A New Option Helps Provide Long Term Care Protection

When I entered this industry 20 years ago, I knew very little about the importance of protecting a life savings against the threat of long-term care expenses. Then one day, two years into my career, I received a phone call from a client telling me to liquidate his mothers account which held a little over $326,000. He went on to explain that she had been receiving around the clock at-home care and needed this money to cover this expense for the next 24 months. 


That’s when I began addressing the growing need to protect my client’s life savings against the potential of future healthcare costs. At the time, the primary weapon to help defend against this threat was by transferring the expense risk to an outside company through the form of a long-term care insurance policy.

Over the last year and a half, five clients of our Enhance Wealth family have had a parent or spouse begin long term care with current monthly expenses ranging from $5,800 a month to over $16,200 for full-time at home care.

NEW OPTIONS EMERGED 
In 2006, Congress passed the Pension Protection Act (PPA) which provided new options to help fight the growing costs of long-term care in two ways: 


1. Created the ability for “hybrid” annuity/LTC and life/LTC accounts to distribute LTC benefits completely tax-free. (Hybrid life insurance policies include a “Living Benefit” provision allowing owners to access the death benefit amount for qualifying LTC expenses while they are still living.) 


2. Current owners of traditional annuity and life insurance policies could exchange older accounts for an updated annuity/life hybrid policy with LTC benefits without incurring a tax penalty. (A little known provision also authorized an exchange into a standalone LTC policy

Combination Life Insurance with Lifetime Long Term Care Benefits for Couple
Updated policies combining Life and Long-Term Care benefits are referred to by many names including Hybrid, Asset-Based, Combo, or Linked Benefit. These all provide the availability of a tax-free lump sum to beneficiaries at death, tax-free distributions to pay for qualifying long term care services during your life, or both. 


These accounts can be customized to meet individual needs by maximizing the benefit considered the most critical for your situation. 
As an example, someone with a higher need for estate protection may seek a policy providing the highest death benefit possible with a lower amount available for long term care needs. Others may desire a smaller death benefit in exchange for a higher long term care benefit, and some may meet in the middle and want an equal amount of benefit for beneficiaries and  long term care needs.


The decision between these options depends upon your specific needs and based on which benefit is considered more important to you. 


Case Study: Life/LTC policy for a 55/60 year old couple providing maximum amount of Long Term Care benefit. 


The following chart provides an example illustration for a male age 60 and female age 55 (non-smokers). This account provides a tax-free benefit to loved ones of $166,250 at the second death, a tax-free monthly combined benefit of $9,974 that will pay out over each person’s lifetime in the event of a long term care need, and total combined premiums of $99,997.

Click Chart to Enlarge

The threat of long term care expenses represent a growing danger that can destroy the money set aside to support your lifestyle, future income, and desired legacy for loved ones.


Click here to read my Forbes article on Adaptive Investing

Click here to visit watch our Stop the Insanity video

Click here to listen to the Financial Insanity! podcast 

Sources:
% over 65: 
https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html
2000 Claims, # Insurers: 
https://www.naic.org/documents/cipr_current_study_160519_ltc_insurance.pdf
2017 Claims: 
https://www.aaltci.org/long-term-care-insurance/learning-center/ltcfacts.php
2016 Standalone Sales: 
http://bit.ly/2HKkegr
2009 Hybrid Sales: 
https://www.naic.org/documents/cipr_current_study_160519_ltc_insurance.pdf
2017 Hybrid Sales: 
http://bit.ly/2TmpiJb


Guarantees provided by annuities are subject to the financial strength of the issuing company and not guaranteed by any bank or the FDIC.  Case studies presented are fictitious and all numerical examples are hypothetical and are used for analytical purposes only.  Provided content is for an overview and informational purposes only and is not intended and should not be relied upon as individualized tax, legal, fiduciary or investment advice.

Estate Planning: Controlling Beyond the Grave

Times have changed.

 

When I entered the financial industry over 20 years ago “Estate Planning” primarily focused on two specific issues:

 

1. Having to endure the “Probate” process when settling an estate and,

2. Paying tax on the portion of an estate not covered under the “Federal Estate Tax Exemption”.

 

Then something happened.

