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Is Your Trustee Trustworthy?

Hope springs eternal in the human breast when even the Cheerios Kid can make a comeback. With his sidekick Sue, he was an iconic mainstay in the ads for the General Mills cereal during the 50s and 60s before his cell-animated storylines were put out to pasture to make way for a wave of faster-paced, sensory-bombarding commercial forms.
 
Only in a more cholesterol-conscious age was he brought out of mothballs to promote the hearty and healthful impact the oat-based product could have on consumers. But the emphasis on good eating habits this time around didn’t hold a candle to the mini-adventures capsulated in those one-minute promotions from olden times where a bowl of “Go-Power” got the Kid through when all else failed.
 
I recall in one the narrator informed viewers that, “When he grabbed his rifle trusty, he found it was a trifle rusty.” They just aren’t making ‘um like that anymore.
 
Trifly rusty rifles got me thinking about the importance of trifly trusty trustees.
 
In the case of U.S. v. Randy Read (memorize that and name-drop at your next dinner party) the taxpayer funded an irrevocable trust with his spouse’s appreciated stock options for the benefit of their children. Over time the options were exercised and the stock sold and the trust accrued an income tax liability to the tune of about $125,000. Rather than paying the tax bill the trustee distributed the trust assets to the kids according to the terms of the trust.
 
When the IRS finally caught up with him, which they always do, the U.S. District Court held the trustee personally liable for the tax owed because he had paid other expenses “having notice of the facts that would lead a reasonably prudent person to inquire as to the existence of the debt” owed to the United States.
 
As insurance advisors we, all the time, encourage clients to make plans that involve the selection of people to serve in fiduciary roles – be it the executor of a will, an attorney-in-fact under a power of attorney, a trustee of a trust, or the like.
 
At this point people usually shuffle about for some super-nice, but semi-reliable Uncle Joe in the family who is willing to fill the role as an accommodation having little understanding of the responsibilities involved.
 
The otherwise esoteric Read case is a rude reminder that fiduciaries do not fill honorary positions.
 
The must be ready to make life-altering decisions, sometimes under extreme circumstances. In addition they must conduct the financial aspects of their office in good order, and while the empowering document may indemnify them from liability involving those in their charge, it does not necessarily absolve them of responsibility to other third parties, especially the federal government.
 
A second admonition is to give proper care in the selection of contingent or co-fiduciaries. In many cases, especially when planning for young children, appointed fiduciaries are usually older than those they will serve, so the likelihood that the contingent may be called upon looms large. And understand that with co-fiduciaries, an appointee must be sure to select like-minded people to advance a planner’s purposes – and make sure there can be no tie votes!
 
Be sure that any legal counselor you recommend adequately tutors clients as to the importance of and qualifications for those selected to conduct their affairs when they cannot.
 
Back to the Cheerios kid…
 
The cereal was named CherriOats when introduced by General Mills in 1941. Over the years 15 additional variations have been marketed, the latest being Ancient Grain Cheerios which includes age-old grists like spelt, quinoa and karmut wheat. Honey Nut Cheerios is the largest selling cereal brand in the United States. The original ole oats roll in at #4.
 
Call us concerning questions you have on the role of fiduciaries in your clients’ Life Insurance, Annuity, Long-Term Care and Disability Income planning.
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“If It Isn’t Written Down, It Didn’t Happen” – Wills, Powers-of-Attorney & Health Proxies

Any fan of the novelist Tom Clancy is probably familiar with these words uttered by the wife of his chief protagonist, Jack Ryan. Ryan is constantly needling Dr. Caroline “Cathy” Ryan about her compulsive habit of making notes about everything as a method for reminder and also a simple record of events.
 
She defends the practice as the best way to keep track of everyone’s commitments and intentions, especially given their hectic lifestyle – in that book he happens to be Vice President and she a busy physician, both with young children in tow.
 
Creative marketers and seminar sales-folk have built and sold entire programs of self-discipline and personal organization around the concept.
 
But the government of the state in which you live is far ahead of both.

Regarding your client’s planning intentions and goals; all 50 states have legislation in effect that effectively says, “If they aren’t written down, then they didn’t happen!”

