Life Insurance 101

Let's Talk about life Insurance 101
By Alan Orlowsky

Generally Speaking there are two types of Insurance: Term Insurance and Permanent Insurance.

Term Insurance provides a death benefit for a period of time in exchange for a premium payment. The minimum term available is usually one year. Generally, term insurance is inexpensive at younger ages and becomes more expensive as the insured gets older.

Annual renewable term was historically used to cover a risk that is limited in duration, and where low cost in the early years is a driving factor in the choice of insurance. Candidates for this type of coverage could include: young people just starting out: entrepreneurs obligated to provide coverage as additional security on a short term bank loan; or business owners with limited current cash flow.

The disadvantage to using term insurance is that sooner or later the term ends. If insurance is desired after the term, new insurance must be applied for. If health has become an issue in the intervening years, replacement insurance must be applied for. If health has become an issue in the intervening years, replacement insurance may either be very expensive or in some situations, not available at all. For this reason, many companies created a term insurance product that provided a contractual right to convert to a permanent insurance product, sometimes without any additional medical underwriting or exams.

The Second major category is often called "Permanent Insurance", although not all permanent insurance is the way most people think of that word.

Historically, permanent insurance meant whole life insurance. This type of Insurance really was designed to be permanent. The insurance company calculated the amount of premium you would need to keep the policy in force until age 100.

Basically, the insurance company combined a term insurance product with a savings account. Each year as you built up more and more money in the savings account, the amount of term insurance in the contract decreases until age 100, when the amount in the savings account was designed to be equal to the death benefit. Premiums for whole life insurance tend to be the highest of all types of permanent insurance.

This type of policy is often used in Business Law, and business situations to address a buyout of a co-owner in the event of disability or retirement, because the cash value in the policy over time functions as a sinking fund. The longer the business operates, the greater the value and buyout obligation. This increase can be matched by the increasing cash value in the policy. Of course the death benefit function where one of the partners dies.

The disadvantage to whole life insurance is usually the cost relative to the death benefit. For this reason, a combination of term and whole life is often recommended so that both the need to provide protection for a period of time (term insurance) and the need to have cash savings (whole life) can be met. Because this is a compromise, neither goal can be fully met, but often you will achieve a satisfactory results.

For those with a need for insurance, coupled with a desire for higher investment returns than usually seen in life insurance policies, there exists the variable universal life contract and has lots of flexibility.

One key difference is that the owner of a variable life insurance policy can invest cash value in a vast array of sub-account portfolios, thereby having the possibility of benefiting from increases in the stock market. If the market does well, these gains can outpace the returns normally seen in a life insurance policy, resulting in a higher cash value of lower premiums or both.

Your advisory team, especially your life insurance agent or financial planner will be able to answer any questions you may have.

If you have questions about this post or about a particular legal situation, please contact Alan Orlowsky by calling 847-325-5559. http://www.orlowskywilson.com

The ABC's of Michael Jackson's Last Will

Let's talk about The ABC's of Michael Joseph Jackson's Last will and testament. A Legal look.
By Alan Orlowsky

For years we have all have been witness to the drama surrounding the death of Michael Jackson. His personal life, played out on the public stage, was by any reasonable standards as bizarre as it was tragic. However, notwithstanding his failings of character and eccentricities, he died a very wealthy man, was revered by many and possessed the common sense to reduce his testamentary wishes to paper.

Unlike many "relatively normal well adjusted" entertainers, Michael "got it" and understood that he needed to prepare a Will to protect his family.

So, what did Michael´s Will state? What did he declare therein to protect his family and perpetuate his legacy that we can learn from? And how did he overcome the psychological hurdle of confronting his own death when most other mortals could not?

The ABCs of the Will of Michael Joseph Jackson

What was declared therein and the filing thereof are as follows:


A. Michael´s Will was filed in the Superior Court of California, County of Los Angeles on July 1, 2009, shortly after his death on June 25, 2009. Upon filing it was made public to the whole world!

B. Publication of the Will was immediately requested so that the statute of limitations for contesting such wills would immediately begin to run, thus barring claims against the estate as quickly as possible.

