What is Financial Planning?

When it comes to financial planning, most people think about their investments. How your investments are managed is a small piece of the pie, but it’s not financial planning.
Proper tax mitigation, proper asset protection, retirement planning, paycheck protection, cash flow, and life insurance need to be integrated correctly into a financial plan, and not simply be a bunch of financial products thrown together in a “junk drawer” with no rhyme or reason.

Tax mitigation is just as important, or more important than your investments. Your return on investments isn’t doing much if you are giving half of it away to the government. We have no idea what taxes will look like when we retire. Most folks are led to believe they are in a lower tax bracket when they retire. This simply is not true. Even if the thought were to be true today, it may not be true tomorrow, next year, or when you retire.

Most folks are taught to put their money into an IRA, 401 (K) or other tax-deferred financial vehicle. At today’s rate, 30-40% of your money in these accounts are an IOU to the IRS. What will happen to your retirement if taxes increase?

  • Do you have Insurance on Your Paycheck?
    Your income is your biggest asset, yet few people protect this asset. Without it, it would be hard to support yourself and your loved ones financially. Disability is not something we ever think about, but statistically, 1 in 4 people will have a disability in their life.
    Disability can cover everything from total disability to rehabilitation from a sickness or injury. Common disabilities include
    Accidents, injuries, and poisonings
    Cancers and tumors
    Cardiovascular and circulatory diseases
    Muscle, back, and joint disorders
    Spine and nervous system-related disorders
    Mental health conditions

Can your family afford to lose your paycheck and/or pay for services needed if you become disabled? What would you do if a spouse had to stop working? We’ve seen it happen, and it’s devastating.

What about life insurance?
Permanent Life insurance has an incredible amount of uses and is one of the most valuable assets you can own.
Most people have been taught there’s only one use for life insurance, and that is for a death benefit. That simply is not true.
There are infinite ways to design a policy. The way a policy is designed depends on the needs of the individual.
We can create a policy this is focused on the death benefit and does not focus on cash accumulation, or we can create a policy that is solely focused on cash accumulation, or we can design a policy that creates a healthy balance of both.
People are living longer than ever before. It’s important to think about how you could get the extra money you might need to take care of yourself if you get a chronic or terminal illness. Many polices offer a chronic illness rider or a long-term care rider.
Permanent life insurance can be used to fund a non-qualified retirement plan, a Defined Benefit plan, a privatized banking system, or to create tax-free cash flow in retirement.

Chronic Illness Rider or Accelerated Death Benefit
This is a feature included in some life insurance policies that allows you to receive a tax-free advance on your life insurance death benefit while you are still alive. Sometimes you must pay an extra premium to add this feature to your life insurance policy. Sometimes the insurance company includes it in the policy for little or no cost. There are different types of ADBs, They each serve a different purpose. Depending on the type of policy you have, you may be able to receive a cash advance on your life insurance policy’s death benefit if::

  • You are terminally ill
  • You have a life-threatening diagnosis, such as AIDS
  • You are incapable of performing Activities of Daily Living (ADL), such as bathing or dressing

Long Term Care Rider

Long-term care insurance is expensive and is typically “use it or lose it.” Many consumers will not buy it because they know they may never use it and don’t want to waste their money. Some insurance companies have attempted to solve this problem by combining life insurance with long-term care insurance.
The amount of money you receive from these types of policies varies, but typically the accelerated benefit payment amount is capped at 50 percent of the death benefit. Other policies allow you to use the full amount of the death benefit. If this is important to you, make sure your insurance advisor understands which companies can meet your needs.
Different companies have various products that work differently. The monthly benefit you can use for nursing home care is typically equal to two percent of the life insurance policy’s face value. The amount available for home care is typically half that amount. This coverage may or may not be available.

  • Depending on the policy amount, there may be little or no health screening required. Meaning that if you have a previous health condition, it may exclude you from long-term care insurance eligibility. You can, however, still obtain a long-term care insurance policy through the ADB feature on a life insurance policy.
  • ADB policy payouts for long-term care services are often more limited than the benefits you could receive from a typical long-term care insurance policy.
  • The face value of your life insurance policy may not be enough to allow ADB payments that are enough to cover your long-term care service needs. The benefit payments may be too low and the duration may be too short to cover your long-term care service expenses.
  • ADB riders on life insurance policies may not offer inflation protection. If the policy does not include inflation protection, the ADB payment may not be sufficient to cover your future long-term care service costs.
  • If you want to leave an inheritance, you should consider whether using your life insurance death benefit to pay for long-term care services is the right option. If you use the ADB feature for long-term care services, there may be little or no death benefit remaining for your survivors.
  • Using the ADB option may affect your eligibility for Medicaid. Check with your state Medicaid agency for more information.