Who needs Estate Planning?
 
The fact is that everyone needs estate planning, not just the wealthy. Everyone has concerns about what will happen to themselves, their survivors and their belongings in the event of any number of life-changing events.
 
Critical to the assurance that all will go as desired in each circumstance is the execution of at least three written planning documents. If they don’t exist then the State will do your clients’ planning for them.
 
Contact Tom Virkler, JD, CLU, Director of Advanced Markets, at (706) 614-3796 or tom@cpsadvancedmarkets.com to discusses these documents in further detail so you can better encourage every client to take necessary steps for their completion in conjunction with their advisors.
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Incompetency Planning

When the fat lady sings… As they say, “It’s not over until then.”
 
There is a comedian who likes to inform his audience that it is his goal to live forever. Looking out into the crowd he adds, “So far, so good!” But the fact is that death is the one contingency everyone can be pretty sure will occur at some point.

There is a tendency in the planning process to focus on the matters of final arrangements, like wills and life insurance, and not give proper attention to the possibility of incapacity prior to death.

Different Types of Incapacity
 
The inability to handle affairs may be caused by something other than mental incompetency. Conducting business or carrying out activities may be impractical because of the onset of temporary or permanent physical infirmities, or geographic absence due to travel or distant residence.
 
Give thought to delegation of authority in circumstances other than those involving mental incapacity.
 
Financial Concerns
 
The document for delegating authority in financial matters is a power-of-attorney. It can be as narrow or as broad as needed. It can in force until revoked, or it can take effect under particular circumstances and can remain valid even into a period mental incompetency.
 
Revocable living trusts, often used to keep assets out of the probate court, can also give authority over property in the trust to a co-trustee or contingent trustee.
 
Beware of joint ownership as a solution! The responsibilities of joint owners is undefined and transactions with certain assets, such as real estate, may not be possible without agreement of all owners. Also, creation of joint ownership may create gifting concerns.
 
Medical Concerns
 
Planning documentation will go under various forms and names in different states (e.g. health-care directives, living wills, health proxies, medical power-of-attorney), but if properly drafted should address three items:
 
  • Direct who will make health care decisions when needed for the principal.
  • Indicate who will make any life-sustaining or life-ending decisions necessary.
  • Grant HIPAA authorization for decision-makers to receive all medical information necessary without the consent of the principal.
The process should also include proper risk management planning giving consideration to the advisability and feasibility of long-term care and disability insurance options available.
 
Whom Do You Trust?
 
All the documentation is fine, but it is only as good as the qualifications and reliability of the attorney-in-fact, trustee, or other fiduciary chosen to carry out the terms.
 
Good starting points for candidates include:
 
  • Their geographic location – Will they be on-site when needed?
  • The intensity of their lifestyle – Will they have time to attend to their responsibilities?
  • Experience – Do they have the background and skills to handle the affairs they will oversee?
All this, of course, in addition to whether they have proven trustworthy and dependable in the past.
 
The importance point to impress upon a client regarding incompetency planning is that if they don’t make a plan the State will make one for them. Through tedious, drawn-out and expensive guardianship or conservatorship hearings a court of law will set a course that may or may not achieve what the client might have desired, administered by people the client may or may not have preferred.
 
Contact Tom Virkler, JD, CLU, Director of Advanced Markets, at (706) 614-3796 or tom@cpsadvancedmarkets.com with basic questions and concerns that each client should consider taking to their legal advisors, as well as for information on the long-term care and disability insurance options that can assure that proper funding is available to carry out the intentions of your clients in the unfortunate event of incompetency.
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A Transfer-For-Value Will Only De-Value

Little Harold ran into the kitchen where his Mother was preparing dinner and said, “Hey Mom! You know that antique vase on the stand in the front hall that has been handed down from generation to generation?” When she looked up he reported, “Well my generation just dropped it!”

The transfer of valuable assets must be done with care. And so it is with life insurance handed down or handed off through a change of ownership.

