Texas Estate Planning

How Do I Pick a Life Insurance Beneficiary?

If you’re married, unless there are very unusual circumstances, your spouse should be the beneficiary, especially if you live in a community property state.

A community property state is a state where any asset acquired during marriage is considered to be community property, which means it’s equally owned by each spouse. Any income that either spouse makes during the marriage is community income.

However, there are exceptions that permit spouses to own assets separately from each other. Gifts, inheritances and assets acquired before the marriage are all considered separate property.

There are only nine community property states, plus three states that allow residents to opt into community property law. The other 38 states plus Washington D.C. follow a common law property system where ownership of marital assets is more straightforward: whoever acquired the property owns it outright. However, a couple can choose to become joint owners, such as through a joint bank account.

If you’re now wondering which states are community property states, they are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

If you’re single, you might have a tougher time naming a life insurance beneficiary.

If you have minor children, ask a lawyer about naming a trust as beneficiary.

If you have a disabled family member, consider a special needs trust.

If you don't have a trust, you can name an adult family member or any other trusted person. However, remember that if you name an adult family member, once the proceeds are paid, those funds legally belong to that individual. Therefore, you better really trust that person and make certain that he or she understands that the funds need to be used for the intended minor child/children.

Finally, when making your decision, do so as if this account would be paid out tomorrow.

You should always consult with an estate planning attorney.

Reference: Cision (May 20, 2022) “How to Choose a Life Insurance Beneficiary”

Can Life Insurance Help Estate Planning for Women?

The 2021 Insurance Barometer Survey revealed that 43% of women believe they would leave their families in a difficult financial situation, if they were to die prematurely. This is five percentage points higher than the men who were surveyed. While the need for planning for both women and their families are present, women aren’t satisfied they have done an adequate job when making certain that their goals are met and their families will be financially secure.

Insurance News Net’s recent article entitled “How Life Insurance Might Solve Women’s Estate-Planning Issues” says that women face unique planning challenges, like the fact they only earn about 82.3% compared to their male counterparts’ earnings, the U.S. Department of Labor reports. Lower earnings add to the difficulty of saving adequately for retirement. A recent Prudential survey found that only 54% of women have saved for retirement, with an average savings of $115,412, versus 61% of men, with an average savings of $202,859.

Women must also frequently care for generations of family members. In addition to caring for children, 75% of in-home care providers for older people are women, most often daughters, according to the American Association for Long-Term Care Insurance. These seniors are often financially dependent on their female caregivers, so a woman may find herself supporting herself, a spouse or partner, her children and her aging parents. Planning for the continued care of these dependent family members is critical, if a woman is unable to continue in her role.

There is also the fact that women, on average, have longer lifespans than men. For women who are either married to or partnered with a man, this means a greater likelihood that the woman will be widowed later in her life. Women, on average, may need care for more extended periods than men during their later years. These expenses could substantially deplete the assets women plan to leave their families at death.

Life insurance can help protect families in a tax-advantaged way, while also providing income for retirement or benefits for long-term care. A life insurance death benefit can provide liquidity to care for multiple generations of dependent family members. If that policy builds cash value, as the need to care for family members eventually wanes, the owner can use the cash value for additional income in retirement. Some policies can provide funds for long-term care, if the need arises. Even a single policy can address all three planning concerns.

Speak with an estate planning attorney about the way that life insurance can fit into your estate plan.

Reference: Insurance News Net (March 9, 2022) “How Life Insurance Might Solve Women’s Estate-Planning Issues”

How to Shop for a Life Insurance Policy

Life expectancy is important because life insurers take on a financial risk by covering you. The higher the chance of an insurer having to pay out your policy, the more you’ll pay and the more difficult it will be to get coverage.

Market Watch’s recent article entitled“5 reasons you might have to pay more for life insurance” says that if you fall into one of the following groups, you may be deemed a high risk to insure.

1. You have a pre-existing health condition. This is something such as cancer, diabetes and any type of autoimmune disorder. Morbid obesity is a big risk. However, if you’re managing your pre-existing condition well, insurers will consider that when setting rates. That’s because the more controlled your health risk is, the more favorable it is for your own mortality. That is good for everybody involved. It is a “win-win.”
2. You work a dangerous job. If you work in a risky workplace, you’ll be treated differently from someone with a desk job. The list of “dangerous” jobs is based on specialized tasks. However, if leave your hazardous job, you can ask your insurer to re-evaluate your rates.
3. You’re a daredevil If you enjoy the thrill of extreme sports, like car racing, piloting, skydiving, scuba diving, or mountain climbing, you’ll likely have higher life insurance rates. Insurers will consider the level of risk you’re taking and how frequently you participate in these activities.
4. You’re receiving drug or alcohol treatment. The type of drug and the length of time you’ve been clean play a part. Insurance companies look carefully at relapse rates, as well as the likelihood of contracting diseases through drug use, like hepatitis C.
5. You have a recent DUI. A DUI is more than a blip on your driving record. It can also impact your ability to get low-cost life insurance. If you received a DUI in the past year, you could expect a higher premium when you apply for life insurance. If you have multiple DUIs over five years ago, you’ll likely pay more than twice as much for coverage as someone with a clean driving record. However, the insurance company may not penalize you for just one DUI that happened five or more years ago.

