Long-term care insurance explained: part 1

Setting estate planning goalsAs a person ages, insurance for long-term care will be a welcome lower cost solution as current costs for care in a nursing home is about $70,000 annually. Our elder population is growing as the Baby Boomers enter their retirement years; before long there will be a significant impact on end-of-life health issues, and mortality rates will increase as this generation becomes ill and dies.

Elderly people typically require assistance with daily activities such as eating, bathing, dressing, etc. This type of care is called long-term care, and may be administered by family members, or in a variety of assisted living facilities. Because the costs for long-term care can be exorbitant and can quickly deplete assets, and because standard health insurance policies exclude long-term care benefits, long-term care insurance can mitigate the effect of excessive expenses.

Risk management

Long term care insurance is available to manage the risk of enormous expenses, typically in the later years of a person’s life when they are living on a fixed income. The risk is great, because most people will not be able to afford the exorbitant cost of the care they may need, and their entire estate can be consumed. Some careful thinking about and planning for this very likely situation is mandatory.

An analysis of the risks associated with long-term care reveals that the only choices available to an individual considering the financial impact of elderly needs are purchasing an insurance policy, or self-funding the costs. A third choice, dispersing your estate to rely on the resources and mercies of Medicaid, is an unappealing alternative.

There are three categories of people when considering the need for long term care. The first group is composed of the multimillionaires who will be capable of self-funding their elderly care needs, either through a personal staff or through an LTC policy. The third group is those individuals with less than $100,000 in resources who will be cared for through Medicaid. It’s the group in the middle that needs to use an insurance risk transfer technique to handle the impending risk.

For this middle group, the issue is focused on determining a reasonable way to finance the risk. People will either retain the risk and take the chance of paying the full cost of care out of their pockets, or they can choose to pay a premium to an insurance company and transfer the cost of covered charges to the insurance company. But there is another option, and that is to use a combination of retention and insurance. This option is usually chosen because people cannot pay or do not want to pay high insurance premiums. Remember, when evaluating LTC insurance, it does not have to be an all or nothing decision.

For some, a long-term care policy is an affordable and attractive form of insurance. For others, the cost is too great, or the benefits they can afford are insufficient. You should not buy a long-term care insurance policy if it will cause a financial hardship and make you forego other more pressing financial needs.

Factors to evaluate

After identifying the potential need for health care, the age, ability, financial situation and marital status of the individual must be considered.

Age:

Although policies are available from age 18 to 99, the average client is between 60 and 75. People under 40 are usually still more concerned with retirement and college planning while people over the age of 84 are not likely to qualify for coverage because of their health history.

Ability:

Underwriting for long-term care insurance is different from that of life insurance since it is the applicant’s ability to function that is analyzed. The underwriting decisions are based more on morbidity (the chance of becoming disabled) than mortality (the chance of death). Underwriters look for diseases, injuries or illnesses that could lead to loss of function. In general, individuals with signs of a chronic condition that would likely lead to a loss of function will not qualify for coverage. Further, as individuals age, their likelihood of qualifying for LTC coverage decreases because chronic conditions begin to set in with age.

Financial Situation: When evaluating if one should purchase a long-term care insurance policy, the financial conditions of the situation need to be considered. Both assets and income must be analyzed to accurately measure the need for insurance.

Evaluating a long-term care insurance policy

The long-term care insurance market place has evolved greatly over the last several years, and there is no shortage of quality policies to choose from. There are several companies selling policies with multiple combinations of benefits and coverage.

The preceding text is an excerpt from “Exit Insight: Getting to ‘Sold!’” by author Joseph M. Maas. The book is available for purchase at Merrell Publishing or Amazon online.

In our next post, we’ll examine benefit flexibility and common long-term care insurance provisions. Until then, please let us know if you have any questions. Give us a call at 206-386-5455 or click here to email us, and we’ll be happy to address any questions or concerns.

To your wealth,

Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM
President of Synergetic Finance
Author of Exit Insight: Getting to “Sold!”

