If you own life insurance policies at your death, the proceeds will be included in your taxable estate. Ownership is usually determined by several factors, including who has the right to name the beneficiaries of the proceeds. The way around this problem is to not own the policies when you die. However, don’t automatically rule out your ownership either.

And it’s important to keep in mind the current uncertain future of the estate tax. Currently, an estate is subject to tax when it exceeds $5,490,000. If the estate tax is repealed (or if someone doesn’t have a large enough estate that estate taxes are a concern), then the inclusion of your policy in your estate is a not an issue. However, there may be nontax reasons for not owning the policy yourself.

Plus and minuses of different owners

To choose the best owner, consider why you want the insurance. Do you want to replace income? Provide liquidity? Or transfer wealth to your heirs? And how important are tax implications, flexibility, control, and cost and ease of administration? Let’s take a closer look at four types of owners:

1. You or your spouse. There are several nontax benefits to your ownership, primarily relating to flexibility and control. The biggest drawback is estate tax risk. Ownership by you or your spouse generally works best when your combined assets, including insurance, won’t place either of your estates into a taxable situation.

2. Your children. Ownership by your children works best when your primary goal is to pass wealth to them. On the plus side, proceeds aren’t subject to estate tax on your or your spouse’s death, and your children receive all of the proceeds tax-free. On the minus side, policy proceeds are paid to your children outright. This may not be in accordance with your estate plan objectives and may be especially problematic if a child has creditor problems.

3. Your business. Company ownership or sponsorship of insurance on your life can work well when you have cash flow concerns related to paying premiums. Company sponsorship can allow premiums to be paid in part or in whole by the business under a split-dollar arrangement. But if you’re the controlling shareholder of the company and the proceeds are payable to a beneficiary other than the business, the proceeds could be included in your estate for estate tax purposes. Furthermore, a business cannot deduct premiums paid on a life insurance policy (even though they are otherwise deductible as a trade or business expense) if the company is directly or indirectly a beneficiary under the policy and the policy covers the life of a company officer or employee or any person (including the company) with a financial interest in the business.

4. An ILIT. A properly structured irrevocable life insurance trust (ILIT) could save you estate taxes on any insurance proceeds. The trust owns the policy and pays the premiums. When you die, the proceeds pass into the trust and aren’t included in your estate. The trust can be structured to provide benefits to your surviving spouse and/or other beneficiaries.

Contact us with any questions. We would be happy to work with your insurance agent in structuring the ownership and beneficiary designations for your life insurance policies.


If your estate plan includes a Revocable Living Trust, it’s critical to ensure that the trust is properly funded. Revocable Living Trusts offer significant benefits, including asset management (in the event you become incapacitated) and probate avoidance. But these benefits aren’t available if you don’t fund the trust.

The basics

A Revocable Living Trust acts as a will substitute, although you’ll still need to have a short will, often referred to as a “pour over” will. The trust holds assets for your benefit during your lifetime. The "pour-over" will serves as a safety net to "catch" assets that may not have been transferred to your Revocable Living Trust during your lifetime and directs them, through the probate process, to your Revocable Living Trust. If you have minor children, the pour over will is the document in which you can name guardians and conservators for your children.

You can serve as trustee or select someone else. If you choose to be the trustee, you must name a successor trustee to take over as trustee upon your death, serving in a role similar to that of an executor.

Essentially, you retain the same control you had before you established the trust. Whether or not you serve as trustee, you retain the right to revoke the trust and appoint and remove trustees. If you name a professional trustee to manage trust assets, you can require the trustee to consult with you before buying or selling assets.

The trust doesn’t need to file an income tax return until after you die. Instead, you pay the tax on any income the trust earns as if you had never created the trust.

Asset ownership transfer

Funding your trust is simply a matter of transferring ownership of assets to the trust. Assets you should consider transferring to your Revocable Living Trust include real estate, bank accounts, certificates of deposit, stocks and other investments, partnership and business interests, vehicles, and personal property (such as furniture and collectibles). Consulting with your legal counsel before making such transfers is a good practice.