C. Surety Bond was waived by the Will and, hence, not required, perhaps saving the estate from tens of thousands of dollars of unnecessary bond premiums.

D. Michael appointed 3 individuals as co-executors, namely, John Branca, John McClain and Barry Siegel. Only McClain now acts as executor.

E. Michael was a US citizen and a resident of California at the time of his death, although he spent most of his time out of country.

F. Paul Gordon Hoffman, Attorney filed the Will.

G. Character and estimated value of the property of the Estate were reported as follows: "The petitioners are not certain of the value of the Estate. Petitioners believe that the value of the Estate exceeds $500 million. Petitioners believe that almost all of the Estate consists of non-cash, non-liquid assets, including primarily an interest in a catalogue of music royalty rights which is currently being administered by Sony ATV, and interests in various entities. Petitioners do not have any information at this time regarding the liquid assets of the Estate."

H. Michael was divorced and had no registered domestic partner.

I. Michael declared 3 children, natural born or adopted, namely, Prince Michael Jackson, Jr., Paris Michael Katherine Jackson and Prince Michael Joseph Jackson, II.

J. The entire estate was given to the Trustee of the Amended and Restated Declaration of Trust executed on March 22, 2002 and named the "Michael Jackson Family Trust."

K. Michael specifically excluded his former wife, Deborah Jean Rowe Jackson, from taking under the estate.

L. Katherine Jackson, Michael´s mother, was named guardian of his children and Diana Ross successor guardian.

Was Michael´s Will well drafted?

In my opinion... yes!

It has served him well by providing for the transfer of his assets to his Family Trust, by providing that his trusted mother be appointed guardian of his children and, so far, by withstanding attack from outsiders. Also, since Trusts are not subject to public scrutiny, Michael was able to keep the disposition of his estate free from the public eye. One omission I am able to infer from the filing of the Will is the failure by Michael´s attorney to have re-titled his considerable assets in the name of his Family Trust prior to death...a common mistake which not only subjects estate assets to potentially costly probate proceedings, but also to otherwise avoidable public view.

What we learn from Michael´s Will is that good planning can prevent a clash of family members and outsiders who may otherwise have pitted themselves against each other in order to lay claim to Michael´s considerable estate and to the custody of his beloved children. Clearly, millions of dollars were saved and lengthy litigation avoided because Michael planned.

Why did Michael plan while many others fail to do so? Maybe Michael understood the fragility of life and was not in denial about his risky behavior. Perhaps Michael had a death wish or just wanted to protect his children. Perhaps he had a proactive attorney who made it crystal clear that catastrophe would ensue if he suddenly died having failed to plan. We will never know for sure his reasons for planning, but you can take a cue from his forward thinking and establish a plan to protect your family as well as he protected his.

If you have questions about this post or about a particular legal situation, please contact Alan Orlowsky by calling 847-325-5559.

When is it time for a Estate Planning Review - Lincolnshire IL

Let's talk about when is a good time for an Estate Planning Review.
By Alan Orlowsky

John and Kathy thought they had their Estate Planning in order as they reached retirement. They worked with an attorney who created a Living trust for them, as well as completed all the other estate related documents. As the years went on they purchased another home in Wisconsin to spend their final years together. Unfortunately they didn't give a second thought to revisiting their entire Estate plan. When they passed away, assets were passed nicely and with a minimum  of complication and expense because of their previous estate planning, all except the property in Wisconsin. Because the property was not funded  into their living trust the real estate had to go through Probate, which meant significant additional expense and inconvenience to the family.

Our clients want to make sure that their plans take advantage of all lifetime benefits and also make estate administration as simple and cost effective as possible. The best way to do this is to make sure you keep your plan documents up to date. Failure to do so can be a very costly mistake.

Estate Planning is more than just planning for death. Lets take a look at some life changing events that might cause you to review your current Estate Plan.

