Benefits of a Dynasty Trust

A properly executed dynasty trust will provide several advantages for trustees and beneficiaries as it can:

  • Receive cash or other assets as gifts that can be invested and/or used to pay the premiums of life insurance on the grantor and/or the grantor’s spouse;
  • Escape gift, estate and generation-skipping taxes on the assets and any growth therein (such as insurance proceeds) for the life of the trust; and
  • Maximize and leverage the available GST exemption amount, without paying gift tax, by investing in growth stocks and the like and/or by purchasing life insurance on the life of the grantor or the lives of the grantor and his or her spouse.
  • To avoid the higher income tax rates that apply to trust income, the trust can be drafted so that any trust income is taxed to the grantor while alive.
  • Another benefit of a dynasty trust is the ability to include provisions for the specific needs of children or other heirs. In essence, a grantor can include virtually any instructions in a dynasty trust, as long as the instruction is not illegal or against public policy.
  • Because a dynasty trust is irrevocable, future changes in the transfer tax laws should not affect it. Thus, the grantor is assured of receiving the benefits of the GST exemption and any lifetime exemption amounts used in funding the trust and those benefits should not be eliminated if the exemption is reduced in the future.

A Compelling Case for Long-Term Care Insurance

Why do I need long-term care insurance?

I am asked this question all the time in my practice. The fact is, 7 out of 10 Americans will need some form of long-term care in their lives. This is because no one is immune to the effects of aging.

Last month, I was interviewed Bill Kearney, host of Financial Spectrum Radio, about long-term care and why more people should consider purchasing insurance to help their families through this inevitable part of life.

Getting long-term care insurance is simple. There are lots of options and some new hybrid products that I talk about in the interview.

Give a listen to the entire interview HERE.

I also cover this topic in length in my book Disinherit the IRS.

Trusts: The Basics

A trust is nothing more than a legal document that creates a holding place for property. A trust holds temporary title to assets, which are ultimately distributed to heirs. Placing assets in one or more trusts legally separates some or all of the property rights inherent in personal ownership. These include legal title, control and economic benefit. Under personal ownership, all property rights, taxes and other obligations are vested in a single person—the owner. Under trust ownership, those rights and obligations are vested in two or more persons. Although trusts may vary according to their goals, they all have some features in common. All trusts have four parties:
1.    The grantor, trust maker or donor: the person who establishes the trust and puts assets in the trust.
2.    The trustee: the person or institution appointed by the grantor to manage the trust.
3.    The interim beneficiary: the person (or persons) who benefits from the trust during the life of the trust.
4.    The ultimate beneficiary: the person (or persons) who receives the assets at the termination of the trust.

Getting Life Insurance as an Alcoholic

This is a great article that I was recently quoted in. Contrary to popular belief, not everyone qualifies for life insurance as easily as they think.

Almost three years after treatment for a substance abuse problem and being sober, Bill Dinker has repeatedly been turned down for life insurance because he honestly answers one question.

“Have you ever sought treatment for a substance abuse problem?”

Dinker, 32, and in otherwise excellent health, says he always answers yes, and is always denied life insurance. Dinker is director of admissions at a drug rehab center in Tennessee.

“Since I have been in treatment for a substance abuse problem and try to live my life honestly, I answer yes,” he says. “Every single application I’ve submitted has been denied.”

Where there isn’t a black and white solution to getting approved for life insurance while a recovering alcoholic, there are ways that people with a history of alcohol abuse can get life insurance.

The insurance questionnaire is the first place to start. It helps determine how much alcohol a policyholder uses, with a mild to moderate alcohol user having one to two drinks per day usually not a problem, says Christopher Huntley, a life insurance agent at Huntley Wealth Insurance in San Diego. An applicant who says they have three drinks a day is getting in higher drinking territory and the questionnaire will then go deeper into their drinking habits, Huntley says.

A health exam will include a blood test to see if enzymes in the liver that show damage from alcohol are elevated, Huntley says. Such long-term damage to the liver could be from having five to seven alcoholic drinks a day for years, he says.