Life Settlements

These plans allow you to sell your life insurance policy for its present value to raise cash for any reason. This option is usually only available to women aged 74 and older and to men age 70 and older. Additionally, the proceeds of this transaction may be taxed.

Protect your business, your business partners, and your employees.
As a business owner you have a lot of responsibility to your business, your employees, and your family. If one of your partners or key employees dies or becomes disabled, there needs to be as little impact to your business as possible. You also want to attract and retain top talent.
Permanent life insurance can help with business continuation when a partner or key employee passes away.
It can also help facilitate the exchange of business ownership should you or your partner retire, become disabled, die, or get a divorce.
Inheritance
Some people purchase life insurance with the intention of leaving the death benefit as an inheritance to their loved ones. Life Insurance is an easy way to make sure everyone in the family gets an equal share of the family estate. This is common when there is a family business or family farm.
We currently have a high rate for estate taxes. But that is set to expire in 2025. The Federal estate tax is one of the things that our government frequently likes to change. Click Here to see a history of our estate tax laws.
Depending on state laws, your heirs may need to pay an estate tax upon receiving an inheritance.
Charitable Contribution
Life insurance policies can also be created with your favorite charity as a named beneficiary. This can help ensure your philanthropic goals are met after you pass away.
A good life insurance policy provides you and your family with financial security and protection that would be unavailable from any other source. There are benefits and advantages in a life insurance policy that you won’t find in the stock market, in government-sponsored retirement plans, in a real estate portfolio, or in any other investment or financial vehicle

Filial Responsibility Laws & Your Legal Obligation to Pay a Parent’s Medical Bills

Filial Responsibility Laws & Your Legal Obligation to Pay a Parent’s Medical Bills

More than half the states have enacted “filial responsibility” laws. These laws make adult children responsible for their parents’ medical bills if their parents cannot pay. These laws are designed to minimize the parent’s burden on the state’s welfare system. 

In some states, you are legally obligated to support your parents if they can’t do it themselves. That support includes basic needs, such as food, housing, and even medical care. This means, if you are in a filial state and your parents start accumulating healthcare bills they cannot pay, the healthcare provider may be within their right to sue you. 

Most states with these laws don’t currently enforce them, but with the rise in healthcare costs and a growing senior population, experts predict a rise in enforcement. 

Laws in each state differ, but there are commonalities when it comes to enforcement. You will most likely be responsible for a parent’s medical bills when:

  • Your parent doesn’t qualify for Medicaid
  • Your parent is impoverished 
  • Your parents have medical bills and cannot pay for them
  • You have the ability to pay, or your parents fraudulently transferred assets to you.

Even if you do not currently live in a state with filial laws, these laws should be a consideration in all major financial decisions, both for you and your folks. Overlooking these laws can be an expensive mistake shall your state decide to implement these laws.

A few things to keep in mind

  1. You can be sued for your parents’ long-term care bills
  2. You may face civil or criminal penalties
  3. Financial transactions between you and your parents should be scrutinized.  Transactions between you and your parents may be deemed as “fraudulent conveyance”, which is a property transfer that is intended to defraud creditors. You may also risk violating Medicaid asset transfer rules, which would make your parents ineligible for Medicaid. 
  4. You may have to sue siblings to recover funds. States differ by law, and it’s unclear as to how siblings and spouses share responsibility for the medical debt. If a healthcare provider comes after you only, and a judgment is rendered against you, it’ll be up to you to sue your family and recover their share of the debt. 

Unfortunately, if you live in one of these states, you can be forced to pay these bills. If you do not live in one of these states, it does not mean the laws in your state won’t change. 

It’s a good idea to get involved in your parents’ financial planning and healthcare decisions now. If the medical bills end up your responsibility, it’s ideal to have a solution to the problem beforehand. 

Filial responsibility laws are designed to minimize the parent’s burden on the state’s welfare system.

Here are some simple steps to help avoid the drama and expense of the situation

1. Start the conversation with your parents

It may be awkward, especially if you’re not close with your parents. Permanent life insurance is the solution to the problem. They can use the cash value inside the policy while they are still alive.

They can use the policy to transfer wealth to you and other siblings. By using this as a strategy to transfer wealth, there is less chance the government or the healthcare company will get their money. 

2. Collaborate with your family members

3. Consult with an elder care attorney

Eldercare attorneys specialize in issues involving long-term care and Medicaid. A good attorney can help you and your family create a good strategy so you are not giving your money away to the government or to someone else. 

4. Help them qualify for Medicaid

A team of good financial professionals, including a CPA and a good financial advisor can help an attorney lower your parent’s income and assets so they are eligible for Medicaid.

Talk to your parents today about their finances and the plans they have made. The earlier you have this conversation, the more time you have to plan a strategy that protects you and provides them with access to the care they need.   

