Life Insurance Lessons from a 'Sopranos' Star

CHICAGOLAWBULLETIN.COM THURSDAY, AUGUST 29, 2013

Volume 159, No. 170 Life insurance lessons from a ‘Sopranos’ star

ames Gandolfini has probate, this saves expenses in An ILIT is an estate-planning been gracing the estate administration, allows the THE BUZZ vehicle created for the principal headlines over the past beneficiaries to have immediate purpose of owning a life few months. access to the funds and keeps insurance policy (or policies). Surprisingly, the matters private. When properly structured and pJublicity surrounding the late Asset protection for cash LINDSEY maintained, the ILIT is the television star’s death is not value and death proceeds: The owner and beneficiary of the focused on his award-winning accumulated cash value in a PAIGE policy which allows death performance in “The Sopranos” policy during the insured’s MARKUS benefits paid to the trust to be or a Hollywood scandal — but lifetime and the death proceeds excluded from the insured’s rather his estate planning. can be asset-protected, taxable gross estate, potentially Tony Soprano certainly depending on who the desig - saving millions of dollars in missed some extraordinary nated beneficiaries are. Prior to Lindsey Paige Markus, a principal at estate taxes. estate planning opportunities. August 2012, 735 ILCS Section Chuhak & Tecson P.C., draws on her If a policy is applied for and His will left 80 percent of his 5/12-1001 protected from early career in business, finance and purchased in the name of the $70 million estate to his sisters judgment or attachment “all clinically applied neuroscience to ILIT from inception, the insured and his daughter, subject to proceeds payable because of the communicate with clients and develop has no “incidences of ownership” estate taxes at a rate of approxi - death of the insured and the creative solutions to fit their estate and it can pass income and mately 55 percent. aggregate cash value of any and planning and asset protection needs. estate tax free to the benefici - Lindsey was named an Illinois Super In contrast, Gandolfini’s life all life insurance and endowment Lawyers Rising Star in 2010, 2011 and aries upon death. If an existing insurance was properly struc - policies and annuity contracts 2012. She is licensed in Illinois and policy is transferred to an ILIT tured. Namely, the owner and payable to a wife or husband of Florida. as a gift, it is subject to a three- beneficiary of his $7 million life the insured or to a child, parent year look-back rule. However, the insurance policy was an irrevo - or other person dependent on look-back period can be avoided cable life insurance trust (ILIT) the insured.” 2007 Ill.Legis.Serv. ciaries in the most tax-efficient if the transfer is structured as a for the benefit of his son, which P.A. 95-306 (West). fashion sale. passed free of income and estate Previously, the policy had to • Assets protected with Unlike revocable living trusts, taxes. directly name a spouse, child or respect to the beneficiary’s ILITs require additional mainte - Life insurance is an incredibly dependent as the designated creditors nance: flexible and effective estate beneficiary. The 1st District • Safeguard mechanisms for • Federal Tax Identification planning tool and can provide for Illinois Appellate Court inter - proceeds payable to minor Number myriad situations, including: preted this provision strictly in children • Separate bank account • Supporting loved ones after Dowling v. Chicago Options Irrevocable life insurance • Premium payments made one’s passing Associates Inc . when it refused to trusts (ILITs): Many clients fail are considered “gifts” to the • Investment purposes apply it to a father’s life to recognize the estate tax impli - beneficiaries of the ILIT • Funding corporate buy-sell insurance policy where he cations associated with life • “Crummey” letter must be agreements named an irrevocable trust for insurance policies. When an sent every calendar year to each • Divorce settlements the benefit of his children as the insured is the owner of an of the beneficiaries of the ILIT • Estate tax replacement beneficiary. Dowling v. Chicago insurance policy, the insured is informing each beneficiary of Clients are strongly encour - Options Assoc ., 365 Ill.App.3d 341 said to have “incidences of his/her right to withdraw the gift aged to have their policies (1st Dist. 2006). ownership” and the full value of within a certain time period reviewed every few years. With In response to Dowling, the the proceeds from the life The additional maintenance life expectancies increasing, the Illinois legislature amended insurance policy are included in for an ILIT is nominal relative to IRS released new mortality Section 5/12-1001 in August 2012 his or her gross estate upon the potential estate tax savings. tables in 2013, which caused the to add revocable and irrevocable death (not just the face value or Consider having your existing pricing on life insurance to trusts for the benefit of children, cash value of the policy during a policies reviewed to make sure decrease dramatically. Similar to spouses or dependents to the list lifetime). 26 U.S.C. Section 2042. you are maximizing your invest - refinancing a mortgage, this of protected property under the For example, a term insurance ments. decrease in rates has allowed statute. 735 ILCS Section 5/12- policy with no cash value and a And make certain the many clients with existing 1001 (2012). $3 million death benefit will ownership and beneficiary desig - policies to purchase new policies In light of this recent legisla - cause $3 million to be included in nations on your policies are that offer the same coverage tion, clients are encouraged to the decedent’s taxable gross properly titled to ensure with lower premiums. designate their revocable living estate. Thus, although the estate maximum estate planning and Avoid probate: Life insurance trusts or ILITs (instead of indi - tax exemptions are currently asset protection. policies always carry a benefi - vidual family members) as the high ($5.25 million at the federal Take a lesson from Gandolfini ciary designation, which allows beneficiary of their life insurance level and $4 million at the Illinois and let’s avoid a “Sopranos” the proceeds from the policy to policies. Benefits of listing a level), even clients with modest situation. pass by operation of law to the trust as the beneficiary of a life net worth but sizable insurance Thanks to Chuhak & Tecson P.C. designated beneficiaries and insurance policy include: policies can find themselves with law clerk Evan Blewett for his avoid probate. By circumventing • Proceeds pass to the benefi - a taxable gross estate. contribution to this column.