 

1. People (and advisors) began to realize this feared “Probate” was not nearly as traumatic as many financial journalist and marketers would have you believe.

2. The “Federal Exemption” which determines how much of an estate can be left to heirs without incurring estate taxes increased from $600,000 in the late 90’s to $5,490,000 last year and doubled under the new tax law in 2018 to $11.2 million per person meaning a couple can now leave an estate valued up to $22.4 million without incurring a dime of estate taxes.

 

Then something else happened.

 

1. Divorce rates began to increase

2. Blended families became increasing prevalent

3. Parents began to worry about their spendthrift children

The focus of estate planning shifted from the need to avoid fees and taxes to keeping control beyond the grave.

 

Let’s run through a common scenario to illustrate:

 

1. Don and Ruth had a legacy plan that distributed their estate to Wendy, their daughter at the time of their passing.

2. After receiving her inheritance, Wendy tragically died from an auto accident leaving her husband, Randy and two children Ryan and Raleigh behind.

3. Two years later, Randy met a woman, named Kelly who had two children of her own from a previous marriage. They began dating and decided to get married 6 months later.

4. Five years into the marriage, Randy was mowing the back yard when he was hit by a massive heart attack and pronounced dead before the ambulance even reached the ER.

5. Upon his death, Randy’s estate passed to his new wife Kelly, who updated her financial records and established her two children as the sole beneficiaries in the event of death.

 

Do you see any potential issues with this scenario?

 

The two people who would have a problem is Ryan and Raleigh, who never inherited a dime of their grandparent’s money.

 

Situations like this are becoming more common every single day. Here are a few more examples that we often see:

 

1. Robert inherited his mother’s $175,000 IRA last year when she passed. He used it to pay off credit cards and student loans, took some friends on a beach trip, bought a new car, then remodeled his kitchen and bathrooms leaving him with just under $5,000. He then received a notice from the IRS stating he owed $75,250 in Federal & State income tax for the IRA amount which he never realized was taxable. This could have been avoided.

2. Ron and Lori left money to provide care for Melissa, their special needs child. Unfortunately, they established the inheritance incorrectly disqualifying her future receipt of her current income and benefits being provided by government programs.

3. Marcus’s will and trust was set up to leave everything to his wife, Sarah. However, his largest asset, his 401k went to his ex-spouse because he failed to set up the beneficiary forms correctly when he remarried.

4. Your daughter Becky finalizes her divorces. A month later you find out her agreement includes your ex-son-in-law’s ability to lay claim against a portion of her future inheritance you set up for her.

5. Your child gets caught up in the opioid epidemic. Leaving him money would only make matters worse. So, what should you do?

 

The list of examples we have experienced and scenarios we could introduce is endless.

 

For now it is important to at least understand the following:

 

1. A beneficiary form will override both a will and a trust.

2. Check your beneficiary forms. You should update ALL financial forms in the event of remarriage, death, or divorce

3. Consider leaving an income stream to your children rather than a lump sum.

4. A “Restricted Beneficiary Form” can help you keep control and carry out specific wishes after your gone without needing a trust.

5. Remember that doing nothing is still doing something. Leaving an estate with no will or trust will give control to others who will determine what happens to your hard earned money.

6. There are ways to protect money for future generations, which cannot be changed in the event of death or divorce.

7. Consider the use of Payable On Death (POD) and Transferrable on Death (TOD) provision with accounts that do not offer a beneficiary form.

8. Understand that different accounts vary concerning tax consequence and how these are left will determine how much is left to your loved ones vs Uncle Sam. For example, many people will leave a taxable IRA to children and tax-free life insurance policy to a charity. Instead, it can be a good idea to switch these accounts as IRA’s pass to non-profits tax free.

9. Ensure your IRA’s have a “Stretch” provision that will allow beneficiaries the option to keep the majority of money being received under the IRA’s tax protection if not needed.

The ultimate goal of Estate Planning in the new economy is to ensure your money goes where you want, how you want, and when you want in the most tax-efficient means possible.

 

As Ben Franklin once said, “The only thing certain is Death and Taxes”.