Brandi Jo Newman, a banking and retirement income expert, says her father died from a life of being an alcoholic and that he couldn’t get life insurance because the medical test scared him. He couldn’t stop drinking for a few days because he would get the shakes, or seizures, and he was afraid what the bloodwork would uncover, Newman says.

Going through rehab for alcohol abuse doesn’t necessarily exclude someone from an insurance policy, but it can lead to a higher rate. A standard life insurance rate can be offered to a recovering alcoholic, Huntley says, but only seven to 10 years after going through rehab. They’ll also need to not drink any alcohol at all after rehab.

For someone who has gone through rehab but has one to two drinks per day, they’ll likely get a substandard rate that’s at least 25 percent more than the standard insurance rate, he says. “That a lot more risk,” Huntley says of the rehabilitated alcoholic drinking a few drinks a day.

“Most of them will not drink — even if it’s a sip — because it’s an addiction,” he says.

For recovering alcoholics with less than five years of sobriety, most insurance companies will treat the application as “high risk” and typically decline it, says Mike Kilbourn, president of Kilbourn Associates, an insurance adviser in Naples, Fla. Some insurers may cover them with a higher premium, Kilbourn says.

“The trick to getting life insurance as a recovering alcoholic is knowing which life insurance company to apply to and avoiding some of the larger companies that are unwilling to write what they consider to be a ‘high risk’ due to a client’s past alcohol abuse,” he says.

If the applicant has stopped drinking and has a significant period of recovery, it doesn’t matter how long they were an alcoholic, Kilbourn says.

Some insurance policies, such as a final expense policy, are available at older ages and may not consider alcoholism, says Christian Sees, a partner at Integrus Financial, an insurance business.

Sees pointed out as an example an insurance company that offers a final expense policy through whole life insurance within the age range of 45 to 75 where applicants can’t be turned down for health reasons, including alcoholism. Coverage is limited to around $20,000.

A rate example he gave is a woman, 60, paying $114 per month for a $20,000 policy. A man of the same age would pay $148 per month.

As noted earlier, the best thing an alcoholic can do to qualify for life insurance is to quit drinking. Not drinking for seven or more years after going through rehab can help qualify for a standard policy, which won’t offer a major discount for being in excellent health, but at least will provide coverage that won’t be as high as a “high risk” rate.

See more at:

What is Pease Limitation?

The “Pease” limitation (named after the congressman who helped create it) refers to a limitation on itemized deductions. It reduces most itemized deductions by 3 percent of the amount by which a person’s adjusted gross income exceeds a specified threshold, up to a maximum reduction of 80 percent of all itemized deductions. In 2014, for married couples filing jointly, that amount is $305,050 and, for single taxpayers, it is $254,200. The Pease limitation on deductions includes mortgage interest, deductions for state and local taxes and charitable contributions, but not medical expenses, investment interest, casualty losses, theft or wagering losses.

The Compelling Case for Long Term Care Insurance

Estate tax expert and Disinherit the IRS author E. Michael Kilbourn today outlined a compelling case for purchasing long-term care insurance.

“Americans are living longer and healthier lives, thanks to better medical care, better diets and safer living and working environments. However, no one is immune from the effects of aging, which often result in reduced mental or physical ability. Often times, individuals need long term care in the home or elsewhere due to aging, disabling disease or a serious accident. Having family or friends serve as caregivers may not always be a viable option,” Kilbourn said.

According to the U.S. Department of Health and Human Services, seven out of ten people will need some form of long term care during their lives. With an average stay in a nursing home of approximately 2.5 years, the cost can be staggering.

According to Kilbourn, long term care insurance is insurance that provides for the cost of long-term care beyond a predetermined period.  It generally covers care not covered by health insurance, Medicare or Medicaid.   People who need long term care are those who will, at some point in the future be unable to perform the basic “activities of daily living” (ADLs) such as dressing, bathing, eating, toileting, continence, transferring (i.e., getting in  and out of bed or a chair, etc.) and walking.  Long term care is also frequently needed in the case of Alzheimer’s and Parkinson’s disease.

