FAQ: What are some of the different types of trusts?

Exit Insight: Getting to Sold!In our most recent post, we gave a brief overview of trusts and why a business owner might need one as part of an estate planning package. In this post, we’ll explain a few other types of trusts, although our list is not all-inclusive. Synergetic Finance founder and author Joseph M. Maas explains trusts in his book, “Exit Insight: ‘Getting to ‘Sold!’” The following is an excerpt from pages 180-182.

Other Types of Trusts

The following is not a full listing of the many trusts available to you, but is intended instead to demonstrate there are myriad choices available to serve your estate according to the strategic plan you and your financial planner have created.

The basic plan is to retain as much of your estate’s value as possible by limiting tax liability, and transferring your estate’s properties efficiently to your beneficiaries. Each person’s circumstances are unique, so the assortment of trusts from which you can choose provides opportunity to protect the wealth you’ve worked so hard to build. Critical to this endeavor is using the trained skills and talents of a professional and independent financial planner who understands your goals and can guide you toward achieving them.

  1. Irrevocable Life Insurance Trusts: By shifting your life insurance policies into a trust, these policies avoid probate, the proceeds are also kept out of your estate, and you ensure that your beneficiaries have liquidity to help them through the transitional period following your death. In addition, though you lose the capacity to exercise complete control, additional advantages are that the assets cannot be claimed by creditors, you can name your trustee and specify how the policy proceeds are to be invested, and you can also specify the timing of when the trust’s beneficiaries will receive their proceeds.
  1. Revocable Life Insurance Trusts: While a revocable life insurance trust won’t provide protection from tax liabilities, it does offer other benefits that may be attractive, such as controlling the trust by yourself or through a professional manager; you can make adjustments according to your life’s changing circumstances of birth, death, divorce, and marriage; and among a variety of other details you will discuss with your planner, including both various advantages and disadvantages, you have shielded these assets from probate.
  2. Bypass Trust: The assets in this trust bypass the surviving spouse’s gross estate, allowing the surviving spouse to potentially receive distributions without triggering tax liabilities, assuming certain parameters are maintained. This trust is best employed with assets that are expected to appreciate in value.
  1. Marital Trust: A marital trust, known also as an “A” trust, is established for the use of the surviving spouse and the children of the married couple. The marital trust effectuates on the death of the spouse, at which time identified assets are moved into the trust, and income generated by the assets, and sometimes the principal, can be used by the spouse. These assets avoid probate and prevent taxation.Then, upon the death of the surviving spouse, the marital trust can be used with a credit shelter trust, also known as a “B” trust and a bypass trust. The purpose of a B trust is to assure that the assets go to the married couple’s children, not to the new children of the surviving spouse if there is a remarriage with children.
  2. The A – B Trust: Also known as a ‘credit shelter trust, or CST, the A – B trust is the name given when the two trusts described above are used to work together. In further explanation, assets are transferred to the beneficiaries, normally the couple’s children, but the surviving spouse retains rights to the assets and the generated income for the rest of their life.
  3. The Qualified Terminable Interest Property (QTIP) Trust: This trust provides income and sometimes the principal for the use of the surviving spouse, and then for the allocation of the assets after the surviving spouse has died.
  4. Trusts to Provide for a Dependent with a Disability: In this case, any of several different types of trusts can be established to benefit an individual with a disability, providing supplemental resources for this person’s well-being without jeopardizing the ability to also receive the assistance of public funds. Supplementation may be for additional nursing care, public housing cost differentials, travel expenses for visits by the family to the individual, and any expenditures which benefit the individual without disqualifying the person from any public assistance program.
  1. Trusts for Minors: As you might imagine, there are also a variety of trusts available for minors.There is the ‘discretionary trust’, also known as the ‘minor’s trust’ which permits tax deductible financial gifts to a minor until they turn 21; it is defined by the Internal Revenue Code, Section 2503(c).

The ‘mandatory income trust’ or ‘income trust’ provides an annual income for a minor’s care and welfare. The income is taxable, but the donor may avoid taxes depending on their meeting the annual gift tax exclusion requirements. This trust is defined by the Internal Revenue Code, Section 2503(b).

