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Should A Life Policy Be In A Revocable Trust?

If love is blind, and if marriage is an institution, and if love and marriage go together… then, is marriage an institution for the blind? Maybe things don’t always go together, but many times they do.
 
A revocable trust is a common management device that holds assets for the creator/grantor who has freedom to add or subtract property as he or she pleases and which includes instructions to distribute assets at death. It is his or her alter-ego for both income and estate tax purposes, with the same results as if all were owned directly.
 
So, do a revocable trust and a life policy go together?
 
Consider the pluses and minuses of a trust-owned contract:
  • Cost – Creating the trust is an additional expense beyond the fees for the usual last will & testament, power-of-attorney, and health directive.
  • Creditors – Unlike with an irrevocable trust, assets are not protected from claims against the grantor.
  • Court – Death benefits are not subject to probate, but this may not be a compelling reason.Beneficiary designations (other than to the estate of the insured) serve to avoid probate court anyway.
  • Continuity of Control – If an individual owner of a policy is not competent, or cannot be found, management of the policy is onerous. The trust can re-direct authority.
  • Contingent Beneficiaries – This is the biggest advantage.Primary policy beneficiaries are usually simple (e.g., 100% to my spouse).Beyond that things can get complicated quickly (e.g., to my children).Must a child survive?Are there children of more than one marriage?Will distribution be equal among all?Is there a desire to manage the proceeds for a time prior to complete distribution?All these concerns are much better accommodated in a trust document than in the beneficiary box on a policy application.

If you have questions about a client policy and trust planning, or any other case planning issues, contact Tom Virkler, JD – Director of Advanced Markets, at 706-614-3796 or tom@cpsadvancedmarkets.com.

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A Term Policy Is Not A Pork Belly!

In 1848 the Chicago Board of Trade opened for business providing a public forum in which to negotiate“forward” contracts for products that were interchangeable with other goods of the same type based on price rather than branding. Known as commodities, the CBOT’s trading platforms were initially dedicated to agricultural products like sugar, corn, and soybeans.
 
In today’s term insurance marketplace spread-sheet availability tends to reduce the transaction to a simple commodity sale.
 
Product choice is determined by the least expensive offer that appears at the top of the list, regardless of whether it is a well-known carrier, or Texas Life & Limb!
 
We can help you make a better choice for your client based on several important factors in addition to the amount of premium:
  • Carrier medical requirements – We will find the insurer with the least burdensome underwriting and placement criteria!
  • Final medical offer – Based on our experience, we will direct you to the carrier most likely to give you the best rating, especially when a condition is known to exist!
  • Coverage availability – Insurable interest requirements and financial underwriting guidelines can vary greater from one carrier to the next. We will make sure you get the most coverage available!
  • Policy issue time – We know what carriers are having processing problems and can direct you to the best insurer for quicker placement, especially when time is of the essence!
  • Carrier internal support – Cases often go side-ways a bit. The quickest solutions come with internal assistance from the carrier team serving us. We know who has the most responsive contacts!
  • Conversion privileges – A decline in health always raises the question of exchanging term coverage for permanent insurance. We will help you choose the term policy with the best options for a conversion down the road!

Contact Tom Virkler, JD – Director of Advanced Markets, at tom@cpsadvancedmarkets.com or 706-614-3796 to go over your next spreadsheet and find the best all-around coverage for your client.

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Life Policy Beneficiaries – 7 Common And Costly Mistakes

The beneficiary designation is one of the smallest areas on an application form. It is also the site of some of the biggest mistakes.
 
Here are the seven most common:
  1. Making the estate the beneficiary – Death proceeds are turned over to the Probate Court where they will be subject to creditor claims.Distribution is according to the insured’s Will and could take two years or more.Everything is a matter of public record.
  2. Failing to name a contingent – The beneficiary will not always outlive the insured, true half the time when married couples have cross-owned policies.
  3. Multiple beneficiaries, improper designation – Is distribution to be made equally or disproportionately?Is surviving the insured necessary to collect?If not, does the share pass per stirpes or per capita? Full instructions are necessary, even if it means an addendum to the application.
  4. Multiple beneficiaries, insufficient allocation – The total death benefit must be disbursed.Carriers insist that shares be on a percentage basis, not in dollar amounts, adding up to 100%.
  5. Designating minors – Every state prohibits distributions before the age of legal majority.A custodian must be appointed for a minor according to the state’s Uniform Transfers to Minors Act.
  6. Insufficient identification – Make sure there is sufficient information on the application or upon delivery to assure the carrier can find the beneficiary.
  7. Ignoring changed circumstances – When beneficial interests change with events it should be reflected with beneficiary changes.The most often overlooked are in response to a divorce.
Plain and simple, beneficiary designations are tricky. We will help you get them properly drafted in a manner approved by the carrier. Contact Tom Virkler, JD – Director of Advanced Markets, at 706-614-3796 or tom@cpsadvancedmarkets.com.
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Three Sheets Of Paper, Or Three Sheets To The Wind?

