Chris Tobey

Chris Tobey

Thursday, 14 September 2017 14:14

An Estate Plan or a Wealth Transfer Strategy?

Basic estate planning documents may not communicate your intentions.

 

There are three degrees of estate planning: advanced, basic, and none at all. Basic is better than none, but elementary estate planning can still leave something to be desired. While appropriate documents may be in place, they may not be able to fully convey what you really want to do with your estate.

Have you communicated your wishes to your heirs, in writing? Cut-and-dried, boilerplate legal forms will hardly do this for you.

In a wealth transfer strategy (as opposed to a basic, generic estate plan), you share your values and goals in addition to your assets. You hand down your wealth with purpose, noting to your beneficiaries and heirs what should be done with it. You also let them know how long the transfer of assets may take. This way, expectations are set, and you reduce the risk of your beneficiaries and heirs being unpleasantly surprised.

Are your heirs prepared to inherit your wealth? Prepare them as best you can during your lifetime. Introduce them to the financial, tax, and insurance professionals who have helped you through the years; they should know how to contact these professionals, and they should value their wisdom.

Explain the “why” of your estate planning decisions. For example, if you intend to transfer assets to heirs or charity through a living trust, a charitable remainder trust, or a qualified charitable distribution from an IRA, share the logic behind the move.

Also, let your heirs know that your wealth transfer strategy is dynamic. It can change. Five or ten years from now, you may have more or less wealth than you currently do, and life events may come along and prompt changes to your estate planning documents. Speaking of communication, this leads to a third, important aspect of a wealth transfer strategy.

Have you double-checked things? Look at your beneficiary forms and other estate planning documents. Are they up to date?

When a beneficiary form is out of date, it can invite problems – because legally, the instructions on a beneficiary form can overrule a will bequest. What if the named beneficiary is dead, and the contingent beneficiary is dead as well? What if your named beneficiary is estranged or divorced from you? In such instances, the asset may not transfer to whom you wish after you pass away. Looking at the wealth transfer process from another angle, you also want to make sure you have an executor who is of sound mind and who has the potential to remain lucid and reasonably healthy for years to come.1

A basic estate plan is better than procrastination. A bona fide wealth transfer strategy is even better. Involving your heirs in its creation, refinement, and implementation may help you guide your wealth into the future in accordance with your goals.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

  

Citations.

1 - thebalance.com/why-beneficiary-designations-override-your-will-2388824 [8/28/17]

Friday, 25 August 2017 17:02

Talking to Your Kids About Your Wealth

How can you convey its importance and its meaning?

Are you an owner of a thriving business or a medical or legal practice? Are you a highly paid executive? If you have children, at some point they may discern how wealthy you are – and in turn, learn how “rich” they are. How will you handle that moment? How will they handle that knowledge?

Some kids end up valuing family wealth more than others. We all know (or have heard) about children from wealthy families who grew up to become opportunistic, materialistic, and unmotivated young adults living off their parents’ largess. Other children learn to treat family money with respect and admiration, recognizing the role it plays for the family, while glimpsing its potential to help charities and the community.

What accounts for the difference? It may boil down to values. When the right values are handed down, a young adult is poised to hold wealth in high regard and receive it with maturity.

Some parents never tell their children how wealthy they really are. This is not uncommon: in a recent U.S. Trust survey of households with investable assets greater than $3 million, 64% of those polled indicated that they had said nothing or nearly nothing about their net worth to their kids.1

This is also a risk. In hiding the details and avoiding the talk, parents may see a child grow into a young adult who is ill-prepared to understand and manage wealth.

One good step is to set some expectations. After your kids learn how wealthy you are, they may expect your money to play a financial part in their personal lives, especially in adolescence. Tell them, frankly, what you are willing or not willing to do and why. Where will the family wealth come into their lives? Will you want to fund their college educations, or help them with car payments? You may or may not want to do that.

You can help them see that wealth has meaning. Some financial professionals like to ask their clients the question, “what does having money mean to you?” In other words, what should that money accomplish? What dreams should it help you pursue, and what fears or worries could it be used to address? How does having money fit into your vision of success – is it integral to it or inessential to it?

