, who will then, theoretically, see if it was reported on the decedent’s estate tax return.
The Million Dollar Annuity
Two years ago I referred a retired couple who had come to me for estate planning to financial advisor Mario Govic, who is now out of Sarasota, Florida. The couple had about $3 million invested in more than 16 different financial institutions, qualified and nonqualified accounts, with ownership and beneficiary designations twisted and turned, and a portfolio of holdings which made no sense at all. Their RMD’s were causing a severely negative tax hit, and positions were bought and sold without regard to basis and tax liabilities. After a month of intensive work, Mario consolidated their holdings into a handful of annuities with various GMIB and GMWB riders and nonqualified accounts, and in general straighted the client’s nightmare portfolio into a well-managed and tax efficient retirement plan.
As it turns out, the positions which the clients held before meeting with Mario Govic lost almost half their value in the ensuing two years. The clients also withdrew $250,000 to purchase another retirement home. After two years, considering the decline of the market and income taxes saved due to the repositioning and deferral of RMDs, and the annuity guarantees, AND after the clients withdrew a quarter of a million dollars, the dollar value of their portfolio today remains almost exactly where it was when I introduced the clients to advisor Mario Govic. By my calculations, this advisor’s work prevented a one million dollar decline in my client’s portfolio over a two year period. Outstanding work!
Estate Planning Organizer
An excellent way for your clients to save money (perhaps a lot of money) on their estate planning engagement is to have much of the preliminary work done ahead of time. In other words, much of the cost of having an estate plan prepared is caused by the time and effort it takes for the attorney to educate the client about the options available, gather and sort the various documents which are needed to develop the plan, and then discuss your clients’ goals and objectives. As you well know, I run my estate planning practice by sending clients to financial planners who can spend time with the client at a lower cost than I can. The client and financial advisor then can come back to me with a fully developed fact finder and asset allocation questionnaire; a description of the clients’ family situation, and a description of their estate planning goals and objectives. In the alternative, and this is something which you can do as well, I recommend that my clients purchase and complete the Estate Planning Organizer system. This system is a series of educational and practical tools which allow your clients to learn for themselves what “estate planning” really means, and helps them organize their important documents and think about what they want to achieve with their estate plan. This system can save thousands of dollars in legal fees, depending, of course, on how complex a client’s estate planning needs are. Otherwise, a client may have to spend hours in my office while I explain what estate planning is all about, and go item by item through their documents. While I would rather refer my clients back to you for face-to-face work, this is an option which I have now added to my practice. I am an ‘affiliate reseller’ of this program, which means that I earn money when your clients purchase the program. The cost of the program is less than one hour of my $310.00 per hour rate!! This program will save your clients thousands of dollars, and it will save you time and aggravation too, if you are not charging to prepare a financial plan. Have the clients do it themselves, and then you do the financial analysis. It’s a triple win situation.
Like “Financial Planning,” “Leaving a Legacy” Means Different Things to Different People
I had a breakfast meeting this morning with Alli Joseph, creator of Seventh Generation Stories, who shared with me her vision as to the meaning of the word “legacy.” Customarily, in the financial professions and in the estate planning field, we generally think of “leaving a legacy” in financial terms, or otherwise with respect to property and inheritance. A life insurance death benefit, for example, held in a dynasty trust or otherwise, can be used to fund education, or for a home purchase, or to build a business, etc., and can last for generations. But Alli Joseph considers the phrase legacy more broadly, to include a person’s oral and pictorial recollection of family, friends and events which have shaped their life. Seventh Generation Stories offers ‘personal historian services,’ and their projects range from collating someone’s old photographs, to a full production video and published volume which recalls a person’s entire lifetime. Alli Joseph writes:
“Sometimes, we lose family members before their time and before their stories are told. Unlike material things, your family’s value to you never changes. They are our past, our present, our future.”
