Join Tom for a CE event on July 31!

On July 31, Financial Planning Advocate, LLC will be hosting a CE event with Tom Tillery as the presenter and will address the subject of The Replacement of a Life Insurance Contract: The Good, The Bad and The Ugly.

On a rare occasion, a life insurance contract will have to be replaced. The Internal Revenue Service mandates strict rules as to the replacement and design of the new life insurance contract. Financial advisers need a keen awareness of the applicable sections of the Internal Revenue Code; the various types of life insurance contracts; and the unique features and benefits of each contract type. This presentation will walk the adviser through the replacement process and illustrate the “finished product” with a case study.

The Webcast will be held on Friday, July 31, 2015 at 1:30PM EDT. The course is approved for one hour of CPE and CE. To register for the class, please email us at hello@ttillery.com. Virtual Seating is limited.

Life Insurance: How Much Do You Really Need?

The fear of death follows from the fear of life. A man who lives fully is prepared to die at any time.   Mark Twain

There is a great deal to take away from this quote by Mark Twain. I concur with his sentiment. However, dying at any time presents an unacceptable financial risk to survivors unless the deceased is fully insured for life insurance.

The risk of a pre-mature death is a catastrophic failure of one’s dreams and goals. In today’s society, individuals ‘mortgage’ [French word meaning payable unto death] their futures by borrowing against their potential wages. The result of an untimely death is that the bills all come due at a most inopportune time. [Read more…]

The Buck Stops Here!

The Recession of 2007 – 2009 generated a great deal of blame and finger pointing. In my mind I visualize the recession as a “multi-car accident” with everyone fleeing the scene and pointing their fingers at the “other guy” as the responsible party. No one hung around to be accountable.

Actually in U.S. history, no one is more accountable than President Harry S. Truman, the haberdasher from Independence, Missouri. He inherited the “multi-car accident,” World War II, the Cold War, and global inflation. But on his desk was a reminder of a strong truth: “The Buck Stops Here.” Many do not know that prisoners in the Federal Reformatory at El Reno, Oklahoma, made this sign. On the reverse side of the sign are the words “I’m From Missouri.” [Read more…]

Wrapping Up Loose Ends with an IDGT

This week I am finishing my review of the applications of an Intentionally Defective Grantor Trust (IDGT) in an integrated financial plan. The last application on my ‘punch list’ is the use of an IDGT with life insurance in financial planning. For decades an IDGT has been used to exclude the life insurance death benefit from the grantor/insured’s taxable estate. If an IDGT were the owner of a life insurance policy on the grantor, and all of the mandated formalities were observed, the proceeds of the insurance policy are not included in the grantor’s estate.

However, the use of an IDGT as the owner of a life insurance policy has fallen out of favor as a result of the American Taxpayer Relief Act (ATRA) which was signed into law on January 2, 2013. This new law makes permanent the changes enacted by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act which was enacted in December 2010. Some of the areas of tax law affected were federal estate taxes, gift taxes and generation skipping transfer taxes.

[Read more…]

The Use of Intentionally Defective Grantor Trusts Post ATRA

by Susan Tillery

In view of the changes brought about by the American Taxpayer Relief Act of 2012, estate planning has taken on a new complexion. With the portability rules and the applicable estate tax exclusion of $5,250,000 (indexed for inflation) being made permanent, ATRA has not taken away the need for estate planning; rather, it has changed what CPAs now need to plan for. Most CPAs working in the area of estate planning are shifting focus to asset protection, enhanced generational transfers and portability.

AICPA President and CEO Barry Melancon, CPA, CGMA, stated this video to AICPA members that the primary purpose of estate planning is to financially protect and provide for loved ones. This same sentiment was echoed by Jean-Luc Bourdon in a previous blog post, Tax Planning Complexity Can Provide Growth for Your Firm. The message is clear: CPAs need to shift from estate tax planning to estate planning.

[Read more…]

When it comes to Life Insurance and Property Settlements, Spouses Beware!

Not long ago, I received a question from an adviser. The adviser  had a client who routinely prepared her own tax returns. She had telephoned the adviser because she had received a Form 1099-R from Podunk Mutual Life Insurance Company. The Form 1099 included a gross distribution of $190,000, and the taxable amount was $147,000. The client said she had not received a check and was wondering why she had received a form 1099-R.

In 1976 her former husband purchased a whole life insurance policy with a death benefit of $145,000. He was the insured and the owner of the policy. Over the years, he borrowed against the life insurance policy for a variety of reasons. In 2001, the couple divorced. As a result of the property settlement, the former husband transferred ownership of the life insurance policy to her.

[Read more…]

A Critical Question — A Surprising Answer

A question that I’m often asked, particularly by other advisors, has to do with retirement income analysis. People want to know if I will recommend a financial planning program for this area that is unbiased, objective, and not product-driven.

Before I answer, I want to offer an observation on software used in financial planning. No software is a ‘be all and end all’ for financial planners. The software used in financial planning is not yet at the place where an advisor is able to input the data, push go, and have the results displayed.

[Read more…]