It has been said that money never transforms character; it simply reveals it. The responsibility of handling wealth amounts to a test of character. Thoughtful conversations with your children about the meaning of wealth may help them pass that important test when the time comes.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

      

Citations.

1 - reuters.com/article/us-money-generations-strategies-idUSKBN0OX1RH20150617 [6/17/15]

Wednesday, 16 August 2017 14:46

Will You Really Be Able to Work Longer?

You may assume you will. That assumption could be a retirement planning risk.

How long do you think you will work? Are you one of those baby boomers (or Gen Xers) who believes he or she can work past 65?

Some pre-retirees are basing their entire retirement transition on that belief, and that could be financially perilous.

In a new survey on retirement age, the gap between perception and reality stands out. The Employee Benefit Research Institute (EBRI) recently published its 2017 Retirement Confidence Survey, and the big takeaway from all the data is that most American workers (75%) believe they will be on the job at or after age 65. That belief conflicts with fact, for only 23% of retired workers EBRI polled this year said that they had stayed on the job until they were 65 or older.1

So, what are today’s pre-retirees to believe? Will they upend all their assumptions about retiring? Will working until 70 become the new normal? Or will their retirement transitions happen as many do today, arriving earlier and more abruptly than anticipated?

Perhaps this generation can work longer. AARP, for one, predicts that nearly a quarter of Americans 70-74 years old will be working in 2022, including nearly 40% of women that age by 2024. That would still leave many Americans retiring in their sixties – and more to the point, working until 70 is not a retirement plan.2 

What if you retire at 63, two years before you can enroll in Medicare? EBRI’s statistics indicate that this predicament has been common. You can pay for up to 18 months of COBRA (which is not cheap), tap a Health Savings Account (if you have one), or take advantage of your spouse’s employer-sponsored health coverage (if your spouse still works and has some). Beyond those options, you could either pay (greatly) for private health insurance or go uninsured.3  

What if you end up claiming Social Security earlier than planned? Given an average lifespan (i.e., you live into your eighties), that may not be so bad – you will get smaller monthly Social Security payments if you claim at 63 rather than at the Full Retirement Age (FRA) of 67, but the total amount of retirement benefits you receive over your lifetime should be about the same. Retiring and claiming Social Security well before Full Retirement Age (FRA), however, may mean a drastic revision of your retirement income strategy, if not your whole retirement plan.4

What will happen to your retirement assets if you leave work early? Will you still be able to contribute to your IRA(s) or pay the premiums on a cash value life insurance policy? Could you postpone withdrawals from your retirement accounts for months or years? How long can you count on this bull market?

If you are a baby boomer or Gen Xer, hopefully you have planned or built wealth to such a degree that the shock of an early retirement will not derail your retirement plan. It is realistic to recognize that it could.

If you want to work past 65, one key may be keeping your job skills current. The Transamerica Center for Retirement Studies reports that only about 40% of baby boomers are doing that.1

Lastly, if you switch jobs, you may improve your odds to work longer. A new study from the Center for Retirement Research at Boston College notes that 55% of college-educated workers who voluntarily changed jobs in their fifties were still working at age 65, compared with only 45% of workers who stayed at the same employer.1 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

       

Citations.

1 - cnbc.com/2017/04/21/the-dangers-of-planning-on-working-longer.html [4/21/17]

2 - aarp.org/politics-society/history/info-2016/baby-boomers-turning-70.html [1/16]

3 - forbes.com/sites/financialfinesse/2017/02/09/how-to-cover-medical-expenses-if-you-retire-before-65/ [2/9/17]

4 - fool.com/retirement/2017/03/04/the-one-social-security-mistake-you-dont-want-to-m.aspx [3/4/17]

Wednesday, 26 July 2017 14:03

Why Retirees Need Good Credit Scores

Careers & businesses end, but the need to borrow remains.

We spend much of our adult lives working, borrowing, and buying. A good credit score is our ally along the way. It retains its importance when we retire.

Retirees should do everything they can to maintain their credit rating. A FICO score of 700 or higher is useful whether an individual works or not.

