Employers and Drug-Testing Policies under Arizona Law

February 7, 2016 Comments Off on Employers and Drug-Testing Policies under Arizona Law

Under Arizona law, an employer may adopt and implement a policy for drug and alcohol testing of employees and job applicants. These employer policies may require drug and alcohol testing for any job-related purpose (for example, after a workplace accident) and may require random drug and alcohol testing if applied equally to all employees, officers, and supervisors.

To assist employers, this post answers some basic questions on employer drug-testing policies, the risks of liability from employee lawsuits, and the impact of Arizona’s medical marijuana law. (For purposes of this post, the term “drug testing” includes testing for alcohol consumption.)

What Must be Included in an Employer’s Drug and Alcohol Testing Policy under Arizona Law?

In Arizona, an employer’s drug-testing policy must include the following:

  • The employer’s policy on drug and alcohol use by employees.
  • Which employees and prospective employees are subject to testing.
  • The circumstances under which drug testing may be required.
  • The substances for which testing may be required.
  • The testing methods and collection procedures that the employer may use.
  • The consequences for refusing to participate in drug testing.
  • Any negative personnel action that the employer may take based on the testing procedure or results.
  • The right of an employee, on request, to obtain the written test results.
  • The right of an employee to explain, in a confidential setting, a positive test result.
  • The employer’s policy regarding the confidentiality of the test results.

When Can an Employer Require Drug Testing of Employees?

In general, an employer may require the collection of samples and drug or alcohol testing for any job-related purpose. Common examples include:

  • Investigation of an employee for possible impairment (on the job).
  • Investigation of a workplace accident (if the test is administered as soon as possible after the accident and given to employees who reasonably may have been involved).
  • Maintenance of safety for employees, customers, clients, and the general public.
  • Maintenance of productivity, quality products and services, and security of property or information.
  • Reasonable suspicion that an employee is using drugs and the use is negatively affecting performance or the work environment.

Are There Any Limitations on an Employer’s Legal Right to Adopt and Implement a Drug-Testing Policy?

Yes. The Arizona Supreme Court has ruled that an employer’s drug-testing policy cannot be justified solely on a generalized and unsubstantiated interest in preventing drug and alcohol use by its employees. In other words, an employer’s drug testing will be unconstitutional if the testing is both random and without suspicion, or if the testing is not relate to a legitimate job-related function.

Is an Employer Required to Keep an Employee’s Test Results Confidential?

Yes. In general, all communications and test results related to a drug or alcohol test must be kept confidential and may only be disclosed as permitted by law or in an employment-related grievance or lawsuit. But the employer must provide a copies to the employee on request and may provide test results and related information to a person hired to evaluate the test results or an employee’s explanation.

What Employment-Related Action Can an Employer Take under a Drug-Testing Policy?

An employer may take actions based on a positive drug test that can negatively affect employment or hiring. In the case of a job applicant, an employer may refuse to hire the applicant, but only as the result of a positive drug test (does not apply to positive alcohol tests).

In the case of either an employee or a job applicant, the employer may impose discipline or require participation in rehabilitation services after a positive drug test or refusal to consent to a drug test (although the possible discipline or rehabilitation options must be stated in the drug-testing policy). Common examples of discipline include suspension with or without pay and termination, and rehabilitation typically requires counseling.

As the Employer, What is the Risk of Liability from Employee Lawsuits Related to Drug Testing?

Under Arizona law, an employer can be sued based on the employer’s disciplinary action or rehabilitation requirements if the employee can show two things. First, the employee must show that the employer’s discipline or rehabilitation was imposed based on a false positive. Second, the employee must show that the employer knew or should have known of the false positive and recklessly, maliciously, or willfully disregarded the false positive. From the employer’s perspective, this means that an employer will not be liable merely because the employer imposed discipline or rehabilitation based on a false positive.

Does Arizona Law Provide Employers with Any Protection from Lawsuits?