Certain assets shouldn’t, however, be transferred to a Revocable Living Trust. For example, moving an IRA or qualified retirement plan, such as a 401(k) plan, to a Revocable Living Trust can trigger undesirable tax consequences. And it may be advisable to hold a life insurance policy in an irrevocable life insurance trust to shield the proceeds from estate taxes.

Don’t forget to transfer new assets to the trust

Most people are diligent about funding a trust at the time they sign the trust documents. But trouble can arise when they acquire new assets after the trust is established. Unless you transfer new assets to your trust, they won’t benefit from the existence of the trust.

To make the most of a Revocable Living Trust, be sure that, each time you acquire a significant asset, you take steps to transfer it to the trust. If you have additional questions regarding your Revocable Living Trust, we’d be happy to answer them.



Estate planning typically focuses on what happens to your assets when you die. But it’s equally important (some might say more important) to have a plan for making critical financial and medical decisions if you’re unable to make those decisions yourself.

That’s where the durable power of attorney (DPOA) comes in. A DPOA appoints a trusted representative (the “agent”) who can make medical or financial decisions on your behalf in the event an accident or illness renders you unconscious or mentally incapacitated. By statute, a Durable Power of Attorney contains language that makes clear that it is "not affected by the principal's subsequent disability or incapacity, or by the lapse of time." Typically, separate POAs are executed for health care and property. In Michigan, a Power of attorney for health care is usually referred to as a Designation of Patient Advocate. Without both types of Powers of Attorney, your loved ones might be required to petition a court for guardianship or conservatorship for you, a costly and public process that can delay urgent decisions. (Depending on the state in which you live, the health care POA document may also be known as a “medical power of attorney” or “health care proxy.”)

In Michigan, a question that people often struggle with is whether a DPOA for financial matters should be springing or nonspringing.

To spring or not to spring

A springing DPOA is effective on the occurrence of specified conditions; a nonspringing, or “durable,” POA is effective immediately. Typically, springing powers would take effect if you were to become mentally incapacitated, comatose or otherwise unable to act for yourself.

A nonspringing DPOA offers two advantages:

  • It allows your agent to act on your behalf for your convenience, not just when you’re incapacitated. For example, if you’re traveling out of the country for an extended period of time, your agent under a DPOA for financial matters could pay bills and handle other financial matters for you in your absence.
  • It avoids the need for a determination that you’ve become incapacitated, which can result in delays, disputes or even litigation. This allows your agent to act quickly in an emergency, making critical medical decisions or handling urgent financial matters without having to wait, for example, for one or more treating physicians to examine you and certify that you’re incapacitated.

A potential disadvantage to a nonspringing DPOA — and a common reason people opt for a springing DPOA — is the concern that the agent may be tempted to commit fraud or otherwise abuse his or her authority. But consider this: If you don’t trust your agent enough to give him or her a DPOA that takes effect immediately, how does delaying its effect until you’re incapacitated solve the problem? Arguably, the risk of fraud or abuse would be even greater at that time because you’d be unable to monitor what the agent is doing.

In Michigan, by statutory mandate, the Designation of Patient Advocate is a springing power of attorney. According to the applicable statute:

Except as provided under subsection (3), the authority under a patient advocate designation is exercisable by a patient advocate only when the patient is unable to participate in medical treatment or, as applicable, mental health treatment decisions. The patient's attending physician and another physician or licensed psychologist shall determine upon examination of the patient whether the patient is unable to participate in medical treatment decisions, shall put the determination in writing, shall make the determination part of the patient's medical record, and shall review the determination not less than annually.

What to do?

Given the advantages of a nonspringing DPOA, and the potential delays associated with a springing DPOA, a nonspringing DPOA is generally preferable. Just make sure the person you name as an agent is someone you trust unconditionally.

Contact us with any questions regarding DPOAs.