What have we been taught? We have been told to leverage assets, borrow money for a bigger home, lease your car, invest in your 401(k), mutual funds are less risky than individual stocks and so on. Did you know that it was mutual fund holders that paid the ultimate price for the the Bear Sterns collapse. This quote was taken from an article I read recently "The 2006 deal settled the SEC's claim that Bear Stearns had facilitated late trading and deceptive market timing for certain customers, mostly hedge funds, between 1999 and 2003, providing them with hundreds of millions of dollars in profits at the expense of mutual-fund shareholders."

Everyone that enters into a mutual fund shares an element of risk because these products are based upon a large amount of investors spreading their risk among several individual stocks and a mutual fund is an investment. Well, you have to place your retirement dollars somewhere, right? Yes, you do however, this is a huge difference between an investment account and a retirement account. An investment account should be geared towards something you know and understand which will help you to eliminate certain types of risk because you are familiar with what you are investing in.  A retirement account should have the same exact characteristics however, it should never lose one red cent! It's sole purpose is for your retirement so what expose this money to any type of risk?

Roccy DeFrancesco, JD, CWPP™, CAPP™, or CMP™
Founder, The Wealth Preservation Institute
269-216-9978

The Super Committee's Not-so-Super Rumor
By: Jim Duggan, JD, MBA
www.dugganbertsch.com

The Congressional Joint Select Committee on Deficit Reduction (known as the "Super Committee"), is tasked with the challenge of finding an acceptable bipartisan solution to our nation’s current deficit. The Super Committee is scheduled to provide its deficit reduction proposal on November 23, 2011.

The proposal is expected to include both expense reduction and revenue generation components to attack the problem. While originally not a part of the discussions, it appears that certain changes to the estate tax exemptions are now being considered. Specifically, multiple sources are reporting that the Super Committee is considering whether to reduce the current estate and gift tax exemption amounts.

Under current federal law, each taxpayer is entitled to transfer $5M of assets – either during one’s lifetime or at death – free of tax. As drafted, this $5M exemption is only temporary as it is actually scheduled to revert back to $1M in 2013. There is increasing “noise” that the Super Committee is seeking to end the $5M exemption and expedite the reversion to the lower $1M exemption amount. The accuracy of these claims, as well as the timing, is unknown, but here are a few possibilities:

1. The Super Committee does nothing with the exemption. At this point, most feel that the Super Committee is unlikely to include any such provisions in its proposal given the relatively insignificant revenue increase related to the change, as well as the possibility that such a provision could jeopardize the entire bill. As structured, the Super Committee’s bill must be voted on and passed without modification, and this could be a particular sticking point since the $5M exemption amount was just agreed upon in December of last year.
2. The Super Committee does propose a reduction in the lifetime gift and death exemption amount. If a reduction is proposed, the amount may be any number less than $5M; however, $1M seems to be the figure most discussed at this point in time as it would simply expedite the number already expected from prior legislation.
3. If the exemption is indeed reduced, the date such reduction will become effective will generally be one of the following options: a) the date the Super Committee announces it, b) the date the proposal is actually enacted, or c) a future date specified in the legislation. At this point, it does not appear that a retroactive date (such as 1/1/11) is being considered. The main concern, of course, is the possibility of 11/23/11 being selected as the effective date.

While we are hoping, for the sake of our private clients, that the Super Committee does not reduce the current $5M exemption amount, clients must be alerted to the possibility that the reduction could happen – and perhaps quite quickly. If the Super Committee opts to include the exemption reduction provision in the final proposal, and proposes an effective date equal to the date of the announcement, then clients will have until 11/22/11 to make any desired tax-exempt wealth transfers under the $5M exemption amount. Failure to do so may result in the loss of an extra $4M of a tax-free gift under current law; an amount which can be doubled for spouses.

In addition, the Super Committee is rumored to be revisiting the possibilities of eliminating short-term Grantor Retained Annuity Trusts (“GRATs”) as well as certain valuation discounts used to reduce asset values when gifted through a family entity, such as family limited partnership or family limited liability company. Since many wealth transfer techniques involve one or both of the foregoing, these should be considered as well as the upcoming deadline approaches.

