In the last year or so, many individuals have begun businesses. They've done this because they lost their jobs working for other companies or just felt that it was a great time. For these folks, I say "Congratulations!". You now can reap the benefits (and pitfalls) of being a business owner.
With this in mind, I wanted to start a series of blogs on several strategies that can work for you. For now, let's start with retirement planning.
For this blog, let's discuss Supplemental Executive Retirement Planning (SERP). SERPs are used to provide both death protection and retirement income for yourself as a business owner and your key employees. SERPs are a kind of non-qualified deferred compensation plan and are often designed to supplement any qualified retirement plans that the business already has in place.
The business itself is typically the owner and beneficiary of life insurance policies insuring the business owner(s) and other key talent in the organization. The business is not allowed an immediate deduction for premiums paid, but will take a deduction upon the payment of retirement income using policy cash values. The business will also typically receive death proceeds income-tax-free, but consideration should be given to the Pension Protection Act of 2006, which contains provisions impacting the income tax treatment of corporate-owned death benefits. These provisions apply to corporate-owned life insurance policies entered into after August 17, 2006. You should consult with a tax-advisor (we have one we work with!) as to how a SERP may be implemented in order to comply with these provisions. SERPs can be an excellent means to provide both death protection and supplemental retirement income.
Next blog, we'll discuss a 162 Bonus plan.
Monday, April 5, 2010
Friday, January 15, 2010
Special Needs Planning Part 2
Previously, we covered why special needs planning is so important. Now let's take a look at the process we use.
First, we must develop a clear vision not just of your dreams and goals for your family and loved one with special needs, but also when and how you plan to achieve them.
Secondly, think holistically, by assessing your current situation and determine the feasibility of your goals. Setting priorities and then creating a integrated plan to achieve them is vital.
Third, plan with intention by creating a strategy that takes into account the financial, legal and logistical concerns that may impact your dependent's quality of life over time.
Fourth, for the plan to succeed, it has to be implemented. The sooner you get started, the better.
Finally, keep your plan current. Laws change and so do the needs of a person with disabilities. Your financial plan is a work in progress. Make sure to review and update it regularly.
As someone once said, "Love your children for who they are. Do not let their disabilities determine their fate."
First, we must develop a clear vision not just of your dreams and goals for your family and loved one with special needs, but also when and how you plan to achieve them.
Secondly, think holistically, by assessing your current situation and determine the feasibility of your goals. Setting priorities and then creating a integrated plan to achieve them is vital.
Third, plan with intention by creating a strategy that takes into account the financial, legal and logistical concerns that may impact your dependent's quality of life over time.
Fourth, for the plan to succeed, it has to be implemented. The sooner you get started, the better.
Finally, keep your plan current. Laws change and so do the needs of a person with disabilities. Your financial plan is a work in progress. Make sure to review and update it regularly.
As someone once said, "Love your children for who they are. Do not let their disabilities determine their fate."
Monday, January 4, 2010
Special Needs Planning Part 1
As a parent or guardian of a person with special needs, your knowledge can make a world of difference as you plan for the future of your loved one. You don't have to go through this process alone. By building a team of special-needs professionals, you can benefit from their expertise as they guide you through the process of creating an action plan.
Special needs require special planning. To obtain a complete picture of the critical pieces involved in special needs planning, a family should work with an experienced team of professionals, generally consisting of a medical, legal, financial and social service professional.
An attorney will help you prepare what's called a "special needs trust". Not all attorneys (even those working in "estate planning") are familiar with these highly specialized types of trusts. For example, I contacted several attorneys in my area and asked if they had any experience with special needs trusts. Responses ran the gamut from "never did one" to "I think I can do one". One attorney finally said, "Thinking and doing are two different things. Don't let anyone learn on one of your clients. After a few months of looking, I found an attorney who actually has had several of these trusts approved by the courts.
A financial professional can help you find ways to fund the trust. In the next blog, we'll discuss the planning process we use. As a client once said to me while working with her autistic son, "He's an autistic child, and soon he'll be an autistic adult. We won't always be here to help, so we need to do our best to plan for him from now." I couldn't say it better myself.
Special needs require special planning. To obtain a complete picture of the critical pieces involved in special needs planning, a family should work with an experienced team of professionals, generally consisting of a medical, legal, financial and social service professional.
An attorney will help you prepare what's called a "special needs trust". Not all attorneys (even those working in "estate planning") are familiar with these highly specialized types of trusts. For example, I contacted several attorneys in my area and asked if they had any experience with special needs trusts. Responses ran the gamut from "never did one" to "I think I can do one". One attorney finally said, "Thinking and doing are two different things. Don't let anyone learn on one of your clients. After a few months of looking, I found an attorney who actually has had several of these trusts approved by the courts.
A financial professional can help you find ways to fund the trust. In the next blog, we'll discuss the planning process we use. As a client once said to me while working with her autistic son, "He's an autistic child, and soon he'll be an autistic adult. We won't always be here to help, so we need to do our best to plan for him from now." I couldn't say it better myself.