Long before the life settlement prairie fire swept across the industry landscape, Congress was concerned about the practice of brokering in the lives when no true insurable interest existed. Section 101 of the Internal Revenue Code doesn’t prohibit the purchase of a policy, but it does curtail the tax advantages of such an “investment” to an extent that could be significant to the unsuspecting.
 
In A Nutshell
 
Death proceeds are not includible in gross income (i.e. they are income tax-free) unless the policy was acquired for “valuable consideration”, then they are excluded only to the extent of the consideration paid (basis). And consideration doesn’t have to be cash. The IRS will go far afield in construing any hard or intangible assets, services or other benefits rendered in the acquisition of the policy as consideration. There are some common exceptions. Most business-related TFVs are protected if they occur between partners or their partnership (LLCs taxed as a partnership are considered partnership), or if the transfer is to a corporation in which the insured is a shareholder or officer. Most transfers within a domestic situation are not affected because they are considered gifts.
 
Beyond that attorneys and accountants must struggle with the “gray areas” that always gather like a fog around the real life situations addressed by the letter of the law. The two most common scenarios we encounter follow with a description and our best guess as to the response that a qualified advisor might give:
 
Collateral Assignments
 
The regulations to IRC 101 state that “the creation, for value, of an enforceable contractual right to receive . . . proceeds of a policy may constitute a transfer for a valuable consideration . . . [but] the pledging or assignment of a policy as collateral security is not a transfer for a valuable consideration . . .” Consequently, use of a policy to secure a loan is not a TFV. But an assignment for some other reason may be.
 
Beneficiary Changes
 
There are several reasons it may not be wise to make someone a beneficiary in return for some consideration, but a potential TFV problem is probably not one of them. Again, the regulation states there must be “an enforceable contractual right to receive . . . proceeds of a policy”. A revocable beneficiary change does not create such a right.
 
Fortunately there is a “fix” for policies tainted by a transfer-for-value. Unlike the family vase (pronounced vahze if you are in good company), this is a Humpty-Dumpty that can be put back together again. The regulations have two pieces of good news. First, a transfer back to the insured is never a TFV and, second, it is only the last transfer that governs taxable status. It may be possible to cleanse the troubled policy with a transfer back to the insured and then work forward from there.
 
Contact Us
 
Contact Tom Virkler, JD, CLU, Director of Advanced Markets, at (706) 614-3796 or tom@cpsadvancedmarkets.com with any concerns you have about the tax results of transferring ownership of an existing policy, or if you need help rescuing one from the grip of potentially taxable proceeds.
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How Big, How Beautiful Of A Tax Bill?

We use the idiom “straws in the wind” when some small indicator or event might serve as a portent that something more significant may be in store down the road. 

Of course, there are never any guarantees, and soothsaying as to final outcomes from meagre beginnings may prove totally off-base as to the ultimate meaning of early signs.

Because the process for passing a tax bill is so arduous, all the uncertainties apply to the straw thrown into the current political whirlwind around Washington, D.C., last week when House Republicans offered their proposal for what is officially titled The One, Big, Beautiful Bill.

Of immediate concern here is only that small part of its 389 pages that would make permanent the current high federal gift and estate tax lifetime exemption starting at $15,000,000 per taxpayer in 2026, then indexing it for inflation each year thereafter – rather than reducing it by 50% on January 1, under the law’s current sunset provision.

Better than a sharp stick in the eye and the longest journey must begin with one step – but that journey is long. The final form must pass the House, then go to the Senate who will propose its own version followed by passage of a final agreed upon bill – with all the cutting, pasting, and compromising along the way.

But high-net-worth clients must be reminded in the small amount of time remaining, that the legislative uncertainty doesn’t matter for planning purposes if they follow this course that offers the best of either outcome:

  1. Establish a third-party recipient (usually a common irrevocable grantor trust).
  2. Loan property equal to one or both (if married) of the high exemption amounts to the trust.
  3. Then decide later, depending on the final tax bill, whether to call the loan and get the property back (if the high exemptions remain in place), or forgive the loan converting the transfer into an untaxed gift (if the sunset will occur).
  4. If converted to a gift, proper planning can allow for ongoing maximum control over the property and even (if married) to access to the transferred property.