For example, some retirees will decide to refinance their home loans. A recently published study from the Center for Retirement Research at Boston College noted that in 2013, 50% of homeowners older than 55 carried some form of housing debt. In 2017, it is probable that picture is unchanged. Arranging a lower interest rate on any remaining mortgage payments could bring income-challenged retirees more money each month. A strong FICO score will help them do that; a substandard one will not.1

Most retirees will want to buy a car at some point. Perhaps buying a recreational vehicle is on their to-do list. Very few car, truck, or RV purchases are all cash. A good credit score can help a retiree line up an auto loan with lower interest payments.

Insurance companies also study retiree credit habits. Since the early 1990s, credit-based insurance scores have been fundamental to underwriting. Used in all but a few states, they play a major role in determining car insurance and homeowner insurance premiums.2

The Fair Isaac Co. (FICO) generates credit-based insurance scores, which are variants of standard credit scores. Job and income data do not matter in a credit-based insurance score. Instead, insurers add up factors from a person’s credit history to project the likelihood of that person having an insurance loss. When a retiree consistently makes bill and loan payments on time, that helps her or his credit-based insurance score. The score is hurt when bill or loan payments are missed or delinquent or when debt levels become excessive.2,3

A strong credit rating can come in handy in other financial situations. It can help a retiree qualify for another credit card, should the need arise. If a senior wants to buy a smaller home (or move into an assisted living facility), a credit score may be a make-or-break factor. If a senior co-signs a loan for children or grandchildren, a credit rating will matter.

How can retirees boost their credit scores? Some obvious methods come to mind as well as less obvious ones. Besides paying bills on time and keeping credit card balances low, wiping out small debts can help lower a retiree’s credit utilization ratio. Asking a card issuer to raise a debt limit on a card can have the same effect, provided the monthly balance stays low and is paid off routinely.4

Too few retirees review their credit reports, and about 20% of individual credit reports have errors. More retirees ought to ask the three big credit bureaus – Equifax, TransUnion, and Experian – for a free copy of their credit report. Every 12 months, they are entitled to one.4

Credit cards held for decades should be kept active, especially if they have good payment histories. The same goes for high-limit cards. Closing these accounts out can do more harm than good to a credit rating.

Remember that good credit counts at any age. TransUnion recently surveyed baby boomers and discovered that nearly half thought their credit scores would become less important after they turned 70. As you can see by the above examples, that is not true. A high credit score can help you buy and borrow long after your working days are done.5

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

    

Citations.

1 - nytimes.com/2016/11/22/health/new-old-age-mortgage-debt.html [11/22/16]

2 - naic.org/cipr_topics/topic_credit_based_insurance_score.htm [12/30/16]

3 - kiplinger.com/article/credit/T017-C000-S015-why-your-credit-score-matters-in-retirement.html [2/9/17]

4 - fool.com/retirement/general/2016/05/13/5-ways-to-boost-your-credit-score-in-retirement.aspx [5/13/16]

5 - kiplinger.com/article/credit/T017-C000-S002-4-reasons-for-retirees-to-maintain-strong-credit.html [7/16]

Thursday, 29 June 2017 18:15

The Real Cost of College

It may not be what you think.

How much will your family end up paying for college? Your household’s income may have less influence than you think – and some private colleges may be cheaper than you assume.

Private schools sometimes extend the best aid offers. Yes – it is true that the more money you earn and the more assets you have in a tax-advantaged college savings plan, the harder it becomes to qualify for financial aid. Merit aid is another matter, however; most private colleges and universities that boast major endowment funds support healthy, merit-based aid packages.