The ‘Crummey trust’, named after the first person to use it, provides that the beneficiary has a set time, usually 30 days, to use the newest deposit to the trust; if the newest contribution goes unused, those funds are then added to the inaccessible portion of the trust and released later according to the terms of the trust. This is a ‘use it or save it’ trust.


It’s easy to see there are a variety of trusts available for a variety of purposes, and many more than are mentioned here. As always, it’s important to remember that you don’t know what you don’t know, so it’s the wise person who seeks the counsel of trained professionals who can then provide guidance on the array of choices, and work with you to select the best path to achieve your goals and satisfaction.

Copyright © Joseph M. Maas for Merrell Publishing 2014-2015

We hope these excerpts have given you a helpful summary about trusts and the various types. If you have questions about trusts or how they can assist you with your exit and estate planning, please let us know. Click here to send us an email or call us at 206-386-5455.

Want more information about exit planning, estate planning or trusts? Buy a copy of “Exit Insight” online now at Merrell Publishing or Amazon. A small investment today will give you great peace of mind later!

Posted in Book Excerpt, Business Owner, Estate Planning, Exit Planning, Financial Planning | Tagged , , , , , , , | Leave a comment

FAQ: What is a trust and why do I need one?

Author Joseph M. Maas

Author Joseph M. Maas, “Exit Insight: Getting to Sold!”

Part of every business owner’s exit strategy should include estate planning. Estate planning often includes a trust, but what is a trust and why do I need one? Synergetic Finance founder and author Joseph M. Maas explains trusts in his book, “Exit Insight: ‘Getting to ‘Sold!’” The following is an excerpt from pages 179-180.


A trust is an arrangement in which property is held by one party for the use of another, and it is formidable in establishing how the property within the trust will be used and maintained.

There are a variety of trusts to choose from, each having a specific purpose. Your financial planner will discuss your options with you, and together you can select the trusts that best fit with your strategic plan to maximize your estate and minimize your taxes and costs. Here is an explanation of some of the trusts that are available.

Revocable Living Trust

A revocable trust, also called a revocable living trust, is a trust that can be altered or revoked by the trustor at any time. This allows the person who created the trust to keep complete control of the included property while also removing the property from the probate process. Should death occur, the trust becomes irrevocable and the trust controls the distribution of its included properties, not the decedent’s will. A revocable trust avoids probate, avoids public knowledge of its contents, avoids inclusion if the deceased’s will is contested in court, and provides a course of action in case of incompetence or incapacity.

There are details to know, and your financial planner will safeguard your estate with ongoing diligence as circumstances change. Some properties are best not included, such as certain depreciating assets and S corporation stock, and there are a variety of issues that will be either applicable or irrelevant, such as making gifts from your revocable living trust. Your planner is expert with guiding your path through the many trust considerations available to you. 

Irrevocable Trust

An irrevocable trust is a trust that cannot be changed by the trustor, and can only be modified by the beneficiary of the trust. An irrevocable trust benefits the trustor by removing the property from the trustor’s estate, which eliminates the property from probate and tax liability, as well as any income generated by the assets. Property held in trust can be a business, life insurance policies, cash, investment property like stocks, bonds, and real estate, and more.

Copyright © Joseph M. Maas for Merrell Publishing 2014-2015

 In our next post, we’ll talk about other types of trusts. If you have questions in the meantime, however, please let us know. Click here to send us an email or phone us at 206-386-5455.

Want more information about exit planning or estate planning? Buy a copy of “Exit Insight” for online at Merrell Publishing or Amazon. A small investment today will give you great peace of mind later!


Posted in Book Excerpt, Estate Planning, Exit Planning, Financial Planning | Tagged , , , , , , | Leave a comment

FAQ: What is the standard of value? Part 2 of 2

Exit Insight: Getting to Sold by Joe MaasIn our last post, we started a discussion of standard of value, giving a brief overview and explaining Fair Market Value. In this post, we’ll cover book value, intrinsic value and investment value. The following is an excerpt from pages 90-93 of “Exit Insight: Getting to ‘Sold!’”

Book value

The third type of valuation standard is Book Value, which is actually an accounting term. Book Value is not often used in a business valuation because the value as registered in the company’s financial books is not necessarily a true representation of the entity’s value.

