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The Best Use Of Unneeded RMDs!

In December of 1788 New Hampshire became the ninth state to ratify the newly drafted U.S. Constitution, assuring it would become the law of the land. The great sage and statesman, Benjamin Franklin, wrote to a friend, “Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.”
 
Perhaps what Franklin didn’t emphasize enough was how unavoidable taxation would be for IRAs!
 

It’s all good times when contributions and account growth are tax-deferred, but when those salad days are over there is no avoiding the IRS.

 
Non-spouses who inherit an IRA must clean it out and pay tax within 10 years. But for most the payday begins at age 73 when the IRS demands taxable required minimum distributions (RMDs).
 
What do you advise a client who tells you they don’t need the RMDs? Franklin would probably suggest they recover the tax (and then some) by using the balance to purchase a life insurance policy!
 
But it takes a bit of attention. Carriers don’t approve coverage simply because your client can pay the premium.
 
Financial justification must be made, usually in two ways that most age 73-plus clients cannot fulfill:
  1. Earned income replacement – Most receiving RMDs no longer work!
  2. Anticipated death taxes – Most aren’t wealthy enough that death taxes are a concern, even in the 20 or so states that have their own death tax.
Fortunately, many carriers have adopted a third justification guideline allowing a policy on your clients who want to leverage their legacy using unneeded RMDs to purchase coverage on themselves.
 
The criteria differ with the carrier, and the applications require some explanation up front. So let us help you with your clients’ RMD planning, finding the best carrier and structuring the policy in a manner that will best serve the policy beneficiaries. Contact Tom Virkler, JD, Director of Advanced Markets at tom@cpsadvancedmarkets.com or 706-614-3796.
 
For What It’s Worth – Dr. Franklin’s portrait appears on the hundred-dollar bill. Slang on the street often refers to these C-notesas “Benjamins.” Since July of 1969 they have been the largest denomination in circulation and since then have declined by almost 90% in buying power.
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MEGA-LTC – Coverage With All The Advantages

The first car insurance was purchased in 1897, by Gilbert J. Loomis of Westfield, MA.It provided $1000 of liability coverage for an annual premium of $7.50. There is no record of how happy Mr. Loomis was when paying for the coverage, but in the 120 years since, few have been enthusiastic about buying automobile insurance. The premiums are high and unpredictable. Getting claims paid properly is difficult. And worst of all: accident-free drivers might as well be throwing the premium dollars out the driver-side window.
 

For a generation, similar complaints have been made concerning long-term care insurance, often discouraging your clients from buying the protection they need.

 
But those product shortcomings are gone! Consider introducing them to a policy that:
  • Guarantees premiums for the life of the policy and allows payment options ranging from single-pay to annual-for-life.
  • Guarantees benefits and allows for benefit inflation options.
  • Guarantees a death benefit, reduced only by the amount of any payments made for long-term care.
  • Guarantees a portion of the long-term care and death benefits even if scheduled premiums are stopped.
  • Guarantees benefits paid retroactively to day one after the 90-day elimination period is completed.
  • Guarantees payment of benefits in cash to be used as the policyholder sees fit.
  • Guarantees division of the benefits between spouses as needed.
  • Guarantees full or partial return-of-premium options in certain policy years if the policyholder chooses to end coverage.
And all the policy features have a range of flexibility in design so the coverage can be customized to meet each client’s particular needs and circumstances. Bring your clients’ long-term care planning to us.
 
For What It’s Worth – The first automobile manufacturer, the Oldsmobile Motor Company, was founded in Lansing, MI, the same year Mr. Loomis bought his policy, but the coverage was on a car he had built himself!
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QLACs – Avoiding Taxes For A Little Longer

Using someone else’s money costs money. It’s called paying interest on a loan. But it’s especially irksome when you have to pay someone to use your own money. It’s called income taxation.
 
But sometimes the government at least allows you to defer the levy on taxable income. The most common occasion is when money is saved in qualified retirement plans.
 
Consider the power and efficiency:
  • There is no current taxation on either contributions or earnings…
  • Allowing for maximum compounding of the account balance…
  • With the possibility that taxation may ultimately occur in lower brackets.
But the deferral period ends when taxpayers reach (in most cases) age 73 and must begin taking required minimum distributions (RMDs) from their plan.
 
