The Importance of Life Insurance in NJ Estate Planning

nj estate planning

If you have people relying on you, no doubt you have spent some time thinking about how to protect them in the event that something happens to you. In order to create a solid estate plan, life insurance should be a component of providing security for your loved ones even after you’re gone. Most life insurance policies fall into two categories: term life insurance and whole life insurance. How do you know which life insurance plan is best for you?

  • Term life insurance is only in effect for a specified period of time.
  • Whole life insurance covers you until death no matter when that is.

You’ll pay lower premiums for term life insurance than for whole life insurance. Other things to consider when selecting a life insurance policy include:

1. How much coverage do you need?

The end goal of term life insurance is to substitute the income you would have provided your family with. If you live past the coverage period of the policy, you receive nothing. Most policies cover for 10, 20, or 30 years. The premium (payment) for a term life policy is static throughout the life of the policy and is based on your age, health conditions, and lifestyle. Regarding term life insurance, the insurance company is betting that you will outlive the policy and they will not have to pay anything to your beneficiaries. Hence the lower premiums.

2. What kind of payments can you afford?

Whole life policies, on the other hand, are more complex. Because there is an absolute value and guaranteed payout for every policy, premiums are much more expensive. Insurance companies cannot gamble on whether or not they will have to pay out for your policy—they know they will have to.

3. How is your general health?

4. Do you make relatively smart lifestyle choices?

5. Do you want the option to borrow from your insurance policy?

Often, a complete health and wellness exam is required before an insurance company will issue a whole life policy. With whole life policies, part of the money you pay in premiums will go directly toward the value of the policy itself. This is your money. If you cancel the policy, you would still get some money back. While it will diminish the death payout of the policy, you can even borrow against a whole life policy.

6. What is your relationship status?

7. How much debt do you have?

If you are single, debt-free, and dependent-free, you probably don’t need life insurance at all. For most of us, this isn’t the case. Ask yourself what problems may arise if you were to die today. For instance, if you still have 20 years left on your mortgage, you might want to consider a term life insurance policy for 20 years so you know your mortgage will always be covered. On the other hand, if you have a lifelong dependent who requires constant care, setting up a whole life policy to cover their long-term care is probably the better choice.

8. How old are you?

Some people decide to invest in both a life and a term life insurance policy. When you’re younger, you may not be in the financial position (or have the need) to pay the premiums for whole life insurance. Many life insurance companies allow you to convert your policy from term to whole life as your circumstances change and as you age. Your new premiums would be based on your age when you convert. You may have to submit to a new medical exam, but by converting, you can benefit from lower premiums when you are younger while still putting money toward (what will become) a whole life policy to cover you later in life.

Estate planning, and life insurance in particular, can seem like intimidating tasks, but they don’t have to me. Veitengruber Law offers long-term planning guidance for all stages of life. We believe in utilizing personalized strategies to help our clients protect themselves and their loved ones. Schedule your free consultation to discuss all of your estate planning concerns.

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What are Creditors Entitled to After my Bankruptcy Discharge?

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You received your bankruptcy discharge – congratulations on a fresh financial start! Ridding yourself of the debts that were weighing you down can be extremely liberating and is cause for a gigantic sigh of relief.

After your debts are discharged,  there are still certain protocols to follow so that you don’t make an expensive mistake. These rules were created to prevent bankruptcy fraud. For example, a debtor cannot give someone a large sum of money that they will then retrieve after the case is over. The reason for this would be to hide money from the trustee so that it cannot be used to pay creditors. That is a blatant example of bankruptcy fraud, and any debtor who attempts to outsmart the bankruptcy court in this manner has little chance of “getting away with it.” Punishment for bankruptcy fraud is harsh.

There are certainly situations that arise naturally, are totally unplanned, and involve a (former) debtor legally coming into money after their bankruptcy has been discharged. In this case, there are some time limits set to further prevent foul play:

