Category: New York

James Gandolfini’s estate tax and the role of life insurance

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August 7, 2013

10:46 AM

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James_Gandolfini

James Gandolfini, actor extraordinaire of The Sopranos, who died recently of a heart attack at age 51 apparently has left his heirs subject to a sizable estate tax.  Tax experts noted that they will likely end up owing a significant amount partly due to his residing in New York.  State estate taxes vary considerably depending on which state you reside in.

I was struck by this comment in one analysis as to the very practical role of life insurance in estate planning.

At a minimum, an irrevocable trust should have been set up for Mr. Gandolfini to use to pay insurance premiums toward a life insurance policy that would have covered expected estate taxes, Mr. Wolfe said.

Gandolfini did set up a $7 million life policy for his son in a irrevocable life insurance trust (ILIT).  To give the benefit of doubt, he may of set up others. Life insurance is not required to be in the public domain of probate. One lesson to come out of this is to add life insurance regularly especially when remarrying and having children.  Insurability, the ability to obtain coverage, can be an issue when adding life insurance later in life. Fully underwritten life insurance involves a blood test, and depending on age and coverage amount, an EKG and medical records. In Gandolfini’s case at his age in the absence of identifiable heart disease his rate classification probably would have depended almost entirely on his weight according to the carrier’s build chart.

Estate planning with minor children makes term life insurance an option.  There’s 10, 15, 20, 25 or 30 year term depending on the age of the child and how far it is prudent to carry the coverage out.  Term is inexpensive and conversion allows on to exchange the term into a permanent policy without proof of insurabilty during the term period.

For permanent life insurance the first and foremost estate planning tool is Guaranteed No-Lapse Universal Life locking in coverage to age 120 or beyond.   For other situations and goals the options include current assumption Universal Life, Indexed UL or on the upper cash value and benefit end a Whole Life plan.

NAIC Valuation Manual for Life Insurers

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December 13, 2012

12:06 PM

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California, New York

The National Association of Insurance Carriers (NAIC) has adopted a new life insurance valuation manual.  LifeHealthpro has a good overview.   It has not been implemented yet, not by a long shot. The process has similarities to amending the US constitution where a percentage of states have to ratify the changes, but in addition the state’s size matters.  42 states and 75% of written life premium in the United States are needed for it to be instituted.  Since New York and California have objected, and their share of written premium is a sizable, the outcome of this is still in considerable doubt.  What is revealing are some of those objections.  From the LifeHealthpro (emphasis mine):

Critics said passing it would be a failure of state regulation, with New York’s Deputy Insurance Superintendent and General Counsel Robert H. Easton arguing that PBR will lead to lower reserves “in the aggregate” at a time when the economy is still fragile, when interest rates are low for the foreseeable future and, most interestingly, when Easton said some carriers are “facing stress” because of guarantees currently on their books. Easton did not elaborate on who those companies are and how stressed they may indeed be.http://publish.lifehealthpro.com/vendor/tinymce/jscripts/tiny_mce/themes/advanced/img/trans.gif

Critics and some concerned state regulators also raised the state resource issue for implementing and understanding the new models with all the training necessary, most explicitly described by California Insurance Commissioner Dave Jones.

“There is no fiscal analysis now. We have no idea what this will cost,” Jones said. “It requires a different skill set to look at these black boxes,” said Jones, who discussed all the unknown and known resources and expertise needed at the state level.

From the Wall Street Journal:

Benjamin Lawsky, superintendent of the New York Department of Financial Services, had urged fellow regulators to vote no in a letter dispatched last week.

“The insurance industry weathered the financial crisis well precisely because of the careful reserving state regulators have historically required,” Mr. Lawsky said Sunday. “To ignore the lessons of the financial crisis and deregulate the industry, allowing them to keep less in reserves, is unwise.”

The jury as to the merits of the change is still out in my mind.  To be objective requires an in depth evaluation of the proponents reasoning for the change as well as the validity of the objections, but I tend to be skeptical given what happened to AIG and the causes of The Great Recession.

image source: Wikimedia Commons

More Beneficiary Information Now Required by New York

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December 5, 2012

1:35 PM

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New York

New York now requires the address and phone number of all beneficiaries for life insurance applications.  Called Regulation 200, it applies to all life policies and annuity contracts issued or delivered in the state of New York.  This is a valuable consumer protection.  If policy holder dies, it makes it harder for beneficiaries to collect on their claim if there are unreachable, and especially problematic if the beneficiary is unaware that the life policy exists.

Any life insurance applicant or policy holders regardless of where they live should heed New York’s higher standard.  Carriers applications vary as to how much beneficiary information they request, and often it is minimal.  The basic is merely the beneficiary’s name and relation to the insured.  Genworth is more comprehensive; they also request the address, social security or tax identification number and date of birth.  None that I know of have prior to New York’s ruling asked for the beneficiary’s telephone number, though the way people change numbers, it’s doubtful how useful that information will be years or decades from now.  The worst offenders for omitting beneficiary information are simplified issued whole life plans, also called final expense plans.  Many of these only request the primary beneficiary’s name, and don’t even ask for a contingent beneficiary.

Whatever is requested on the application, the insured should provide the agent and carrier with as much information as possible, and update beneficiary information when changes occur.   Many life insurance death benefits languish unclaimed because of lack of contact information.  Having been taken to task and fined for now doing so, carriers are required to make a more concerted effort to initiate death claims and notify beneficiaries. But if the policy owner dies and the beneficiaries are unaware of the policy’s existence what little contact information the carrier has will probably be outdated and cause the death benefit to go unclaimed.