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JOURNAL Brought to you by the Advanced Consulting Group of Nationwide®
Summer 2018 IN THIS ISSUE Using a deferred annuity within an IRA Page 1 LTC planning in divorce, multiple marriages and co-habitation Page 2 The ERISA section 3(38) investment manager Page 7 Life insurance and creditors Page 9
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Using a deferred annuity within an IRA Ken Boothe, JD, CLU®, ChFC® Director, Advanced Consulting Group Commentators have argued against using an annuity in an IRA for various reasons. The argument goes that because an IRA already receives tax deferral, any additional expense associated with placing an annuity inside it is unnecessary. On its face, these observations may make some sense. However, a deeper look into the issue may provide some surprises. Many modern annuities have more to offer than just tax deferral. Some offer other benefits that make the annuity product much more attractive then ever before. Consider the dreaded “g” word. In this case, the “g” word is guarantees. These guarantees are generally in the form of guaranteed income and/or death benefit riders. Depending on the particular contract and rider involved, these guarantees may come at an additional charge within the product. Specifically, guaranteed income and death benefit riders will be addressed here. IRA’s are wonderful vehicles for accumulating a source of funds to provide income in retirement. When retirement is approaching, most advisors’ focus turns from accumulating funds to the most efficient distribution of those funds. This is where income guarantees come into play.
Income guarantees Income guarantees can help facilitate the transition from accumulation products into retirement income designed to last throughout retirement. Consider an IRA annuity with a living benefit as a possible bond/fixed income replacement within the client’s investment portfolio. Generally, within five-to-ten years of retirement, consider transferring current IRA or qualified plan balances to an IRA annuity with living (income) benefits. Qualified plan balances can be used to fund an IRA annuity with a living benefit. Usually, this is done by way of rollover or direct transfer from the plan sponsor after the employee separates from service. However, some plans do allow for distributions while the employee is still working.
All the usual IRA rules still apply to an IRA annuity. Unless there are non-deductible contributions to the IRA, all distributions received from the IRA will be taxed at ordinary income rates in the year received, with the remaining balance receiving tax deferral.
The annuitant is the same as the owner. If the joint life option feature is selected, the owner’s spouse must be listed as coannuitant. The primary beneficiary can be whoever the owner chooses. Someexamples of beneficiaries could be children, a trust, or a charity. However, if the joint life income feature is chosen, both spouses must be primary beneficiaries.
If an IRA annuity is the only IRA account the client has, distributions may only be delayed until required minimum distributions (RMDs) begin at age 70 ½. If the IRA owner has multiple IRA accounts, then distributions from the IRA annuity with a living benefit can be avoided if the full RMD amounts for all the client’s IRAs are taken from the client’s other IRA accounts.
The contingent beneficiary can also be anyone the owner chooses, with the caveat that the contingent beneficiary only receives something if there are no primary beneficiaries remaining. The successor beneficiary can also be named by the owner and is able to receive funds if the primary or contingent beneficiary doesn’t receive them all before death.
This allows the IRA annuity with the living benefit time to grow until the owner decides to take distributions. With these living benefits, remember that excess withdrawals will reduce future guaranteed income. Further, any withdrawals will reduce any death benefits under the contract.
Conclusion Regardless of any debate, using an annuity in an IRA should be considered because of everything a modern annuity has to offer.
Transferring an IRA account Knowing the parties to the contract is vital when considerring the mechanics of transferring an existing IRA account to an IRA annuity with living benefits. The owner is the IRA account holder, as it is only permissible to have one owner of an IRA contract.
As a final thought, an IRA owner or advisor should understand that when transferring current IRA funds to an IRA annuity with a living benefit, a trustee-totrustee transfer should be employed to avoid running afoul of the relatively new restrictions applicable to traditional 60-day rollovers.
LTC planning in divorce, multiple marriages and co-habitation Shawn Britt, CLU®, CLTC Director, Long-term Care Initiatives, Advanced Consulting Group Long-term care (LTC) planning is important for any person or couple, and each situation has unique considerations when planning for the best possible outcome; but even more so when you consider: • Divorce • Second or multiple marriages • Co-habitation • Seniors re-marrying
better outcomes or helped avoid disaster when the LTC need arose. This article will also address pitfalls to avoid and offer ideas to help in LTC planning such as putting additional thought into policy ownership, the use of pre-nuptial and post-nuptial agreements, and documents to have in order when a couple is not legally married.