Those familiar with Tom Clancy’s novel Debt of Honor will recall how a radical Japanese financial conglomerate sabotaged the U.S. securities markets by electronically erasing a full day’s trading records. But a solution emerged when Ryan’s wife, Caroline Ryan, MD, advised, “If something isn’t written down, it didn’t happen.” Then all proceeded normally as the financial world simply picked up where prices from previous day had left off.
 
Dr. Cathy’s remark is nowhere more pertinent than in your clients’ estate planning.
 

It doesn’t matter how firmly resolved clients are in the desired future conduct of their affairs, or how many people they have told; if it isn’t written down, it doesn’t matter, the difference here being there is no safety net for failure to put pen to paper.

 
While we don’t give legal advice, we do well to alert our clientele that at least three written and properly executed documents are the necessary foundation of any estate plan:
 
Durable Power-of-attorney – Who has authority to handle your clients’ affairs when circumstances (e.g. foreign travel) or lack of mental capacity prevent them from doing so?
 
Health Proxy (or Living Will, or Health Directive) – Who will make medical decisions (up to and including life or death determinations) for your clients if they are unable?
 
Last Will & Testament – How, when, and to whom will your clients’ property be distributed in the event of death?
 
Without written directions, a client’s future affairs are in the wind, with no assurance of results. We will get on the call with you and your clients to discuss the importance of these documents and how they can be effectively coordinated with all that you do for them. Contact Tom Virkler, JD – Director of Advanced Markets at 706-614-3796 or tom@cpsadvancedmarkets.com today!
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Don’t Let Business Clients Train Their Future Competitors!

Because that is what they are doing if time and money is spent cultivating a key employee only to lose him or her to another (in a similar line of business, no less) who offers more money.  Or worse, lose one who starts his or her own shop offering the products and services in which your clients made them so proficient!

“Oh, but I have a non-competition agreement in place,” they might say.  Consider: 1) This old form of “iron handcuffs” is proving decreasingly enforceable in most states, and 2) your client has still lost a valuable employee!

Consider instead some “golden handcuffs” that are the easiest and significantly beneficial fringe benefit that protect key people not just during employment, but for their entire life. 

Call it Super Executive Bonus:
  • Purchase permanent life insurance for a selected employee which he or she will own.
  • Include a long-term care rider on the contract.
  • Pay the premiums until retirement, overfunding it so that it will carry for life without further premiums.
The distinct advantages for your business client over other employee benefits:
  • There is no obligation to fund in any given year.
  • Premiums are deductible and are reported on the employee’s W-2.
  • There are no government reporting requirements or regulations.
  • You have provided an attractive triple post-retirement benefit that protects in the event of death, long-term care, or the need for available cash.

We will help design and present the Super Executive Bonus benefit for your client.  All we need to draft a preliminary proposal is the executive’s age, sex, assumed medical classification, tobacco use, and the state of sale.  Contact Tom Virkler, JD, Director of Advanced Markets, at 706-614-3796 or tom@cpsadvancedmarkets.com.

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401(k) Sales Boot Camp 🔥 Thursday, March 26

Take Your 401(k) Prospecting to the Next Level

Thursday, March 26th – 11.00 AM to 11.30 AM PST

REGISTER NOW

What 401(k) prospecting strategies really work the best?

If you’re tired of chasing unqualified opportunities and want a more reliable way to grow your 401(k) business, this 401(k) Sales Boot Camp webinar is for you.

In this practical, sales-focused session, we’ll break down proven prospecting strategies used by successful advisors to uncover opportunities, engage the right prospects, and increase profitability—without reinventing your entire process. Here’s what you’ll gain:

  • How to data-mine your existing book for immediate opportunities
  • Smart ways to identify companies in your local market
  • When to use direct marketing vs. centers of influence
  • How to craft a value proposition prospects actually care about
  • Strategies for winning larger plans and increasing long-term profitability
  • Simple next steps to keep momentum going after the meeting

Questions? Contact Jim Moore, Vice President of Retirement Services, at (949) 225-7145 or jmoore@cpsbenefits.com.

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Beneficiaries Aren’t For Kids

At the age of eleven, the great composer Wolfgang Mozart wrote his first full-length opera. But if you had tried to make him a policy beneficiary when he was that young in any state today, he would be deemed legally incompetent.
 
It doesn’t matter how enlightened or precocious your child, the law doesn’t let a carrier pay a death benefit to a minor.
 
If you do try and then die, a long, drawn-out court proceeding will determine who should manage the funds until the child’s age of legal competency is reached.
 
It’s just as well. How many undirected teens might see even a small benefit (say $25,000 or $50,000) as nothing more than an opportunity for a weekend at the beach with friends?
 
But there is an easy solution! All states have in force a Uniform Transfer to Minors Act (UTMA), or something similar.
 