Therefore, if you were hoping to take advantage of the temporary $5M gifting exemption while it is available, you may wish to expedite your transfer so that it takes place prior to the Super Committee announcement. This would avoid the possibility of losing the additional exemption amount if the worst case scenario comes to fruition.

If you have any questions about the foregoing, and how you may best plan for your circumstances, please feel free to contact us to assist you in planning in this uncertain environment.

I have both a personal account (@kylecarlton) and a business account (@carltonfg) which appears to conflict the way most businesses in my industry are utilizing this tool. It appears that most people are mixing their business and personal lives in one account, assuming their clients, potential customers and social circles are interested in both. Are current clients and potential customers really interested in the personal lives of you and your staff? Does that personal relationship and inside information make people feel like the company has a heartbeat? My thought process and research to this point has led me to the conclusion to give my followers the option to choose what type of tweets they would like to receive. Do you want to hear about me or my company?

I understand that Twitter has an incredible range and it can be a very easy way to distribute relevant information to people interested in hearing your message. Now, I can read all the articles about why and how people are using it but I want to hear from you. How are you using it?  Why, and what has it meant to you and your business?

The Revocable Living Trust has been in existence in the United States for well over 200 years (Patrick Henry is said to have drafted the first).  Until recent years they have been reserved for the wealthy: the Rockefellers, the Kennedys, the Astors.  Even former President George W. Bush has been quoted saying his assets are in a trust.  As a method of estate planning, the living trust is fast becoming the most complete and preferred method for many families today.

What is a Living Trust?

It is simply a unique document which becomes a legal container for all assets, whereby one relinquishes "ownership" of assets transferred into the trust, yet maintains total control over those assets. Whether simple or complex, depending on the circumstances, the living trust works when properly prepared, and when all assets are transferred into the trust.

Parties Involved With A Living Trust

1. Trustor: When you establish a trust, you become what is called the trustor. This is the person or persons that create(s) the trust and own(s) the property placed into the trust. A husband and wife can both be the trustors.
2. Trustee: You will name a trustee to manage the assets in your trust. This can be anyone you wish, including yourself.
3. Successor Trustee(s): This person is the one that will step in after the death of you and your spouse and follow your directions included in the trust. This person is responsible for settling the estate and distributing the assets.  
4. Beneficiaries: In a living trust, you and your spouse are the primary beneficiaries. After one spouse passes away, all the assets simply pass to the surviving spouse. After the death of both the husband and wife, the final beneficiaries will receive the remaining assets. This is usually children however, it can be anyone you like. Many people include a favorite charity foundation, or religious organization.

What Can A Living Trust Do?

• Avoid Probate: Because your living trust holds title to all your property, you actually own nothing in your name so there is nothing to probate. No probate, no probate cost. You can save 10-15% of the value of your total estate simply be establishing a Living Trust.

• Maintains Your Privacy: A living trust is private. When you die, no court will be involved and since it is not public record, no one will be invited to file a claim against the estate or to contest the distribution of your property. If you become incompetent, it will remain a private family affair.

• Almost Impossible To Contest: A living trust can be contested, but not nearly as a will. With a will, anyone can come forward and claim to have right to part of your estate without even having to hire an attorney. Besides, it is very easy to find out about your estate when notices appear in the papers. To contest a living trust, the disgruntled "heir" must file a civil suit. Since the assets are not frozen under a living trust (as they are with a will), the trustee may distribute assets to the intended beneficiaries. This way, each heir must be sued individually, which is expensive and time-consuming.

• Reduces or Eliminates Estate Taxes: Upon the death of the first spouse, you have an unlimited marital deduction. This means that the surviving spouse will not be required to pay any estate taxes. When the surviving spouse dies, the heirs will have an estate tax credit for both the husband and the wife, assuming the estate's value merited the use of an A/B/C trust which was established before the death of either trustor.

• Prenuptial Protection: Structured correctly, a living trust can serve as an immediate prenuptial agreement.

• Protection After Divorce & Remarriage: A living trust is perfect to assist with many of the financial aspects and family dynamics that blended families face.