Divorce — an increasing senior challenge
The dialog will center on the aforementioned situations as we look at case studies where LTC coverage was purchased wisely, and case studies where putting some fore-thought into the situation could have resulted in
When couples divorce, LTC is often not part of the mediation. But divorce rates are shifting. Recent studies
show the divorce rate for younger couples has decreased, but the divorce rate among people age 50 and older has doubled since the 1990s.1 Why?
divorce settlement. She wants to be sure there are funds that will allow her to receive care in her own home as long as possible. She wants coverage that will cover less expensive unlicensed caregivers to help stretch her benefit dollars farther, help pay to keep her home in order, and provide flexibility to use services that evolve in the future.
Life spans continue to increase, with potential to enjoy more years of healthy and active life than generations past — as much as 30 years or more.1 One or both spouses long unhappy in the marriage may decide to move on to a better situation.
What did Mary do right? 1. She discussed the situation with her nearby daughter and accepts that her daughter isn’t available to provide much care support in the near future. 2. Mary had the forethought to try and work a LTC policy into the divorce settlement. 3. She considered the type care she might want should she need LTC services. Now her financial professional can guide her to LTC coverage that can accommodate her wishes.
But with aging comes potential LTC needs, thus LTC discussions should be considered during the divorce negotiations. For example, staying in your home for care may be more expensive or not possible when there is no spouse to provide help with meals, laundry, housekeeping, help with medications, home maintenance, and other tasks. However, divorce can also be followed by remarriage, and a new spouse may come with a change in family dynamic that may require far more refined LTC planning and help from legal counsel.
Case study of Betty The case of the desperate daughter Betty was a widow with a teenage daughter named Tiffany when she married David. They were married for 20 years and had no children together. During that time, David purchased for each of them, a life insurance policy with an LTC rider. David wanted to own both policies since he was paying for them.
Case study of Mary Enough is enough is enough Mary and Drew have been married for 50 years. While Drew has been perfectly content, doing as he pleased and expecting his behavior to be tolerated, Mary has not been happy for most of their marriage. She stayed for the sake of their children, then continued to stay for her grandchildren. But the last grandchild is in high school and Mary, at age 72, can’t go on like this. She wants a divorce while she can still enjoy life.
David had been married and divorced once before, so when David and Betty divorced, he was familiar with the drill. David wanted to keep ownership of both life insurance policies since he purchased them with assets he brought to the marriage. When disclosing assets to her attorney, Betty didn’t think to mention the LTC benefits attached to the policy on her life. Years after the divorce, Betty needed LTC services. She contacted her ex-husband about the policy, and the claim was filed and quickly approved; but much to Betty and Tiffany’s shock, the LTC benefits were being paid to David — who was keeping the money instead of sending the funds to Betty to pay for her care.
Mary knows long-term care could be a reality in the future. While married to Drew she tried to convince him to purchase each of them some LTC coverage. They could easily afford the insurance, but Drew’s plan was for Mary to care for him, and their kids to care for her.
Tiffany, who had Power of Attorney for Betty, asked the insurance company why her mother was not getting her LTC benefits. How could this happen? Tiffany was told that the LTC rider benefits on this policy were owner driven (often the case on LTC Riders) — meaning contractually they are paid to the policy owner, not the insured; and Betty didn’t own the policy. Unfortunately, there was nothing the insurance company could do. David was not obligated in any way to give the money to Betty to pay for her care.
When leaving Drew, Mary moved to Arizona and into a community where she has close friends. Her youngest child lives nearby, but travels extensively for her job, and would have limited ability to provide Mary care if ever needed – at least in the near future. Mary is still healthy and insurable, so she had the purchase of LTC coverage negotiated as part of her
Where did Betty miss the mark? 1. She failed to inform her attorney of the LTC rider on the life insurance policy written on her. 2. The attorney didn’t ask if Betty’s policy had any living benefits (i.e. LTC rider). With this knowledge, her attorney could have tried negotiating into the divorce settlement that David must pay Betty the LTC benefits from the policy should they be needed.
