Listen: Joanie Siani, Larry Welsh And Massachusetts discussed on Family Financial Focus
"Here on WBZ ten thirty AM. I'm Joanie Siani with Paul and Larry Welsh, and I'm going to get right into questions. And again, you're on the front line. You're talking to people every single day, and you know, what people are concerned about. But then again, of course, we always have an open line here for any topics or concerns that you have that you want us to cover on the radio to share with friends and family, always say, Johnny. I'll talk to anybody except Larry. That's a blessing to me. You guys are so bad. But I know you're you get very busy. And it's not until we sit down sometimes at the end of the week that you go. Oh, this is the first time Larry all week because you're with people every day were they having people come in for review meetings. Of course, this time of year water review meetings. We'll see how they're doing over the years and by year end. And if there's any final final items they have to get done before the year round this time of year that many of our clients are over that age of seventy and a half. You got a nice notice from the IRS from your IRA is saying you're seventy and a half, and you must withdraw money from your IRA this year. So you wanna make sure you get that? Correct. Or that could be pretty big consequences. Yep. Okay. So I'm going to go through this question that I came across again, typical of some of the concerns that that people do have. So this is I have been propose. Post by my life insurance agent to get an irrevocable life insurance trust, I'm somewhat confused and not sure this would be the right strategy for me. I have to policies now that would go into the trust. And he wants me to purchase another one. I believe the premiums are high, but the benefits to the children's seemed good can you explain your thoughts? And if you believe there may be this may be a good idea. I don't think I've ever heard. I mean as long as we've been doing the show I've heard of an irrevocable trust. Yes. I've never heard of an irrevocable life insurance. Yeah. So the terminology for that the shot terminology is an islet in every life insurance trust. I've heard that. Yeah. It's not something that's commonly discussed actually it was discussed quite a bit. Maybe fifteen years ago when the estate the federal estate tax was much lower than it is today. So if you passed on years ago like fifteen years ago, and you had a state of let's just say two million dollars. You could be fair. Faced with a lodge federal estate tax almost almost fifty percent sometimes so what used to be done in those days. The strategy was you know, even for a million dollars data was a law. So when this strategy was okay. So you're gonna be faced with this estate tax when when you pass away, so what can be done. I mean, you can just pay the tax out of your own estate would say, you know, the tax is going to be a serious. I'm talking three or four or five hundred thousand dollars of tax. You can pay that, you know, with your eight hundred thousand dollars in the Bank or you can have a life insurance policy pay that for you. So you you didn't want to own that life insurance policy because it would still be in your state. So rather than you have taken ownership of that policy. You would put that policy and what they're explaining their in theory vulnerable life insurance trust. So that you're not the owner. The trust itself owns the policy and trust has a different trustee. It's not you. It's silence. Many times it's your children or someone that just like it says someone that you trust. So that we knew. Pass away the trust owns at life insurance policy. Let's say you're state tax was a half a million dollars. Then you take out a policy for a half a million dollars. So now, you have a means to pay the estate tax. So jar state goes to your children. And the five hundred thousand dollars life insurance policy goes to pay the estate tax. Wow. Does that make sense? Yes. It does. Because listening to you for ten years. Now, one of the things that I learned which I never knew before was when you're calculating your total estate value. I never knew that a life insurance policy went towards the calculation of your overall estate it does. And so in today's world federal estate taxes now, I don't know what it's like twenty nine million dollars Mary couple. So it's way up there. Twenty two million twenty two twenty two million. So unless you have over twenty to someone like you Joni twenty five million dollars state, you might have to be concerned with that. But basically now for for us in Massachusetts, there's a a Massachusetts estate tax for any estate over one million dollars. So let's just say a couple has an estate in the evaluation of their estate is one point six million dollars. And then they own. Some life insurance policies and say the life insurance policies was another five hundred say it was another eight hundred thousand dollars. So when they pass away they have a two point three million dollar state. So there's you know, there's no perfect math to this. But the approximate estate tax on the state like that'd be about. I think a hundred and thirty one hundred forty thousand. Wow. So you could take out a life insurance policy, or if you have that life insurance policy, the current ones as a five hundred thousand dollars policy