Lots of Palm Beachers have life insurance as part of their Florida estate plan. Life insurance can be a GREAT asset or investment for you, your family and for many reasons. The San Jose Mercury News, www.mercurynews.com, has reported that the largest life insurance policy (ever) was purchased by a Silicon Valley tech exec. Here’s the link to the San Jose Mercury News story about this $201 Million Life Insurance Policy: http://www.mercurynews.com/business/ci_25347898/silicon-valley-billionaire-sets-record-201-million-life.
So, who owns the $201 Million Life Insurance Policy ? We don’t know: some “mysterious billionaire.” For Palm Beach probates, life insurance is considered a Florida “will substitute” that “goes” outside of Palm Beach probate. It “goes” automatically, by operation of Florida property law, to the named beneficiary. ….. UNLESS there is probate litigation over who the beneficiary is or how that name got on the life insurance policy. Many Palm Beach clients hold their life insurance in so called Florida “ILITs”: irrevocable life insurance trusts. There are pro’s and con’s to using a Florida trust to hold life insurance. If you prepare the Florida life insurance trust properly, the death proceeds can be income tax free and also estate tax free. Here are a few Palm Beach probate and Palm Beach trust pointers if you are thinking about how you are going to hold your life insurance policies.
- Have an experienced Palm Beach tax and trust attorney prepare the Florida life insurance trust. It should not be expensive: $500-$2000. Remember: a Florida life insurance trust is different than your Florida revocable trust.
- The Florida trust should be the applicant, owner & beneficiary of the policy in most circumstances. There may be reasons why you want others in those roles, but generally, for estate tax and other reasons, you don’t want yourself, your Palm Beach estate or your Palm Beach revocable living trust to be the owner or beneficiary of the life insurance.
- Carefully select a trustee of the life insurance trust, as well as alternate & successor trustees
- Consider where you want the life insurance trust to “reside” for federal income tax purposes when you are gone: Florida has no income tax
- Life insurance can avoid probate
- Life insurance is “easy” : a great way to leave an inheritance for any number of beneficiaries. Why bother with formulas and % in your Florida will or Florida revocable trust? Why bother with trust terms which require your consideration and decision making? Simply leave your loved ones their own life insurance policy and be done with it.
- Life insurance is relatively cheap.
- Life insurance can provide liquidity to your Palm Beach Estate. Why? Your Palm Beach personal representative of your Palm Beach estate will need $$$ to pay expenses of estate administration, your last federal income tax bill, funeral expenses, your last debts (like a mortgage or a loan or to fund a buy-sell agreement with your company) and to pay those Palm Beach probate lawyers.
Be wary of Palm Beach lawyers and accountants who profess to provide professional services such as legal services or accounting services but who also sell insurance. Most good Palm Beach lawyers and professionals seem to do one or the other but not both. There are a handful of very good, credible, and yes, honest, life insurance companies/persons in the Palm Beach area. Make sure you get one.
Oh yes, talk to a good Palm Beach estate litigator if you are concerned that family members may fight over the life insurance, the beneficiary desiganations, or the Florida trusts which you set up to hold the life insurance.