“Age is not a determining factor in needing long-term care, especially since approximately 70 percent of people age 65 or older will need at least some type of long-term care services during their lifetime.  Once a change of health occurs, long term care insurance may not be available, so the sooner a person purchases long term care insurance, the better.   Also, the premiums increase as a person ages,” he said.

Kilbourn believes nearly everyone should have long term care insurance, even if they are well off and could afford the cost of care.  “From an investment point of view, today’s products provide protection at a fraction of the cost.  Also, there are new products that eliminate the old ‘use it or lose it’ alternatives with traditional long term care insurance products.  For example, there are new ‘hybrid’ life insurance policies that allow the insured to be able to access the full death benefit during life, tax free, for long term care.  If no long term care is ever needed, the death benefit is paid at the death of the insured, tax free, to beneficiaries.  There are also deferred annuity products that provide long term care benefits at a multiple of the annuity saving account, tax free, if and when needed.  Like the hybrid life insurance products, the annuity balance would be available to the annuity owner during life or beneficiaries at death,” he said.

“The average cost of long term care in a nursing home this country is approximately $83,000 per year and almost twice as much for home health care that requires a trained, professional care giver around the clock in a home setting.  Add to that the fact that long term care costs are escalating at the rate of approximately 5% a year and it is easy to see that long term care insurance acts as protection in retirement.  When I meet with couples who are living on an income amount equal to the cost of long term care, I always point out what would happen if one of them needed care and it took all their retirement income.  Clearly, long term care insurance is needed to protect them in retirement,” concludes Kilbourn.

Now that You’re Married: Know the Top 6 Financial Issues Affecting Your Same Sex Marriage


NAPLES, FL – (January 15, 2015) – Estate tax expert and Disinherit the IRS author E. Michael Kilbourn today outlined a series of estate planning and tax issues that same sex married couples need to understand in order to take advantage of options that were not previously available.

According to Kilbourn, “Now that same sex couples are able to legally marry in many states including most recently, Florida, there are a number of great opportunities to maximize the effectiveness of their estate plans while at the same time reducing their tax obligations.”

  1. Unlimited Marital Deduction – In a typical will arrangement, everything passes from one spouse to the other. For couples with a high net worth this avoids any estate tax at the death of the first spouse because of the unlimited marital deduction (no tax on assets left to your U.S. citizen spouse). However, at the surviving spouse’s death, the assets owned by the surviving spouse (including the property inherited from the first spouse to die) is taxed after the estate tax exemption is applied. In 2015, the exemption is $5.43 million.
  1. Asset Portability – Today, under the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Law), widows and widowers can add any unused exemption of the spouse who died most recently to their own. This portability provision of the law is not automatic. The executor handling the estate of the spouse who died will need to transfer the unused exemption to the survivor, who can use it to make lifetime gifts or pass assets through his or her estate. The prerequisite is filing an estate tax return when the first spouse dies—even if no tax is owed. In 2015, the combined exemption of both spouses is $10.86 million.
  1. Annual Gift Tax Exemption – In addition to the lifetime gift tax exemption, discussed above, anyone can give another person up to $14,000 per year without gift tax. For married couples, the gift tax is doubled to $28,000 per recipient, if the spouse agrees to “split” the gifts.
  1. Trust Planning – When properly structured, a trust can provide an additional level of safety by adding another level of protection for spouses not available through the use of the portability provision. For example, the spousal estate reduction trust (SERT) allows one spouse to make gifts to an irrevocable trust and name the other spouse as the trustee and income beneficiary along with family members.  That way, assets gifted to the trust are removed from the couple’s taxable estate, but available to the trustee/beneficiary/spouse, if needed (for health, education, maintenance and support).

Another example of how a trust could benefit a married couple is the qualified terminal interest property (QTIP) trust.  This is a trust set up during the life of both spouses that passes assets to the surviving spouse to access for that spouses lifetime needs, but at the death of that spouse the assets pass to beneficiaries named in the trust.  This ensures the estate plan stays on track and does not change at the death of the first spouse to die.  Properly structured, the QPRT qualifies for the unlimited marital deduction and, thus, the assets are not exposed to taxes until the second death.

