Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Life Health > Life Insurance

Life Insurance Case Study November 2009

Your article was successfully shared with the contacts you provided.

Let’s look at the case of the Nortons from Minneapolis. Jack is a 68-year old retired pharmaceutical executive with an IRA worth about $850,000. His beneficiary is his 64-year old wife, Martha. Martha’s 401k is worth near $150,000. Together, the Norton’s have about $350,000 in savings and carry a non-IRA equity portfolio worth $450,000. Jack is starting to show signs of Alzheimer’s but Martha appears in great shape, both in health and in her ability to care for Jack if something goes wrong. Looking at the total worth of their estate, about 2.4 million, they realize they should start thinking about estate planning, but aren’t happy about the taxes associated.

In order to help our hypothetical couple, we presented this scenario to Elaine Bedel, president of Bedel Financial Counseling, along with the question, “What taxation issues might the Norton’s encounter?”

Elaine Bedel, who’s had more than 30 years in financial services industry, had this to say about Jack and Martha’s dilemma:

“With the right planning, their estate tax could disappear in a few years, assuming that the unified credit continues to grow and their estate doesn’t grow faster. I would plan for what we know today, make sure we have the ability to use unified credit in both estates in our plan but have spouses disclaim property that will go into the credit shelter trust or to children directly. That provides for post-mortem planning.

“Estate plans used to promote maximizing the credit shelter trust, but that may not be appropriate any longer. If we get to a point where they each have $3.5 million of credit, do you really need all of the assets in a credit shelter trust, or do you put in a smaller amount for flexibility?

“We have to be careful with Jack’s money in his IRA in case something happens to him. We want to fund the unified credit but we must be careful that the trust it’s going into is written so the tax benefits of the IRA remain intact. There are five points that a trust must meet for an IRA to maintain its tax-deferred status. Retirement dollars are my last choice to fund a credit shelter trust, but if that’s all you have, then you want to direct it there so you can use the credit.”


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.