rather than you owning that policy in your name. You could open you could strategy is to implement an irrevocable life insurance trust and in that trust would own that policy. I say, so it's out of your state. It's not pi the valuation of your state, I say, so that's why that was probably proposed to wherever that that person is a wrote that question. Okay. I don't know why they would be more life insurance. It could be just sometimes it's just a benefit for you to leave a larger estate for your children. Well. To go on. He's saying I have to policies now that would go into the trust. And he wants me to purchase another one. I believe the premiums are high, but the benefits to the children's seem good. So I mean, if you're talking about life insurance in general, right? So if you take out if any of us take out a million dollar life insurance policy and we pass on next week. That's a benefit to your family. Right. Right. Right. Okay. One premium and then you passed away. So for your kids, you're you're you're beneficiaries. It's it's a benefit right? Right. So, but that's not how you look at it. You have to look at. I don't know what they're you know, that might be proposed to them. But it may be whenever a high premium is to someone maybe it's, you know, wherever it could be it could be a thousand dollars a year, it could be ten thousand dollars or more. So is can they afford? It is the benefit worth you pay that much money and all that. So it's not something that's commonly discussed today. Because again, the federal state tax is much much higher than it used to be at one time. So this is this gets into more advanced estate, planning Joanie and financial planning. So most people would not really consider this because they're a state wouldn't be over those levels. Sometimes you use life insurance as like leverage into the estate are some families. What say, unfortunately, a special needs child of Saint, hey, if something happens to both of us we need to have a special trust setup for the child a special needs trust. And we want to fund that trust make sure no matter how much money we. Spend we wanna make sure there's a large amount of money that's going to go into that trust when we pass away to to provide for our special needs child. And sometimes the attorney would say well was set up an irrevocable life insurance trust, and you you to purchase a life insurance policy and those types of policies they're called to get a less expensive policy. It's called the survivorship policy. Where if it's a husband and wife are two parents they actually ensure both of them, and it doesn't get paid out the death benefit doesn't get paid out until both of them pass away. And that's the premiums are less expensive that way individual. But you know, we're not attorneys here. We're just given some general knowledge to this question and given general knowledge about the federal estate tax on that. And then you know in Massachusetts as a Massachusetts state tax. It's confusing because you hear tact but estate tax. That's like a death tax, not an income tax. When you pass away, your your state may have a tax. If you go over these certain levels, I think it's it's really important that. Just as we're chatting here. The that you're able to say then there's this option or then there's another strategy. I mean, you have the other. The other strategy would say what's the premiums versus you can just set up a near revoke -able trust Joanie and just add money to the trust and invest that money like any other money, you have in other words, like we use Charles Schwab in our investment, advisory, and we have clients that have irrevocable trust setup and Schwab, and they just add money to it and is invested and maybe that money will grow over the years, and it's always available. If you need it in a might do better than having an insurance policy. So you have to really weigh all the options. You're you're at the service to have that conversation to weigh all the absolute with this type of information. I think what we can take away from it is that if you do own life insurance policy that is part of your state. Yeah. You know, if you want to five hundred thousand dollar life insurance policy that is five hundred thousand valuations here estate, so if you own a six hundred thousand dollar home, all of a sudden, you over million dollars was she which is the exemption for the mass estate tax tax. Right. So you're over a million dollars. But so how much are you paying for over? So say you have your estate is worth one point five million dollars. You're having what do you have to pay on the five the approximate taxes? There's no like I said perfect Matt, but about one point five the estate tax would probably be around fifty thousand dollars. Wow. Yeah. I'm gonna say you can fix that. If you own a policy, you can change the ownership to a trust the change it to a person, you might consider. I mean all depends on the family. You can change it to a child and the ownership has no relevance to the beneficiary like one child could own it. But the three children could be beneficiaries. Wow. Interesting. All right. We'll be back. We've got more coming up right after this. Do you have a question Paul or Larry to answer all them during the week at eight hundred nine zero eight nine three three four nine thousand three financial group there when you need them.."