• Protects Dependents With Special Needs: A living trust can have a special needs provision that will help to maintain care for dependent with special needs (provided there are enough funds to do so).

• You Keep Control: The trust document outlines your instructions for managing your assets and distributing them after your death or if you become incompetent. Even when you can no longer handle your own affairs, you can make sure they are handled the way you want by someone you trust.

• Minimizes Emotional Stress: With all the court restrictions removed, your family can continue with their normal routine much more easily.

• Cost Effective: While a living trust is initially more expensive than a Will, don't forget that the true cost of a Will also includes the cost of probate (10-15% of your gross estate). Make sure to look for an established estate planning firm that offers funding/settlement assistance and free updates.

A living trust is an invaluable tool and once established, they are easy to maintain. Make sure you find a firm that offers funding and settlement assistance along with free lifetime updates to keep your expenses at a minimum.

Our society has created a culture that allows instant access to any and all the information we desire. We are self-diagnosing our own medical conditions without going to the doctor, buying life insurance on-line without an agent's advice, preparing our own trust, building our own websites and the list goes on an on. The old cliche, "you get what you pay for" has apparently escaped the minds of today's consumers. Why would you gamble with your health? Utilizing a life insurance agent can be a life saver. A trust or will you create on-line is worthless unless backed by legal representation (in most states). And lastly, your self-made GoDaddy website looks less than appealing. It's no wonder that graphic designers and website development companies charge $150+ per hour; they are worth it!

One of the most horrendous marketing practices currently taking place is the idea that you can "Be Your Own Broker." Unless your financial acumen is off the charts, you will loose this game. You simply cannot beat the markets over the course of your lifetime because the markets will easily stay irrational longer than you can stay solvent. In order to have a better result than the majority of the American public, you must change your thinking and understand that there are financial myths working against you.

The “Be Your Own Broker” mindset is touted by several on-line trading brokerage firms that state you can plan and execute your own investment plan by utilizing their on-line help, free educational videos and real time market updates that will allow you to stay on track. These firms are poisoning the American dream by appealing to a simple human emotion, greed. In order to save money in brokerage firm fees and high commissions by executing your own trades is it really worth it if you end up with consistent losses? Of course, the answer is no! The reality is the majority of us buy when we should sell, and sell when we should buy. After you take a huge loss and call the brokerage firm, you may then be informed that you could have placed a stop/loss on the order to help minimize any substantial losses. This can be a high price to pay for an education on risk management all because of a “Do It Yourself” mentality.

Other myths that consistently move more people towards a financial cliff are:

• "My 401(k) has employer matching"
• "Deferring taxes until retirement is a good idea"
• "I hear I can earn 12% in mutual funds"
• "I should buy term life insurance and invest the difference"
• "I must be willing to accept high amounts of risk in order to obtain high returns"
• "When I retire I will be in a lower tax bracket"

Why do most people believe these statements? It is familiar and common within the media, so consumers believe this information to be true without judgment. The truth is that today's economic environment is filled with noise, and most of it is irrelevant to helping anyone achieve their retirement goals.

This cultural phenomenon of the "Do It Yourself" mindset has got to stop. People are slowly becoming a jack-of-all-trades and a master-of-none.

Are you in a profession or currently offering a service that has to compete with a "Do It Yourself" alternative? If so, please share your insights on the effect that your customers may not be aware. Are they doing themselves a disservice? If so, how and what are the ramifications of trying to take a shortcut?

This time every year, people make New Year's resolutions by setting goals to make the impending year their best year ever. Stop smoking, lose weight, finish school, get out of debt, and start a business are some of the most popular each year. In the past I have made lists that consisted of: 100 things to do before I die, how to increase my income, ways to spend more time with the ones I love, and trivial materialistic items to enhance my lifestyle. I always knew my goals were completely obtainable; however, my plan to achieve them was not. My personal experience and new-found realization of goal setting has made all the difference.

Simply, I had to be more specific with a broader view. All of my goals were intertwined with 365 day completion date and if you are like me, having an entire year to obtain a goal quickly becomes a crutch and inevitably, the downfall. So, how specific should you be? With 24 hours in a day, 168 hours in each week, 7 days in a week, 4 weeks in a month and 12 months in a year, how long should each goal take from inception to completion, and what is the process? I use a simple three-step process to help ensure accuracy and clarity with time frames, progress and outcomes to measure my growth.