Family history projects are unique, emotional, and fun. What was it like when you were growing up? Where did you live? What were your parents like? Your room? Your home? What significant events were going on in the world at the time? How did you decide what to do for a living? What made you love it/hate it? Did you do community service work, or perhaps belong to a faith-based community? These are some of the questions we may ask you to consider, and the answers are ones only you can give; your memories are the gems your family will treasure for many generations to come.
Founder Alli Joseph or one of our skilled interviewers will then guide you through a conversational interview recorded on a digital audio device, if you’re doing a book or other print project, or on digital video, if we’re working on a video project. Interviews can run from two to twelve hours and can be completed over a period of days or weeks.
Alli Joseph lives near me in Peter Cooper Village/Stuyvesant Town, and so our circle of connections overlaps. Hopefully we’ll be able to converge our work for the community, and make the term ‘legacy’ mean a great deal more than dollars and cents.
Check out Seventh Generations Stories , and consider whether you can offer an additional value-added service to your clients by way of expanding on what it means to ‘leave a legacy’ to one’s children and grandchildren.
Homosexual Spouse Entitled to Inherit Estate
A couple of months ago I wrote about the Insurance Department’s interpretation of Gov. Paterson’s directive to New York State agencies that same-sex marriages performed in other jurisdictions must be recognized in New York. And so, for example, joint and survivor life insurance, and spousal discounts on long term care contracts, need to now become part of an advisor’s toolbox of planning techniques for their clients.
Add to that a ruling which came down yesterday from Surrogate Glen out of New York County, wherein Surrogate Glen ruled that a surviving homosexual spouse of a decedent was the decedent’s only “distributee” under New York law. The decedent died leaving his surviving same-sex spouse (they were married in Canada), and three brothers. For the past 2,000 years, the brothers would be the decedent’s distributees and entitled to inherit the decedent’s estate. Now, the brothers are all out, and the surviving spouse inherits the decedent’s estate. The case is Estate of Ranftle, and the decision is reprinted in the New York Law Journal of Tuesday, February 2, 2009 on page 27.
Read more
No Load Life Insurance from TIAA-CREF
I came across this post by blogger and financial planner Michael Kitces. Kitces does an excellent job explaining TIAA-CREF’s no-load life insurance contract along with its benefits and down-sides, and even the comments to Michael’s post are informative themselves. It’s not clear to me how extensive the fee-only advisory network is in Manhattan; probably larger than in any other city I would imagine if for no other reason than the population of New York is large and generally wealthier on average than most other cities. It’s hard to see though how fee-only advisors, and therefore TIAA-CREF’s product is ever going to make a significant dent in the marketplace. Marketed under the “Intelligent Life” brand, the prospectus for the VUL and it funds exceeds 1,000 pages, so you’ll have to read Mr. Kitces analysis of the product as I won’t be able to get to this for quite some time. I’m going to reach out to the TIAA-CREF contact for more information and perhaps report back on what I find.
UPDATE: Interestingly, I stopped today at Kitces.com and his site is down. I hope he’s all right.
One ILIT owning both a single life and survivorship policies
An attorney in Wyoming posted a question on one of the listservs which received a lot of attention and debate: he asked whether it’s possible to draft one irrevocable life insurance trust (ILIT) and have that trust hold both a single life policy on the grantor, and a second-to-die contract insuring both the grantor and her spouse. The attorney’s intention was to draft two separate ILITs, but the financial institution serving as co-trustee objected, claiming one ILIT can own both types of contracts.
Surrogate holds statutory examination of Will overbroad; in terrorem clause triggered
Kings County Surrogate Margarita López Torres finds Petitioner’s examination of his father’s Last Will and Testament under NY SCPA § 1404(4) and EPTL § 3-3.5(3) went beyond his statutory right to question its validity.
This case addressed an in terrorem clause (Latin for “in fear”) contained in a decedent’s Last Will and Testament. As you know, an in terrorem clause is used in a Will to forestall challenges to the validity of a Will by penalizing those who do so. It’s usually used when the testator wants to fully or partially disinherit a member of their family.