Book Value is derived from a business’s balance sheet of assets, liabilities, and the owner’s equity. Here is a formula that represents the relationship of these elements:

Assets = Liabilities + Owners Equity

Continuing this explanation, you’ll see in the formula below that Book Value equals the business’s net assets minus its liabilities as measured by historical costs. (Net assets are assets at historical costs minus accumulated depreciation, amortization and any depletion.)

Book Value = Assets – Liabilities

Yet another way of understanding Book Value is that it is the owner’s equity:

Owner’s Equity = Assets – Liabilities
Book Value = Owner’s Equity

Intrinsic value

To determine the Intrinsic Value of a business, a valuator will compare the difference between the business’s value as calculated through a valuation with the value of the business being traded in the open market.

Expressing this numerically, if Acme, Inc. is trading in the market at $50.00 per share, but the value of the company is $75.00 per share when analyzed by a valuation professional, then Acme, Inc. has $25.00 of intrinsic value. $75.00 – $50.00 = $25.00.

By this method, the Acme, Inc. stock is evidently undervalued, so an investor who noticed the opportunity this discrepancy provides could purchase the stock at $50.00 with the expectation that the stock will rise toward its true Intrinsic Value as other investors perceive the same opportunity. Of course, there is no guarantee that Acme, Inc. stock will appreciate to its Intrinsic Value, or, if it does, how long the appreciation will take.

Investment value

Though largely a subjective valuation, Investment Value is determined by the abilities of an investor to perceive an opportunity and take action based on their skills and experience with appraising a situation. An investor calculates the opportunity using knowledge, risk analysis, return characteristics, earnings expectations and a variety of other assessment techniques. Here is an example to explain Investment Value:

The investment being appraised is a 100-unit apartment building offered for sale in a desirable community. Three investors are interested in purchasing this building as an investment for upgrade and resale.

The first investor’s business model is investing and managing apartment buildings, and he values the building at $100,000 per door for a total value of $10,000,000 (100 units x $100,000 = $10,000,000).

The second investor’s business model is buying apartment buildings and converting them to condominiums; he then sells them at a premium. This investor values the property at $150,000 per door for a total value of $15,000,000. (100 units x $150,000 = $15,000,000).

The third investor’s business model is buying properties and redeveloping them to their greatest potential for return. He can afford to pay $200,000 per door for a total of $20,000,000. (100 units x $200,000 = $20,000,000).

Figure 34: Standard of Value Example

Investor Value Perspective Business Intention
Investor 1 $10,000,000 Manage apartments
Investor 2 $15,000,000 Convert to condos/resell
Investor 3 $20,000,000 Development project

Which investor’s perception of the apartment building’s value is the right one? Each investor saw a different opportunity and a different Investment Value based on their perception of a familiar outcome.

All three investors are correct with their individual valuations because each of them perceived a unique value based on their knowledge and abilities. This is Investment Value.

Copyright © Joseph M. Maas for Merrell Publishing 2014-2015

If you are in need of a business valuation or wonder how this information applies to your business, click here to email us or call us at 206-386-5455. We’d be happy to answer any questions you might have.

Want more information about exit planning or business valuations? Buy a copy of “Exit Insight” for online at Merrell Publishing or Amazon. A small investment today will give you great peace of mind later!


Posted in Book Excerpt, Business Consultation, Business Owner, Business Valuation & Consulting | Tagged , , , , , , , | Leave a comment

FAQ: What is the standard of value? Part 1 of 2

Exit Insight: Getting to Sold!One of Synergetic Finance’s services is to provide company valuations to business owners. Because performing a business valuation can be complex, Synergetic Finance founder and author Joseph M. Maas explains how it works and what the standard of value means in his book, “Exit Insight: Getting to ‘Sold!’” The following is an excerpt from pages 87-90.

The Standard of Value

Determining the value of a business is a complicated task because there are different standards of value. Your valuation advisor must be knowledgeable in selecting the value standard that best suits your purpose because the conclusions of one standard will be quite different from the conclusions of another, and the material difference is likely to be substantial.

For example, when appraising the value of a business for the purpose of a third party sale, ‘investment value’ is the appropriate choice. But, if appraising a business by order of a court for litigation purposes, then the standard of value will be defined by statute. In addition, if the wrong standard is applied, the conclusions will invalidate the entire proceeding.

