June 27, 2013 Comments Off on USING LIFE INSURANCE AS PART OF AN ESTATE PLAN
Life insurance can be an effective tool in any estate plan and provide benefits to family, loved ones, and charities while avoiding probate. For example, a person who is concerned about financial support for family members and dependents can obtain a life insurance policy that will provide funds for support upon death. A life insurance policy can also be used as a kind of forced savings program or annuity if the policy allows the policyholder to draw benefits upon reaching retirement age. In this post, I’ll explain a few basics about life insurance policies and how they can be used as part of an overall estate plan.
Whole Life v. Term Life Insurance
A life insurance policy is basically a contract under which a buyer (the policyholder) pays premiums and the insurance company agrees to pay the policy’s proceeds to beneficiaries if person whose life is insured (the insured) dies while the policy is in effect. Life insurance policies can be structured either as whole life policies or term life insurance policies.
Under a whole life policy, the policyholder agrees to continue to pay premiums to the insurance company until the policy is “paid up” (the agreed price is fully paid). In return, the insurance company agrees to pay the face value of the policy when the insured person dies, whether that occurs before or after the policy is paid up.
By contrast, a term life insurance policy is in effect only for a certain period of time (for example, one year). Once the term of the policy has expired, the insurance company is no longer obligated to pay any proceeds to the beneficiaries and can keep premium that was paid.
Whole Life Insurance and Cash Surrender Value
Another difference between whole life insurance and term life insurance is that whole life polices often include a “forced savings” or investment feature. Here, the policyholder pays premiums that cover both insurance on the life of the insured and a savings or investment feature that accumulates over time. The accumulated savings allow the policy to include a “cash surrender value” and a sort of opt-out option for the policyholder. Under this opt-out option, and after paying premiums for a number of years, the policyholder can terminate the policy, and the cash surrender value will be paid to the policyholder.
Basic Uses of Whole Life Insurance
The most basic uses of whole life insurance involve financial protection for family and loved ones and providing funds for expenses upon the death of the insured. Perhaps the most basic use of life insurance is to provide funds that the beneficiaries can rely on in place of the financial support previously provided by the insured. Even a person of modest means can provide this financial protection for family and loved ones.
Another basic use of life insurance is to provide cash for the expenses that can arise at or after death of the insured. This can include the cost of a funeral, outstanding debt on family residences, short-term living expenses, and federal estate taxes.
Using the Cash Surrender Value to One’s Advantage
The cash surrender value provides at least three advantages beyond terminating the policy and having the cash value paid to the policyholder. First, the cash surrender value can be used as security for a loan—just as a security interest in bank account or shares of stock can be given to a lender. In some cases, the lender may also be the insurance company that issued the policy.
Second, the policyholder can use the cash surrender value as a final premium payment that converts the policy to a paid-up policy (although this usually reduces the face value of the policy). Converting the policy in this way is advantageous if the policyholder is unable or unwilling to continue paying premiums.
Finally, some whole life insurance policies permit the policyholder to use the policy, in effect, as an annuity and draw retirement benefits for a predetermined number of years. In most cases, the policyholder cannot draw the retirement benefits until he or she has reached retirement age.
Other Advanced Uses of Life Insurance
Life insurance can also be used in two other ways that do not take advantage of the cash surrender value. In a business context, partners who share ownership of the business often enter agreements with each other that allow surviving partners to purchase the interest of a partner who dies. In order to provide cash to purchase that business interest, the business purchases life insurance policies on the life of each business partner and name the other partners as beneficiaries.
Another advanced use of life insurance policies involves purchasing one or more policies and naming an irrevocable trust as the beneficiary of the policy or policies. In most cases, the trust is established for the benefit of the insured’s family, but the trustee must administer the trust according to the trust agreement. This almost always requires the trustee to invest the insurance proceeds (prudently) and distribute income from the investments to the trust beneficiaries—although the trustee can be given discretion as to whether and how much to distribute.
Whole life insurance can be an effective tool in an estate plan that transfers assets without going through probate. Its basic function is to provide financial support and security for family and loved ones and to provide cash for expenses that can arise after the death of the insured. Moreover, the cash surrender value of a whole life policy can be used as a savings program or as security for a loan. Finally, a life insurance policy can be used to purchase the ownership interest of a deceased business partner or to fund a trust.
An estate plan is one of the most caring and thoughtful things that an individual or married couple can do for family and loved ones, and whole life insurance should be considered as an option in any estate plan. For more information on the legal services offered by the Law Office of James D. Griffith, P.L.L.C., please call (480) 275-8738 or use the “Contact Us” page on our website.
June 9, 2013 Comments Off on NAVAJO NATION HUMAN RIGHTS COMMISSION MEETS WITH UN WORKING GROUP
Earlier this month, Indian Country Today reported on a meeting between the United Nations Working Group on Business and Human Rights and the Navajo Nation Human Rights Commission (NNHRC). On April 27, the UN Working Group and NNHRC met to discuss the effects of two (non-Indian) business activities on the human rights of Navajos. First, the meeting addressed the use of treated wastewater to make snow at Arizona Snowbowl on the San Francisco Peaks. Second, the meeting examined the predatory auto sales and lending practices of Santander Consumer USA in light of language and cultural barriers.
The UN Working Group met with the NNHRC while on an official visit to the United States. After visiting other countries, the UN Working Group will prepare and publish a report, which is expected in June of 2014.
As part of an initial response to the meeting with NNHRC, the UN Working Group identified both governmental and business sector deficiencies with regard to the human rights of indigenous peoples. The initial response states:
While several federal initiatives and measures to protect the rights of indigenous peoples have been put in place in the United States in recent years, many stakeholders have indicated that more needs to be done to … protect the rights of indigenous peoples with regards to impacts of business activities . . . . We notice that when it comes to contexts such as those of the Native Americans, the weakness of protection afforded by the state against human rights violations is often regrettably reciprocated by commensurately poor understanding of the intent of corporate responsibility in respecting human rights. This results in significant challenges to turn appropriate human rights policies into effective practice.
In other words, the Working Group suggested that poor efforts by the federal government to protect the human rights of Native Americans are compounded by a poor understanding of the questionable (if not irresponsible) lending practices of some non-Indians businesses.
Although the federal government has some responsibility, could tribes also take steps to protect tribal members from predatory lending practices by non-Indians? Perhaps, yes. For example, a tribe could form a tribal corporation that offers auto and other loans to its members, thereby removing the non-Indian lender from the loan transaction. Existing tribal laws governing secured transactions, or adoption of the Model Tribal Secured Transactions Act (discussed here), could be used to enforce the loans while also protecting tribal members from non-Indian predatory lenders. Some means of regulating the tribal corporation (the lender) would be necessary, but that would be under the control of the tribe.
For more information on the legal services offered by the Law Office of James D. Griffith, P.L.L.C., please call (480) 275-8738 or use the “Contact Us” page on our website.