But what if a client doesn’t need the RMDs and would like to extend the tax deferral period?
 
Since 2014 the government has allowed for the extended deferral of both the taxation and required distributions of up to (currently) $210,000 of your client’s qualified accounts until as late as age 85 by repositioning the funds in a qualified longevity annuity contract (QLAC)!
 
We will help you and your client:
  • Determine how long to extend deferral estimating the tax impact on the larger distributions required at a later age.
  • Determine how much should be deferred based on current or eventual need for RMDs.
  • Structure deferral advantageously if RMDs have already begun.
  • Design a proper death benefit option in the QLAC if your client dies prior to distributions.
  • Select the right product to meet the QLAC goals chosen, as product design and flexibility vary greatly from carrier to carrier!
Call now concerning your clients interested in greater tax deferral.
 
For What It’s Worth: Albert Einstein supposedly said, “The most powerful force in the Universe is compound interest.” Regarding the reliability of that attribution consider that the often-quoted Yankee-great, Yogi Berra, commented, “I really didn’t say everything I said.”
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Personal Retirement Planning – A Little Different, But Bigger And Better

There is a report of a citrus farmer in Florida who has grown a grapefruit that looks exactly like an orange, except that it is bigger and yellow!
 

Sometimes the best planning solutions for our clients may also look different than what they request, but prove to be bigger and even better.

 
Many clients want to save more for retirement but have already maxed out on contributions they can make to available qualified plans or an IRA. What is a good alternative that you can suggest?
 
If your client is insurable, an overfunded UL policy is attractive for many reasons, especially when compared to another popular retirement vehicle, a Roth IRA! While offering similar features, the UL plan may be bigger and better.
 
Consider:
  • Plan availability – Anyone can fund for retirement with a life policy, despite the amount of their income.
  • Contribution deductibility? – No. Just like a Roth, funding is done with after-tax dollars.
  • Contribution limits – Funding is restricted only by the size of the policy.
  • Tax-deferred account growth – Just like any life policy.
  • Tax-favored supplemental income – Available through first-in/first-out withdrawals and policy loans.
  • Early withdrawal penalties – None! Account values can be accessed even prior to age 59-1/2 without tax penalties.
  • Plan self-completion! – The death benefit immediately achieves retirement planning goals for heirs in the event of pre-mature death, on a tax-free basis!
We can help determine the most effective product with the best premium/death benefit structure and the presentation ledgers you will need for your next opportunity. For support on all your business and estate planning case contact Tom Virkler, JD – Director of Advanced Markets, at 706-614-3796 or tom@cpsadvancedmarkets.com.
 
For What It’s Worth – It seems that comparisons to oranges are often difficult. Those in the know say there is no word that phonetically rhymes with orange.
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Passing Property To Kids – Give It Now Or Leave It Later?

Recall the Prodigal Son, whose insistence led to his receiving his inheritance during life thus enabling him to proceed to squander his wealth in riotous living. Among the lessons in the tale is the not so gentle admonition about gifting property before the next generation will accept the responsibility that attends.

But even in the case of children rightly raised, there are several planning considerations when deciding whether to pass property now or at death.

Among other things:
  • The effect on the property’s income-tax basis is different – A recipient of a gift takes the same basis in the property as the gift-giver. Sale of the property later could result in a high capital gains tax. But an heir gets a “stepped-up-basis” in inherited property to its fair-market-value. As a result, sale of the property later results in less taxable gain.
  • Planning strategies – Gift only high-basis property or property that is unlikely to be sold later. Otherwise consider waiting and bequeathing the property to the intended recipient.
  • But… remember that a Will can be easily changed – If property is promised at death, the instrument that would make that happen (either a Last Will & Testament or the dispositive provisions of a revocable trust) can be changed with no duty to inform the initial intended beneficiaries.
  • Make sure there are no remaining first generational needs – As an example, sometimes a family business is left to children by a deceased managing parent overlooking a surviving spouse who might still need distributions from the company’s revenue stream. Make sure that the potential for income from any asset to be transferred will not be needed down the road by those passing the property.
We are ready to help you fully inform clients regarding the planning issues that are involved with transferring property to their next generation either during life or upon death. We are ready and available to take part in conversations with you and your clients and eventually, if needed, with their advisors. Contact Tom Virkler at tom@cpsadvancedmarkets.com or 706-614-3796.
 