You can increase your chances of approval by working with a life insurance broker or independent agent. They partner with a number of life insurance companies, so they can help you navigate your options.

Reference: Market Watch (Jan. 25, 2022) “5 reasons you might have to pay more for life insurance”

How Can I Clean Up My Estate Plan?

Chicago Business Journal’s recent article entitled “8 steps to tidy up your estate plan now” gives you some items to think about when working through your affairs.
Make certain that your plan is accurate and up to date. Your basic documents, which include your will, health care directive and power of attorney, should be in place and up-to-date. Review them to confirm that they’re consistent with your wishes and the current laws.
Review your named beneficiaries and fiduciaries. Confirm that the names of designated beneficiaries and fiduciaries are accurate. Most assets will pass under your will or through trusts, other accounts such as retirement, or life insurance may pass directly to a named (or contingent) beneficiary. If your planning circumstances have changed since creating these designations, update them.
Review your life and property insurance coverage. Be sure that these policies offer adequate coverage and meet their intended purpose. As your wealth increases, the planning purposes behind a term policy for risk mitigation purposes or a whole life policy to ensure ample liquidity upon death may become unnecessary. However, if your assets’ value has grown, you may need to re-examine if the current property coverage is sufficient to minimize your increased potential liability.
Ensure that your beneficiaries have enough liquidity. The estate administration process can be slow and tiresome. It’s possible that a person may not have immediate access to liquidity after a spouse’s death, depending on how assets are titled. A temporary (but major) burden can be avoided, by confirming at least some liquidity will be titled in or directly available to your spouse after you have passed.
Locate and compile important information and account identification. A difficult step in estate administration is locating a decedent’s assets. Make this process easier for loved ones, by creating a list of your accounts, property of significant value, liabilities and contacts at each financial institution. Make the list easily accessible to your family or executor, and update it whenever opening or closing an account.
Review digital assets and online accounts. These assets are frequently overlooked as to access and ownership after death. Instead of divulging passwords or allowing account access, you can add a “digital assets clause” to your planning documents. This lets named parties access specific items within the bounds of accepted legal standards.
Draft a letter of wishes. This document allows you to fully express your intentions and hopes, as well as any explanations or instructions you want to impart to your loved ones.
Plan to review. Repeat the review process regularly and calendar a reminder to give yourself an annual financial and planning checkup.
Reference: Chicago Business Journal (Dec. 2, 2021) “8 steps to tidy up your estate plan now”

Am I too Old to Get Life Insurance?

It's easier to qualify than in the past as underwriting has gotten better. There are options available in your later years, says Yahoo Finance’s recent article entitled “Retirees, It's Not Too Late to Buy Life Insurance.”

Your health risks and the type of life insurance, whether term or permanent, impacts your premium as well as your chances of qualifying. Because medical underwriting differs by insurer, you should have some idea of what companies seek in applicants before shopping around for a policy.

While life insurance proceeds are considered part of your estate, the money is taxed only if the estate's total value is more than $11.7 million under present law. The policy can also be used to cover funeral costs, medical bills and probate court fees after you pass away.

Buying life insurance can also boost a surviving spouse's income, especially if one Social Security check  won’t be enough. It could make even more sense if you have a pension. When retirees start taking their pension, they must decide if payments should continue for their spouse after they die. Selecting the survivor benefit decreases the pension payments by 10%.

Life insurance may be easier for seniors to get, but it's not a certainty. Most policies require health underwriting. Therefore, the insurer will review your medical history to determine if you qualify and at what rate. Unless you’re terminally ill, you have a decent chance of qualifying, even with a health condition, but you'll probably pay a higher premium.

Before applying, you should also proactively manage your health. Insurers will consider if an applicant is attempting to live their healthiest life and it can make the difference between qualifying or not.

Each life insurance company has different guidelines, such as making diabetes less of a risk than another company or define smoking differently. An insurance broker who represents several companies often knows the nuances of each company's guidelines and can match you with the best fit.

You can also apply directly with multiple insurers for quotes, but it takes more time. Some financial advisers also specialize in life insurance and can help you.

If you're unsure that you'll qualify, experts recommend still applying.

Even if it's a 50/50 shot, you should apply. There’s no cost, and if you aren't happy with the offer, you don't have to accept it.

The health review may also uncover a medical condition.