We can help with preliminary explanation and consideration of the planning issues that will be raised by legal and tax advisors. The best conversation starter with a client is to request an estate tax estimate based on their net worth, the state of legal residence, marital status, and an anticipated rate of net worth growth. With that information we can generate the easy-to-understand calculations for presentation in just 24 hours (well, maybe 36!).

Give Tom Virkler a call at 706-614-3796 or tom@cpsadvancedmarkets.com.

For What It’s Worth:  Having straws in the wind should not be confused with being three sheets to the wind, a saying used to describe someone who is extremely drunk, comparing their situation to a ship in a storm whose lines have broken on three of its sails resulting in the loss of control and the headway of the vessel – although one has been known to cause the other.             

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Clean Up Your Beneficiary Mess

In the past the word culture referred to a society’s accumulated knowledge and its time-tested and proven body of values and principles which each generation must pass on to the next if the ongoing continuity and success of the community was to be assured. But much like paper currency, words lose their value over time.

Terms today like youth culture, bantered about endlessly, reflect a contemporary understanding of culture as nothing more than an inventory of current tastes, preferences and distractions, usually defined and pursued by those who aren’t paying the bills.

And if you think that values and principles are hard to pass down, try getting a death benefit to the next generation, especially if the next generation are still minors.
 
The Beneficiary Designation
 
The biggest opportunity for disaster on an insurance application comes when the advisor must complete the beneficiary designation. The most important aspect of the transaction is assuring that the death benefit will go where it is intended, and the space provided to that end is totally inadequate for the purpose. The “little beneficiary box” serves both to intimidate clients into thinking their directions must be short and sweet and to encourage lazy advisors not to take the time to put full and complete instructions on a separate sheet of paper – especially when children are involved.
 
There should never be a contingency that will result in an under-aged beneficiary. Minors (the age of majority differs from state to state) are legally incompetent to accept death proceeds. Guardians to handle their affairs must be appointed in legal proceedings that are time-consuming and expensive.
 
The best solution is to name as beneficiary a trust that will hold and use the funds for the minor children until the trustee is instructed to distribute them by the terms of the document. The difficulty is convincing an insured to get a trust written even when the size of the death benefit makes a compelling argument for the trouble and expense.
 
The good news is that there is an uncomplicated solution.
 
All states have a Uniform Transfers to Minors Act (UTMA) on the books. The law enables you to title property (or craft a beneficiary designation) in the name of a custodian for the benefit of a minor child.
 
The comparative disadvantages versus a trust are 1) the custodian must carry out duties to the child as spelled out in the law, which may not be exactly or as flexible as what the insured would prefer, and 2) distribution of the funds must occur at an age given in the law (21 in most states) which may be younger than the insured would like.
 
Not perfect, but as my Mother used to say, “A speckled axe is better than none.” Call it a poor-person’s trust created for you by the state.
 
But the UTMA designations can be tricky. State may differ in what they require (the word “uniform” notwithstanding) and carriers may differ in what wording they prefer. A full and separate designation must be spelled out for each minor child and successor custodians should be named – and, yes, it will require a separate sheet of paper. But we will help you draft the designation. Then you can devote your time to seeing that the client passes on his or her culture to the minor children involved.
 
Call for help on any ownership or beneficiary designation, but especially one creating a custodianship under your state Uniform Transfers to Minors Act. Try me at 706-614-3796 or tom@cpsadvancedmarkets.com.
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How To Successfully Use RMDs In Life Sales Copy

Many argue that the best Super Bowl halftime show took place in Jacksonville, FL, some years ago. In a forum known for mediocre performances that fail to meet the hype and fulfill the expectations, the lights and fireworks opened on a band named Wings, led by one of the last vestiges of an earlier rock group whose work and music had taken a place as the centerpiece in the canon of popular music in the English-speaking world.
 
Paul McCartney chose to lead off with one of his creations from the Beatles’ music catalogue. He and 80,000 spectators sang the song Baby You Can Drive My Car with its tale of a taken young man lured into a position as chauffeur for his rising-star love-interest only to have her confess at song’s end, “I got no car/ and it’s breakin’ my heart,/ but I’ve got a driver/ and that’s a start!”
 
