In completing the IRA beneficiary designation form, one should always name a contingent beneficiary to receive the account, should the primary beneficiary predecease the IRA owner. Putting off the task until after the primary beneficiary has died opens the possibility of the plan owner's demise shortly thereafter with no beneficiary named. In most cases, this will result in the estate being the beneficiary and the consequent loss of income tax deferral.

On the other hand, naming a contingent beneficiary should not give rise to a false confidence that the IRA will pass to the same after the primary beneficiary (who survived the IRA owner) dies. It will not. Once the primary beneficiary survives the IRA owner, the contingent beneficiary's interest is completely eliminated. The primary beneficiary is free to name as the next beneficiary whomever he or she pleases. This opens the door to stepchildren inheriting over natural or adopted children and in-laws inheriting over grandchildren.

If the IRA owner wants to close that door, the only solution is a see-through trust. When used to protect natural or adopted children, the spousal rollover must be conceded as well as the use of the next beneficiaries' life expectancies in computing RMDs after the spouse's death. Consider life insurance as a way of making up for those concessions. However, when used to protect grandchildren, see-through trusts exact no concession. In fact, divorce and creditor protection are conceded when see-through trusts are not used.

For more information regarding this topic, please e-mail your requests to Salvatore J. LaMendola, or call Sal at (248) 457-7204.

The concept is relatively simple. Many clients understand the importance of setting up dynasty trusts for their descendants. But, what about these same clients' future inheritances? Why not plan for them just as well as we plan for their descendants? When we meet with our clients, we ask them if they expect to receive any future inheritances. This often leads to our drafting the clients' parents' estate plans. But sometimes it doesn't, simply because the parents like their existing attorney and don't understand the value that can be given to their descendants if they will have us handling all of their estate planning. Remember, that no matter how much planning our clients engage in during their lifetimes, they must also be mindful of future amounts they may receive from others, as these amounts are subject to the claims of creditors.

In that case, our clients say to their parents, "I understand that you don't want to disrupt your current estate plan. I am not asking you for anything more than you were already planning to leave me, if anything. But, if you are leaving me an inheritance, would you mind amending your revocable trust so that anything that would be going to me outright will instead be distributed to my Inheritor's Trust? The Inheritor's Trust is a specially-designed Dynasty Trust where the beneficiary is in control of trust assets in accordance with standards set forth in the trust that will protect my inheritance from estate taxes at my death and from my creditors and divorcing spouses even though I control it." It is rare that a parent would say "No" to a mature child who asks the parent to do this. The parents often say, "Hmmm...It protects it from your spouse! Where do I sign up?"

Keep in mind that planning involves more than what our clients currently have. It may involve assisting others in the planning process who intend to leave assets to these same clients and possibly gain a new client in the process.

For more information regarding this topic, please e-mail your requests to Randall A. Denha, or call Randy at (248) 457-7205.

In Phoenix Life Ins. Co. v. LaSalle Bank, N.A., 2009 W.L. 877 684 (E.D. Mich., March 30, 2009), the U.S. District Court decided motions for summary disposition as to three causes of action filed by Phoenix Life against several defendants, including the life insurance agents and agency involved in the purchase of life insurance. Phoenix Life sought declaratory judgments that two life insurance policies it issued to Robert Rosen were void and rescinded because of misrepresentations made by Mr. Rosen and the Trustee of his Irrevocable Trust (as the owner of the two policies). Phoenix Life also sought damages against all defendants for civil conspiracy to defraud the insurer.

Phoenix Life sought declaratory judgments on the two policies it issued, each with death benefits in the amount of $5 million, based upon its allegation that Rosen and the Trustee made material misrepresentations. Phoenix Life issued two $5 million life insurance policies to the Trustee of Mr. Rosen's Irrevocable Trust at different periods of time. On the application for the second $5 million policy, Mr. Rosen and the Trustee agreed that neither non- recourse premium financing nor any other method was used to pay premiums in order to facilitate a current or future transfer, assignment, and other action with respect to the benefits provided under the policy. Rosen and the Trustee also acknowledged in the second application that there was no intention that any party, other than the Trustee, would obtain any right, title or interest in the $5 million policy insuring Mr. Rosen's life. Such statements were not included in the first application or in any documents which were endorsed upon or attached to the policy when it was issued.

The U.S. District Court, in agreeing with Michigan law, dismissed Phoenix Life's claim for rescission regarding the first $5 million policy. Michigan law provides that an insurance policy may be rescinded only because of false statements if they are contained in the application itself or in documents that are endorsed upon or attached to the policy when issued.