John’s claim. a. Eleanor could appoint John as contingent owner of his linked benefit policy in case she predeceased John. Case study of Tom and Teri The happy hippies Tom and Teri met in college during the end of the “hippie era”, moved in together and never married. After nearly 40 years they were still happy as ever, successful in work, and still spending their spare time working for charities and other causes.
Case study of John and Eleanor The concerned kids John and Eleanor were each other’s second spouses. Each had grown children from their first marriages. While they shared expenses, Eleanor was clearly the more affluent and contributed much more financially.
They never had children, so they saw the value in having LTC coverage. Financially they were well off and able to purchase for each of them a single premium linked benefit LTC policy with a 6-year benefit period and substantial monthly LTC benefits.
Eleanor assumed John would need care first and would count on her to take care of him, so she agreed to pay for linked benefit LTC policies on both herself and John. When their advisor filled out the applications, he listed Eleanor as owner of her policy and John as owner of his.
I their golden years, Teri was the first to need LTC services. Tom attempted to file a claim for Teri, but she had never given Tom financial or health care Powers of Attorney, or signed HIPAA release forms giving Teri’s medical team permission to discuss her health condition with Tom. Strangely they saw the value in having a financial advisor, but viewed attorneys as “bad energy”, so they had never taken care of legal matters such as wills, HIPAA releases and other legal matters.
Years later, John was diagnosed with cognitive impairment. Eleanor called the insurance company to file the claim; but because John owned his policy, Eleanor could not file the claim unless John had granted her Power of Attorney. Unfortunately, John had granted this power only to his two children. John’s children refused to file the LTC claim. They feared that if Eleanor died, there would not be enough money to pay for their Dad’s care since most of Eleanor’s estate was being left to her own children. They wanted to save the policy to use in the event Eleanor passed away first and was no longer around to pay for John’s care. As far as John’s kids were concerned, Eleanor was his wife and was responsible for John and the expense of his care. They insisted their Dad’s policy was intended to protect them, not Eleanor.
Now that Teri is cognitively impaired, she can no longer appoint the necessary Powers of Attorney. Legally, Teri’s doctors can’t discuss her condition with Tom. Lacking the proper documents, Tom cannot file a claim for Teri. Eventually, Tom was able to get appointed as Teri’s guardian, but it was with much time and expense that wouldn’t have been necessary if better planning had taken place. What went wrong? 1. Without a marriage certain rights to receive information and make decisions for an incapacitated partner don’t exist. 2. They should have had HIPAA release forms, living wills, and limited Powers of Attorney in place at the very least – which would have allowed Tom to file the claim for Teri and manage her care.
What planning mistakes were made? 1. Eleanor’s financial advisor just assumed each person should own their own policy. Being that Eleanor was paying for both policies, the advisor should have asked what her intentions were regarding control of the policy benefits. 2. It would most likely have been better to have Eleanor own both policies so she would have control of
The value of cash indemnity LTC benefits
• “Did she marry Dad for financial support?” “Are her kids after Dad’s money too?” • “Is he expecting Mom to be a ‘nurse and a purse’?”
When doing LTC planning with clients, the LTC benefit payment mode is an important consideration. Some divorces of long term marriages may include an obligation to help with a portion of medical or LTC expenses of an ex-spouse. Individuals in second marriages may have to deal with their spouse’s children from a former marriage when health or LTC issues arise. Thus, choosing the benefit model that meets your client’s specific situation should be part of the planning.
In other words, the kids may see potential for their parent to be taken advantage of and/or their own inheritance jeopardized. Long-term care can throw a wrench into what may already be a melodrama ready to happen. Discussions before the marriage should include: • the financial contributions each will be responsible for • help from attorneys to secure intended inheritance to adult children • frank discussions on how LTC concerns would be handled
Reimbursement plans Bills and receipts must be submitted each month and only LTC expenses that qualify under the contract will be reimbursed — up to the policy’s monthly benefit amount. Companies may allow direct reimbursement to the service provider, but the service provider will have to be willing to do 3rd party billing. Coordinating monthly paperwork could be unpleasant when having to deal with an ex-spouse to get benefits under a divorce settlement or post-nuptial agreement. In addition, a well thought out agreement would need to be in place to lay out what expenses an ex-spouse may be responsible for if the policy does not cover a needed LTC expense for the insured. However, this benefit model could be a good solution if spendthrift concerns exist with the spouse receiving the policy in a divorce settlement.