Joe Maas

 

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IRS Announces 2015 Retirement Plan Limits

IRS announces 2015 retirement plan limits.In October, the IRS announced plan limits and cost-of-living adjustments (COLA) for 2015 for retirement plans. Some contribution, adjusted gross income (AGI) and compensation limits have changed, but others remain the same. Here’s what you need to know as you plan your 2015 retirement savings contributions:

 

  2015 2014
Elective deferrals (401k, 403b & most 457 plans & govt’s thrift savings plan) $18,000 $17,500
Catch-up contributions for participants 50+(401k, 403b & most 457 plans & govt’s thrift savings plan) $6,000 $5,500
IRA $5,500 $5,500
IRA catch-up contributions for participants 50+ $1,000 $1,000
Annual benefit limitation under defined benefit plan $210,000 $210,000
Limitation for defined contribution plan $53,000 $52,000

 

For more information and additional adjustments, click here for the IRS’s Oct. 23, 2014 announcement. Not sure how this impacts your financial portfolio or your tax liability for 2015? We can help. Send us an email or give us a call at 206-386-5455. We can help you evaluate your current plan and make suggestions for adjustments next year.

To your wealth,

Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM
President of Synergetic Finance
Author of Exit Insight: Getting to “Sold!”

Joe Maas

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What is your financial advisor’s fiduciary responsibility?

Author Joseph M. MaasWhen choosing a financial advisor to manage your most precious assets, it is essential to determine if the financial advisor will accept fiduciary responsibility and to what degree. Most plan sponsors are quite busy with the daily business of managing their company, and do not have time for the extra diversion of becoming proficient with the regulations and many details of offering a 401(k) plan to their employees.

Considering the implications of the fiduciary responsibility that will otherwise default to you, unless you are well versed in retirement plans, IRS Code, ERISA regulations, and investment strategies for the range of your employees’ financial needs, you’ll want to have a 3(21) investment advisor sharing partial fiduciary responsibility with you, or a 3(38) investment advisor taking the full burden off your shoulders. Finding the right financial advisor for your company’s plan is very important!

When you’re interviewing a financial advisor, you should find out if the advisor’s company will accept the legal responsibility and become a fiduciary for your plan, and whether as a 3(21) or a 3(38).

In addition, you should expect your financial advisor to access resources that help meet IRS compliance; inquiring about the nature of these resources will help you decide if your company will be sufficiently represented when compliance issues arise. Considering that your company may have a 401(k) committee, it would be wise to inquire if the financial advisor is capable and willing to offer training, education and support to your committee.

Also important is asking about potential conflicts of interest that might occur between the financial advisor and money managers with whom the financial advisor is currently conducting business.

It would be helpful to find out if the financial advisor’s company has a written conflict of interest policy, and how strict it is. It will also help you to sleep at night if you were to find out, should you consider hiring this financial advisor, that none of his or her clients have ever been the subject of an investigation by the IRS or the Department of Labor, or if they have, that matters were settled with positive outcomes which do not reflect on the poor performance of this advisor.

Have questions? Not sure if you have the right financial or retirement plan advisor? We can help. Call us at 206-386-5455 or send us an email to schedule a complimentary consultation.

Coming soon: Author Joseph M. Maas of Synergetic Finance will be releasing his next book in the Insight series: 401(k) Insight: Getting to Retired!

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2014 Retirement Plan Limits

Though the New Year is just around the corner, there is still plenty of time to make contributions to your retirement plan. Here are the applicable limits for 2014:

2014 401(k) Limits  
401(k) elective deferrals $17,500
Annual defined contribution limit $52,000
Annual compensation limit $260,000
Catch-up contribution limit $5,500
Highly compensated employees $115,000

 

 2014 Non-401(k) Limits
403(b)/457 elective deferrals $17,500
SIMPLE employee deferrals $12,000
SIMPLE catch-up deferrals $2,500
SEP minimum compensation $550
SEP annual compensation limit $260,000
Social security wage base $117,000

Have a question about your 2014 retirement plan contributions or limits? Need help setting up a plan before year end? Synergetic Finance can help. Contact us today to set up a complimentary consultation.

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401(k) Plan Alternatives for Large Companies

estate planning checklistIn our last post, we talked about 401(k) plan alternatives for small companies. Here we’ll discuss retirement plan options for larger companies. Except for the Keogh plan, larger companies can adopt all of the plans available to smaller companies, but there are nine additional options:

Profit Sharing Plan: Employees receive a percentage of the company’s profits based on quarterly or annual earnings.