Wednesday, December 23, 2009
Understanding Women's Financial Situations
By all accounts, American women today are doing better than ever. They make up 51 percent of the population and hold 43 percent of America's wealth. Women are, on average, better educated than men, earning 59 percent of all post-high school degrees, and they start businesses at nearly twice the rate of their male counterparts. As a group, they earn $2.4 trillion annually and influence 95 percent of all purchasing power.
Remarkably, however, most women report that they're not confident about their finances, nor have they planned for their future. Did you know that within 3 years of a spouse's death, 70 percent of widows switch financial advisors?
While it may seem logical to categorize them by age, it's not about how old they are, but where they are in life. Every woman has a different story to tell. Her needs, goals, and dreams likely depend upon which chapter she is writing. Whether she's buying a home, getting married or divorced, paying for college or just starting a family, she needs a financial plan that keeps her on track as her life's story unfolds. Simply having a plan is a good starting point.
Give us a call and let us help you get start with your plan. 843-283-3300
Remarkably, however, most women report that they're not confident about their finances, nor have they planned for their future. Did you know that within 3 years of a spouse's death, 70 percent of widows switch financial advisors?
While it may seem logical to categorize them by age, it's not about how old they are, but where they are in life. Every woman has a different story to tell. Her needs, goals, and dreams likely depend upon which chapter she is writing. Whether she's buying a home, getting married or divorced, paying for college or just starting a family, she needs a financial plan that keeps her on track as her life's story unfolds. Simply having a plan is a good starting point.
Give us a call and let us help you get start with your plan. 843-283-3300
Monday, August 17, 2009
The Missing Piece of the Plan
A few weeks ago, I was working with another agent who was obviously distraught. This fellow is approaching retirement in a few years and thought he had everything in place. He had put his kids through school with money he saved. He had life insurance paid up and had put aside enough funds for his retirement to be a smooth transition from his working life. So what bothered my friend?
Shortly before we met, he told me he had been declined for long term care insurance (LTCI). "I have coverage on my wife," he said, "but if something happens to me, stroke, heart attack, an accident, well that'll throw my plan right out the window. I don't have a backup if I become chronically ill."
In my business, we have what is called "cost of waiting". It's a great tool to illustrate how much higher premiums can be than buying a policy when you're younger. In other words, a 55-year old can pay more in premiums than a 45-year old over the lifetime of the policy, even if not paying for the additonal 10 years. But there's another part of the story.
As we get older, we tend to get less healthy, thus making it harder for us to get through underwriting. And in the case of my friend, he had been declined twice, due to pre-existing health issues.
I have another friend who I consider a friendly competitor. We'll stop for coffee every few weeks and talk shop. I mentioned that my clients were purchasing more LTCI than ever before and asked how he was doing in the area? "I don't work that market" was his response. Needless to say, I was amazed. How is he helping his clients see the entire picture without discussing LTCI with them? As a guy that loves analogies, I compared it to a jigsaw puzzle with a huge section in the corner missing from the rest of the pieces. This agent was not doing a complete job for his clients.
Give us a call and we'll be happy to give a free consultation to see if you may need LTCI.
Shortly before we met, he told me he had been declined for long term care insurance (LTCI). "I have coverage on my wife," he said, "but if something happens to me, stroke, heart attack, an accident, well that'll throw my plan right out the window. I don't have a backup if I become chronically ill."
In my business, we have what is called "cost of waiting". It's a great tool to illustrate how much higher premiums can be than buying a policy when you're younger. In other words, a 55-year old can pay more in premiums than a 45-year old over the lifetime of the policy, even if not paying for the additonal 10 years. But there's another part of the story.
As we get older, we tend to get less healthy, thus making it harder for us to get through underwriting. And in the case of my friend, he had been declined twice, due to pre-existing health issues.
I have another friend who I consider a friendly competitor. We'll stop for coffee every few weeks and talk shop. I mentioned that my clients were purchasing more LTCI than ever before and asked how he was doing in the area? "I don't work that market" was his response. Needless to say, I was amazed. How is he helping his clients see the entire picture without discussing LTCI with them? As a guy that loves analogies, I compared it to a jigsaw puzzle with a huge section in the corner missing from the rest of the pieces. This agent was not doing a complete job for his clients.
Give us a call and we'll be happy to give a free consultation to see if you may need LTCI.
Monday, August 10, 2009
Annuities and Your Legacy
Last week while discussing a retirement gameplan with a client, I mentioned an annuity. Her first response was, "What's that?"
Annuities are savings/investment vehicles in which one can place funds (single premium or ongoing) that grow tax-deferred during the accumulation period. On the backend, the annuity gives options for the distribution of funds. One can receive the funds in one lump sum payment or receive payments for several years or a lifetime. The best part is that you don't have to decide how the money is distributed until the policy contract is completed.