Having these discussions and planning before the marriage can go a long way to help smooth the bumps these marriages may encounter. Case study of Joe and Jenny The seperated love birds Joe, 72 and Jenny, 70 were both widowed when they met at an event. Both had come from strong marriages and never considered finding love again, but they did — and were two love bird’s in a happy and fulfilling marriage. Jenny’s children welcomed Joe into the family and were glad to see their mom happy again; but Joe’s two daughters were not thrilled about this marriage. They felt Joe had “replaced” their mother, and more importantly – were concerned that Joe was “supporting” this woman with their inheritance – even though he told them Jenny paid her fair share of expenses.
Cash indemnity plans Requires no monthly paperwork to get LTC benefits. Moreover, once all claim requirements have been met and the claim is approved, the insurance company will pay the full available LTC benefit amount without placing any restrictions on how LTC benefits can be used. This can allow for more flexibility of use, including paying informal caregivers and family members to provide care. If a client wants to limit contact with an ex-spouse or a spouse’s children from a first marriage, this benefit model can help cut down on the amount of interaction required between the parties. Cash indemnity benefits also provide a known benefit amount that may make supplemental financial obligations of an ex-spouse easier to define.
After 10 years of marriage full of travel and good times, their health started to fail and they moved to assisted living. Again, Joe’s daughters started a campaign of chatter about how much Joe was spending on Jenny’s portion of the care they were receiving. As Jenny was slowing down physically, Joe was declining into dementia.
Seniors remarrying When seniors meet and marry in the twilight of their lives, they typically have adult children — but these children will not become a “blended family”. In fact, they may live in different parts of the country and may never really get to know each other. Sometimes these children are “suspect” of the new spouse and/or their family.
That’s when the real trouble started. While they still had the chance, Joe’s daughters convinced him to sign Power of Attorney to them. Then, Joe’s daughters
insisted their dad be moved to his own apartment, and did their best to keep Jenny away.
3. When couples are not in a legal union, the advisor should suggest they get legal counsel to get all paperwork in order, so that the rights of each party are maintained as close as possible to the rights given automatically to married couples if that is the desire of the couple.
When Joe died, Jenny was relegated to the back of the room at his funeral. This love story ended sadly — not because their love ended, but because forethought was not put into planning ahead for potential LTC events — the final straw for children who could not accept their dad moving on with his life.
4. If an advisor is consulted by clients during a divorce to help gather information on life insurance policies, annuities and other assets they own, the advisor would normally include information on any traditional LTC policies, or linked benefit LTC policies. But the advisor should remember to include information on LTC riders attached to life insurance policies or annuities – as these riders can change how the policies may need to be negotiated in the divorce settlement, or may require arrangements in the divorce agreement to allow for distribution of LTC benefits to the insured.
What might have helped avoid disaster? 1. Joe and Jenny were still healthy when they married. The couple’s advisor could have approached them about the importance of LTC planning and how having policies in place could help diffuse concerns about LTC expenses eroding the children’s inheritances. 2. A pre-nuptial agreement laying out how expenses would be shared, and how potential long-term care concerns would be handled, may have helped Joe ward off his daughter’s attempts to control his life.
5. Consider the benefit payment mode when planning. Cash Indemnity benefits are generally easier to use, offer more flexibility, provide a known benefit for planning purposes, and can help limit contact between people who do not want to deal with one another. Reimbursement plans have more limits on use, may be harder to work with when supplemental medical support may need to be paid, and may require more unwanted contact between divorced spouses or family members that do not get along. However, they may be useful in spendthrift situations.
Pitfalls for advisors to avoid 1. Advisors should not assume the couple will honor “until death do we part”. While an advisor may not want to bring up the possibility of divorce, if it is in the back of his mind, he can at least try to avoid downsides of ownership based on the couple’s unique situation. People in second marriages may be more open to post-nuptial agreements to protect distribution of LTC benefits in the event of a divorce
6. LTC planning should be a top priority when seniors are entering into a new marriage. Financial expectations should be clarified and LTC coverage purchased if applicable. The use of pre-nuptial agreements should also be considered so that the couple and the adult children from both sides clearly understand the financial arrangements the new couple has agreed to, and help secure those plans from potential interference.