Yes. Although not immune from all lawsuits, an employer is protected from certain lawsuits (including some by third parties) if the employer has implemented a drug-testing policy. A lawsuit cannot be maintained if (a) the employer followed its drug-testing policy, and (b) the employer:

  • Acted in good faith based on a positive drug or alcohol test.
  • Did not test for drugs or alcohol or for a specific drug or controlled substance.
  • Did not test for or detect a drug, medical condition, or mental or psychological disorder.
  • Terminated or suspended a drug-prevention or drug-testing program or policy.
  • Acted on a good-faith belief that an employee used or possessed any drug in the workplace or during work hours.
  • Acted on a good-faith belief that an employee was impaired while in the workplace or during work hours.
  • Prevented an employee from performing safety-sensitive work based on a good-faith belief that the employee was using any drug (including prescription drugs) if the drug could impair the employee’s performance.

Does Arizona’s Medical Marijuana Act Impact an Employer’s Drug-Testing Policy and Legal Rights?

Yes. In general, the Arizona Medical Marijuana Act (“AMMA”) places certain limits on the actions an employer can take against an employee who holds a valid medical marijuana card.

Under the AMMA, an employer cannot discriminate in hiring, firing, or any condition of employment (including drug testing) based on a person’s status as a holder of a valid medical marijuana card. The AMMA prohibits an employer from imposing discipline or rehabilitation if the employee has a valid medical marijuana card and tests positive for marijuana—unless the employee used, possessed, or was impaired by marijuana at work or during work hours.

In addition, an employer cannot require drug testing of an employee, and cannot search an employee or his or her property based solely on the employee’s status as a holder of a medical marijuana card or possession of an application for a medical marijuana card.

The impact of the AMMA on an employer’s actions under a drug-testing policy can vary depending on the facts of the situation. An employer should consult with an attorney if a specific situation arises involving employee drug testing and an employee with a medical marijuana card.

Are There Any Other Considerations that May Affect an Employer’s Drug-Testing Policy and Employment-Related Actions?

Yes. Some employers may have an obligation to report a positive drug test under laws that govern an employee’s professional or business license.

A teacher, for example, must be “certificated” (licensed) under state education law. The statutes also require school superintendents to report a reasonable suspicion of teacher drug use at any time and a reasonable suspicion of being under the influence of alcohol on school grounds or during a school event.

As another example, individuals who hold a commercial driver’s license, including school bus drivers, are subject to state and federal laws that require drug and alcohol testing. An employer that employs drivers and transportation-related workers must comply with those laws and may be obligated to report positive drug tests to state and federal licensing authorities.

Conclusion.

Overall, the laws related to the testing of employees for drug and alcohol use are complex and range from general laws applicable to all employers to detailed regulations that affect employers of individuals licensed under state or federal law. The answers given above provide only a general overview of the employee drug-testing laws in Arizona. If you are an employer, and you have specific questions or would like to adopt a drug-testing policy, the best approach is to contact an employment-law attorney.

James D. Griffith is an Associate Attorney with Mangum, Wall, Stoops & Warden, PLLC. He is licensed as an attorney in Arizona, the Navajo Nation, and the Hopi tribal courts.

Advertisements

PROTECTING THE FINANCIAL SECURITY OF OLDER AMERICANS: Free Guides from the Consumer Financial Protection Bureau

March 2, 2014 Comments Off on PROTECTING THE FINANCIAL SECURITY OF OLDER AMERICANS: Free Guides from the Consumer Financial Protection Bureau

Older Americans face financial risks and challenges that differ from those faced by younger Americans. In particular, older Americans may find it necessary, at some point, to turn over management of their financial affairs to a relative or trusted caregiver. Doing so often means the use of a power of attorney, a revocable living trust, or a court-appointed guardian or conservator. But many older Americans and their relatives and caregivers misunderstand the duties and responsibilities (and potential liability) of a person who manages the finances of another under these legal tools.