 

Disability Insurance – Replacing Lost Income

Disability Insurance – Replacing Lost Income

What would you do if your last paycheck was your last?

This isn’t something we ever think about, but it should be. We are taught, encouraged, and even legally obligated to insure our homes; our cars; our businesses; our cell phones. But we never think about insuring our paycheck. We use insurance to protect these assets but protect our most important asset. 

What is your biggest asset?

  • Your House? 
  • Your Retirement Fund?
  • Your Life Insurance Policy?

Your ability to make an income is your biggest asset. Without this, you lose everything else. You are the true asset, not this stuff. We buy disability insurance for the same reason we buy life insurance; to replace a lost income. 

Many folks buy life insurance, but do not buy disability insurance. Do you know the difference between disability and death? The bills stop at death, but if you become disabled, the bills can keep on coming. 

Yet, too often people insure their stuff, but not themselves.

WHY? Is it because we are not forced to? Is it because no one has ever asked us about it? Is it because we are invincible and nothing will ever happen to us?  

Long-Term Disability

  • Protects your income if you need to miss work for longer than three to six months.
  • It Typically covers up to 80 percent of your income.
  • The time your coverage pays benefits will range depending on your policy.
  • It can be for a specific period — ranging from two to five or ten years — or until Retirement Age
  • The waiting period for most LTD policies is three or six months 
    •  So, you will need a plan to cover costs before the payments begin (usually this time is covered by your STD plan or your savings.) 

**If your employer pays your STD or LTD premiums, your benefits are taxed

Short-Term Disability Insurance

  • Plans usually protect your income for between three days and six months
  • Although some policies offer coverage for up to two years.
  • Short-term plans typically replace between 60 and 70 percent of your pay
  • When you choose a plan, be aware of the waiting period, also known as the elimination period. 
    • This is the time between you being diagnosed with an illness, injury, or having a baby, and receiving a payment

**Depending on how it is set up through your work, this may be taxed

Different  coverages for Disability Insurance:

  • Loan Disability: Provides Relief on loans when you are unable to work
  • Student Loan Disability
  • Buy/Sell Agreements and Buyout Agreements
  • Allows a partner to have the resources to buy out another partner who has become disabled
  • Personal Disability: 
    • Covers your personal Income
  • Business Overhead 
    • Covers Business Overhead expenses such as salaries, rent, and operational expenses if a business owner becomes disabled

Disability Insurance

The Most Common Reasons for Long-Term Disability Claims

  • Musculoskeletal disorders (29%) – arthritis, back pain, spine/joint disorders, etc
  • Cancer (15%)
  • Pregnancy (9.4%)
  • Mental health issues including depression and anxiety (9.1%)
  • Injuries such as fractures, sprains, and strains of muscles and ligaments (9%)
  • Heart Attack, Diabetes, Back pain, injuries, and arthritis are also significant causes.
  • Most are not work-related, and therefore not covered by workers’ compensation.
  • Lifestyle choices and personal behavior that lead to obesity are becoming major contributing factors.
  • https://disabilitycanhappen.org/disability-statistic/

Disability Facts

  • More than one in four of today’s 20-year-olds will be out of work for 12 months or more for a variety of reasons before they reach normal retirement age.
  • This includes common health conditions such as knee, shoulder, or back injuries, cancer, heart problems, or depression.
  • Over 37 million Americans are classified as disabled; about 12% of the total population. More than 50% of those are in their working years, from 18-64”
  • One in eight workers will be disabled for five years or more during their working careers”
  • 90% of new long-term disability claims are caused by illnesses rather than accidents. Fewer than % are work-related”
  • A 2014 study of consumer bankruptcy filings identified the following as primary reasons:
    • medical bills (26%)
    • lost job (20%)
    • illness or injury on part of self or family member (15%)
  • A 2013 study of bankruptcy filings in Washington state found that cancer patients were 2.65 times more likely to go bankrupt than people without cancer, with younger (under age 50) cancer patients having the highest rates of bankruptcy
  • https://disabilitycanhappen.org/disability-statistic/
  • https://disabilitycanhappen.org/disability-statistic/
  • Most Americans, don’t have enough savings to cover three months of living expenses or to pay an unexpected $400 bill without having to take out a loan or sell something. 
  • This is where salary protection insurance comes in. Disability insurance pays you a portion of your income when you need to miss work for as short a period as a few days to as long as you reach your retirement age.
  • No other insurance product helps to cover your day-to-day expenses in this way. Health insurance covers medical bills. Worker’s compensation only pays for injuries that happen in the workplace. Disability insurance protects your income.

Common Mistakes

  • Not reviewing and updating your policy
    • New Job or Pay Increase
  • Improper Tax Filings
    • Work pays for your policy with Pre-tax Dollars
  • Not getting enough Disability Coverage
  • Getting the Wrong kind
    • Own Occ Vs Any Occ