Money Purchase Pension Plan: The company makes annual contributions to the employees’ pension accounts that are not related to the company’s profits.

Age-weighted Profit-sharing Plan: This plan allows employers to make retirement contributions based on an employee’s age as well as their salary.

New Comparability Plan: A new comparability plan creates classes of employees in a company, and permits the employer to maximize contributions for selected employees.

Thrift/Savings Plan: A TSP is a retirement savings plan for employees and retirees of the federal government, in addition to members of uniformed service organizations such as the military, police, firefighters, EMTs and paramedics.

Defined Benefit Plan: Employers can also establish a pension plan in which the employer deposits a specified monthly amount.

Target Benefit Plan: With a plan of this type, contributions are based on retirement benefit projections; results are tied to the performance of the investments and are not guaranteed.

Cash Balance Plan: The employer makes annual contributions to each individual’s account, and on retirement, the originally defined dollar amount is available to the retiree. The monetary value in the account may increase or diminish over the years, with the risk being borne by the employer.

Employee’s Stock Ownership Plan (ESOP): This plan is for companies owned by the employees, in which shares of the company are divided among the workforce, and on retirement, each employee can then sell their company shares.

Because of the complexities and ramifications involved in selecting and implementing a retirement plan, we recommend that you work with an experienced financial planner or wealth manager like Synergetic Finance. Please contact us with your questions or to set up a complimentary consultation to discuss your company’s retirement planning needs and goals.

Coming soon: Author Joseph M. Maas of Synergetic Finance will be releasing his next book in the Insight series: 401(k) Insight: Getting to Retired!

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401(k) Plan Alternatives for Small Companies

Retirement PlanningFor many companies, 401(k) plans are a good choice, providing the right amount of options and opportunities for a company and its employees. There are alternatives, however. In this post, we’ll share the options available to small companies.

Payroll Deduction IRA Plan: Employees establish either a traditional or Roth IRA with the financial institution of their choice, and then authorize a specific payroll deduction to fund their account.

Simplified Employee Pension (SEP) Plan: Employers contribute a set monthly amount to their employees’ traditional IRA accounts.

SIMPLE IRA Plan: SIMPLE is an acronym for Savings Incentive Match Plan for Employees. This plan allows both employees and employers to contribute funds to their employees’ traditional IRA accounts.

SIMPLE 401(k) Plan: Similar to the SIMPLE IRA plan, the SIMPLE 401(k) plan allows an employee to defer some compensation, however the employer must also make a matching and legally prescribed contribution.

Keogh Plan: A Keogh plan is a qualified tax-deferred pension plan specifically for a self-employed person or a partnership.

Because of the complexities and ramifications involved in selecting and implementing a retirement plan, we recommend that you work with an experienced financial planner or wealth manager like Synergetic Finance. Please contact us with your questions or to set up a complimentary consultation to discuss your company’s retirement planning needs and goals.

Coming soon: Author Joseph M. Maas of Synergetic Finance will be releasing his next book in the Insight series: 401(k) Insight: Getting to Retired!

 

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What is fair market value (FMV)?

Exit Insight: What's an exit plan got to do with it?The most common definition of value used in the business valuation process is Fair Market Value. Its popularity is based on IRS Revenue Ruling 59-60, which is the basis for all federal tax decisions, and is used by the IRS and the courts.

Because of its governmental favor, valuation professionals gain valuable guidance on performing the valuation. Here is the wording of IRS Revenue Ruling 59-60, defining Fair Market Value:

“The price at which the property would change hands between a willing buyer and a willing seller, when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, bother parties having reasonable knowledge of relevant facts.”

Another worthy definition of FMV is voiced by the International Glossary of Business Valuation Terms, available on the American Institute of CPAs website:

“The price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm’s length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts.”

The preceding text is an excerpt from author Joseph M. Maas’ book “Exit Insight: Getting to ‘Sold!’” pp. 89, available online at Merrell Publishing or Amazon.com.

Fair market value is one of five types of ways your business could be valued. The others are fair value, book value, intrinsic value and investment value. We’ll cover these in future posts. For more information on this topic, please consult Maas’ book “Exit Insight: Getting to ‘Sold!’” available for just $24.95 at Merrell Publishing or Amazon.com, or call the business valuation experts at Synergetic Finance today at 206-386-5455.