In a nutshell:
  • A custodian is appointed to manage the death proceeds until the minor’s legal majority. Successor custodians can also be named.
  • The state’s law safeguards the child’s interests by dictating the responsibilities and the powers of the custodian concerning the funds. Consider the arrangement an economical default trust, avoiding the cost and management of a full-blown, free-standing trust.
  • The beneficiary wording is uncomplicated but must conform to the state’s statute.
  • The only downside is that the custodianship unavoidably ends at a given age of the child (21 in most states), which may be earlier than desired.
There is a bit of effort involved for an insurance advisor. The correct wording for UTMA beneficiary designations varies from state to state, and from carrier to carrier. Length of the designation may make an addendum necessary to the policy application.
 
But the sales assistance at CPS Insurance saves you any effort and assures the directions for your client’s death benefit are correct. Remember: the most important section on any application is the beneficiary designation!
 
Contact Tom Virkler, JD – Director of Advanced Markets, at 706-614-3796 or tom@cpsadvancedmarkets.com, anytime minors are involved in your client’s insurance planning, or if you have any questions drafting a policy’s beneficiary designation.
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Empower Your Clients: After-Tax Contributions & In-Plan Roth Conversions

Key Advantages for Your Clients
  • Expanded Savings Opportunities: After-tax contributions allow participants to save beyond standard deferral limits, appealing especially to highly compensated employees. These contributions, when converted to Roth via IPRC, offer the potential for tax-free growth.
  • Strategic Tax Planning: Prompt conversion of after-tax funds to Roth can minimize tax liability on earnings, supporting participants’ long-term financial goals.
Compliance Considerations
  • Adding after-tax and IPRC features introduces compliance complexities, particularly ACP testing. Plans with a high proportion of highly compensated employees may face challenges in passing these tests. Safe harbor plans may also require additional testing if after-tax contributions are added.
Broker Guidance: Feasibility and Implementation
  • Advise clients to conduct a thorough feasibility analysis, considering recent ADP/ACP testing, plan type, eligibility rules, and employer contribution structures.
  • Recommend setting initial low limits on after-tax contributions to gauge interest and manage compliance risks.
Partnering for Success

CPS Employer Benefits provides technical expertise and consulting support to help brokers and their clients evaluate and implement these plan enhancements effectively. Connect with Jim Moore, Vice President of Retirement Services, at (949) 225-7145 or jmoore@cpsbenefits.com to ensure your clients’ plans are compliant, competitive, and positioned for participant success.

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The Probate Court Is Not Your Friend!

Most think the Probate Court is a necessary and unavoidable final landing place for accumulated wealth before it passes to the next generation.  It is neither; and it should be completely avoided if possible.   

Two common examples of probate-avoidance:
  • Jointly owned property (most often with the homeplace between spouses) – Owners have equal shares and a deceased’s ownership interest is automatically re-allocated among the surviving joint owners.
  • Beneficiary designations (most often on life insurance policies) – Upon death of the owner of the account (or the insured on the policy) assets transfer automatically to the named beneficiary.

But… without further planning even these strategies might only kick the can down the road, because upon the death of the last joint owner or the beneficiary, the assets could still end up in the Probate Court. 

And then only four things are certain:
  • The assets of the probate estate will be fully disclosed in the public record,
  • The assets will be subject to the claims of creditors (in fact, that is the purpose of the probate),
  • Receipt of the assets by intended heirs will be delayed, and
  • A portion of the assets will go to pay the fees of the attorneys handling the probate.

A common planning solution to the problems of probate suggested by legal and tax advisors is the use of a simple revocable trust, not be confused with an irrevocable trust.  Managing assets in a revocable trust allows flexibility and control during life and provides greater privacy, less delay, and less expense in the handling of final affairs.

Call Tom Virkler – JD, Director of Advanced Markets, at 706-614-3766, or tom@cpsadvancedmarkets.com today to discuss the features and advantages of revocable trust planning so that you can suggest a revocable trust be part of a client’s overall financial plan and how it can be coordinated with their insurance and annuity arrangements.

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Are Your Clients’ CDs Pulling Their Weight?

Certificates of deposit are a sure thing that let you rest easily at night. You park your money and collect the guaranteed taxable interest each year. No worries. No questions asked.

But, can you use the money elsewhere for better value with just as much, or more, certainty of results?

Consider the case of a 45-year-old male in preferred health, subject to 20% total income tax:
  • His current $100,000 CD pays 4% taxable income for an annual after-tax return of $3,200.
Can this client get a better return and still preserve his capital?
  • He uses the $100,000 to purchase a single-premium immediate annuity that pays $5,944 (a currently available rate of 5.94%) each year for life.  Since a portion of each payment is taxable, his annual after-tax return is $5,277.
  • To preserve his capital for heirs, he purchases a $100,000 level premium permanent policy guaranteed for his life with an annual premium of $994.
  • After the cost of insurance, his net annual after-tax disposable income is $4,283, $1,083 more than the return on his original CD.

Several factors will determine the attractiveness of this strategy, such as age, health and whether the client’s risk-reward profile will be inclined toward a plan with such favorable, but unfluctuating, guarantees.

Reach out to Tom Virkler, JD – Director of Advanced Markets, at 706-614-3796 or tom@cpsadvancedmarkets.com concerning your clients who would benefit from putting their CDs, or other fixed assets, to better use.

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