Since the Trustee of Mr. Rosen's Irrevocable Trust collaterally assigned the second policy to LaSalle Bank a few weeks after its purchase, the U.S. District Court refused to dismiss Phoenix Life's cause of action based upon alleged misrepresentations contained in the insurance application. Notably, the collateral assignment filed with Phoenix Life, which named LaSalle Bank as the primary policy beneficiary to the extent of the principal amount of the loans, plus accrued interest and other liabilities, gave LaSalle Bank the right to assign the policy. The apparent purpose of the collateral assignment was to provide LaSalle Bank with security for a loan made by it to Rosen in amounts exceeding $300,000. A similar collateral assignment was filed with Phoenix Life on the first $5 million insurance policy.

LaSalle Bank and the other defendants to the lawsuit sought to dismiss Phoenix Life's efforts to rescind the policies upon its argument that LaSalle Bank lacked an insurable interest in Rosen. While the U.S. District Court recognized that an assignment of only a security interest in a life insurance policy would not violate the insurable interest requirement (even if given before the policy was issued), it held that such an assignment would violate the insurable interest requirement if, at the time the policies were issued, "the insured intended to transfer the entire proceeds of the insurance policies to LaSalle, because such an agreement would be a cloaked 'wagering contract'". Michigan law provides that an insurance policy may be voided where the contract is issued to a party who has no insurable interest in the life of the insured. Based upon Michigan law and the District Court's application of the United States Supreme Court Opinions dealing with insurable interests in life insurance policies, it held that Phoenix Life sufficiently alleged that Mr. Rosen had already agreed to transfer ownership of the policy, the right to the policy proceeds, or both, at the time he arranged for the policies to be purchased. Accordingly, Phoenix Life's efforts to rescind both policies based upon a lack of insurable interest argument were not dismissed.

While the causes of action alleged by Phoenix Life appear to be headed to trial, the current lesson to be learned is that insurers are continuing to seek rescission of insurance policies in perceived STOLI circumstances prior to the policy's actual sale or assignment to the "stranger".

For more information regarding this topic, please e-mail your requests to Thomas P. Cavanaugh, or call Tom at (248) 457-7218.

The average annual cost for long- term care can run anywhere from $50,000 to $100,000. And the cost is rising. Few individuals have sufficient income and/or savings to cover the annual costs of long-term care for an extended period of time. Far fewer individuals meet the strict financial eligibility requirements necessary to qualify for Medicaid. Even for those who are eligible for Medicaid benefits, their long-term care options are limited. For example, in Michigan, Medicaid covers nursing home costs and a limited amount of in-home care.

On the other hand, long-term care insurance provides numerous benefits to the policyholder should he or she need long-term care. Among its many advantages, long-term care insurance preserves the policyholder's assets, while eliminating the fear and uncertainty of relying on Medicaid to pay for long-term care.

Despite the significant costs - both financial and emotional - associated with nursing and in-home care, only a fraction of those who need to pay for extended care actually plan ahead and purchase long- term care insurance, largely because of the cost of premiums (ranging on average, from $1,000 to $8,000 annually, depending on where the policyholder lives, the length of the benefit period, amount of the daily benefit, and increases for inflation).

A provision in the Pension Protection Act of 2006 that goes into effect on January 1, 2010, may offer a solution to those individuals caught between ineligibility for Medicaid benefits and insufficient income or assets to pay for long-term care costs. Under the Act, equity in a life insurance or annuity policy may be exchanged tax-free for a single premium long-term care insurance policy. This eliminates income taxes that the policyholder would otherwise realize upon the surrender of an annuity or life insurance policy.

Keep in mind that exchanging cash value in a life insurance policy or annuity contract for a long-term care insurance policy isn't right for every client, especially those clients with pre-existing conditions (who may not qualify for long-term care insurance) or clients whose goals can be accomplished without the need for long-term care insurance.

For more information regarding this topic, please e-mail your requests to Brenna D. Mansfield, or call Brenna at (248) 457-7227.

	Annual	Semi-Annual	Quarterly	Monthly
Short Term AFRs (Term 3 Years or Less)	0.75%	0.75%	0.75%	0.75%
Mid Term AFRs (Term More Than 3 Years and 9 Years or Less)	2.25%	2.24%	2.23%	2.23%
Long Term AFRs (Term More Than 9 Years)	3.88%	3.84%	3.82%	3.81%
Section 7520 Rate	2.8%