 

“Leave your kids enough so they can do anything they want but not too much that they don’t have to do anything at all.” – Warren Buffet

 

Disclaimer: This newsletter is a publication dedicated to the education of individual investors for informational service only. The information provided herein is not to be construed as an offer to buy, sell or hold a stock of any kind. All economic and performance data is historical and not indicative of future results.

 

Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. You should always consult your own legal or tax professional for information concerning your individual situation.

 

Advisory services offered through Enhance Wealth, a member of Advisory Services Network, LLC, 6600 Peachtree Dunwoody Road, Embassy Row 600, Suite 575, Atlanta, GA 30328. 770-352-0449 Insurance products and services offered through Enhanced Capital, LLC. Advisory Services Network, LLC and Enhanced Capital, LLC are not affiliated.

 

 

The New Reality

ESPN aired a documentary recently about Coach John Calipari’s rise to fame appropriately titled, “One and Not Done”. The show focused primarily on his approach to recruiting elite players who call the University of Kentucky home for one year before moving on to the NBA.

 

It was an interesting expose spotlighting how Calipari’s unique method has been polarizing for many in the sport while having a wide affect on basketball at the college level.

 

There were many who opposed Calipari’s pioneering strategy stating it did not coincide with the way things have always been and that coaches should focus on more traditional ways to win games. Others who were in favor cited the new excitement it has brought to the game and the realities of it’s effectiveness.

 

However, there was one statement given by a former coach that summed things up best when he said, “The fact is that the strategy works, and you can continue living in what used to be or realize the new reality of what is.”

 

The program concluded by saying many of the coaches who had previously been against Calipari’s approach have now succumbed to it to stay competitive among the crowd.

 

This is a great example of what has been taking place in the investment world for years.

 

What used to be and what is now are vastly different. Because of these changes, many believe Buy and Hold and Asset Allocation no longer have a competitive advantage compared to new strategies designed for the New Economy.

 

Just because you are doing what you have always done does not mean this is still relevant or the best approach moving forward. Your financial future depends on being able to adapt to changing economies using updated strategies designed to grow during the good times and protect during the bad.

 

If you are ready to update your approach and align to the New Reality, contact us to learn more.

 

Disclaimer: This newsletter is a publication dedicated to the education of individual investors for informational service only. The information provided herein is not to be construed as an offer to buy, sell or hold a stock of any kind. All economic and performance data is historical and not indicative of future results.

 

There are many factors that affect investment performance including, but not limited to, general economic and market conditions including market volatility. There can be no assurance that these factors will affect future investment performance in the same manner as historical performance. All investments involve risk of loss. There can be no assurance that a portfolio will achieve its investment objective.

 

Advisory services offered through Enhance Wealth, a member of Advisory Services Network, LLC, 6600 Peachtree Dunwoody Road, Embassy Row 600, Suite 575, Atlanta, GA 30328. 770-352-0449 Insurance products and services offered through Enhanced Capital, LLC. Advisory Services Network, LLC and Enhanced Capital, LLC are not affiliated.

The Tipping Point

I am obsessed with end caps and infomercials.

 

Normal everyday items which offer just a little something more than the usual that have been enhanced in some way.

 

In fact, this why I named our firm “Enhance Wealth” as I’ve always been on the lookout for the “end cap” of investing strategies.

 

Malcolm Gladwell authored a national best seller entitled “The Tipping Point: How Little Things Can Make a Big Difference” explaining how a persons success or a company’s edge can result from just one small factor that makes a major impact over time.

 

But often these small differences are not noticeable until after it is too late to implement.

 

We are a nation looking for instant results.

 

Our determination if something works or not is often based on it’s short term results. If it displays a big difference quickly we feel good about it and will continue until it stops providing better results. If it doesn’t show obvious benefits immediately we often abandon it.

 

Ask the person trying to lose weight who constantly switches from one diet to another claiming each one doesn’t work.

 

Or the injured person who quits physical therapy too soon because they don’t make full recovery in the time they desire.

 

The reality is the smallest of factors that can go unnoticed are often the ones with the most influential impact on the end result, both good or bad.

 

A friend of mine is an airline pilot and recently told me that if he missed his flight plan by just one degree on take-off he would ultimately miss his final destination by hundreds of miles.

