Leaving a legacy

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If your goal is to eventually leave your assets to family members, a bit of pre-organization and planning will help smooth the process.
This is where estate planning comes in—creating documents including wills, trusts, powers of attorney; ensuring you own sufficient life insurance;  and creating an irrevocable life insurance trust (if appropriate).   There are additional measures you can take to make things easier for your family as well, such as compiling a list of assets and accounts, professional contacts (including attorneys and financial advisors), online passwords and any specific funeral requests. Doing so will allow your family and loved ones to focus on honoring your memory rather than trying to solve administrative puzzles.

Leaving a legacy: Herb's story

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You love your family a lot. You want to try to help your family. I have my son now and my two grandchildren, two little granddaughters. Absolutely the delight of my life.

You want to leave as much wealth as you can as a financial legacy. Even in retirement you got to do a lot of good budgeting, especially if you want to try to help your family. And I want to express that in a more physical way, too. Not monetarily, but in a physical way.

And what I bought for Rebecca and Hannah were two sets of engraved silver candlesticks. It says, "To Rebecca, on her bat mitzvah, with all my love, Zeyde." That's the Yiddish word for "grandfather." So, when they light those candles, they're going to see that inscription. And you want to be remembered and hopefully my two granddaughters will remember me that way.

Estate planning basics

A proper estate plan ensures that your assets are managed in the event of your incapacity and are distributed according to your wishes. It can also help preserve your assets by minimizing estate taxes and other expenses associated with inheritance. Your estate plan can include everything you own, including checking and savings accounts, investments, life insurance, your home and car, and all other assets.
While the legal and financial issues associated with an estate plan can be complicated, an estate plan can generally do the following:
  • Identify who will inherit assets and how beneficiaries will receive them
  • Determine who will manage your estate and who can act on your behalf if you become incapacitated
  • Minimize estate taxes, income taxes and administrative costs for your heirs
  • Provide funds to cover immediate family needs
  • Help avoid conflicts and protect your family’s privacy 

Preparing estate plan documents

It can help to have the following documents prepared and readily accessible from your estate plan:2
  • A will (or will and testament) sets forth how an individual wishes to disburse possessions and assets after death. It can also include instructions for who will take over guardianship of children.
  • A living will dictates the type of medical care an individual would like to receive in the event that he or she cannot express or make decisions for themselves.
  • A living trust (or inter-vivos trust) specifies how assets are to be distributed. It is set up during an individual’s lifetime, and includes a trustee to help carry out decisions after the individual’s death without the need for probate.
  • A testamentary trust also specifies how assets are to be distributed. Unlike a living trust, which is set up during an individual’s lifetime, a testamentary trust is part of a last will and testament and created after the individual’s life.
  • A Medical/Healthcare Power of Attorney assigns a specific person to make healthcare and medical treatment decisions on an individual’s behalf. This document becomes active once an individual is unable to express or make decisions for themselves.
  • A HIPAA Release Form allows anyone named in a living will or power of attorney to access the individual’s healthcare information.
  • Beneficiary forms name the recipients for payouts to beneficiary accounts, such as for life insurance policies and retirement accounts. Beneficiary-named assets are also excluded from probate.
  • A durable Power of Attorney for finances allows an individual to choose another person to handle financial decisions and other affairs.