For what it’s worth: As for the Prodigals to be found in any clientele, astute planners keep in mind the adage regarding family wealth that has proven reliable enough to still be around: The first generation builds it, the second maintains it, the third loses it.”
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Buy-Sell Planning And Frogs – Look Before You Leap

Aesop has a fable about two frogs whose pond dries up and are left to find a new home. One enthusiastically suggests they descend into a nearby deep well that would both provide water as well as shade on hot sunny days. With much caution the other replies, “But suppose the water should fail us. How can we get out again from so great a depth?”
 
When planning for business partners, don’t simply address the immediate concern upon the death or disability of a co-owner. Address the long-term problem created if the company relies heavily on the day-to-day involvement of the owner.
 
Before getting any signatures, alert your business clients that complete buy-sell planning must address two critical needs! Consider:
  • Need #1 – Funding the buy-out – Life or disability coverage provides the funds to assure the family of the deceased or disabled receives an agreed-upon price for their interest, and the remaining owner is assured of ongoing control.
  • Need #2 – Assuring ongoing success without the partner – “Key person coverage” with a company-owned policy provides cash to make up revenue shortfall caused by loss of a participating owner’s services.
  • Flexibility in the Use of Policy Proceeds – Once coverage for both is in force the benefits can be used for either need (e.g., when the agreed purchase price increases and an owner’s replacement cost deceases with the approach of retirement).
  • The “One-policy” Policy – Most carriers allow two owners to cross-own one policy that covers both needs when the agreement will result the purchaser being sole owner.
We are equipped to help you fully inform clients regarding their buy-sell planning so they can more efficiently talk to and make decisions with their legal and tax advisors. We are ready and available to take part in conversations with you and your clients and eventually, if needed, with their advisors. Contact Tom Virkler, JD – Director of Advanced Markets at tom@cpsadvancedmarkets.com or 706-614-3796.
 
For what it’s worth: Most frogs can jump up to 20 times their length, suggesting that Aesop might be fine with the first frog’s suggestion, depending on the depth of the well.
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The Insurance That Ought To Sell Itself!

We hear people say that something is, “As easy to sell as a bar of soap!” The expression derives from the fact that soap almost sells itself because it is a simple, common, necessity of life that is inexpensive and easy to carry out of the store!

Can we not make the same case for income replacement life insurance?

Consider:
  • It’s essential – Every wage-earner on whom someone depends needs it.
  • The risk is easily determined – Just use a carrier-approved formula: Earned Income x Anticipated Working Years Left.
  • Most are underinsured – …often having only group term ($50,000) or a policy whose face amount seems like a large sum until compared to the income actually lost over the remaining working life.
  • It is an economical solution – Because the period of risk is known, inexpensive term insurance fits the bill.
  • It’s simple – Level term insurance with a guaranteed death benefit and a guaranteed premium is the easiest product on the market to explain to a client.
  • It’s easy for you – More than any other sale, the speed and simplicity term policy placement is maximized by online application, underwriting, and policy delivery.
For assistance with marketing pieces or determining the best term product for each situation (it’s not always just the cheapest one!) get in touch with Tom Virkler, JD – Director of Advanced Markets, at tom@cpsadvancedmarkets.com or 706-614-3796.
 
For what it’s worth: If selling the suds is that easy, then the least demanding sales position may be in Unilever’s Beauty & Wellbeing Division which manufacturers the Dove Beauty Bar which is far and away the best-selling bar soap in the United States.
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Kids Who Won’t Mind Their Business!

When eating an apple, the only thing worse than finding a worm… is finding half of a worm!
 
For a business-owning parent, the only thing worse than having no kids interested in the succession of the company is when only half the kids are interested in carrying on and inheriting the family store.
 
Consider several scenarios you should address with clients before a life change forces decisions without the time or necessary pre-understandings for proper resolution:
  • If the kids are all uninterested – Begin discussions of the best way to transition ownership to outside the family.A keyperson buy-out arrangement funded with life insurance on the parent is a common arrangement.
  • If only some of the kids are involved and interested – The goal here is estate equalization.To prevent involvement of non-participating siblings, life insurance is often purchased on the parents to provide funds for the bequests to those who won’t inherit any of the family business.
  • A surviving spouse – A non-participating husband or wife left behind that still depends on equity distributions must not be overlooked.Life insurance can be purchased on the parent operating the business that allows children to purchase the business from the surviving spouse.
  • Non-family owners in the mix – A parent who is not a sole owner may want his or her share to go to participating children first.This requires a two-tiered buy-sell agreement giving the children a right-of-first-refusal to purchase or inherit a parent’s interest before non-family owners have a right to purchase.
An attorney will be needed to advise and properly draft the legal documentation. But you can make clients aware of potential problems and initiate serious thinking toward steps to plan properly.
 