1. Ask more specific questions!

• If I accomplish this goal, what will it mean to me? My family? My community? My business? My finances?

Everyone would like to make a six-figure+ income but what would that mean to you if you actually obtained it?

• What am I searching for? Accomplishment? Money? Health? Credibility? Love? Growth? 

If you accomplish your goal, what need are you going to fill?

• How will I feel when I achieve it? 

By backing up each goal with an emotion, you are more likely to obtain it. Focus on the feeling you will have once the goal is finally reached.

• Will this make a difference for me, my family or business in 10 years? 20 years? What about 50 or 100 years?

Long term visions are proven ways to help you fight through momentary pain incurred while working towards a goal. Chinese businessmen are known for having a 100 year plan while most America business owners rarely have a 5 year plan.

• Understand that anything worth achieving will get harder before it gets easier.

Expect set backs; they are a part of the process of achieving any goal that is worth achieving. If you understand that you will face set-backs, it will empower you to overcome them simply because you ultimately knew you would face them.

• Are the sacrifices worth the accomplishment?
  

Many people want to be a millionaires; however very few possess the discipline to accomplish such a goal. Are you prepared to dramatically change your eating habits in order to improve your health. Is obtaining a six or seven figure income worth the personal sacrifices that may be incurred?

I am aware that these may not be your questions; however, the end goal is to help you only focus on goals that are of the utmost importance. After asking the tough questions, your next step is to get everything down one one page of paper.

2. Rapid Planning Method

I have utilized a strategy for each time period created by Tony Robbins called The Rapid Planning Method (RPM) . The idea is to set the goal then state the actions required, result and purpose in order to give you a clear vision. Use the RPM for each time period you specify (if you have a 1, 5, and 10 year plan you would have three different RPMs).

To obtain your free copy of the RPM document, please comment below and I will be happy to email one to you.

3. Take Action & Measure Progress

Your last step is to take action as soon as possible (if not immediately). All goals and ideas are worthless until you take action. If your goal is to lose weight, start running, study nutrition and join a gym. If you want to create more personal wealth then study wealthy people, attend seminars and seek advice. 

The final step is to measure your progress. This will help to keep you motivated as you try to accomplish an overwhelming task list. If you are beginning to try and get out of debt, many people will recommend for you to attack your smallest debt first and pay it off as quickly as possible. The reason for this is the psychology of money and the sense of accomplishment you will feel by reducing your overall debt as soon as possible.

Enjoy the process and keep your eye on the goal.

To your prosperity, and happy New Year,

Kyle

A ponzi scheme by definition is a fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going. The system is destined to collapse because the earnings, if any, are less than the payments to investors.

With that definition in mind I would like to ask, what is the difference between Bernie Madoff and social security? In my mind, NOTHING! Social security is a trust fund that requires new participants to contribute to the system in order for eligible citizens (which have already contributed) to receive their benefits. Hard working Americans are required to pay into a system that spends the money as fast as it comes in. In fact, on the front of your annual social security statement it clearly reads "In 2015 we will begin paying more in benefits than we collect in taxes. Without changes, in 2037 the Social Security Trust Fund will be able to pay only about 78 cents for each dollar of scheduled benefits.* We need to resolve these issues soon to make sure Social Security continues to provide a foundation of protection for future generations."

Not only is social security a ponzi scheme, it is one that the American people are REQUIRED to participate in. Are you aware of this? Who do you believe is worse now, Bernie Madoff or the Social Insecurity Trust Fund?

I would love hear your thoughts and ideas regarding this topic. Please feel free to comment below.

What is Probate?

Most married couples never come in contact with the probate until a parent, sibling, or spouse dies which has to be the worst time to get an education on the probate process. We have seen brothers and/or sisters become absolute bitter enemies because of the failure to update wills.

Today, more and more people are becoming aware of the costly time delays of the estate settlement process, mainly the most important part, "Probate." What is Probate? It is the legal procedure by which one obtains clear title of an inherited asset such as real estate, cash, stocks, bonds, personal effects, and virtually every item a person would own.