Reference: Yahoo Finance (Aug. 17, 2021) “Retirees, It's Not Too Late to Buy Life Insurance”

Why Do I Need Estate Planning?

Many people who failed to plan their estate with the help of an experienced estate planning attorney have their assets tied up in lengthy, and often messy, legal battles that were decided by people not of their choosing.
Forbes’ recent article entitled “Everyone Needs An Estate Plan: Here's What You Need To Know” says that although many of us don't have quite as much at stake financially, it doesn't mean that estate planning is any less important. In fact, leaving a legacy, passing down wealth and helping family aren’t things that are just for the ultra-rich.
The biggest misstep is not creating an estate plan at all. This is more than just a last will and includes powers of attorney, healthcare directives, a living will and a HIPAA waiver. People put this important responsibility off because they do not want to contemplate their own death. They try to avoid the subject. Some others may have complex family dynamics, and still others are hesitant to confide their complicated relationships with a lawyer. However, all these are just excuses.
We know that life is full of changes, and people get married, divorced, have children and grandchildren, relocate to different states, change careers and get inheritances. Each of these events could make you reconsider your goals. This may necessitate an update to your estate plan.
You need to review the beneficiaries on your IRAs, life insurance policies and pensions. You should look at how you want your heirs to receive your assets and any charitable or philanthropic notions. With powers of attorney, healthcare directives, living wills and HIPAA waivers, you need to think about who you’ll entrust to make important medical and financial decisions for you, if you become incapacitated. You see these critical questions and many others are fluid and prone to change every few years as your life changes.
Remember that your assets receive different treatment from the IRS based on the type and who owns legally owns them. For example, individual retirement accounts (IRAs), Roth IRAs, traditional brokerage accounts, life insurance policies and bank accounts are different than the family home. Therefore, it’s important to be mindful of which assets are left to whom.
Don’t wait. Speak to an experienced estate planning attorney to be certain that you give this process the attention it deserves for the well-being of you and your family.
Reference: Forbes (Feb. 26, 2021) “Everyone Needs An Estate Plan: Here's What You Need To Know”

Is Life Insurance a Good Idea for My Estate Plan?

Around 57% of adults in the U.S. own a life insurance policy, according to a joint study by LIMRA, a trade group, and Life Happens, a nonprofit insurance advocate. CNBC’s recent article entitled “Why some life insurance could prove risky for consumers” goes on to state that the sales standards governing how agents and brokers can recommend certain types of life insurance to consumers are not strict. The complexity of many types of life insurance may also hide potential abuse and make it hard to know if you’re getting good advice. 

There are some types of life insurance that aren’t necessarily mind-boggling. For example, term insurance is pretty clear. This type of policy covers buyers for a certain period of time, such as 10 or 20 years, for an annual fee that’s locked in and which the purchaser knows at the time of sale. 

However, permanent life insurance — also called as cash-value insurance — is more complicated. With permanent life insurance, a buyer is meant to keep the insurance policy, such as whole life and universal life, until death rather than for a set term. This type of insurance also has a side investment account that earns interest and dividends. The account is designed to cover annual premiums and other insurance costs, which typically increase each year with age. But in the event that an investment account underperforms expectations or insurance charges increase more than expected, a purchaser may have to pay more money to cover a shortfall or risk losing the coverage altogether. 

Remember that a policy that may look fairly inexpensive today, may not be the case later in life. 

It’s also important to note that state life insurance regulations frequently don’t require insurance agents to fully disclose the risks to the public. Of course, insurance companies promised that they’ll disclose the risks to buyers in the contracts they sign. However, the fine print can be more than 100 pages long. 

Insurance agents are also typically permitted to recommend life insurance that will pay them a higher commission, rather than suggesting a policy that may be just as good but pay the agent less or no commission. While not every life insurance agent is misleading the public, the regulations aren’t in the buyer’s favor, say consumer advocates. Each state regulates many different aspects of life insurance, like advertising, disclosure, licensing and unfair trade practices. 

State insurance regulators say that there were over 4,000 individual cases of wrongdoing by life insurers or insurance agents in 2019, according to data from the National Association of Insurance Commissioners. That’s compared with the nearly 138 million life insurance policies owned by Americans as of year-end 2018, according to ACLI. 

As a reminder, you should only buy insurance policies that you understand. Be sure to ask about and be aware of risks, like potential increases in future premiums and other elements of a life insurance policy that could be changed. You should also consult with an experienced estate planning attorney to be sure that the amount of life insurance you’re considering fits into your overall financial and estate plan. 

Reference: CNBC (January 19, 2020) “Why some life insurance could prove risky for consumers” 

Protect Your Retirement from These Threats

Retirement is a balance between enjoying your golden years, taking good care of your health and balancing your finances, so you don’t run out of income too early. However, as reported by MD Magazine in the recent article “Four Big Retirement Threats and How to Protect Yourself,” there are challenges ahead, some of which you can control, others requiring preparation.

