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Girl on the Phone- iStockOwners of family businesses often find themselves in a dilemma over how to treat their adult children fairly when one or more is interested and capable of taking over the business and the other adult children are not.  Certainly, the owners are not about to turn over their life’s work to anyone (their closest kin included) without the required desire and skills to carry on the family business.  At the same time, the owners often want those same children to benefit from their life’s work.  Further complicating the matter, are the children who will someday be running the business and do not want their value diluted by having to share profits with a sibling(s) uninvolved in the day to day operations and taking the day to day risks associated with business ownership.

Enter life insurance.

Properly acquired (in other words, properly negotiated and priced), life insurance can be a tremendous equalizer, making sure that each adult child is treated fairly per the business owner’s wishes.  At the business owner’s death, the interested, capable adult children take over the business and the less interested, less capable children are assigned the life insurance proceeds.

The above is a clean, fair and pre-agreed to strategy for dealing with a very difficult planning issue in the family business arena.  This planning idea will not only deliver exactly what each adult child needs and wants at the owner’s death, it also eliminates resentment and creates peace between family members.  These non-economic/soft issues are not always expressed, but are always present and are a tremendously important part of any estate plan.

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Empty Country Highway - iStockMany insured’s are confused and angered when the premiums of their “vanishing premium” life insurance policy, either don’t vanish or reappear at a later date.  If the policy was promoted and sold on a “vanishing premium” basis they ask, then “why am I still writing checks?”  The answer is very simple though not always properly disclosed or understood, even by the selling agent.  Premiums don’t vanish.  At some point, premiums may possibly, hopefully, be covered by the growth/performance of policy dividends and/or cash value but absent that performance, the premiums are still there, needing to be paid in order to keep a policy in force.

The above isn’t to be confused with a guaranteed, paid up policy which is a contract between the policy owner and the insurance company providing for a guaranteed death benefit to an agreed upon age of the insured and with an agreed upon capital contribution for an agreed upon period of years.  Once this obligation has been met by the premium payer, the death benefit will be sustained with no more premiums due and the peace of mind that this is provided for on a contractual basis.

Though subtly different by description, the actual differences are significant because the concept of a “vanishing premium” does not exist and the concept of a “guaranteed, paid up policy” does.

Be sure to ask these questions of your agent to spare yourself much confusion and overpayment of premium.

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Power of Attorney - iStockA popular saying goes “bad planning on your part does not constitute an emergency on my part.”  Estate planners cannot rely on such platitudes.  It is our job to fix bad planning especially in emergency situations which often involve quickly revoking one or all prior estate planning documents.  This article provides guidance on revoking the three most commonly used estate planning documents: (1) will; (2) power of attorney; and (3) health care directive.

Revoking a Will

Will revocation is governed by Minnesota Statute §524.2-507(a)-(d).  A will may be revoked by either a writing or an act.  A testator may execute a new will that expressly revokes a prior will.  What if the subsequent will does not expressly revoke the prior instrument?  In that circumstance, the newly signed will revokes the older will only if it is inconsistent and the testator intended the subsequent will to be a replacement.  The testator’s intent to replace instead of supplement a prior will is presumed if the subsequent will makes a complete disposition of the decedent’s estate.  If not, then the subsequent will supplements the prior will instead of revoking it.

Alternatively, a testator or another person at the testator’s direction may perform a “revocatory act” on the will for the purpose of revoking it.  A “revocatory act” includes, burning, tearing, canceling, obliterating, or destroying the will or any part of it.  A will is considered revoked even if the burning, tearing, or cancelling touches any of the words actually written on the will.

In two very specific instances, a will is considered revoked either in whole or part by a change of circumstances.  The will of a decedent who is murdered by a devisee is not considered revoked in whole.  Instead, under Minnesota Statute §524.2-803, the estate of the decedent passes according to the will, but as though the killer predeceased the decedent.  Similarly, a will executed prior to the dissolution or annulment of a marriage, may be considered revoked only in part due to the change in circumstance.  Minnesota Statute §524.2-804 provides that the dissolution of marriage revokes any disposition, beneficiary designation, or appointment of property in the will made to a former spouse.  A dissolution of marriage also revokes the nomination of a former spouse to serve as a personal representative of the will.  Instead, the remaining provisions of the will are given effect as though the former spouse died immediately before the dissolution of marriage.

Revoking a Health Care Directive

Health care directives are governed by Minnesota Statutes chapter 145C and a principal who has the capacity to do so may revoke a health care directive.  A health care directive in whole or part may be revoked using one of four methods as detailed in Minnesota Statute 145C.09, subd. 1.  First, a principal may physically destroy the health care directive document itself by canceling, defacing, obliterating, burning or tearing it with the intent to revoke.  Second, a principal may execute a separate written and dated statement expressing the intent to revoke.  Third, the principal may verbally revoke a health care directive in the presence of two witnesses who do not need to be present at the same time.  Lastly, a health care directive may be revoked by executing a subsequent directive that is inconsistent with the prior instrument.

Revoking a Power of Attorney

Unlike a will or health care directive, a power of attorney may be revoked only by a written document signed by the principal as detailed in Minnesota Statute 523.11.  If someone other than the principal signs the revocation or, if the principal is only able to sign with a mark, then a notary public must acknowledge the signing.  It is important to note that under the statute, a conservator or guardian of the principal has the same power the principal would have to revoke the power of attorney.  For the revocation of a power of attorney to be effective as to any party (the attorney-in-fact or financial institution), that party must be given actual notice of the revocation, meaning that the party has to have received it.

 

 

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Spectrum of Withdrawal Limitations

by Manish Bhatia February 26, 2016 Beneficiary

The phrase “control from the grave” is often used to describe withdrawal limitations on an individual’s inheritance.  These provisions direct or require a beneficiary to reach certain benchmarks before a trustee can permit a withdrawal.  […]

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David Bowie’s Estate Plan

by Jamie Held February 19, 2016 In the News

It has been reported that David Bowie’s estate plan consists of a 20 page Will that was originally filed in 2004.  It splits the majority of his estate, estimated at $100 million, between his wife, […]

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5 Refreshing financial steps women should take before and during a divorce (or during any life transition)

by Kari McLeod February 19, 2016 Guest Articles

I know this is a finance post, but before I jump into giving you a checklist for financial steps to take before and during divorce, I first want to say: Stay positive and remember you […]

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What’s in a Name

by Bob Cohen February 5, 2016 Guest Articles

The life insurance industry has become increasingly complex. New and multiple policy types deliver both choice (a good thing) and complexity (not such a good thing) to your client’s decision-making. Policy names (Adjustable, Flexible and […]

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by Manish Bhatia January 25, 2016 Guest Articles

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Using a Testamentary Letter to Explain Your Estate Plan

by Robert Lynn January 20, 2016 Beneficiary

Your estate plan likely includes formal documents (a will, perhaps one or more trusts) that direct transfers of your property when you die. But those documents won’t identify each and every item to be transferred. […]

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The Missing Will

by Manish Bhatia January 11, 2016 Beneficiary

The Missing Will Do you know where your original Will is located? You should, and so should your executor. The dilemma of a missing original Will has come up in the death of Melissa Mathison, […]

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Inflation Adjustments for Estate and Gift Tax Annual Exclusion Amounts

by Jamie Held January 10, 2016 Taxes

In case you missed Internal Revenue Bulletin 2015-44, the 2016 inflation adjustments pertaining to estate planning are as follows: The gift tax annual exclusion remains at $14,000 for gifts made in 2016. The generation-skipping transfer (GST) […]

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