There are five standards of value common in valuation proceedings. This review will provide a more complete understanding of how businesses are valued, affording you a broader knowledge of how your business, or the one you wish to acquire, will be analyzed and judged.

The figure below shows four of these standards and provides only a simple representation of why one or another might be a favored choice given a particular situation.

Types of Value

Types of Value









Fair Market Value (FMV):

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:

“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.”

Fair value:

Defining Fair Value is a bit more nebulous, as its definition is the cause for debate, and sometimes differs from state to state.

When engaged in a valuation project, valuators will wisely request that the attorney hired specifically to oversee the valuation provide the definition of Fair Value applicable to the statutes of the jurisdiction.”

Copyright © Joseph M. Maas for Merrell Publishing 2014-2015

 In our next post, we’ll discuss three other standards of value: book value, intrinsic value and investment value. If you have any questions in the meantime, click here to email us or call us at 206-386-5455.

Want more information about exit planning or business valuations? Buy a copy of “Exit Insight” for online at Merrell Publishing or Amazon. A small investment today will give you great peace of mind later!

Posted in Book Excerpt, Business Consultation, Business Owner, Business Valuation & Consulting, Exit Planning | Tagged , , , , , | 1 Comment

Exit Insight: sale proceeds from your business

The following is an excerpt from “Exit Insight: Getting to Sold!” (pp. 157-158) available on Amazon.com and Merrell Publishing:

Exit Insight: Getting to Sold!The third element contributing substantially to your retirement lifestyle is the money you receive from the sale of your business. Most business owners do not know the true value of their business, heavily overestimating its worth as we have mentioned repeatedly. This is a huge detriment because if you do not know its value, you are unable to calculate whether or not you are due for a dear or a dire retirement.

The after-tax proceeds from the sale of your business are critical to your retirement comfort. Most business owners assume a happy ending, foolishly confident that a buyer will be ready and waiting to purchase the business at the asking price when the day comes. Yet the chances of that happening are remote without preparation and planning. Just as you would dress up your home for curb appeal, fix the leaks, mow the backyard and put flowers on the dining room table, your business may require several years of carefully considered adjustments to prepare it for sale, so it stands out from the flood of other businesses begging to be bought.

Consulting with a master financial planner trained in understanding a variety of ways to strategically synthesize the fiscal tools available to you for reducing taxes, improving your business’s appeal, increasing your portfolio’s value, and providing the most funds for your retirement lifestyle is the most lucrative and sensible investment you can make.

Whether your financial accordion’s bellows need some steady pushing, the tone chamber requires an adjustment, or the reeds have to be replaced with new ones, your master financial planner will make the accordion sing and the hall dance to the tune of your retirement success.

Do you wonder if the proceeds from the sale of your business will be enough? Don’t wonder any more. Contact the experts at Synergetic Finance now to find out how much your business is worth today, so you can plan for tomorrow.

To your success,

Author Joseph M. Maas





Synergetic Finance


Posted in Exit Planning, Retirement Planning | Tagged , , , , , , , | Leave a comment

States with no income tax

Did you know there are six other states besides Washington that don’t charge income tax? Here they are, in alphabetical order:

Wash StateAlaska: The state of Alaska relies heavily on petroleum revenue to cover the state budget.
Florida: Sales tax and property taxes cover government costs in Florida.
Nevada: Gambling-related taxes and fees raise almost a billion dollars for Nevada each year.
South Dakota: This western state gets its revenue from a variety of taxes, including “sin taxes” on cigarettes and alcohol.
Texas: The state of Texas sustains itself through a state sales tax, local sales taxes and property taxes.
Washington: The Evergreen State supports itself through a variety of taxes. Our state sales tax ranges from 6.5% to 9.5% in King County.
Wyoming: This state does not have a personal state income tax or a corporate income tax.

While it may seem appealing to live in a “no income tax” state, these states still pass along their operating costs to residents through other taxes and fees. As the saying goes, there is no free lunch.

Source: Bankrate.com

Posted in Tax Planning, Taxation | Tagged , , , , , , , , , , , | Leave a comment

401(k) plans: review, monitor and adjust

When you choose Synergy 401(k) to set up your 401(k) plan, you get more than just an objective financial advisor. You get a team of 401(k) experts that will help you grow and nurture your plan from Day 1 to ensure it meets your needs as the business owner, as well as the needs of your employees. Part of that process is reviewing, monitoring and adjusting your plan and its investments.