Threat One: Premature death of a spouse and loss of Social Security or pension income. The loss of one Social Security check can have a significant impact on the household’s income. This is also true with the loss of a private pension. Both spouses need to be aware of how their retirement income will be generated and what will happen, when one spouse passes away. 

Life insurance can be used to make up for the lost income. If you are young enough, buy term insurance. If you are older, consider cash-value policies, like whole life. Make sure that both spouses are familiar with household finances. Put together a list of your checking, savings, investment and credit card accounts.

Threat Two: Healthcare Costs. Medicare simply does not cover everything. Even a Medicare Advantage plan doesn’t cover everything. That includes long-term care, dentistry, vision care, hearing aids, eyeglasses or private nursing. There’s a “donut hole” in prescription coverage, so if you need pricy drugs you’ll need to budget at least $5,000 annually. If you underestimate the cost of healthcare, you could go through your medical budget fast. 

Perfect health at 55 is no guarantee for what’s to come.

One solution is making the most of a Health Savings Account (HSA). You can save for future medical expenses and get a tax deduction for contributions. Even better—there’s no income tax on withdrawals for qualified medical expenses. Check with your employer, since HSAs are usually part of an employee benefits plan. You must have a high-deductible heath plan and can’t be on Medicare to qualify for an HSA.

Threat Number Three: Inflation According to the U.S. Bureau of Labor Statistics, inflation has averaged about 4% annually over the last 50 years. In 20 years, today’s $1 will be worth only 46 cents. Make sure your investment portfolio is diversified. Remember that your retirement could last several decades, so it may not be wise to abandon equities during retirement.

Threat Number Four: Outliving Your Savings. This sounds like a good problem, but it is still a problem. The longer you live, the longer you are expected to live. According to the IRS life expectancy tables, a 30-year-old can expect to live to age 83.  However, if you are 65 years old now, you can expect to live until age 86. The solution is to do periodic planning to make sure your retirement accounts and investments are keeping up with your living expenses. Give yourself a cushion, in case you live far past your expectations.

Reference: MD Magazine (Aug. 2, 2018) “Four Big Retirement Threats and How to Protect Yourself”

Do Not Just Stop Paying Life Insurance Premiums

Most people purchase life insurance for specific reasons. The most common reason to get a life insurance policy is to make sure that a spouse or other family members have financial support after the policy-holder passes away. 

However, if a spouse predeceases the policy holder or if the other family members are no longer in need of support, then many people think that continuing to pay the premiums is a waste of money. Consequently, they believe the money is better spent on other things. 

One problem with that thinking is this: all of the money that was paid in premiums is wasted. 

The New York Times recently reported on another potential problem with stopping premium payments in "Wringing Cash From Life Insurance."

Older Americans can often get cash by selling their life insurance policies to life settlement companies that see the policies as good investments. 

The settlement company continues to pay the premium and then receives the payout when the original policy holder passes away. 

For a life settlement company to see the policy as a good investment opportunity, they have to take a gamble that the policy holder will pass away sooner rather than later. Therefore, the older and sicker an insured is, the more money he or she is likely to get when selling a life insurance policy.

While it might seem somewhat morbid to sell your life insurance policy to a company calculating you will not live very much longer, it can be a good way for older people who need extra money to get it.

Reference: New York Times (Oct. 13, 2017) "Wringing Cash From Life Insurance."

When Life Insurance Does Not Go as Planned

Life insurance can be used in estate planning for several reasons. One of the primary reasons it is often suggested is to provide beneficiaries with much needed cash while the rest of an estate gets settled. However, that does not always go smoothly, as a recent case involving MetLife illustrates.

In that case, a policy holder passed away and the insurance company filed a case in court requesting that the court determine to whom it should pay.

The deceased had originally named his wife as the beneficiary. However, he later switched beneficiaries and named his girlfriend.

The company was not sure what to do, since there was evidence that the deceased had been impaired by a stroke when he changed beneficiaries.

This case is reported in a BNA - Pension & Benefits Daily article titled "MetLife Stuck Between Wife and Girlfriend in Benefit Battle."

MetLife requested to be allowed to exit the lawsuit it filed, since it had deposited the policy funds with the court and had no stake in whether the proceeds were awarded to the wife or the girlfriend.

The court refused to allow MetLife out of the case, because they did not follow their own policies.

The company policy is to only allow beneficiaries to be designated in writing.

However, when naming both the wife and later the girlfriend as beneficiaries, MetLife had allowed the deceased to do so by phone.

That means both the wife and the girlfriend, whichever one loses, has a potential counterclaim to make against MetLife for negligence.

Reference: BNA - Pension and Benefits Daily (Sep. 11, 2017) "MetLife Stuck Between Wife and Girlfriend in Benefit Battle."