Fortunately, the Consumer Financial Protection Bureau recently published three guides designed to help older Americans and those who are asked to manage their finances. These guides address the fiduciary responsibilities of: (1) agents under a power of attorney; (2) trustees under a revocable trust; and (3) court-appointed guardians and conservators. The guides are available at no cost and downloadable at the following links:

We hope you find these resources helpful. If you need more information about your legal rights and responsibilities, or for more information on our legal services, please call (480) 275-8738 or use the “Contact Us” page on our website.

THE VALUE OF A WILL (PREPARED BY AN ATTORNEY)

November 15, 2013 Comments Off on THE VALUE OF A WILL (PREPARED BY AN ATTORNEY)

When making a will, some people overlook the value that an attorney can add to the will-making process and turn to document preparers, forms, or software programs. Attorneys add value to the process because they are trained in the law of wills and can draft a will that uses the law to achieve the testator’s intent. Every individual and married couple has different life circumstances and brings different priorities and concerns to the will-making process, such as issues involving minor children, prior marriages, and adult stepchildren. An attorney has the knowledge and skill to consider each individual’s and couple’s unique situation and to draft a will or wills designed to minimize potential problems.

In a recent presentation, I discussed several advantages to having a will prepared by an attorney, including:

  • Moderating the burden on loved ones at a time of loss
  • Control over the distribution of assets (who gets what)
  • Decisions related to blended families and second marriages
  • The downside of intestacy (not having a will)
  • The limitations of document preparers and form kits

The slides from my presentation on The Value of a Will Prepared by an Attorney provide an overview. For more information on making a will and 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.

UNDERSTANDING THE TRIBAL COURT EXHAUSTION DOCTRINE

October 7, 2013 Comments Off on UNDERSTANDING THE TRIBAL COURT EXHAUSTION DOCTRINE

In a recent appellate case, the Fifth Circuit Court of Appeals followed well-established precedent when it affirmed a federal district court decision that recognized the Choctaw tribal court’s jurisdiction over a tribal member’s suit against a non-member of the tribe.[1] The non-member (a non-Indian corporation) had filed suit in federal district court seeking to enjoin or stop the Choctaw tribal court from exercising jurisdiction over the tribal member’s tort case. But the district court concluded that the tribal court could hear the case because the non-member had entered into business dealings with a tribal member on tribal land.

Tribal Sovereignty and Tribal Court Jurisdiction

So, why must the tribal court be given the opportunity to exercise jurisdiction over the tort case against the non-member? The answer begins with tribal sovereignty. Long ago, in the famous Marshall trilogy of cases, the U.S. Supreme Court recognized the indigenous Indian nations as sovereign body politics with inherent powers to govern themselves although that power is subject to federal power.[2] In other words, the recognized Indian tribes are sovereign nations, but Congress has the authority to limit or even eliminate that sovereignty. This principle of tribal sovereignty is fundamental to American Indian law. Although the concept has evolved and been eroded somewhat over time, tribal sovereignty is strongly defended by Indian tribes.

Based on the recognition of tribal sovereignty, two contrasting legal rules on tribal court jurisdiction have been established by the Supreme Court. The first rule states when tribal courts have exclusive jurisdiction (no federal or state court has jurisdiction). The second rule states when tribal courts have no jurisdiction. (Please note, however, that this discussion is limited to jurisdiction in civil case; tribal jurisdiction in criminal cases has been limited by Congress).

Contrasting Rules on Tribal Court Jurisdiction

In civil cases, the courts follow a general rule holding that tribal courts have exclusive jurisdiction if the claim (1) is asserted against an Indian, and (2) arose from an event or transaction that occurred in Indian country.[3] Thus, if two tribal members are involved in an auto collision while driving on tribal land, and one member sues the other, the tribal court will have jurisdiction because the defendant is an Indian and the collision occurred on tribal land.