• A Move to another State
  

For many clients, a move to a new state should trigger an estate plan review. Will you be a permanent resident? Will you be part time? The answer to these questions and others will determine your legal residency and control such things as state income tax, inheritance tax and other issues about administration of your affairs if you become disabled or die. The rights of your spouse and the rights of your children may change along with a change of address. Assets may need to be re-titled in order to make sure your wishes are accomplished. Important benefits may be lost as a result of a move to a new state.

• Divorce or Remarriage

Most state laws have provisions for cancelling out bequests to ex-spouses after divorce. But that may just be the beginning. It is also important to check beneficiary designations on other assets such as:

- Life insurance, both individual and group policies,
- Retirement plans like IRAs, 401(K)’s, and
- Annuities

Divorce also means the loss of important tax deferral advantages which could mean a significant estate tax due at death. This is also a good time to re-think the overall distribution scheme of an estate plan. All good reasons for a review.

• Buying a Second Home

Buying a second home is another cause for an update. How you own the property (in trust, in an LLC, etc.) can affect issues such as state taxes and transfer costs. Liability protection may also be at issue if the property will be rented out from time to time. Also, thinking about how to pass the property to heirs becomes important. Do your children want to keep the second home after you die? If so, how will they deal with maintenance costs, repairs and use? Will you set up a separate fund? Will all of your children be able to afford their share of the costs? All of these issues can be explored and dealt with in a review.

• Changes in the Tax Code

For larger estates, a changing tax code is reason enough to keep your plan updated. Over the last 10-12 years, there have been numerous tax changes. And now, it looks like the old estate tax will come back into play in 2011 and most clients with $1,000,000 or more in assets will need substantial review.

• Selling or Buying a Business

In many ways, selling a business makes estate planning easier, since you now are dealing with a liquid asset (sales proceeds) as opposed to a non-liquid asset that may be hard to divide among family members. This means that current provisions concerning ongoing operations of the business may no longer be applicable and should be reviewed.

Buying a business will also trigger the need for a review. Depending on the type of business and the involvement of other family members, you may need to update your basic documents as well as deal with business succession and buy-sell issues. Lack of liquidity may now be an issue and you may want to consider adding life insurance to your estate planning picture in order to provide liquidity for estate equalization, debt repayment or estate tax. Finding the most tax efficient ownership structure for life insurance is another reason for an update or review.

• Winning the Lottery

Of course winning only happens if you play. For those who do play and win, issues such as lump sum payouts versus lifetime payouts, estate taxation, privacy issues and investment analysis all now come into play. In most cases, a substantial lottery award will necessitate a complete restructure of your estate plan.

• Changes in the Law

Sometimes laws change at the federal or state level which requires a review of your estate plan. Over the past several years, changes to HIPPA privacy laws have been enacted which impact your health care power of attorney documents. Various changes in laws at the state level affect estate taxation. All of these changes suggest a review.

• Additions to your Family
  

In many cases, new additions to your family will be handled by your existing estate plan. In cases where you may have made special arrangements for children or grandchildren, you will want to set a review to make sure that all is being handled properly.

• Death in your Family

Like divorce, the death of a spouse can mean a major change to your estate tax picture. In the event of the death of another family member, you will want to double check that your distribution scheme continues to work the way you want it to.

• A Family Member has become Dependent on You

Numerous families are now dealing with the issue of aging parents. Some have taken over the role of key care-giver and need to make sure that if something happens to them, alternative plans are in place for looking after an aging or ailing parent. This could include things like a specific carve out of assets for parents or creation of a detailed successor care-giver structure.

• A Substantial Change in the Value of your Assets 

Successful business owners or real estate developers will see long term growth in their asset base. For others, this growth can occur overnight. Either way, changes in net worth should trigger a review to make sure that value is maximized and that assets go to the right place with a minimum of tax.

• You Receive a Sizable Inheritance or Gift
  

Of course, another way your net worth can increase is as the result of a substantial gift or inheritance. Like a lottery winner, such increases tend to happen overnight and tend to make reviews and updates very important.

• You are Retiring

Estate planning and financial planning are subjects that become particularly important at retirement. Beneficiary designations, decisions on withdrawals from retirement accounts as well as many other issues are key factors triggering the need for an update.