And so it often is with insurance sales to be funded with a proposed insured’s unneeded RMDs coming out of their qualified plans. It makes sense. Use the money you must take, but don’t need, and leverage an eventual death benefit to heirs with insurance coverage. But if you and this concept are driving a successful sale then make sure you have an insurance company that wants to be a “car-rier”.
 
The pill in the jam is financial justification. The insured is 70-1/2 and, seldom, has any earned income. Consequently, coverage can’t be justified for income replacement purposes. And more often than not the proposed insured doesn’t have federal or state death tax concerns.

In these situations it is important to know the carriers who are sympathetic to and will underwrite reasonable amounts of coverage if other facts about the case are in order.

Consider This:
 
First, what percentage of the insured’s annual income is being used for premiums? The acceptable amount could be larger in cases where it is adequately demonstrated that living expenses will be met with what remains.
 
Second, the amount of death benefit will usually be limited by a formula that ties the face amount to certain financial criteria. A common example would be: Permissible coverage = 50% of the net worth attributable to investment assets + FMV of residence – coverage in force.
 
Because insurance is often purchased in situations where no death tax is anticipated, clients overlook the advantages of purchasing the policy in a trust. A living trust will keep the proceeds away from the exposure and expense of the probate court while allowing for their distribution according to a testamentary pattern not practical through a simple beneficiary designation. An irrevocable trust will protect the proceeds from creditors as well.
 
Fifty-one years ago last April the Beatles had the top five single recordings on Billboard’s Hot 100 Chart. No group or singer has every come close to such domination. Billboard Magazine reported that during the first four months of 1964 the Fab Four accounted for 60% of all single records sold in the United States.
 
For similar success in your line of work – call or write to discuss those carriers who are comfortable with the “RMD-to-Life Premium” concept and ask for a marketing piece that will help generate interest and sales – either at 706-614-3796 or tom@cpsadvancedmarkets.com.
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Insurability – The Most Important Retirement Asset?

Few American publishers have had or will ever approach the influence of Henry Luce in his heyday.

Through the middle half of the 20th century, Luce founded and successfully grew a family of magazines whose content was a major factor in shaping the thought and activity of American society.

He named them after the three things he thought most important; Life, Time and Fortune.
 
We have only to look to our retirement planning to appreciate the accuracy his conclusion.
 
Consider this:
 
The purpose of a program of systematic savings during our employment years is to accumulate the Fortune necessary to provide for the Life to which we have grown accustomed hoping we have enough Time to achieve that goal.
 
Traditional qualified retirement plans can prove insufficient toward that end for wealthier clients. Limits on contributions as well as an inadequate period for saving, especially in the event of premature death, can leave a retiree short of funds necessary to maintain his or her lifestyle. Other initiatives must be taken.
 
A time-tested vehicle to provide supplemental retirement income is an over-funded universal life insurance policy.
 
Not only does the contract allow for additional income with many advantages similar to qualified arrangements, but the death benefit feature offers a “self-completion” aspect for the fund in the event of premature death.
 
Contact us today for a complete discussion of this planning concept.
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A Trifecta Of Sales Ideas

Back in the days before campaigning for public office became an ongoing, year-round activity, President Truman (or somebody like that) said, “Nobody pays any attention to the presidential election until the World Series is over!”

Even now, in much different times, the wisdom of the observation is not lost.  Priorities divert our attention to the more pressing matters, leaving others to another day. 

And as advisors working within a client’s calendar year, we know there is more success focusing a client’s attention on planning to save future taxes only after the concern for paying immediate taxes is out of the way, i.e., after April 15.

So, for the remains of 2025 consider a trifecta of marketing initiatives that are sure to address at least one need for every client:

High-net-worth taxpayers – Wealthy clients have until January 1, to take advantage of an immediate estate tax savings of almost $3,000,000, or almost $7,000,000 over the next 20 years.  But they must act before the tax law reduces the Federal gift and estate tax lifetime exemption by 50% at the end of the year.