In contrast to the general rule, the Supreme Court has also held that tribal courts do not have jurisdiction if (1) the defendant is a non-Indian, and (2) the event or transaction occurred on non-Indian-owned, fee-title land within a reservation.[4] Thus, if a tribal member and a non-Indian are involved in an auto collision while driving on privately owned land within the boundary of a reservation, the tribal court would not have jurisdiction. This second rule, known as the Montana rule, has two important exceptions that would result in tribal court jurisdiction (discussed in more detail below).

These two rules are fairly clear, but cases that fall in between these two rules are less clear, and that’s where the parties have room to argue. As a result, the federal courts were regularly asked to assert jurisdiction when the defendant was a non-Indian and the event occurred in Indian country.

Deference to Tribal Courts If Jurisdiction is in Question

The tribal court exhaustion doctrine was developed as a response to this jurisdictional gray area. The Supreme Court established this doctrine in 1985 when it held that federal courts cannot exercise jurisdiction—must allow a tribal court to rule on its own jurisdiction in the case—if (2) the defendant is a non-Indian, and (2) the claim arose on tribal land.[5] Nonetheless, the doctrine also states that non-Indian defendants may file suit in federal court after all proceedings in tribal court have been exhausted.[6]

Under this doctrine, tribal sovereignty is protected because the doctrine allows the tribal court to make its own determination regarding its jurisdiction in the case. But the rights of non-Indian defendants are also protected because the defendant can file a case in federal court after the tribal court hears the case. Thus, the tribal court exhaustion doctrine is a matter of deference to the tribal court.

The Montana Rule Exceptions and the Tribal Court Exhaustion Doctrine

The Montana rule has two important exceptions that provide tribal courts with an opportunity to exercise jurisdiction. As stated above, the Montana rule provides that tribal courts do not have jurisdiction if (1) the defendant is a non-Indian, and (2) the event or transaction occurred on land located within a reservation, but privately owned in fee title.[7]

The exceptions to the Montana rule provide that a tribal court will have jurisdiction if (1) the non-Indian entered contractual or other relationships with the tribe or tribal members; or (2) the claim asserted effects the political, economic, or welfare interests of the tribe.[8] Again, these exceptions protect tribal sovereignty, and the policy of tribal self-determination, by respecting the authority of the tribal court to determine its own jurisdiction.

Other Exceptions to the Tribal Court Exhaustion Doctrine

Two other exceptions to the tribal court exhaustion doctrine exist. Unlike the Montana exceptions, however, these exceptions give jurisdiction to the federal courts, rather than to tribal courts.

The first of these exceptions is federal preemption. When Congress enacts a law that regulates a field on a national basis, such as the Clean Water Act, the law preempts (or “trumps”) any state or local law that is inconsistent with the federal law. This preemption also applies to the tribes, and the federal courts can take jurisdiction without deferring to a tribal court.[9]

Finally, the exhaustion doctrine will not apply if the tribal court does not allow the non-Indian defendant an opportunity to challenge the tribal court’s jurisdiction.[10] Thus, a tribal court cannot simply declare its jurisdiction without considering the issue.

Conclusion

To some, the tribal court exhaustion doctrine may mean litigating in an unfamiliar court, but the doctrine is designed to respect and protect well-established principles of tribal sovereignty and is supported by the federal policy of tribal self-determination. From a legal perspective, the exhaustion doctrine and its deference to tribal courts has become a necessary aspect of managing the jurisdictional relationship between the courts of three sovereigns—tribal, federal, and state.

We hope that this discussion has been informative and helpful, but it should not be taken as legal advice or establishing an attorney-client relationship. 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.

Endnotes

[1] Dolgencorp, Inc. v. Mississippi Band of Choctaw Indians, No. 12-60668, 2013 U.S. App. LEXIS 20307 (5th Cir. Oct. 3, 2013).