These scholarships and institutional grants – awarded irrespective of a family’s financial need – can reduce the “sticker shock” of a college education. A study from the National Association of College and University Business Officers found that grant-based aid effectively cut tuition and fees by an average of 48.6% in the 2015-16 academic year. If your child can fit into the top quarter of a college’s student population in terms of grades or achievement, merit aid may be a possibility. A college that might be your student’s second or third choice might offer him or her more merit aid than the first choice.1

Relatively speaking, some universities demand more from poorer families. An analysis published in 2016 by New America noted 102 U.S. colleges with endowments of greater than $250 million that charged the poorest students more than $10,000 in tuition for the 2013-14 academic year. Out of more than 1,400 colleges and universities New America studied, hundreds expected households earning $30,000 or less per year to pay the equivalent of half or more of their earnings on higher ed.2

   

The state legislature of New York made a striking move this spring. It decided to waive tuition for many full-time undergraduate students at both 2-year and 4-year public colleges and universities within its borders. To qualify for this tuition break, households had to earn less than $100,000 annually – and students had to pledge to work and reside in New York state after they earned their degrees. (The annual earnings threshold will presently rise to $125,000.) Families and their students will still have to pay fees (and if needed, room and board).3

New York is not the only state making such an offer. Programs like the Tennessee Promise and the Oregon Promise have made community college tuition free in those states. Delaware and Minnesota have adopted similar plans, and Rhode Island and Arkansas also have like policies in the works. Any little tuition break helps, especially in these times. According to the Institute for College Access and Success, about 70% of college graduates in 2015 owed a great deal of money; their average education debt was $30,100.4

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - usnews.com/education/best-colleges/paying-for-college/articles/2016-07-07/strategies-for-students-too-rich-for-financial-aid-too-poor-for-college [7/7/16]

2 - washingtonpost.com/news/grade-point/wp/2016/03/16/these-colleges-expect-poor-families-to-pay-more-than-half-their-earnings-to-cover-costs/ [3/16/16]

3 - nytimes.com/2017/04/28/your-money/paying-for-college/as-college-deadlines-near-families-wonder-what-they-can-pay.html [4/28/17]

4 - newsweek.com/free-college-tuition-new-york-bernie-sanders-582345 [4/11/17]

Thursday, 01 June 2017 18:48

The Importance of Financial Literacy

Too few Americans understand personal finance fundamentals.

If only money came with instructions. If it did, the route toward wealth would be clear and direct. Unfortunately, many people have inadequate financial knowledge, and for them, the path is more obscure.

Are most people clueless about financial matters? That depends on what gauge you want to use to measure financial knowledge. The U.S. ranked fourteenth in Standard & Poor’s 2015 Global Financial Literacy Study, with just 57% of the country’s population estimated as financially literate.1

Obviously, the other 43% of Americans have some degree of financial understanding – but it is mixed with a degree of incomprehension. Witness some examples:

*A recent LendU survey found that nearly half of college students carrying student loans thought those debts would eventually be forgiven if left unpaid.
*This year, Fidelity Investments asked Americans the following question in a multiple-choice quiz: “If you were able to set aside $50 each month for retirement, how much could that end up becoming 25 years from now, including interest, if it grew at the historical stock market average?” The correct answer was $40,000, but just 16% of respondents got it right. Another 27% guessed $15,000 (i.e., 50 x 12 x 25, as if interest was not a factor).
*Only 42% of those quizzed by Fidelity knew that withdrawing 4-5% a year from retirement savings is commonly recommended. Fifteen percent of those older than 55 thought they would be “safe” withdrawing 10-12% per year.
*The S&P 500 has returned positively in 30 of the last 35 years. Just 8% of those answering Fidelity’s quiz guessed this.2,3

Apart from these examples, consider another one at the macro level. According to the latest National Financial Capability Study from FINRA (the Financial Industry Regulatory Authority), only about a third of Americans younger than 40 understand the basic financial concepts of compounding, inflation, and risk diversification.1

Statistics aside, think about how a lack of financial acumen hurts people’s chances to build or protect wealth. How about the employee who skips retirement plan enrollment at work, mistakenly thinking that a tax-advantaged retirement account is the same as a bank account? Or the small business owner puzzled by cash flow and profit-and-loss statements? Or the young borrower who fails to grasp the long-run consequences of only making interest payments on a credit card or loan?

Financial professionals continually educate themselves. They stay on top of economic, tax law, and market developments. Investors should as well. Ten or twenty years from now, you may find yourself in an entirely different place financially – who knows? The economy, the Wall Street climate, and even the investment opportunities before you could all differ from what you see today. If your financial knowledge is ten or twenty years out of date, you risk being at a disadvantage.