So, why all the complications? There are several factors involved. Someone must determine what type of asset it is and how it is owned and titled. This may sound simple enough, but just think for one minute about all of your assets. Many people spend a lifetime accumulating their worth and possessions, but so few ever keep a record of everything they buy or own over their lifetime. With this in mind, it is easy to understand the overwhelming task of correctly documenting each and every item in a persons estate. The probate process is costly regardless the size of your estate and it is a common misconception that a Will avoids probate (which is simply not true). The probate process typically cost anywhere from 10% to 15% of each estate.

So, what is the solution? For most people, a Living Trust is the answer. If set up correctly, your assets will be distributed after your death to the correct beneficiaries without the intervention and time delays of the probate process and the fees associated with it. How does this work? Well, let's go back to what probate is. It is the legal procedure by which one obtains clear title of an inherited asset. By utilizing a Living Trust, you clear your name from the asset while you are alive so there is no need for probate after you pass away.

The Heart Mender by Andy Andrews

(From the authors website) In 1942 and 1943, German subs are dispatched to the Gulf of Mexico to sink U.S. vessels carrying goods and fuel. While taking a late-night walk, Helen Mason‚ widowed by the war‚ discovers the near-lifeless body of a German sailor. Enraged at the site of Josef Landermann’s uniform, Helen is prepared to leave him to die when an unusual phrase, faintly uttered, changes her mind.

In The Heart Mender, a small town must prepare itself for the worst the world has to offer, and Josef and Helen must reconcile their pasts to create a future. Andy Andrews once again provides a unique blend of historical fact and engaging fiction showing the power of forgiveness.

"Blending his unique style of historical accuracy with unparalleled storytelling,New York Times best-selling author Andy Andrews offers a tale of war, faith, and forgiveness illuminating the one principle that frees the human spirit." Barnes & Noble

"When Andy Andrews unburies the secrets under the wax myrtle tree, he unburies the heart of what makes us most human. This incredible story will resonate in every part of your life." Scott G. Halford National Meetings Chairman, National Speakers Association

The E-Myth Revisited Why Most Small Businesses Don't Work And What To Do About It by Michael E. Gerber

The book that started the turn-key revolution in small business. Originally published in 1981, and now in fifteen languages, The E-Myth became an instant, underground classic. In this revised and updated edition, small business consultant and author Michael Gerber dispels the myths about starting your own business. With a sharp business insight gained from years of experience, he points out how common assumptions, expectations, and even technical expertise can get in the way of running a successful business. Michael teaches you how to grow your business in a predictable, productive way that will enable you to truly control your own destiny. Yes, small businesses fail at an alarmingly high rate. But yours doesn't have to be one of them.

"Gerber loves to exhort people to develop powerful visions for their companies." -- Fortune

"Thanks to Gerber l have freed up over three hours a day, significantly increased my sales, more than doubled my bottom line, and been able to take my first vacation in four years." -- Trish Lind, T. Lind Graphics, St. Paul, Minnesota

"Without a doubt, the most important message for our company over thenext decade." -- The John Hancock Insurance Group

Decision Points by George W. Bush

In this candid and gripping account, President George W. Bush describes the critical decisions that shaped his presidency and personal life.

George W. Bush served as president of the United States during eight of the most consequential years in American history. The decisions that reached his desk impacted people around the world and defined the times in which we live.

Decision Points brings readers inside the Texas governor's mansion on the night of the 2000 election, aboard Air Force One during the harrowing hours after the attacks of September 11, 2001, into the Situation Room moments before the start of the war in Iraq, and behind the scenes at the White House for many other historic presidential decisions.