 

The smallest factors can make the biggest difference.

 

When it comes to finances there are 2 WAYS to put more money in your pocket:

 

1. Make More
2. Spend Less

 

This applies to all areas whether building a business, planning a budget, or investing for your future.

 

Let’s look at an example of this with our friend Bob.

 

Bob is investing $500,000 for his future.

 

Right now he’s in a plan that’s producing an after-expense growth rate of 4% per year. He estimates that based on this, his lump sum will become $1,621,699 in 30 years assuming no additional contributions.

 

But what if he was able to increase his return by just 1% a year while reducing his expenses another 1% for a net return of 6% annually.

 

This may not seem like much of a difference now but after the same 30 year period his money would grow to $2,871,746.

 

That is an extra $1,250,047 difference over the same time period for Bob to use for himself or pass down to his loved ones.

 

If you are looking for a “Tipping Point” to enhance your investment strategy and provide the potential for a dramatic impact to your future success feel free to give us a ring.

 

We would be happy to show you an new option, and help you … Stop the Insanity!

 

Disclaimer: This newsletter is a publication dedicated to the education of individual investors for informational service only. The information provided herein is not to be construed as an offer to buy, sell or hold a stock of any kind. All economic and performance data is historical and not indicative of future results.

 

There are many factors that affect investment performance including, but not limited to, general economic and market conditions including market volatility. There can be no assurance that these factors will affect future investment performance in the same manner as historical performance. All investments involve risk of loss. There can be no assurance that a portfolio will achieve its investment objective.

 

Advisory services offered through Enhance Wealth, a member of Advisory Services Network, LLC, 6600 Peachtree Dunwoody Road, Embassy Row 600, Suite 575, Atlanta, GA 30328. 770-352-0449 Insurance products and services offered through Enhanced Capital, LLC. Advisory Services Network, LLC and Enhanced Capital, LLC are not affiliated.

 

The opinions expressed herein are solely those of the author and do not reflect the opinions of Advisory Services Network, LLC or any of its other advisory representatives.

Rise Of The Robots

The 1980’s was known as the “Yuppie” decade and saw Ronald Reagan take office, Steven Spielberg build fame with movies like “E.T.” and “Raiders of the Lost Ark”, and a musical revolution take place through the introduction of the first music television station known as MTV.

 

This decade also brought us the most influential invention in our lifetime …
the computer.

 

The computer age kicked off in the late 80’s and immediately began reshaping industries by revolutionizing the speed at which information could be disseminated.

 

Stock traders suddenly had the ability to access data on a level they never thought possible and in the early 1990’s, the SEC ruled in favor to create electronic stock exchanges laying the groundwork for a new type of trading known as “High Frequency Trading” or “HFT “. HFT became popular very quickly allowing firms to trade over a thousand times faster than traditional human-to-human stock trading. In just a few short years, HFT accounted for over 10% of the entire stock market’s daily trading volume. (1)

 

What is HFT?

 

High-Frequency Trading is an automated trading process which executes buy and sell orders automatically from computer generated outcomes known as algorithms. This approach allows large financial firms, banks, and hedge funds to trade millions of shares every day using transactions completed in less than a second. (2)

 

How Does it Work?

 

The algorithms used by these computers do not attempt to solve what might be the next great stock, which way the market is heading, or what companies have the biggest profits. Instead, these computers are programmed to trade both sides of the market and capture the difference of a stock’s current buy and sell price, also known as the “bid-ask spread”. HFT firms use this recipe to make a small profit per trade on millions of transactions every day.

 

Why has HFT Become So Popular?

 

High Frequency Trading has grown in popularity for one reason, it works! Virtu Financial, one of the largest HFT firms in the world, is known for reporting only one losing day over a 6 year period. They made money 1,237 days out of 1,238. (The one losing day was due to a large dividend payment they made.) (3)

 

So What is the Problem?

 

Author Michael Lewis, is known for his provocative investigative type books such as “The Big Short” which became a blockbuster movie in 2015 and uncovered the back story how a few investors were able to profit from the real estate collapse of 2008 at the expense of others.

