Last month we introduced you to Legacy Planning, why it is so important and how Colgan Capital is an industry leader of this service. This month, I am going to share some of the more sophisticated strategies that we employ to help client's legacy plans really come to life.

Let me start with a specific example. I had a client in my office this morning in a very fortunate situation. He had more money saved than he originally planned on. As a result, he had more income than was necessary to maintain his comfortable lifestyle. Knowing his admiration for the Grandchildren, I suggested he use the extra "unneeded" cash flow to purchase a life insurance policy inside an irrevocable life insurance trust (ILIT). This solution would leave his grandchildren $500,000 tax free - enough to buy their dream summer camp in the Adirondacks! His sacrifice of $10,000 a year was negligible compared with the memories the family would share at the camp. Also, by transferring ownership of the policy into a trust, he was able to reduce the size of his estate and subsequent tax burden. This summer camp will be a part of his legacy that will last for generations.

Here is how this scenario might work for you. First, set up an irrevocable life insurance trust and name a trustee other than yourself (i.e., bank, corporate trustee, adult children). The irrevocable life insurance trust gives you control over how the proceeds are used since the trustee distributes the proceeds according to the instructions set forth by you. Then arrange to have the trustee purchase a life insurance policy in the name of the trust with you as the named insured and the trust as the beneficiary.

When you pass on, the life insurance proceeds are paid to the trustee, who then uses it to pay estate taxes and/or other expenses (including debts, legal fees, probate costs, and income taxes that may be due on IRAs and other retirement benefits). The remaining proceeds are then distributed by the trustee to the beneficiaries named in your trust.

This is just one example of how creative financial planning can impact your legacy and make a big difference in the life of your loved ones. There are many other techniques - such as Charitable Remainder Trusts and Qualified Terminable Interest Property (QTIP) Trusts that are each designed to help you meet a specific goal. Sometimes these fancy techniques aren't obvious, so don't hesitate to give us a call and explore your possibilities.