Life insurance basics

In addition to a robust estate plan, it can make sense to explore your need for life insurance and explore different types.  There are a few options listed below.  Note that term insurance will protect loved ones for a stated period of time, for example, 10, 15 or 20 years, while permanent insurance (like universal life or variable universal life insurance) are designed to provide lifelong protection. Generally, the premiums for the initial periods of term insurance policies are lower than the premiums of permanent insurance policies.
  • Level Term life insurance: Coverage that you buy for a set period of time. This kind of insurance may be an option for younger individuals, couples, or families, as premiums are relatively low and will not increase during the initial term of the policy. TIAA-CREF Life Insurance Company® (TIAA Life) can provide level term insurance with benefits from $100,000 to $1,000,000 or more for periods of 10, 15, 20 or 30 years.  (Policy Form Series TCL-LPT.1)
  • Universal life insurance: Permanent insurance designed to cover you for life, with typically higher premiums than those of term insurance plans because the policy accumulates cash values. The cash value grows at a guaranteed rate of interest and is accessible while you’re alive should you need it. (Please note that guarantees are subject to the claims-paying ability of the issuer.)  Unpaid loans and withdrawals will reduce policy’s cash value, and the death benefit, and may have tax consequences. This kind of insurance can be beneficial for individuals, couples and families who want the protection of life insurance and cash value accumulation.  TIAA Life's Intelligent Life® Universal Life Insurance may be an option for those that want to expand their portfolio and have a valuable accumulation feature as part of their life insurance. (Policy Form Series AM-SUL.3 (2008) and AM-JUL.3 (2008))
  • Variable universal life insurance: A permanent insurance policy where you choose one or more investment account options to invest your net premium dollars. The cash values and death benefits grow based on the results of your investments. The cash value can be accessed while you are alive should you need it.  Unpaid loans and withdrawals will reduce the cash value and death benefit, and may have tax consequences.  These policies have inherent risks, as the value can increase or decrease depending on how the underlying investments perform over time. This kind of insurance is generally suitable for established families, individuals and couples who want the flexibility to customize their insurance policy and are comfortable managing the investment options, and are willing to accept investment risk, including losses, in exchange for potentially higher cash value returns. TIAA Life's Intelligent Life® Variable Universal Life Insurance allows an individual to choose the coverage amount, the premium payment amount and frequency, and the investment accounts from more than 60 options.  (Policy Form Series AM-SVUL.3 (2008) and AM-JVUL.3 (2008))

Learn more about TIAA Life Insurance

Factoring life insurance into estate planning

Life insurance proceeds often comprise a large portion of an estate plan. One way to avoid paying an estate tax on the proceeds of your life insurance policy is to use an irrevocable life insurance trust (ILIT).  This is a trust you establish to buy and hold life insurance policies. You set the terms for how policy proceeds will be held, administered and distributed to the trust beneficiaries. The value of the policies and the death benefit proceeds are excluded from your taxable assets for estate tax purposes.
After establishing an ILIT, you can transfer existing life insurance policies to the trust or gift funds to the trustee to purchase a new policy. Once you transfer policies or funds to the ILIT, the trustee owns them, not you. You (or another donor) can transfer funds each year to pay the life insurance premiums.
Upon your death (or for a survivorship policy, the death of the survivor of you and your spouse), the insurance policy proceeds will be paid to the trust. The terms you stated in the trust agreement determine how the policy proceeds will be used or distributed. The proceeds can either be distributed to your beneficiaries outright, held in trust for their benefit or used to pay any estate taxes due at death.
There are a few advantages to using an ILIT. If the insurance policy is acquired by the trust or transferred to the trust more than three years before your death, the death benefit proceeds will not be included in your taxable estate and will pass to the trust free from estate tax. The assets passed on as part of your ILIT will not be subject to probate, saving your loved ones time and money. And the trustee of your ILIT can use the life insurance proceeds to pay for any estate tax liabilities or expenses, or to simply provide resources to beneficiaries.
You may want to consider establishing an ILIT as part of your estate plan if your insurance policies represent a large portion of the inheritance your beneficiaries will eventually receive. As with any estate planning strategy, there are many considerations and rules that need to be followed for the strategy to protect your assets, and you should seek the counsel of a tax advisor or an estate-planning attorney to help successfully structure your trust.
Next steps

How TIAA can help

Explore our Resources that provide more in-depth content on key retirement topics.

1 Rocket Lawyer's Annual Make-a-Will-Month Survey Reveals Strong Need to Educate Consumers on Estate Planning,Marketwired, August 2, 2016. http://finance.yahoo.com/news/rocket-lawyers-annual-month-survey-120000742.html
2 Tips for Gen X Savers at Age 50: Get Your Estate Plan in Order, Investopedia, March 26, 2015, http://www.investopedia.com/articles/professionals/032615/tips-gen-x-savers-age-50.asp
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