 

His latest book, “Flash Boys” focuses on High-Frequency Trading with evidence of market rigging through HFT “front running” trades. (Front running is the practice of stepping in front of orders placed or about to be placed by others to gain a price advantage using information not yet obtained by others) (4)

 

A day after the book was released, the Federal Bureau of Investigation (FBI) announced investigation into several HFT Firms and exchanges. In May of 2015, the SEC announced a $4.5 million fine on three market exchanges for improper HFT practices.

 

Lewis estimates the impact of HFT trading costs to traditional investors is between $5 billion and $15 billion per year. (5)

 

On average, 80% of the daily trading volume comes from High-Frequency Trading resulting in a major impact to the stock market’s normal price movements. (6) Traditional mutual fund managers have protested the disadvantage High Frequency Trading brings to retail investors by hurting the performance of mutual funds through market imbalances.

 

However, as traditional managers and investors have fought hard to keep High Frequency Trading at bay, regulators have not only let this segment continue, but to flourish. April 2015, marked the first IPO (Initial Public Offering) of an HFT Firm allowing anyone to buy stock as an investor in this growing trend. This announcement forced a crossroads on the fund managers who had protested this practice for years.

 

Mutual Fund Managers suddenly had to choose between:

 

1) Investing in the very same HFT companies they had been fighting against to increase their return potential for investors which leads to higher inflows into their funds or:

 

2) Stick to their mutual fund morals by refusing to participate or help perpetuate the problem, thereby accepting under performance which would ultimately lose business.

 

How does this Affect You?

 

High speed trading, electronic networks, and computer algorithms are here to stay. No one debates this phenomenon has changed markets as we know it in a major way.

 

Research has shown a HFT has created both advantages and disadvantages for every day investors like you and me including: (7)

 

Advantages:

 

1) Increased liquidity
2) Reduced transaction charges by exchanges

 

Disadvantages:

 

1) Increased volatility
2) Extreme price swings
3) Market Influence
4) Increased price action to news and events
5) Imbalance of supply and demand

 

What Should You Do Going Forward?

 

We are not suggesting to run out and invest your life savings in a High Frequency Trading platform (not that you could anyway), but just be aware of the impact this phenomenon is having on markets and investing.

 

At this Point You have 2 Choices:

 

1) Continue investing as you always have or …
2) Look into something NEW

 

If you would like to learn information concerning a non-traditional investment method that embraces volatility and adapts as markets change feel free to contact us at 859.231.6622 or ann@enhancewealth.com to schedule a complimentary CPR – Comprehensive Planning Review to assess your current situation and introduce new options so you can determine if you are already doing everything you can or if there might be a better way to consider.

 

(1) https://en.wikipedia.org/wiki/High-frequency_trading
(2) http://www.investopedia.com/ask/answers/09/high-frequency-trading.asp
(3) https://www.bloomberg.com/view/articles/2014-03-20/why-do-high-frequency-traders-never-lose-money
(4) http://www.investopedia.com/terms/f/frontrunning.asp
(5) https://en.wikipedia.org/wiki/Flash_Boys
(6) https://fas.org/sgp/crs/misc/R44443.pdf
(7) https://www.capgemini.com/resource-file-access/resource/pdf/High_Frequency_Trading__Evolution_and_the_Future.pdf

 

Disclaimer: This newsletter is a publication dedicated to the education of individual investors. This newsletter is an information service only. The information provided herein is not to be construed as an offer to buy, sell or hold a stock of any kind. All economic and performance data is historical and not indicative of future results.

 

Current performance may be lower or higher than what is shown. There are many factors that affect investment performance including, but not limited to, general economic and market conditions including market volatility. There can be no assurance that these factors will affect future investment performance in the same manner as historical performance. All investments and investment strategies involve a risk of loss.

 

Advisory services offered through Enhance Wealth, a member of Advisory Services Network, LLC, 660 Peachtree Dunwoody Road, Embassy Row 600, Suite 575, Atlanta, GA 30328. 770-352-0449 Insurance products and services offered through Enhanced Capital, LLC. Advisory Services Network, LLC and Enhanced Capital, LLC are not affiliated.

 

The opinions expressed herein are solely those of the author and do not reflect the opinions of Advisory Services Network, LLC or any of its other advisory representatives.