Business owners – The recent Supreme Court case of Connelly v. United States could significantly increase the estate tax of business owners with an improperly structured buy-sell agreement.  But in any case, the agreement they have probably hasn’t been reviewed recently.  Or worse, they’ve done no buy-sell planning and your inquiry concerning Connelly might just get that process started.  Connelly can be a door-opener to business transition planning.

Providers with dependents – Most clients are not sufficiently insuring their most important asset: their ability to convert their labor into wealth.  Many don’t stop to think that their premature death would deny dependents their annual wage each year for what would have been every remaining working year.  Often any coverage clients do have in force only represents a fraction of that loss.

If you are a bit rusty on the concepts and the details behind any or all of these marketing opportunities, have no fear!  Available upon request are, 1) a concise cheat sheet covering the ins-and-outs of each planning initiative, 2) an on-demand presentation to you, as well as your clients and their advisors, on these subjects by either conference or Zoom call, and 3) an array of tailored marketing materials and services to help initiate and move forward each case.

Make your requests to Tom Virkler at either 706-614-3796 or tom@cpsadvancedmarkets.com to help assure a more profitable remaining 7-1/2 months of 2025.

For What It’s Worth:  So, how much attention does baseball still draw since the days of Harry Truman (or somebody like that).  In 2023 the Pew Research Center asked 12,000 U.S. adults, “If you had to choose one sport as being ‘America’s sport,’ even if you don’t personally follow it, which sport would it be?”  Baseball scored a solid ground-rule double with 27% tipping their ball-caps to the National Pastime.  But nothing came close to football, which received 53% of the nods among those surveyed.

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162 Executive Bonus – More To Life Than Just Life

In addition to the simplicity, ease of implementation and administration, and plan design and funding flexibility, an executive bonus arrangement can meet an array planning needs if presented properly to the employer and comprehensively to the executive.
 
Life for Life or Life for Less
 
The need to protect against death isn’t always one that lasts a lifetime. If coverage is placed in anticipation of future estate tax liability, then the policy better be there until the end – unless an insured wants to bank on the repeal of the inheritance tax during some rare moment of temporary governmental sanity.
 
On the other hand, if the purpose is merely to replace income lost due to death prior to retirement, then term insurance may be a better and more economical choice. There is no reason a plan cannot fund term insurance.
 
An Additional Resource for Retirement
 
In an age of restrictions on access to qualified retirement planning opportunities for the highly compensated, more employees are using over-funded permanent policies as a sort of “Super-Roth IRA” to build cash that will be available on a tax-advantaged basis, and to supplement other retirement fund sources in later years.
 
A plan participant has the freedom to choose whether he or she wants to design their policy under slim or fat funding scenarios, in order to meet their particular needs.
 
Sometimes “Policies” is the Best Policy
 
It may better suit multiple needs if the amount of the bonus to an executive is used to purchase multiple policies; e.g. a term policy to protect for income replacement, and a permanent product for lifelong needs. At retirement, the term policy can lapse or can be converted if the need for permanent protection has increased.
 
Providing for a Long-Term Care Event
 
A participant should consider the option of adding a rider that will allow early access to benefits should long-term care be needed. Withdrawals for long-term care expenses may frustrate the effectiveness of the policy, if the employee is over-funding the contract for use as a supplemental retirement vehicle.
 
Again, this problem can be avoided by using a two-policy executive bonus arrangement – one that is over-funded for retirement purposes, and the other with a LTC rider.
 
And Maybe a Hint of Disability Protection
 
The waiver of premium rider has been pushed to the side in most sales presentations today, but its use can assure that policies will be maintained in the event of a disability, and even if employment ends prior to retirement age for that reason.
 
To Infinity and Beyond – A Bonus is a Bonus is a Bonus
 
The executive bonus can be used to fund any vehicle agreed upon by the employer and the employee. If additional life coverage is not needed, then consider funding an annuity or a free-standing long-term care policy. All aspects and advantages of a 162 bonus plan still apply.
 
Call for design and sales support for a business prospect that needs a simple, non-invasive benefit plan for key employees.

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