Financial literacy is not about prevention, but instead about empowerment. The more you understand about personal finance, the more potential you give yourself to make smart money decisions.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 - marketwatch.com/story/should-colleges-require-a-financial-literacy-class-2017-04-03/ [4/3/17]
2 - investopedia.com/news/3-ways-improve-financial-literacy/ [4/21/17]
3 - marketwatch.com/story/most-americans-failed-this-eight-question-retirement-quiz-2017-03-23 [3/23/17]

Friday, 05 May 2017 19:54

Key Estate Planning Mistakes to Avoid

Too many people make these common errors.

Many affluent professionals and business owners put estate planning on hold. Only the courts and lawyers stand to benefit from their procrastination. While inaction is the biggest estate planning error, several other major mistakes can occur. The following blunders can lead to major problems.

Failing to revise an estate plan after a spouse or child dies. This is truly a devastating event, and the grief that follows may be so deep and prolonged that attention may not be paid to this. A death in the family commonly requires a change in the terms of how family assets will be distributed. Without an update, questions (and squabbles) may emerge later.

Going years without updating beneficiaries. Beneficiary designations on qualified retirement plans and life insurance policies usually override bequests made in wills or trusts. Many people never review beneficiary designations over time, and the estate planning consequences of this inattention can be serious. For example, a woman can leave an IRA to her granddaughter in a will, but if her ex-husband is listed as the primary beneficiary of that IRA, those IRA assets will go to him per the beneficiary form. Beneficiary designations have an advantage – they allow assets to transfer to heirs without going through probate. If beneficiary designations are outdated, that advantage matters little.1,2

Thinking of a will as a shield against probate. Having a will in place does not automatically prevent assets from being probated. A living trust is designed to provide that kind of protection for assets; a will is not. An individual can clearly express “who gets what” in a will, yet end up having the courts determine the distribution of his or her assets.2

Supposing minor heirs will handle money well when they become young adults. There are multi-millionaires who go no further than a will when it comes to estate planning. When a will is the only estate planning tool directing the transfer of assets at death, assets can transfer to heirs aged 18 or older in many states without prohibitions. Imagine an 18-year-old inheriting several million dollars in liquid or illiquid assets. How many 18-year-olds (or 25-year-olds, for that matter) have the skill set to manage that kind of inheritance? If a trust exists and a trustee can control the distribution of assets to heirs, then situations such as these may be averted. A well-written trust may also help to prevent arguments among young heirs about who was meant to receive this or that asset.3

Too many people do too little estate planning. Avoid joining their ranks, and plan thoroughly to avoid these all-too-frequent mistakes.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 - thebalance.com/why-beneficiary-designations-override-your-will-2388824 [10/8/16]
2 - fool.com/retirement/2017/03/03/3-ways-to-keep-your-estate-out-of-probate.aspx [3/3/17]
3 - info.legalzoom.com/legal-age-inherit-21002.html [3/16/17]

Wednesday, 12 April 2017 15:21

When Someone Dies Without a Will

Where do things proceed from that point?

Every day, people die intestate. In legalese, that means without a will. This opens the door for the courts to decide what happens with their estates.

When no valid will exists, state intestacy laws dictate how assets are distributed. These laws divide an estate evenly (or equitably) among heirs. Any assets held in joint tenancy go to the joint owner. Assets held in a trust transfer to the trust beneficiaries (with spouses getting a share of those assets in some states). Community property goes to a spouse or partner in community property states.1

Simple, right? Unfortunately, the way assets transfer under these laws may not correspond to the wishes of the deceased person. Did the decedent want some of his or her estate to go to a charity or a person close to them? These laws will not allow that. State law will also decide who the executor of the estate is, since the decedent never named one.2

If the deceased person designated beneficiaries for his or her retirement accounts and life insurance policy, those retirement accounts and insurance proceeds should transfer to those beneficiaries without dispute, even when no will exists. When life insurance policies and retirement accounts lack designated beneficiaries, then those assets are lumped into the decedent’s estate and subject to intestacy laws.2

Most people have specific ideas about who should inherit what from their estates. To articulate those ideas, they should write a will – or better yet, they should draft one with the help of an attorney. Anyone who cares about the destiny of his or her wealth should take this basic estate planning step.