To help you and your 401(k) plan participants stay on course, we review your goals and objectives with you annually. Does this plan still meet your needs? If not, we’ll recommend adjustments. We will hold quarterly investment review meetings to help you and your plan participants understand your investment choices and the results of those investments in our five-step process.

SFM 401k Monitoring




We are also available any time you or a plan participant has a question about the plan. We can explain everything from salary deferrals and contribution limits to investment performance and hardship withdrawals.

To learn more about how a 401(k) plan can benefit your business, visit our Synergy401k.com site, give us a call at 206-386-5455 or send us an email. We enjoy sharing our expertise and helping business owners create healthy retirement plans that meet everyone’s needs.

 To your success,

Author Joseph M. Maas





Synergetic Finance

Posted in 401(k), Qualified Plan, Retirement Planning | Tagged , , , , , , , | Leave a comment

10 ways business owners can save money on taxes

With 2014 behind us, income taxes are on our minds right now. There is little we can do to reduce our tax liability for last year (except setting up an IRA and making contributions by April 15), but this is a good time to start tax planning for 2015. Here are 10 ways business owners can reduce their tax liability:

1.  Closely track tax deductible expenses, using software like QuickBooks or an app like Expensify. Track everything from mileage and business lunches to business travel and moving expenses. If you have employees, add them to your Expensify account to track their expenses as well.

2.  File your taxes on time. This might seem obvious, but not everyone pays their taxes when they’re due, racking up late fees and penalties. Visit IRS.gov for tax filing due dates and circumstances under which the IRS might waive penalties.

3.  If you are anticipating an exceptional year in terms of revenue, consider accelerating the time line on major business purchases to offset this year’s revenue.

4.  Start a profit sharing plan to put away as much money as you can as the business owner. Our team of retirement planning experts can help you choose the right plan for your company and set up the plan to maximize your contributions. Ask us how.

5.  If you own multiple businesses, create an overarching umbrella company to simplify taxes and use the losses of one company to offset the profits of another.

6.  Working from a home office? You may be able to deduct expenses for the business use of your home if (a) you regularly use part of your home exclusively for conducting business, and (b) your home office is your principal place of business. Visit IRS.gov for additional rules and restrictions.

7.  Deduct taxes paid to other municipalities (local, state, foreign, etc.) that are attributable to your trade or business as business expenses.

8.  If you use a cellphone for business, you can deduct the business portion of your bill as an expense.

9.  Using the Section 179 deduction, you can recover part or all of the cost of qualifying property (e.g., office furniture), up to specified limits, rather than recovering the cost through depreciation which takes longer.

10.  You can deduct health insurance premiums, as long as the deduction doesn’t exceed your company’s net profit.

These are just a few of the ways you can reduce your tax liability. For additional suggestions, contact your accountant, give us a call at 206-386-5455 or send us an email. We would be happy to offer our expertise and insight, and to set up a complimentary consultation if you are ready to take that step.

To your success,

Author Joseph M. Maas




Synergetic Finance

Posted in Tax Planning, Taxation | Tagged , , , , , , , , , | Leave a comment

Long-term care insurance explained: part 2

Synergy takes a holistic approach to financial planningIn our most recent blog post, we introduced you to long-term care insurance and explained risk management and how to evaluate a policy, including factors to consider. We continue our discussion below, beginning with benefit flexibility.

Benefit flexibility

A comprehensive policy may be purchased that covers the individual in a nursing home, adult day care center, assisted living facility, his or her own home, or just about any other setting. Or a nursing home only or home care only policy may be purchased.

Most policies will pay 100% of the daily benefit for skilled care, but many policies will reduce the percentage they pay if care is received for custodial care. Some policies will also reduce the benefits depending on where the care is received. For example, it will pay 100 percent for care received in a nursing home but only 80 percent for assisted living. Further, many polices allow the client to choose a lower coverage rate in order to keep the cost of the policy down. In this situation the policy may pay 100% of the daily benefit for nursing home coverage and the client could choose a 50% or 80% rate for home health care.