• Purchase of Life Insurance or Changes in Insurance Coverage

Life insurance is one of the most effective tools available in estate planning today. As such, it is important to track the performance of these policies and make sure that items such as ownership and beneficiary designation stay current. Estate tax issues may also come into play. Life insurance changes can often be overlooked, especially when the change is due to a new job and a new benefits package.

• Death or Change of an Executor/Trustee/Guardian

The people you name for these positions are most often chosen for their relationship, specific skills and abilities. A change in your relationship with them or in their ability to serve will mean a need to update.

If you feel it is time to review your estate plan, please feel free to visit our website or contact us today for a consultation.

If you have questions about this post or about a particular legal situation, please contact Alan Orlowsky by calling 847-325-5559. or visit our website www.orlowskywilson.com

What is a IDR Audit?

Lets Talk about IDR Audits, and the Illinois Department of Revenue. By Alan Orlowsky

IDR stands for Information Document Request, IRS Form 4564.
It is a form that the IRS uses during a tax audit to request information from the taxpayer. Tax Litigation lawyers spend a lot of time thinking about how best to respond to IDR's in a way which is most appropriate, and does not reveal any information that is covered by attorney client privilege.

You have the right to fair and equitable treatment if your account has been selected for audit. Since the audit function is to determine whether the correct amount of tax has been reported, we are willing to acknowledge tax over payments or errors on our part as we are also able to recognize under payments. We may ask you to provide additional information to verify amounts shown on your returns. You have the right to know why the Department of Revenue is asking for information, how that information will be used and what will happen if you do not furnish the information. If you have questions about any of these please contact Alan today for a consultation.

Let's also talk about IL Department of Revenue Hearings, Audits or Determinations of Liability:

Whether it's a Payroll, Sales, Business Income Tax, or Personal Income Tax issue that you might have with the Illinois Department of Revenue (IDOR), there is a good chance Orlowsky & Wilson can help. We assist clients in Illinois Department of Revenue Audits and challenging tax liability assessments and or determinations. The typical IDOR audit involves a face to face meeting with a IDOR auditor. if you receive a Tax audit letter from the department of Revenue, you should examine your records to determine the nature and extent of the tax audit issue. While it is possible that IDOR will want to audit the entire tax return for a given year or years, more frequently the department of revenue will focus on a certain portion or schedule of certain tax years.

Often clients seek assistance before the hearing stage. We advise that you secure legal or other representation prior to this. Ideally, you should secure assistance in the way of representation as soon as you are contacted by the Illinois Department of Revenue. In most cases where things have progressed to the hearing stage, there has typically already been an audit or determination of liability  has already been entered against a tax payer or "responsible corporate officer." Alan Orlowsky has represented numerous clients in such hearings. If you have an IDOR hearing coming up, you should contact Alan immediately to find our what rights you might have.

If the issue concerns supporting documentation or alleged lack thereof, then you should send IDOR copies of any and all appropriate documents. Do not send originals to IDOR as there is no guarantee that they will return the documents to you. Additionally, originals might get lost in the mail or at the IDOR offices. If the tax notice questions whether you are entitled to a tax deduction or questions a tax position taken on the tax return, you should consult your tax adviser before responding to or submitting any documentation to IDOR. While a quick, satisfactory explanation can end the matter swiftly, there is no guarantee. Regardless, it is important to correspond with the IDOR in writing whenever possible. You should not delay in seeking assistance, legal or otherwise, in your IDOR matter. In some cases, the Department of Revenue can and will record liens against property or even levy wage garnishment against taxpayers.