2. Policy ownership is tricky. While some policies pay the insured, many policies — especially policies tied to life insurance and annuities — pay LTC benefits to the owner; thus, be sure to plan with the knowledge of to whom the LTC benefits will be paid. No one can predict if the marriage will last, and even if it does, there can unexpected consequences if the spouses do not have powers of attorney for each other. Whether the policies are owned by the individual insureds or both policies are owned by one spouse, the intended outcome for the policies can backfire if additional thought is not considered with contingent ownership declared, powers of attorney in place and pre-nuptial or post-nuptial agreements in place. Each couple’s unique situation should be considered to help dictate a path of least resistance.
Summary It’s impossible to predict what our client’s future may hold, but LTC planning that is well thought out can help avoid potential challenges that may come in the future.
The ERISA section 3(38) investment manager Chuck Rolph, JD, MSFS, CFP®, CEBS, CPC, CPFA, TGPC, CLU®, ChFC®, RICP Director, Advanced Consulting Group I. Introduction The purpose of this article is to provide the reader with some basic information about the fiduciary position of investment manager, which is sometimes referred to as “ERISA section 3(38)” because that is the section of ERISA that defines the position.
advice to: (i) plan fiduciaries, such as the trustee or other named fiduciary in charge of asset management or investment decisions; (ii) plan participants, in plans where a named fiduciary of the plan has authorized an investment advice fiduciary to provide investment advice to the participants in the plan; and/or (iii) IRA owners. When providing investment advice to a plan fiduciary, the investment advice fiduciary acts in the capacity of a co-fiduciary, meaning that the investment advice fiduciary is responsible as a fiduciary for the investment advice he or she renders, but that the plan fiduciary who is the recipient of such advice also has the responsibility as a fiduciary to act prudently on such advice.
II. ERISA’s definition of “fiduciary” and fiduciary duties All of ERISA’s fiduciary positions are contained in ERISA section 3(21)(A) which defines a fiduciary as follows: “(A) Except as otherwise provided in subparagraph (B), a person is a fiduciary with respect to a plan to the extent: (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets; (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so; or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan. Such term includes any person designated under section 405(c)(1)(B).”
Role of the investment manager fiduciary. An investment manager’s role does not involve rendering investment advice to another plan fiduciary or plan participant. An investment manager is hired by another plan fiduciary, such as the trustee, and tasked with the responsibility of managing (i.e., making decisions on whether to buy, sell, or hold) such portion of the plan’s assets as is given to the investment manager under the agreement between the hiring plan fiduciary and the investment manager. For example, if an investment manager has a particular expertise in managing corporate bonds, that certain investment manager might be given authority only to manage the plan’s bond portfolio, and not the entire plan assets. The investment manager has the sole authority to buy, sell, or otherwise manage the assets of a plan that are assigned to it under the terms of the agreement between the appointing fiduciary and the investment manager. The investment manager does not operate in a co-fiduciary capacity in a manner similar to that of an investment advice fiduciary.
III. “Investment manager” defined ERISA section 3(38) defines the term “investment manager” as any fiduciary (other than a trustee or named fiduciary): (i) who has the power to manage, acquire, or dispose of any asset of a plan; (ii) who is registered as an investment advice fiduciary under the Investment Advisers Act of 1940 or under the laws of any State; (iii) is a bank, as defined in that Act; or (iv) is an insurance company qualified to perform services involving the management, acquisition, or disposition of plan assets under the laws of more than one State; and (v) has acknowledged in writing fiduciary status with respect to the plan. An investment manager is a fiduciary within the meaning of ERISA section 3(21)(A)(i).
V. Appointing and monitoring an investment manager The authority for appointing an investment manager resides with the trustee or other named fiduciary who has authority over the investment and management of the plan’s assets. Any appointment of an investment manager must be done by means of a written document, which will describe the limits of the investment manager’s authority over the plan’s assets.