The benefit of any properly structured irrevocable trust is that it protects the assets in the trust from creditors, predators and divorce.  And, in certain designs, the assets can pass to multiple generations without exposure to estate taxes at each generation.  This is often referred to “generation skipping,” but it should be called “IRS skipping,” as the trust can be designed so it skips no one, as with the SERT, described above.

  1. Retirement Plans – Same sex married couples also have new opportunities for retirement planning. For example, Qualified Retirement Plans (QRP) benefits and IRA assets represent an increasing portion of the accumulated wealth of many Americans. It’s essential to have a plan before reaching age 70 1/2 in order to preserve your wealth. The rules are different once a same sex couple marries, according to Kilbourn.  For example, at age 70 1/2 an IRA owner must start taking required minimum distributions (RMDs).  Taking only the minimum required distributions can allow the IRA to last significantly longer.  Married spouses can use the Uniform Table for RMDs rather than the Single Life Expectancy Table. The Uniform table is based on two lives and something called “recalculation” which is considered the most favorable table, as it requires the absolute minimum distributions.  Upon death of the IRA owner, if a spouse is the named beneficiary, that spouse can roll the deceased spouse’s IRA into that spouse’s own IRA and use Uniform Table, based on that spouse’s age and recalculation, even though the calculations are based on two lives.  Thus, the remaining spouse can stretch out the IRA for the longest possible time.
  1. Income Tax Planning – On Aug. 29, 2013 the U.S. Department of the Treasury and the Internal Revenue Service (IRS) ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage. Under the ruling, same-sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit. In addition to deductions, exemptions, credits, etc. filing jointly can, in some cases produce a combined income that receives better tax treatment when couples earn vastly different incomes.

Disinherit the IRS: Don’t Die Until You’ve Read This Book, 2014 Edition is Mike Kilbourn’s new 344-page soft-cover book. It serves as a guide for sophisticated estate planning and reveals new tactics to help Americans avoid excessive taxation plus the simple, legal ways to avoid so-called “death taxes” and the steps individuals must take to protect their children, grandchildren and future heirs from predators, claims from lawsuits and divorce. The book includes a history of estate taxes and over 60 charts, graphs, illustrations and tables, as well as helpful resources like case studies and comprehensive depictions of many complex wealth preservation concepts and tools. Available for purchase through major booksellers and at, Disinherit the IRS is published by Brendan Kelly Publishing, Inc.

Kilbourn Associates is located in Naples, Florida. Additional information is available at

What deductions rule the roost in income tax planning


In the spirit of giving, I’m going to give a tip– Charitable IRA Rollover

Recently, Senate approved the Extenders Bill of expiring tax provisions through December 31, 2014. Within the Bill provisions is the charitable IRA rollover which allows IRA owners age 70 ½ or older to exclude up to $100,000 a year from income. However, this is only possible if the IRA funds are paid directly to specific public charities for the 2014 tax year. Act before December 31, 2014 if you are interested in making a charitable gift that will take advantage of this opportunity.

He smokes, is overweight, works late nights and travels to dangerous places…

I was recently asked if I thought Santa Claus could qualify for Life Insurance. I chuckled a bit and thought about the man that delivered presents all over the world. As much as we all love Santa for putting smiles on the faces of so many children every year on Christmas Day, the reality is that Santa would have a tough time getting approved for Life Insurance. Two of the biggest factors that are against his odds are his health and his job.

We think we’re doing something sweet for Santa by leaving him milk and cookies to enjoy, but all of those chocolate chip cookies add up! Santa is overweight and most likely diabetic- putting his health rating to “decline”.

No one can get the job done like Santa can. However, traveling all over the world including Third World countries and countries at war can result in insurance companies postponing to make him an offer until his trip is completed. If Santa has any accidents or crashes his sleigh into a tree, the insurance company may exclude him from flying coverage.

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