If you have questions about this post or about a particular legal situation, please contact Alan Orlowsky by calling 847-325-5559 or visit or website at http://www.orlowskywilson.com

5 Common & Costly Estate Planning Mistakes Northbrook IL

Let's talk about the 5 most common Estate Planning mistakes that can annihilate your business and Personal Finances.By: Alan Orlowsky

The honest unvarnished truth is that the vast majority of business owners and individuals fail to take simple precautions and preserve their personal and business wealth. Regardless of the value of your assets, they can be protected from unforeseen or even foreseeable  business and personal risk. Catastrophe may occur unexpectedly and can annihilate even the best run business and personal financial portfolio. Many businesses today are implementing "Asset Protection Planning Strategies" that will insulate their economic interests from events beyond their control that could otherwise lead to economic annihilation! As a practicing attorney with over 25 years experience, I have witnessed firsthand how little or not asset protection can lead to catastrophic results. With the use of basic asset protection strategies you can avoid the pitfalls of financial ruin.
Here is the 5 most common asset protection planning mistakes I see individuals and business owners make:

1) Failure to legally separate business from personal assets.

This mistake is made all the time and allows a business creditor to attack the personal assets of a business owner and his or her spouse. Many business owners erroneously believe they are protected by their companies shield when in fact they are not. Avoid this mistake and you just might avoid a personal Waterloo.

2) Failure to have or maintain required corporate legal records.

Time after time I see business owners who fail to expend the resources to create and maintain their corporate records. People are notoriously pound wise and penny foolish and just don't want to expend the time or finances engaging an attorney. In the long run failure to do so can lead to economic devastation. You only need good and up to date corporate records in order to protect your business, and sometimes your personal assets.

3) Failure to hire a good attorney.

Failure to hire a good attorney to navigate you through a virtual maze of rules and regulations is like rafting down the Amazon River in an inner-tube! Again, I have seen "Do it yourself" business records, contracts and paperwork lead to huge financial problems. I advise my clients that it is always more cost effective to hire me on the front end and prevent a legal problem, then to hire me later to fix it.

4) Unnecessarily having a spouse take on business liability exposure.

It is not an honor to be an officer or director of your spouse's company.....but in fact it is an obligation! Involvement in your spouse's business exposes you to lawsuits  bank obligations and worst of all, Federal and State obligations. Such exposure also violates one of my most sacrosanct rules.....Keep Marriage Our of Business!


5) No Estate Planning.

There is no easier way to ruin your Family's future than by failing to have a Will and Trust and the planning that accompanies them. There can be huge business and personal problems caused by an unplanned death. A few examples are:

• Forced Sale of a business to a surviving partner
• Loss of income for surviving family members
• fighting among siblings for control of family assets
• squandering a lifetime of your hard work 
• Government involvement and taxes

If you have a business, investments and a family and you wish to protect against the harsh realities and consequences of an unforgiving world, you must engage in at least the basic asset protection strategies that are available. Nobody can go it alone, so you will need to fire trained professionals to build the firewalls required in a risky and unpredictable world.

If you have questions about this post or about a particular legal situation, please contact Alan Orlowsky by calling 847-325-5559 or visit our website: http://www.orlowskywilson.com

Family Disputes over Inheritance - Lincolnshire IL

 

Lets Talk about how to avoid Family Fights over inheritance.
By: Alan Orlowsky

An elderly woman on her deathbed has an estate worth $500,000. She has three children and a will stating each child will receive 33 percent of her assets after her death. The situation seems simple enough: the woman has a legal document in place, a will that contains specifics on how she wants her estate to be passed along to her children. The issue is according to some estate planning experts, this woman's death could kick off a long and expensive legal process that often turns ugly. Fights over inheritance can cause rifts in families that are sometimes impossible to heal.

"Family fights among children after death occurs in a large percentage of families" says Tim O'Sullivan, a partner and estate planning attorney at the Foulston Siefkin law firm. O'Sullivan went on to say "If the number 1 goal is to create family harmony, then the estate plan ought to be designed in a way that preserves it. It's so sad to see what happens in these situations."

To prevent this kind of conflict, more sophisticated legal arrangements are necessary. Even for people with modest wealth, advanced estate planning can help ease resentment during a painful time.

A will is essentially powerless until a family enters a process known as probate. Probate is essentially a set of procedural law that determines what happens to someone's property when they die. All heirs named in the will are part of the process, with the will serving as a guide for a judge to determine how assets should be allocated.