  • Inheritance – If someone close to you passes away within 180 days of the date on your bankruptcy petition, you are obligated to alert the bankruptcy court and that money will then go to your creditors. This rule was instated to prevent people from filing for bankruptcy when they knew someone close to them was on their death bed. By filing for bankruptcy before their death, the inheritance money would be protected and the debtor would have essentially scammed the system. Creepy and illegal.
  • Insurance proceeds – The same rules apply to life insurance proceeds that you become entitled to within 180 days of filing for bankruptcy. It is imperative that you keep careful track of the specific dates of important events surrounding your case. The important date in this case is when your family member or loved one passed away and you became entitled to any life insurance proceeds. If the date of death is within 180 days of the date that you filed for bankruptcy, the life insurance money will go to paying off your debts.
  • Lawsuit settlements – All of your legal claims and lawsuits pending must be listed in your bankruptcy paperwork. If you receive a payout from a lawsuit you initiated before you filed for bankruptcy, that money will generally become part of your bankruptcy estate and will go towards paying your creditors. In New Jersey bankruptcy cases, you can choose to follow either NJ or federal exemption guidelines. NJ exemptions allow you to keep $1000 of any money received via lawsuit. Federal exemptions regarding lawsuit settlements during bankruptcy can be found here.
  • Divorce settlements – While child and marital support obligations will not be affected by a bankruptcy (filed by either spouse), part or all of the marital property settlement, if established within the 180 days following the initial bankruptcy petition, may be liquidated and used to pay your (or your spouse’s) creditors. Your divorce lawyer should discuss the specifics of this with your bankruptcy attorney to ensure that you and your ex-spouse are able to keep as much of your marital assets as possible.

Always consult with your bankruptcy lawyer if you have any questions about the rules following your bankruptcy discharge to ensure that you make wise decisions that won’t end up costing you a significant amount of money.

Image credit: Investment Total

 

My Husband Never Listed Me on his Life Insurance Policy!

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Losing your spouse or significant other can become an even more painful life event if you discover that you are not named as the beneficiary on their life insurance policy.

Naturally, the passing of someone near and dear to your heart may not initially strike up thoughts of money. However, if you were dependent on the departed’s income in order to pay your bills and maintain your lifestyle, your attention will undoubtedly turn to the life insurance policy rather quickly.

Unfortunately, all too often, policy holders fail to update their beneficiary information after a significant change in life circumstances. This mistake can lead to great complications for those left behind, and is an error that can very easily be avoided.

A famous example of a life insurance mishap began almost a decade ago when Warren Hillman passed away unexpectedly. Although he had been married to his current wife for six years, his life insurance beneficiary information did not reflect that fact.

Having never updated his beneficiary form when he re-married, Hillman’s ex-wife was still listed as his beneficiary. Hillman hailed from Virginia, which, like New Jersey, is not a community property state. As such, his widow had little claim to the life insurance policy since she wasn’t named as beneficiary.

If you do live in a community property state, you and your spouse are considered to be equal owners of any and all income that both of you earn during the time of your marriage. Additionally, when your joint income is used to purchase something – you both automatically become joint owners of what was purchased – including life insurance policies. Even if your beneficiary forms aren’t up-to-date, your current spouse is entitled to receive life insurance benefits under community property law.

For spouses who live in non-community property states like New Jersey, life insurance beneficiary laws can be a little bit sticky, as Warren Hillman’s case exemplified. Even though his ex-wife remained listed on his life insurance policy, New Jersey law statute N.J.S.A. 3B-3:14 specifically states that a Final Judgement of Divorce between two parties shall automatically revoke either party’s right to receive the other’s life insurance benefits, even if they are named beneficiary when the other party dies.

This statute was put into place in NJ and other non-community property states precisely because of ex-spouses who forgot to update their paperwork after their divorce. Unless specifically stated in the couple’s Property Settlement Agreement, ex-spouses would no longer be entitled to each other’s life insurance benefits according to N.J.S.A. 3B-3:14.

However, in the case of Warren Hillman and many like him, his life insurance policy was initiated while he worked for the federal government. The Federal Employees’ Group Life Insurance Act goes against what is set out in any state laws like N.J.S.A. 3B-3:14 and states that the person listed as beneficiary at the time of death shall receive the life insurance benefits. Because of the ‘Supremacy Clause,’ federal laws always supersede state laws if there is a contradiction.

In the case of Warren Hillman’s widow, she did not receive any life insurance benefits. The Supreme Court ruled in favor of the ex-wife who was listed as the beneficiary.

Do you have up-to-date Estate Planning paperwork? Making the appropriate designations is crucial if you have had changes in your life that warrant doing so. If you need help making the necessary changes or if you want to prepare your first estate plan (will) – contact our New Jersey law office today. Consultations are free, and our results are priceless.

Image credit: Marleah Cole