As long as the coverage is affordable, it is wise to have a policy that pays 100% at any level of care and 100% regardless of the care facility. This way the client can choose where he/she will receive care at the time of claim as opposed to at time of application.

Benefits are paid usually in one of two ways. A policy can be designed to pay for expenses actually incurred (reimbursement) or by indemnity (in cash). In the reimbursement policy the insurance company either pays the client or the provider up to the limit contained in the policy. Here the policy will pay benefits only when eligible services are received. The indemnity method will pay benefits to the client directly in the amount specified in the policy without regard to the specific services received. Most of the policies offered today are reimbursement policies. They will use a pool of money concept or some will pay actual expense up to the daily maximum with any remaining benefit forfeited.

Common provisions in long-term care policies

Maximum Daily/Monthly Benefit:

Most policies pay a fixed dollar amount for each day of care. Benefits can range from $50.00-$350.00 per day.

Lifetime Maximum Benefits:

Most plans have a maximum benefit they will pay. It is usually expressed in years, such as 1, 2, 3, 4, 5, 6 years, or for lifetime.

Waiting Period (Deductible):

Most LTC policies require the client to pay their own way for a specified number of days before the insurance company will begin to pay benefits. They range from 0 to 180, and the shorter the waiting period, the higher the premium. Be careful of the policies that require the days to be consecutive.

Waiver of Premium:

Some policies will waive the future premiums after you have been in the nursing home for a specified number of days. The most common is 90 days, but some companies waive the premium as soon as they make the first benefit payment. One thing to look for in the insurance contract is the requirement for the days to be continuous; this can delay the waiver. Language that does not require the days to be continuous is preferred. Some companies do not waive the premium for care received at home.

Inflation Protection: Since costs inevitably increase, a policy without a provision for inflation may be outdated in a few years. Of course, an additional charge is incurred for this protection.

There are also provisions for a variety of other issues, such as tax-exempt status for premiums, tax incentives, guaranteed renewability, prior hospitalization, pre-existing conditions, etc., so be sure to discuss policy details in depth with your insurance agent.


When asked the question “What is long-term care?” the typical answer would be that it is care provided in a nursing home for old people. In today’s society, the perception of long-term care has changed drastically. Today’s definition has broadened to include a wide range of services that address the health, medical, personal care, and social needs of people with chronic or prolonged illnesses, disabilities and cognitive disorder. Most often it is referred to as providing assistance with the activities of daily living. And it is not just for old people. People of all ages are at risk.

The problem with either definition of long-term care is that it can be emotionally, mentally, physically and financially devastating to not only the individual requiring care, but for the entire family. Some of these challenges have been caused by the social changes in our country and others have been caused by the rapidly increasing economic aspects of providing long-term care services.

With the increasing problems surrounding long-term care issues, the way we handle the risks should be examined from a risk management point of view in order to better evaluate who should buy long term care insurance. The conclusion here is that for many individuals, long-term care insurance is an excellent technique for handling the risk associated with long-term health care issues. However, it is not appropriate for everyone and these people may prefer other risk management techniques more suited to their situation.

For the people who choose to use insurance to handle their long-term care risks, there are several decisions to be made in selecting a contract that will meet their needs. Today’s policies offer both comprehensive coverage as well as limited coverage in tax-qualified and non-qualified contracts. The contracts contain benefit flexibility so each individual’s specific needs can be addressed in designing their coverage. In the end, there are several well-respected companies who offer this type of insurance and with careful analysis, proper coverage should be obtained.

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.

Have questions or concerns? Do you still wonder if you need long-term care insurance? Give us a call at 206-386-5455 or click here to email us. We’ll be happy to help however we can.

To your wealth,

President of Synergetic Finance
Author of Exit Insight: Getting to “Sold!”

Joe Maas

Posted in Book Excerpt, Exit Planning, Insurance, Long-Term Care Insurance, Risk Management | Tagged , , , , , , , , , , , | Leave a comment

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.


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.


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,

President of Synergetic Finance
Author of Exit Insight: Getting to “Sold!”

Joe Maas


Posted in Book Excerpt, Exit Planning, Insurance, Long-Term Care Insurance, Risk Management | Tagged , , , , , , , , , , , | Leave a comment