IV. Roles of investment advice fiduciary vs. investment manager Role of the investment advice fiduciary. The investment advice fiduciary may provide investment
The appointing fiduciary sets forth the terms of the investment manager’s discretion in the written document of appointment. The entity so appointed will be given full discretion for investment decisions for all or a specified portion of the plan’s assets and must agree in writing to this arrangement. “Full discretion” means that the investment manager fiduciary selects, monitors and replaces plan investments, in its complete discretion. The trustee or named fiduciary that appointed the investment manager fiduciary does retain the responsibility to monitor the activities of the investment manager, but is not responsible for the individual investment decisions of the investment manager fiduciary.
contribution plans where participants do not have the ability to direct the investment of assets allocated to their respective accounts, the investment manager has no direct effect on the participants. This is due to the fact that the investment manager would be making all the investment decisions without regard to any input from the participants. In defined contribution plans where participants are allowed to select their own investments, the investment manager is responsible for establishing and maintaining the investment lineup from which participants may select their investments. Participants may be able to hire the investment manager to manage their own investments in a defined contribution plan if the plan fiduciary that appoints and monitors the investment manager allows it, and, further provided, that the investment manager agrees to do so.
VI. Interaction of the investment manager with other parties to the plan Investment manager and the institutional trustee. One of the decisions a plan sponsor must make in the process of establishing its retirement plan is whether to have one or more individuals serve as the trustee of the plan or to employ the services of a financial institution with trust company powers to serve in that capacity. If the plan sponsor selects an institutional trustee, that trustee then has to decide whether it will assume the responsibility for the management of the plan’s assets or whether it will off-load that responsibility to an outside investment manager.
Investment manager and the investment advice fiduciary. If a named fiduciary of a plan with responsibility for management of the plan’s assets has hired an investment manager, the fiduciary investment advisory services that would have been provided by an investment advice fiduciary to the plan’s trustee’s or other named fiduciary with responsibility for management of plan assets will no longer be required. However, other nonfiduciary service opportunities exist for the advisor to the plan fiduciaries when the plan has hired an investment manager. An investment advice fiduciary may also have investment advisory opportunities with respect to participants in the plan when the plan has hired an investment manager to oversee the management of plan assets.
Investment manager and the individual trustee. The plan trustee position does not, as a matter of law, require any specific qualifications. In the case of smaller plans and plans of owner-controlled businesses, one or more individuals employed by the business sponsoring the plan more likely than not will assume the role of trustee. This may be due to cost-saving concerns or for reasons of wanting to control as much of the process of plan operation as possible by the owners of the affected plan sponsor. An individual trustee may want to hire an investment manager for any of the following reasons: (i) the individual trustee lacks the necessary expertise in investing and asset management and is concerned about the potential liability associated therewith; (ii) the individual wants to transfer the responsibility of managing the plan’s assets to an outside party so that the trustee can focus on other activities associated with the trusteeship of the plan; or (iii) the individual trustee might recognize that an experienced investment manager could negotiate better deals with suppliers of investment products, such that participants in the plan might potentially experience better investment outcomes at a lower net cost.
VII. Concluding observations The named fiduciary with responsibility for the investment of a plan’s assets needs to consider many factors before deciding whether to hire an investment manager to assume those investment management responsibilities from it. One factor that militates in favor of hiring an investment manager is the professional expertise that the manager would bring to bear on the task of managing the plan’s assets which may lead to better investment outcomes. The named fiduciary with responsibility for management of the plan’s assets who hires an investment manager may reduce its fiduciary liability by hiring an investment manager, but not totally eliminate it. The named fiduciary who hires the investment manager is responsible for prudently selecting and monitoring the investment manager, but is not responsible for the individual investment decisions made by the investment manager.