This process can differ from state to state, and can take up to a year to resolve. Additionally, the Probate process is public, meaning information that families might want to stay private becomes a matter of record. An attorney needs to be appointed to handle the procedure otherwise it can lead to family disputes and could be extremely costly. There is another option, revocable trusts. 

The Revocable Trust alternative:

A revocable trust is a less-complex method of estate planning. This trust is a contract that you make to establish an entity into which you transfer title of your assets, all in your name. If you should die, the trust does not die with you. A trustee is always appointed, often times an attorney who created the trust.

In this trust you can do anything you like. Once a trustee is named, he or she can divvy up assets based on wishes of the deceased family member. This has been referred as a "probate-avoidance tool" that largely removes the potential for family infighting.

To avoid conflict, you have to have a well written Will and a Trust, with an independent third party to oversee it. Ambiguity leads to conflict and if the trust is well thought out and well written conflict can be avoided.

With a will, the families fight about who gets what. With a trust, you stay out of the court. Additionally it can be more cost effective than just having a will.

If you have questions about this post or about a particular legal situation, please contact Alan Orlowsky by calling 847-325-5559 or visit our website at: www.orlowskywilson.com 

Choosing a Life Insurance Provider - Lincolnshire IL

Choosing a Life Insurance Provider

Let's talk about Choosing a Life Insurance Provider. There are a number of factors that go into picking the right insurance company or companies for your insurance needs. The final decision will depend on what you are trying to accomplish.

Some factors that are commonly used by advisers when consulting with clients about their insurance needs include the following:


1. Rating

Ratings help in a general way to determine which companies are the strongest financially. Most ratings systems work on an easy-to-understand alphabetical structure similar to the credit markets. So a company that has a triple-A (AAA) rating is likely to be more financially sound than a company with a B rating. These ratings involve the opinions and judgments made by the ratings services.

There are 5 key rating services in the market today, including Standard and Poor's, Dun and Bradstreet, Weiss Research, Moody's Investors Services and A.M. Best. The issue is these various agencies have different scales with different letter ratings that do not necessarily correspond from one agency to another. In addition, not all insurance companies have ratings from each of the agencies.

In addition, there is a rating scale called Comdex. This places the company on a percentile ranking from 1 to 100. An insurance company with a Comdex Score of 90 would place it in the top 10% of all companies in financial strength. This percentile ranking has greatly simplified the understanding of all of the various ratings for the consumer. A Comdex score of at least 75 is desirable.

2. Underwriting

In addition to ratings, another key factor in your decision will be to look at how each insurance company rates you as the insured person. This is important because the better the rating you are assigned, the lower the insurance cost.

Some companies, often those with higher credit ratings, are very selective about who they select to insure. This results in a lower claims and higher profit for the company. Other companies specialize in insuring people with health problems. These are companies that are generally charging higher premiums to compensate for the increased risk.

If you are in poor health, your choice of carries may be limited.

3. Insurance Pricing

The actual pricing offer you receive for your insurance is also a factor in choosing a company. In larger cases, you will want to make sure that your under-witting file is seen by more than one company so that you will receive competitive bids. As long as the company with the lower premium meets the minimum rating screen that you and your adviser have established, it will make sense to go with the lowest premium possible.


4. Cost and Internal Rate of Return

A Calculation of internal rate of return (available from most companies as part of their illustration) will help you to compare one policy illustration or design with another. Because insurance costs, crediting rates, expenses, and other moving parts in an insurance contract vary from company to company, a way to compare the whole picture is to look at the death benefit at a given point in time relative to the premiums paid to that point in time. A good place to start is to look at the period of time around your life expectancy. If one policy shows that the internal rate of return (IRR) of 8.5% at life expectancy and another is showing an IRR of 6.8%, you will want to explore the policy features that are creating the difference.

In the end, your choice of companies is likely to be driven by a combination of all these factors, resulting in your choosing a company that has good ratings, offers a product that fits your needs at a price you can afford, from a company that has a good financial track record.

If you have questions about this post or about a particular legal situation, please contact Alan Orlowsky by calling 847-325-5559 or visit our website www.orlowskywilson.com.