What Kind Of Life Insurance Should Your Client Buy?
My clients always ask me, as their attorney, the same two questions about life insurance: First, how much do I need? Second, what kind should I buy?
I think most attorneys will offer suggestions about the amount, particularly because determining and solving liquidity needs is an essential part of estate planning. Nevertheless, I do not pretend to know as much about insurance products as someone who makes his or her living wholly by answering such questions.
So, when it comes to the type of policy, in particular, I always defer to the agent.
But I still listen to the agents answers about what kind of product to buy. Sometimes I think the answer is wrong. Then, as the clients attorney, I will engage the agent in a critical analysis of the recommendation, to assist the client in evaluating it.
Often this exchange with the agent entails no more than presenting my understanding of the clients needs and personal preferences, so that I can be sure everything is properly considered.
Agents should not feel challenged when attorneys take this approach. It is simply part of the attorneys responsibility to the client. And the process can be very educational for everyone concerned.
Where my own clients are concerned, Ive concluded that, when they are considering what type of policy to buy, the most important factor to examine is the clients tolerance for risk.
Risk must be considered today not only in the policy features and projected benefits, but also in whether the proceeds will in fact be needed for liquidity purposes at death.
Before the new tax law was enacted, we did not have to consider whether there would be an estate tax law at the time of death; we knew that the law would exist, and planned to avoid it. But, now, due to the new law, this is infinitely more difficult. In fact, its all but impossible.
There is really no effective way, in my opinion, to plan for the estate tax exemption equivalent to rise from $675,000 this year, to $3.5 million in 2009–and then for the estate tax to disappear for one year–and then (due to the sunset provision discussed below) for the estate tax to be reinstated in 2011 at the levels it would have been at had the tax reform bill never been passed. Those are three distinctly different scenarios.
Like most other commentators, I do not think the current tax reform law will last very long in its present form. The tax code has been changed literally thousands of times in recent years. In addition, even if the budget surplus works out according to projections, there will not be much money left for Congress to spend.
If revenues do not meet projections, which already appears to be happening, there will be even less money available. I do not believe that Congress will tolerate not having money to spend for very long. In that case, the temptation to raise taxes– estate taxes–may be compelling.
As a result, at our law firm we have been advising clients to focus on the next three or four years, without being able to plan effectively past that point.