Investment manager and plan participants. In the case of defined benefit plans and defined
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Life insurance and creditors Allison Anne Hoyt, JD, CLU® Director, Advanced Consulting Group Question: Is life insurance protected from creditors? Many of the questions we are asked are great and require thoughtful responses. However, I find that this question, unfortunately, oversimplifies the issue and neglects to consider an individual’s intent. Whether life insurance will be protected from an individual’s creditors depends on many factors, including but not limited to, state law, the type of life insurance policy, the structure of the life insurance policy, whether the debtor is in bankruptcy, and the identity of the creditor. Remember that all 50 states and the District of Columbia have laws on their books that address whether and to what extent a life insurance policy may be available to or protected from an individual’s unsecured creditors. As to intent, if an individual’s actual intent when purchasing life insurance is to hinder, delay or defraud creditors, the transfer of monies into the life insurance policy will be considered fraudulent and will not be respected by the courts. Question: How can advisors help their clients avoid a fradulent transfer? Your clients’ purchases of life insurance must be for a legitimate purpose such as tax deferred asset growth, retirement planning, estate liquidity, charitable legacy, etc. Using your professional expertise and judgment, the type, amount and purpose of the life insurance policy or policies should align with your clients’ financial, estate, business, or charitable planning objectives. Question: What is an unsecured creditor? An unsecured creditor is owed money from a debtor and the debt is not secured by any property, nor has any property been pledged to satisfy the debt. For example, credit card companies are unsecured creditors; if a business owner personally guaranteed a loan made to her business, and it was not repaid, she could have an unsecured creditor. Unpaid medical expenses would also likely fall into this category. It’s important to note that different rules may apply to an unsecured creditor in a bankruptcy context. I also would distinguish an unsecured creditor from a government creditor (e.g. IRS, U.S. Department of Education, etc.) and from a divorcing spouse. Different rules will likely apply with government creditors and with domestic relations disputes. Question: So how do I find out what my state’s law says about life insurance and unsecured creditors? Some states’ official government websites have links to its laws (like New Jersey). For states that do not, an online search using Cornell University’s Legal Information Institute is a reliable way to access your states’ laws. However, state laws are often written by state legislators, many of whom are lawyers. This topic therefore presents you, the financial advisor, with an excellent opportunity to discuss the issue (and hopefully form a relationship with) a local attorney.
Market Watch; “This is Why Boomers are Divorcing at a Stunning Rate”, March 10, 2018
Important disclosure These articles are not intended by the authors to be used, and cannot be used, by anybody for the purpose of avoiding any penalties that may be imposed on them pursuant to the Internal Revenue Code. The information contained in this newsletter was prepared to support the promotion, marketing and/or sale of life insurance contracts, annuity contracts and other products and services provided by Nationwide Life Insurance Company.
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These articles not designed or intended to provide financial, tax, legal, accounting, or other professional advice because such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional should be sought since neither the company nor its representatives give legal or tax advice. Federal tax laws are complex and subject to change.
Advanced Consulting Group contributing writers
As your clients’ personal situations change (e.g., marriage, birth of a child or job promotion), so will their life insurance needs. Care should be taken to ensure these strategies and products are suitable for long-term life insurance needs. You should weigh your clients’ objectives, time horizon and risk tolerance as well as any associated costs before investing. Also, be aware that market volatility can lead to the possibility of the need for additional premium in the policy. Variable life insurance has fees and charges associated with it that include costs of insurance that vary with such characteristics of the insured as gender, health and age, underlying fund charges and expenses, and additional charges for riders that customize a policy to fit your clients’ individual needs.
Ken Boothe [email protected]
nwide.com Shawn Britt [email protected]
Chuck Rolph [email protected]
Allison Anne Hoyt [email protected]
Before investing, understand that annuities and life insurance products are not insured by the FDIC, NCUSIF or any other federal government agency and are not deposits or obligations of, guaranteed by or insured by the depository institution where offered or any of its affiliates. Annuities and life insurance products that involve investment risk may lose value. Federal income tax laws are complex and subject to change. The information in this journal is based on current interpretations of the law and is not guaranteed. Neither Nationwide, nor its employees, its agents, brokers or registered representatives gives legal or tax advice. You should consult an attorney or competent tax professional for answers to specific tax questions as they apply to your situation. All guarantees and protections are subject to the claimspaying ability of Nationwide Life Insurance Company, and do not apply to variable underlying investment options. Investing involves market risk, including risk of loss of principal. Before selecting any product, please consider your clients’ objectives and needs, including cash flow and liquidity needs, and overall risk tolerance and time horizon as well as any associated costs.
Advanced Consulting Group
Annuities and life insurance products are underwritten by Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company, Columbus, Ohio. The general distributor for variable annuity contracts and variable life insurance policies is Nationwide Investment Services Corporation, member FINRA.
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