Any frustrated homemaker will tell you, “Cleaning your house while your kids are still growing up is like shoveling the sidewalk before it stops snowing.” And so, it might seem to attempt succession planning when everyone is fine and business is going-and-blowing, but it eliminates heavy lifting down the road.
 
For help in getting family business owners to start shoveling the walk now, we will review existing documents and get on the phone with you, your clients, and their advisors to help get discussions started. Contact Tom Virkler, JD – Director of Advanced Markets, at 706-614-3796 or tom@cpsadvancedmarkets.com.
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Are Only The Rich “Trusty?”

The author F. Scott Fitzgerald once said to Ernest Hemingway, “The rich are different from you and me.” Hemingway retorted, “Yes! They have more money!”

Unfortunately, that is often the only difference clients see between themselves and people who plan with irrevocable trusts to protect assets from death taxes.

But there are many planning advantages to suggesting irrevocable trust planning for folks who don’t have to worry about Federal estate taxes.
 
Consider:
  • Avoiding state death taxes – Many states have their own death or inheritance taxes that levy on much smaller amounts of taxpayer net worth.
  • Protection from creditors – Assets in the trust are free from judgement or levies against the creator of the trust.Trust beneficiaries are also protected so long as assets remain in the trust.
  • Detailed and private distribution planning – Sophisticated and multi-generational gifting and inheritance scenarios can be carried out free from the public scrutiny of the Probate Court.
  • Ongoing control of property – Transfers of non-voting interests in property held by a Family LLC allows the creator of a trust to continue to determine use of the trust property.
  • Spousal access – A married creator can grant broad access to trust property to a husband or wife allowing for withdrawals if assets and funds are needed later on.
  • Lower income taxation – Trusts can be designed so that income on assets are taxed in the creator’s lower tax brackets, rather than the compressed high trust rates.
Hemingway also said, “The best way to find out if you can trust somebody is to trust them.” And he would probably say that the best way you can find out if a trust can help is to trust us to help you and your client with their next case, especially in coordinating a trust with their insurance planning. Contact Tom Virkler, JD – Director of Advanced Markets, at 706-614-3796 or tom@cpsadvancedmarkets.com.
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Winning In Overtime With Unneeded Life Policies

“I went to a fight the other night and a hockey game broke out!” The famous one-liner by the late comedian Rodney Dangerfield finds it humorous foundation in the reality that those athletes on skates are resourceful in finding occasion for fist-a-cuffs.
 
But the sport offers a life lesson in making the best of a bad situation. If a team wins a game in regulation it is awarded two points in the standings and the loser gets nothing. But if a game is tied even the team that loses in overtime or a “shootout,” gets one point.

As an insurance advisor don’t miss the opportunity to make the “loss” a client may have in an unneeded policy into a positive transaction.

Example: Your client has a life policy into which he or she has paid $50,000 in premium and has a surrender value of only $10,000. The policy requires too much to maintain or is no longer needed.
 
But rather than tossing in the towel, suggest using the policy loss to earn some tax-free money! Consider:
  • Swap the policy for an annuity in a 1035 exchange.
  • Section 1035 allows for transfer of both the cash value ($10,000) and the old policy tax basis ($50,000) into the new contract.
  • Account values in annuities are taxed only to the extent of gain in the contract, the exchanged-for annuity allows room for $40,000 in growth before there is any potential income taxation on full surrender.
  • Additional premium can be contributed at the time of the exchange allowing for quicker loss recovery (e.g., $20,000 new premium results in an initial policy value of $30,000 and initial tax basis of $70,000 – loss in the policy is not affected!).
A 1035 exchange to an annuity is not without its hoops and details, so contact Tom Virkler, JD – Director of Advanced Markets, at tom@cpsadvancedmarkets.com or 706-614-3796 concerning these and any opportunities for increasing your annuity business.

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