There are two basic kinds of annuities, fixed and variable. Fixed annuities are very conservative and most are offered through life insurance companies. These are appropriate for people who are looking to preserve principle. Variable annuities, on the other hand, are usually invested into the markets, where they can be at risk of loss. An agent would be required to have a securites license to offer these to the public.
Be aware of bonus or enhanced annuities. These promise a bonus of 5-10% for you by signing the dotted. I've personally gone to seminars and was told that the bonus is paid up front, when in fact, the contract has to be completed to receive the bonus. Be careful and ask lots of questions.
A recent ruling by regulators has brought Indexed Annuities into the news recently. These are a type of hybrid product which is considered to be fixed, however it moves up and down with the market. Typically, indexed annuities have a floor or minimum return, as well as a ceiling or maximum return. Unfortunately, there usually are a lot of hidden fees for surrender that are not disclosed. Regulators have determined that since these annuities are based on market movement, only variable licensed agents can sell them, much to the dismay of many in the life insurance industry.
Most of my colleagues agree that they do not feel comfortable offering these indexed annuities to their clients as the product can be confusing for the consumer.
As a final note, annuities can be a great way to defer taxes (I don't want to pay for bailouts. Do you?) And your taxes are based on your distribution of funds during the distribution phase. In other words, if you receive all of your money at once, you'll have a one-time hefty tax bill, whereas you can make smaller tax payments while receiving your funds in smaller increments.
Annuities can be great ways to grow your money, defer taxes and add to your retirement funds. My suggestion for everyone is to do research and stick with an agent that you know. Avoid the agent that shows up at your door pushing an annuity and doesn't take the time to learn what your gameplan is.
Annuities are savings/investment vehicles in which one can place funds (single premium or ongoing) that grow tax-deferred during the accumulation period. On the backend, the annuity gives options for the distribution of funds. One can receive the funds in one lump sum payment or receive payments for several years or a lifetime. The best part is that you don't have to decide how the money is distributed until the policy contract is completed.
There are two basic kinds of annuities, fixed and variable. Fixed annuities are very conservative and most are offered through life insurance companies. These are appropriate for people who are looking to preserve principle. Variable annuities, on the other hand, are usually invested into the markets, where they can be at risk of loss. An agent would be required to have a securites license to offer these to the public.
Be aware of bonus or enhanced annuities. These promise a bonus of 5-10% for you by signing the dotted. I've personally gone to seminars and was told that the bonus is paid up front, when in fact, the contract has to be completed to receive the bonus. Be careful and ask lots of questions.
A recent ruling by regulators has brought Indexed Annuities into the news recently. These are a type of hybrid product which is considered to be fixed, however it moves up and down with the market. Typically, indexed annuities have a floor or minimum return, as well as a ceiling or maximum return. Unfortunately, there usually are a lot of hidden fees for surrender that are not disclosed. Regulators have determined that since these annuities are based on market movement, only variable licensed agents can sell them, much to the dismay of many in the life insurance industry.
Most of my colleagues agree that they do not feel comfortable offering these indexed annuities to their clients as the product can be confusing for the consumer.
As a final note, annuities can be a great way to defer taxes (I don't want to pay for bailouts. Do you?) And your taxes are based on your distribution of funds during the distribution phase. In other words, if you receive all of your money at once, you'll have a one-time hefty tax bill, whereas you can make smaller tax payments while receiving your funds in smaller increments.
Annuities can be great ways to grow your money, defer taxes and add to your retirement funds. My suggestion for everyone is to do research and stick with an agent that you know. Avoid the agent that shows up at your door pushing an annuity and doesn't take the time to learn what your gameplan is.
Wednesday, August 5, 2009
Life Insurance From a Wealth-Transfer Perspective
Many clients want to transfer their assets with greater financial efficiency. To do this, one may want to consider life insurance as an asset class. It can also be structured so that the death benefit does not directly depend on financial performance.
Death benefits derived from a permanent life insurance policy can be used to accomplish a variety of objectives:
- Pay off debts and taxes
- Equalize the inheritances of different family members (one child gets the family business, the other receives a death benefit)
- Fund business continuation agreements and successful plans
- Build funds for kid's education
- Solidify the financial security of disabled family members
- Replace funds lost in troubled markets
- Charitable gifts
- Tax deferred growth
One shouldn't think of life insurance as just another payment, but more importantly, think of it in terms of what it can accomplish.
Next time: Annuities
Death benefits derived from a permanent life insurance policy can be used to accomplish a variety of objectives:
- Pay off debts and taxes
- Equalize the inheritances of different family members (one child gets the family business, the other receives a death benefit)
- Fund business continuation agreements and successful plans
- Build funds for kid's education
- Solidify the financial security of disabled family members
- Replace funds lost in troubled markets
- Charitable gifts
- Tax deferred growth
One shouldn't think of life insurance as just another payment, but more importantly, think of it in terms of what it can accomplish.
Next time: Annuities
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