For a last will & testament to be valid, it must meet three important tests. It must be created by a person of sound mind. It must express that person’s free will – that is, it cannot be written or drafted under coercion or duress. Lastly, it must be signed and dated in the presence of two or more unrelated people who stand to inherit nothing from that person’s estate.1

Many wills are signed in the presence of notaries; although, a will does not have to be notarized to be legally valid. Some wills are self-proving – they have an attached, notarized affidavit, which acknowledges that all three tests noted in the preceding paragraph have been met. When this affidavit accompanies a will, there is no need to track down the parties who witnessed the signing and dating of the document years before.1

A last will and testament should be formatted and printed using a computer and printer; at the very least, it should be typed. Handwritten wills may not pass muster in some probate courts.1

When an individual dies intestate, the future of his or her estate is largely up to the courts. A basic, valid will stating his or her wishes may prevent that fate.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 - legalzoom.com/knowledge/last-will/topic/wills-intestate [3/20/17]
2 - money.cnn.com/2016/04/28/pf/dying-without-a-will-prince/ [4/28/16

Thursday, 16 March 2017 19:10

Active & Passive Investment Management

What do each of these terms really mean?

Investment management can be active or passive. Sometimes, that simple, fundamental choice can make a difference in portfolio performance.

During a particular market climate, one of these two methods may be widely praised, while the other is derided and dismissed. In truth, both approaches have merit, and all investors should understand their principles.

How does passive asset management work? A passive asset management strategy employs investment vehicles mirroring market benchmarks. In their composition, these funds match an index – such as the S&P 500 or the Russell 2000 – component for component.

As a result, the return from a passively managed fund precisely matches the return of the index it replicates. The glass-half-full aspect of this is that the investment will never underperform that benchmark. The glass-half-empty aspect is that it will never outperform it, either.

When you hold a passively managed investment, you always know what you own. In a slumping or sideways market, however, what you happen to own may not be what you would like to own.

Buy-and-hold investing goes hand-in-hand with passive investment management. A lengthy bull market makes a buy-and-hold investor (and a passive asset management approach) look good. With patience, an investor (or asset manager) rides the bull and enjoys the gains.

But, just as there is a potential downside to buy-and-hold investing (you can hold an asset too long), there is also a potential downside to passive investment management (you can be so passive that you fail to react to potential opportunities and changing market climates). That brings us to the respective alternatives to these approaches – market timing and active asset management (which is sometimes called dynamic asset allocation).

Please note that just as buy-and-hold investing does not equal passive asset management, market timing does not equal active asset management. Buy-and-hold investing and market timing are behaviors; passive asset management and active asset management are disciplines. (A portfolio left alone for 10 or 15 years is not one being passively managed.)

Active investment management attempts to beat the benchmarks. It seeks to take advantage of economic trends affecting certain sectors of the market. By overweighting a portfolio in sectors that are performing well and underweighting it in sectors that are performing poorly, the portfolio can theoretically benefit from greater exposure to the “hot” sectors and achieve a better overall return.

Active investment management does involve market timing. You have probably read articles discouraging market timing, but the warnings within those articles are almost always aimed at individual investors – stock pickers, day traders. Investment professionals practicing dynamic asset allocation are not merely picking stocks and making impulsive trades. They rely on highly sophisticated analytics to adjust investment allocations in a portfolio, responding to price movements and seeking to determine macroeconomic and sector-specific trends.

The dilemma with active investment management is that a manager (and portfolio) may have as many subpar years as excellent ones. In 2013, more than 80% of active investment managers outperformed passive investments indexing the S&P 500 (which rose 29.60% that year). In 2011, less than 15% did (the S&P was flat for the year).1,2

The two approaches are not mutually exclusive. In fact, many investment professionals help their clients use passive and active strategies at once. Some types of investments may be better suited to active management than passive management or vice versa. Similarly, when a bull market shifts into a bear market (or vice versa), one approach may suddenly prove more useful than the other, while both approaches are kept in mind for the long run.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 - forbes.com/sites/investor/2015/03/30/active-versus-passive-management-which-is-better/ [3/30/15]
2 - macrotrends.net/2526/sp-500-historical-annual-returns [2/2/17]

Thursday, 16 February 2017 16:01

The Cross-Purchase Buy-Sell Agreement

A plan for sustaining the business you have built after your death.

