Amid Estate-Tax Uncertainty, ING Touts Benefits of ‘Standby Trusts’
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April 1, 2009 Wednesday 10:56 AM EST
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Amid Estate-Tax Uncertainty, ING Touts Benefits of 'Standby Trusts'
Fran Lysiak
ORLANDO, Fla.
As one life insurer gets the word out about the benefits of a standby trust to people concerned about the federal estate tax, a company executive says the word "wealthy" may be difficult to define because of the U.S. economic downturn.
Among the concerns for the wealthy is the uncertainty about what legislators will do regarding the federal estate tax, according to Maggie Mitchell, vice president of advanced sales for ING.
Although President Barack Obama has proposed a $3.5 million per-person exclusion, "it's entirely possible that after that law or some variation of it gets put into effect, that they might need to raise taxes and the estate tax might come back," said Mitchell, who met with BestWire at the Life Insurance and Retirement Industry conferences at the Hilton at Walt Disney World in Orlando, Fla.
"So what's challenging now is how to do estate planning in an environment where you can't predict what the estate tax might be, what the economy is going to be and how your retirement is going to be structured or covered," she said.
Recently, Sen. Max Baucus, D-Mont, chairman of the Senate Financial Committee, announced legislation to permanently set the federal estate tax at 2009 levels, moving forward on a plan he has long wanted to see enacted before the top rate can drop to zero in 2010, as currently scheduled (BestWire, March 27, 2009).
According to ING, a standby trust is a strategy for owning a life insurance policy so the owner may access policy cash values while preventing the policy death benefits from being subject to federal estate taxes at death.
It's an arrangement in which a married couple buys a life insurance policy -- usually a second-to-die policy -- which means it pays after both of them have passed away, Mitchell said. The spouse with the shorter life expectancy -- usually the husband if the couple is around the same age -- owns the policy, she said. The couple could fund the policy, receiving tax-deferred advantages of life insurance and use the accumulated money for retirement if they need it, Mitchell said.
But they also can designate the trust as the "contingent owner and beneficiary" of the policy for tax-advantaged, estate-planning purposes, she said. According to ING, the trust "stands by" to take over ownership of the policy during the time period between the policy owner's death and that of the surviving insured.
Most people don't know about these types of trusts so ING is trying to get the word out to people worried about shrinking assets during the economic downturn, as well as the estate tax issue, Mitchell said.
Mitchell said, "the real challenge" today is to define who is wealthy.
"We don't know how the economy is going to turn around; we don't know if our 401(k)s and our retirement plans are going to come screaming back, just as fast as they went down," she said. "So it's hard to define wealthy and that's the beauty of this particular concept because anybody can do it."
However, "wealthy usually is defined by people who have to have their families pay estate taxes and right now, that's a moving target, too," Mitchell said.
Mitchell said she's unaware of other life insurers actively promoting standby trusts, which have been around for a long time, but said they could be telling their agents about them.
Back in November 2006, of all the changes ushered in by the Democrats' electoral victory, few were more welcome in life insurance circles than the effective end it brought to efforts to repeal the federal estate tax, whose existence long has been the cornerstone of marketing many estate-related life products (BestWire, July 17, 2007).
The life and retirement industry conferences, which run through April 3, are sponsored by LIMRA International, LOMA, the Society of Actuaries and the American Council of Life Insurers.
[To listen to the entire interview with Mitchell in the near future, go to www.bestdayaudio.com]
(By Fran Matso Lysiak, senior associate editor, BestWeek: [email protected])
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