[2] Johnson v. McIntosh, 21 U.S. 543, 573 (1823); Cherokee Nation v. Georgia, 30 U.S. 1, 16-17 (1831); Worcester v. Georgia, 31 U.S. 515, 559 (1832).

[3] Williams v. Lee, 358 U.S. 217 (1959). The term “Indian country” refers to Indian reservations, pueblos, dependent Indian communities, Indian allotments, and certain other areas that may be off-reservation but are close to and often largely populated by Indians. 18 U.S.C. § 1151.

[4] Montana v. United States, 450 U.S. 544 (1981). In these cases, the land involved is not held in trust by the federal government for the Indian tribe, but instead is owned privately and is subject to state law.

[5] Nat’l Farmers Union Ins. Cos. v. Crow Tribe, 471 U.S. 845, 855-6 (1985).

[6] Id. 471 at 856-7; see also Iowa Mut. Ins. Co. v. LaPlante, 480 U.S. 9, 19 (1987) (holding that a tribal court finding of tribal jurisdiction can be challenged in federal court and that the federal court will review the jurisdictional issue de novo).

[7] Montana, 450 U.S. at 564-66.

[8] Id.

[9] Nat’l Farmers Union, 471 U.S. at n.21.

[10] Id.; see also El Paso Natural Gas Co. v. Neztsosie, 526 U.S. 473, 484-488 (1999).

DEVELOPING ENVIRONMENTAL LAW IN INDIAN COUNTRY

September 30, 2013 Comments Off on DEVELOPING ENVIRONMENTAL LAW IN INDIAN COUNTRY

Professor Elizabeth Ann Kronk Warner recently posted a working paper, entitled Examining Tribal Environmental Law, that reviews the existing tribal laws governing environmental protection and provides some initial thoughts on further development of tribal environmental law.[1] In this article, Professor Kronk (Director of the Tribal Law and Government Center at the University of Kansas School of Law) surveyed the publicly available tribal laws and found that just over one-half of all federally recognized Indian tribes have enacted an environmental law in at least one of four categories (air, water, solid waste, and environmental quality). She also found that only the Navajo Nation has enacted tribal environmental laws in all four categories.

After discussing the legal and jurisdictional context for tribal environmental law, and the results of her survey of existing tribal codes, Professor Kronk provides three initial thoughts on the development of tribal environmental laws. First, she suggests that, because some tribes may not be ready to enact fully developed environmental laws (due to financial considerations, small land bases, limited natural resources, or other tribal priorities), tribes may want to consider codifying their environmental ethic without implementing a full environmental code. At a minimum, codifying an environmental ethic will provide an important interim statement and emphasize the tribe’s intrinsic connection with the land, water, plants, and animals on tribal land and elsewhere.

Second, tribes may want to craft tribal environmental laws that will apply to non-Indians and non-member Indians who are acting on non-Indian lands within tribal land. Professor Kronk bases this suggestion directly on the Montana rule,[2] which holds that Indian tribes do not have jurisdiction to regulate the activities of non-members who act on non-Indian land within a reservation’s boundary. Notably, however, the Montana rule has two exceptions that will permit the tribe to regulate non-members acting on non-Indian fee land if: (1) the non-member has significant commercial dealings with the tribe or tribal members; or (2) the non-member’s activities threaten the political, economic, or welfare interests of the tribe. Professor Kronk contends that a tribe can obtain jurisdiction over the non-member by enacting tribal environmental laws requiring that permits for the discharge of pollution affecting tribal land be issued only if the non-member agrees to tribal jurisdiction (under the first exception to the Montana rule). Further, she suggests that tribes can invoke the second exception by drafting tribal environmental laws designed to protect the health and welfare interests of the tribal community.