For the first time, we learn President Bush's perspective and insights on:

• His decision to quit drinking and the journey that led him to his Christian faith
• The selection of the vice president, secretary of defense, secretary of state, Supreme Court justices, and other key officials
• His relationships with his wife, daughters, and parents, including heartfelt letters between the president and his father on the eve of the Iraq War
• His administration's counterterrorism programs, including the CIA's enhanced interrogations and the Terrorist Surveillance Program
• Why the worst moment of the presidency was hearing accusations that race played a role in the federal government’s response to Hurricane Katrina, and a critical assessment of what he would have done differently during the crisis
• His deep concern that Iraq could turn into a defeat costlier than Vietnam, and how he decided to defy public opinion by ordering the troop surge
• His legislative achievements, including tax cuts and reforming education and Medicare, as well as his setbacks, including Social Security and immigration reform
• The relationships he forged with other world leaders, including an honest assessment of those he did and didn’t trust
• Why the failure to bring Osama bin Laden to justice ranks as his biggest disappointment and why his success in denying the terrorists their fondest wish—attacking America again—is among his proudest achievements

A groundbreaking new brand of presidential memoir, Decision Points will captivate supporters, surprise critics, and change perspectives on eight remarkable years in American history—and on the man at the center of events.

The Millionaire Next Door by Thomas J. Stanley and William D. Danko

How can you join the ranks of America's wealthy (defined as people whose net worth is over one million dollars)? It's easy, say doctors Stanley and Danko, who have spent the last 20 years interviewing members of this elite club: you just have to follow seven simple rules. The first rule is, always live well below your means. The last rule is, choose your occupation wisely. You'll have to buy the book to find out the other five. It's only fair.

The authors' conclusions are commonsensical. But, as they point out, their prescription often flies in the face of what we think wealthy people should do. There are no pop stars or athletes in this book, but plenty of wall-board manufacturers--particularly ones who take cheap, infrequent vacations! Stanley and Danko mercilessly show how wealth takes sacrifice, discipline, and hard work, qualities that are positively discouraged by our high-consumption society. "You aren't what you drive," admonish the authors. Somewhere, Benjamin Franklin is smiling.

Born to Run: A Hidden Tribe, Superathletes, and the Greatest Race the World Has Never Seen by Christopher McDougall

Full of incredible characters, amazing athletic achievements, cutting-edge science, and, most of all, pure inspiration, Born to Run is an epic adventure that began with one simple question: Why does my foot hurt? In search of an answer, Christopher McDougall sets off to find a tribe of the world’s greatest distance runners and learn their secrets, and in the process shows us that everything we thought we knew about running is wrong.

Isolated by the most savage terrain in North America, the reclusive Tarahumara Indians of Mexico’s deadly Copper Canyons are custodians of a lost art. For centuries they have practiced techniques that allow them to run hundreds of miles without rest and chase down anything from a deer to an Olympic marathoner while enjoying every mile of it. Their superhuman talent is matched by uncanny health and serenity, leaving the Tarahumara immune to the diseases and strife that plague modern existence. With the help of Caballo Blanco, a mysterious loner who lives among the tribe, the author was able not only to uncover the secrets of the Tarahumara but also to find his own inner ultra-athlete, as he trained for the challenge of a lifetime: a fifty-mile race through the heart of Tarahumara country pitting the tribe against an odd band of Americans, including a star ultramarathoner, a beautiful young surfer, and a barefoot wonder.

With a sharp wit and wild exuberance, McDougall takes us from the high-tech science labs at Harvard to the sun-baked valleys and freezing peaks across North America, where ever-growing numbers of ultrarunners are pushing their bodies to the limit, and, finally, to the climactic race in the Copper Canyons. Born to Run is that rare book that will not only engage your mind but inspire your body when you realize that the secret to happiness is right at your feet, and that you, indeed all of us, were born to run. Review by Amazon.com

The Big Short: Inside the Doomsday Machine by Michael Lewis

When the crash of the U. S. stock market became public knowledge in the fall of 2008, it was already old news. The real crash, the silent crash, had taken place over the previous year, in bizarre feeder markets where the sun doesn't shine, and the SEC doesn't dare, or bother, to tread: the bond and real estate derivative markets where geeks invent impenetrable securities to profit from the misery of lower- and middle-class Americans who can't pay their debts. The smart people who understood what was or might be happening were paralyzed by hope and fear; in any case, they weren't talking. The crucial question is this: Who understood the risk inherent in the assumption of ever-rising real estate prices, a risk compounded daily by the creation of those arcane, artificial securities loosely based on piles of doubtful mortgages? Michael Lewis turns the inquiry on its head to create a fresh, character-driven narrative brimming with indignation and dark humor, a fitting sequel to  his #1 best-selling Liar's Poker. Who got it right? he asks. Who saw the real estate market for the black hole it would become, and eventually made billions of dollars from that perception? And what qualities of character made those few persist when their peers and colleagues dismissed them as Chicken Littles? Out of this handful of unlikely-really unlikely-heroes, Lewis fashions a story as compelling and unusual as any of his earlier bestsellers, proving yet again that he is the finest and funniest chronicler of our times. Review by Amazon.com

