“Brady Bunch” Style Estate Planning
Andrew I. Shapiro, CLU®, ChFC®
As a member of Nationwide’s Advanced Sales Department, Andrew is responsible for developing and marketing joint projects, such as The Nationwide Corporate Incentive Program, employee stock ownership plans, and leveraged bonus plans.
Estate planning is never simple. Cohabitation, second marriages, stepchildren and the whole “yours, mine and ours” situation make it even more difficult. While many people view estate planning simply as a tax avoidance tool, proper planning allows you to provide the proper asset to the proper person at the proper time.
Prenuptial agreements, postnuptial agreements, beneficiary designations, specific asset titling, trusts and wills are all tools that can be utilized to achieve the desired goals. However, a simple yet effective and often overlooked tool is a life insurance contract. Life insurance proceeds can provide:
• Income protection for the current partner while protecting assets for children from a prior relationship;
• Estate equalization for children from a current relationship while protecting assets for children from a prior relationship;
• Asset equalization to protect the home for the current partner while not delaying benefits or disinheriting children from a prior relationship;
• Including ex relationships in legacy planning without making it public or subject to probate; and
• Security for court-ordered obligations.
Let’s take a look at how each of these goals can be achieved through the use of life insurance.
Having created wealth and obtained assets before entering into a new relationship, it is common to have already allocated certain assets to certain people. This could have been done formally through a will, through the titling of the asset or through its beneficiary designation. To secure income replacement to a new partner the client can either redirect existing assets, which will in essence disinherit existing heirs, or the client can purchase life insurance. The life insurance proceeds protect the lifestyle of the new partner without impacting the existing allocations.
If the new relationship has produced children, again there is potential for a situation where providing for the younger children means disinheriting the older children, at least to some extent. The purchase of life insurance provides the opportunity to equalize the value received by all children, while allowing the older children to receive specific assets that may have strong family ties or sentimental value.
Often, a new relationship will result in the new partner being added to the title of an existing home, or a new home being purchased with the proceeds of the sale of an existing home. If the titling of the home provides that the surviving partner obtains full ownership of the home, the children of the deceased partner have either been disinherited to the extent of the value of the home or, at a minimum, will have receipt of what was intended to be their share delayed significantly. By replacing the value of the decedent’s share of the home with life insurance proceeds, the children of the decedent will receive an equivalent asset in a timely manner.
Sometimes when a relationship ends financial ties remain, or some emotional, moral or ethical obligation compels the client, or a member of the client’s family, to wish to provide for the former relationship. As this can be a very sensitive and private issue, it may best be handled with an asset that does not go through probate and therefore is not a matter of public record. Life insurance fits that description.
Finally, obligations such as child support end at the death of the obligor. The court often will order insurance or some other guarantee of future payment for the benefit of the recipient to insure against the untimely death of the obligor. Whether there is a court order or not, parents may wish to provide some minimum level of support for children that will continue after the death of the obligor. Life insurance can provide a very cost-effective method of meeting that standard.
The life insurance product chosen for each of these scenarios is contingent on the specific circumstances. In addition, the use of available riders, such as long-term care, can be useful in meeting the needs and desires of the client.
Each situation is different, and, in addition to the facts and circumstances of the case, it is important to consider the emotional and psychological aspects. But don’t fall victim to the “complicated situations require complicated solutions” syndrome. Thorough understandings of the needs and wants, the relationships and the tax code can often lead to a very simple tool that provides significant financial leverage at the most opportune time. Life insurance is often the overlooked answer.