Business owners are builders. They spend their lives building firms to provide goods and services to their clients, and those firms provide them with a living. But nothing can tear down that lifetime of work faster than the death of a business owner, or the death of a business partner. Often, much of the value of a business dies with the owner.

Small business owners face two major succession questions. First, can the business heirs keep the company afloat when the owner dies, or at least avoid surrendering it at a “fire sale” price?

The executor of a deceased business owner’s estate can elect to continue the company, but must find someone willing to run it. That may not be easy. Some heirs or business partners may want to keep things going; others may want to cash out. This discord can potentially sink a firm, because if the business continues, any partners wanting out will want to be fairly compensated. If sufficient cash isn’t on hand to do that, liquidation may be the only option.

Selling the business means finding a buyer. Any potential buyer will be negotiating with an advantage, for the business will become less valuable with each passing day following the owner’s death.

Now to the second major succession question: how can an owner keep employees confident that the business, and their jobs, will continue after he or she is gone?

Surviving business partners may need to be reassured as well. If one partner dies, the remaining partners may find themselves in business with the deceased partner's heirs, who may have different goals for the company. If the heirs want to sell their inherited ownership interest, is there enough cash on hand to buy it?

These questions can throw the value & continuation of a business into doubt. If left unanswered, they could make creditors more likely to call in loans, and make retaining key employees harder.

Cross-purchase buy-sell agreements are designed to answer these questions. Often funded by life insurance, these agreements are essentially deals struck between owners, partners, or key employees of a business, permitting the sale of their ownership share to another person.1

How do they work? In the classic cross-purchase buyout agreement, each business partner takes out a life insurance policy on the other partners within the company, naming himself or herself as the beneficiary of those policies. If one partner passes away, then one or more beneficiaries can use the life insurance proceeds to buy the deceased partner’s ownership interest. This way, partners or key persons can continue to work and operate the business seamlessly, and the deceased partner’s heirs receive a fair, agreed-upon price for the ownership interest.1

Thanks to the buy-sell agreement, both heirs and partners know that the business is positioned to continue. In addition, greater productivity and loyalty may be seen from any key employees made part of the agreement, who see ownership in their future.

The sale can happen rather quickly; estate issues can be settled more expediently. Heirs will get a fair, pre-determined price for the ownership interest, and won't be selling under duress.

These agreements do have some disadvantages. Participants have to trust and verify that each partner keeps his or her insurance policy in force. This isn't as simple as making sure premiums are paid. Usually the policies are owned personally, not by the firm. If a partner suffers a bankruptcy, federal or state exemptions may not protect all of its cash value from creditors. Sometimes a participant will mistakenly buy an insurance policy on her or his own life and make the other participants beneficiaries; under those conditions, the insurance payout resulting from his or her death will likely be taxed.2,3

As the number of partners involved in a buy-sell agreement increases, the number of policies grows exponentially – as does the cost of the agreement. Two partners? Two policies. Three partners? Six policies. (When three partners are involved in a cross-purchase buyout agreement, Partner A needs to buy coverage for Partner B and Partner C, etc.) Speaking of cost, an older or less healthy partner will pay much more for the agreement than a younger, healthier partner, as life insurance is a necessary component.2,3

Before you make a decision about how you’ll protect the future of your business, it may be wise to speak to a qualified professional who can help you research this option as well as others.

  

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

    

Citations.

1 - nerdwallet.com/blog/insurance/life-insurance-small-business-partners/ [1/20/16]

2 - insure.com/life-insurance/bankruptcy.html [11/13/15]

3 - insurancenewsnet.com/innarticle/how-to-keep-a-buy-sell-agreement-from-derailing [5/21/15]

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