To your wealth,

Author Joseph M. Maas

 

 

 

 

Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM
President of Synergetic Finance

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Wills 101: what you need to know

wills 101: what you need to knowIn our last blog post, we explained estate taxes which should be part of any thorough estate plan. Another part of that plan is a will. In this excerpt from author Joseph M. Maas’ book “Exit Insight: Getting to ‘Sold!’” pp. 168-170, we will explain the basics of the will:

As you know, the will is the legal document that determines the disposition of your property by identifying who will manage the distribution of your estate, and has the responsibilities for paying the estate tax on the assets of the estate, paying the liabilities existing at the time of death, and paying the costs of administration.

There are volumes written about wills! For our purpose, it is important to note that the will establishes the identity of your family. If you have children who will receive unequal portions of your estate, it is prudent to explain the reasons for the inequality to avoid a potential family dispute, which could end up in court. In addition, if you fail to name a child, some states permit the disinherited child to claim a portion of the estate.

The will also names your fiduciaries, or appointed representatives. Typically an executor may be sufficient. The executor is designated to ensure that all the property is distributed to the beneficiaries after all debts and taxes have been aid. The guardian’s role is strictly limited to the care of your minor children, to raise and educate them; normally your surviving spouse is the guardian. The trustee is named to manage assets in trusts; the trustee can be your spouse, a close family member or friend, a professional such as an attorney, or a bank.

There are several types of will, such as ‘simple will,’ a ‘contingent trust for the benefit of minor children,’ and a ‘marital deduction will.’ Your attorney will guide you with choosing the most beneficial type of will for your circumstances.

In addition, there are a variety of provisions for determining specific intentions, such as the survivorship provision, the spendthrift clause, the perpetuities savings clause, and attestation clause.

Finally, there is the testamentary letter, which can be a supplement to your will. The testamentary letter provides helpful information to your executor and family, and may also contain more personal information than belongs in a will, such as last rites and funeral services. The will has legal predominance, but the testamentary letter can clarify the decedent’s intentions.

This letter can also be useful in a variety of ways, including identifying the location of important documents, listing the names of your professional advisors, explaining large purchases or loans, and instructing your spouse about notifying certain agencies or companies like the Veterans’ Administration, the Social Security Office, etc. This letter is also helpful by including all the details that affect the business of the person’s life such as the safe deposit box’s location, changing the registration of bank accounts, vehicles, real property, IRA accounts, Keogh plans, etc.

Having a valid, properly executed, legal will is critical to ensuring your wishes will be carried out upon your death. If you don’t have one, we strongly recommend that you contact your attorney to create one now. If you have one, we encourage you to revisit it periodically and to review it with your financial advisors and other professionals to ensure that it adequately addresses your needs and gets updated when needed.

Have questions? Consult Maas’ book “Exit Insight: Getting to ‘Sold!’” available for just $24.95 at Merrell Publishing or Amazon.com, or call the financial planning experts at Synergetic Finance today at 206-386-5455.

To your wealth,

Author Joseph M. Maas

 

 

 

 

Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM
President of Synergetic Finance

 

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It’s time for a third quarter check-up!

Financial ReportSeptember 30 marks the end of the third quarter of 2014. Do you know how your investments are doing? You should receive statements (electronic or hard copies) from your advisors, asset holders or third-party administrators sometime this month.

It is easy to ignore them, file them away, or toss them in your inbox to read later, but we encourage you to take a few minutes to open up your statements to see how you’re doing. Making a little time can make a big difference.

Did your investments grow as predicted? Were there any unanticipated losses? Did you contribute more or less than you’d hoped to your retirement plans year to date? Are any adjustments needed to your investment or insurance products? For example, did you experience any major life change – marriage, divorce, job change, birth of a child, etc. – during the last quarter that could impact your short of long-term financial planning?

Keep these questions in mind as you review your third quarter and year-to-date results. If you have any questions or are considering the need for changes, contact your financial planner to discuss these items at your earliest convenience. The sooner you make any necessary changes, the sooner you’ll see results!

To your wealth,

Author Joseph M. Maas

 

 

 

 

Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM
President of Synergetic Finance

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