Third, Professor Kronk suggests that tribes may want to consider tribal customs and spirituality when developing tribal environmental laws. In so doing, each tribe’s environmental laws will reflect the environmental ethic of that tribe. Federal environmental laws do not regulate to protect cultural and religious interests, and thus, federal law does not preempt or prevent Indian tribes from exercising their sovereignty and regulating for such purposes. Thus, a tribe could enact an environmental law to protect a cultural or sacred site that is within the boundaries of its reservation.

Finally, Professor Kronk contends that, although many reasons exist for tribes to adopt environmental laws, tribe may want to consider adopting environmental laws for two main reasons. First, tribal environmental laws will promote both tribal sovereignty and tribal environmental ethics. Second, tribal environmental laws are necessary because of current environmental issues and the development of natural resources.

The research of Professor Kronk and others on tribal environmental law seems particularly relevant today as tribes seek to develop natural resources and green energy as well as protect tribal environmental, cultural, and religious interests. A copy of this paper can be downloaded from the Social Science Research Network.

We hope that this summary has been informative and helpful. 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.

Endnotes

[1] Elizabeth Ann Kronk Warner, Examining Tribal Environmental Law (Sep. 7, 2013) (unpublished working paper), available at http://ssrn.com/abstract=2322322.

[2] Montana v. United States, 450 U.S. 544, 564-66 (1981).

INDIAN COUNTRY INVESTIGATIONS AND PROSECUTIONS, 2011-2012: Annual Report to Congress by the U.S. Department of Justice

July 4, 2013 Comments Off on INDIAN COUNTRY INVESTIGATIONS AND PROSECUTIONS, 2011-2012: Annual Report to Congress by the U.S. Department of Justice

The U.S. Department of Justice (DOJ) recently issued its first annual report on Indian Country Investigations and Prosecutions as required by the Tribal Law and Order Act of 2010. The Tribal Law and Order Act (TLOA) is broad legislation designed to improve and enhance law enforcement in Indian country. Among many other measures to improve law enforcement, the TLOA seeks to hold federal agencies accountable by requiring the Department of Justice to file an annual report with Congress on criminal investigations and prosecutions in Indian country.[1]

The DOJ’s report, which covers only criminal matters reported to federal (and not tribal or state) agencies, reflects the increased priority placed on law enforcement efforts in Indian country and provides data showing an increase in the criminal caseload of federal agencies of 54% between 2009 and 2012. The report’s executive summary sets forth several major points based on the data:

  1. The FBI referred a “substantial majority” of Indian country criminal investigations to the U.S. Attorney’s Office (USAO) for prosecution.
  2. The USAO prosecuted a “substantial majority” of the Indian country criminal cases it opened.
  3. When the FBI did not refer a case to the USAO (but instead closed its investigation), the most common reason was the FBI’s conclusion that no federal crime had occurred.
  4. When the FBI investigated a death, but closed the investigation without a referral to the USAO for prosecution, the primary reason was a conclusion that the death was due to an accident, suicide, or natural causes.
  5. In 2011, the USAO declined to prosecute just under 37% of Indian country criminal cases submitted to it for prosecution. In 2012, the USAO declined to prosecute approximately 31% of Indian country cases submitted. The two most common reasons for declining to prosecute were insufficient evidence (61% of cases in 2011 and 52% in 2012) and referral to another prosecuting authority (19% in 2011 and 24% in 2012).

A copy of the DOJ’s report is available here.

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.

[1] Other steps to improve law enforcement under the TLOA include increased training and funding for Bureau of Indian Affairs and tribal law enforcement officers, improved communication and coordination of efforts between the U.S. Attorney’s Office and tribal officials, increased sentencing authority granted to tribal courts, deputization of tribal prosecutors that allows prosecution in federal court, and prevention and treatment programs focusing on at-risk youth and drug and alcohol problems.

USING LIFE INSURANCE AS PART OF AN ESTATE PLAN

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.

Conclusion

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.

Where Am I?

You are currently browsing entries tagged with Phoenix at James D. Griffith, Associate Attorney.