Killing Sacred Cows: Overcoming The Financial Myths That Are Destroying Your Prosperity by Garrett B. Gunderson

Our culture is riddled with destructive myths about money and prosperity that are severely limiting the power, creativity, and financial potential of individuals. In Killing Sacred Cows, Garrett B. Gunderson boldly exposes ingrained fallacies and misguided traditions in the world of personal finance. He presents a revolutionary perspective that can create unprecedented opportunity and wealth for thoughtful, mission-driven individuals.

Our financial lives are intimately connected to our societal contributions, and we must be financially free in order to achieve our fullest potential. Sadly, however, most people are held captive in their financial lives by misinformation, propaganda, and limited knowledge. Through well-reasoned arguments, unflinching logic, and revelatory insight, Gunderson defeats common cliches and faulty retirement planning advice to plainly demonstrate the following and much more:

401(k)s and the stock market are the most risky investments for most people and the gambling mindset they induce creates disastrous consequences.
Conventional retirement planning advice, products, strategies, and techniques expose you to significant danger of being unable to retire, or of running out of money prematurely if you do.
Building net worth is a recipe for creating a life of fear and poverty and how to escape that common trap.
Debt may not be what you think it is and why that matters to your prosperity.
'High risk equals high returns' is destructive dogma and how reducing risk can increase your returns.
Killing Sacred Cows is a must-read for brave individuals willing to question common assumptions and teachings, overcome the herd mentality, break through financial myths, and live a purposeful, passionate, and prosperous life. Review by Amazon.com

The Talent Code by Daniel Coyle

What is the secret of getting really good at something? How do we unlock it?

Journalist and New York Times bestselling author Daniel Coyle  visited nine of the world’s greatest talent hotbeds — tiny places that produce huge amounts of talent, from a small music camp in upstate New York to an elementary school in California to the baseball fields of the Caribbean.

He found that there’s a pattern common to all of them — certain methods of training, motivation, and coaching. This pattern, which has to do with the fundamental mechanisms through which the brain acquires skill, gives us a new way to think about talent — as well as new tools with which we can unlock our own talents and those of our kids.

The Snowball: Warren Buffett and the Business of Life by Alice Schroeder

In this startlingly frank account of Buffett's life, Schroeder, a former managing director at Morgan Stanley—and hand picked by Buffett to be his biographer—strips away the mystery that has long cloaked the word's richest man to reveal a life and fortune erected around lucid and inspired business vision and unimaginable personal complexity. In a book that is dominated by unstinting descriptions of Buffett's appetites—for profit, women (particularly nurturing maternal types), food (Buffett maintained his and his family's weight by "dangling money")—it is refreshing that Schroeder keeps her tone free of judgment or awe; Buffett's plain-speaking suffuses the book and renders his public and private successes and failures wonderfully human and universal. Schroeder's sections detailing the genesis of Buffett's investment strategy, his early mentoring by Benjamin Graham (who imparted the memorable "cigar butt" scheme: purchasing discarded stocks and taking a final puff). Inspiring managerial advice abounds and competes with gossipy tidbits (the married Buffett's very public relationship with Washington Post editor Katherine Graham) in this rich, surprisingly affecting biography.- Editorial review by Publishers Weekly

Think And Grow Rich by Napoleon Hill

Anything your mind can conceive and believe you can achieve. That is the philosophy of Napoleon Hill, author of the world’s #1 motivational book, Think and Grow Rich. Inspired by the lessons he learned while a protégé of Andrew Carnegie, Napoleon Hill gives you the money-making secrets that earned Carnegie, and many of the world’s other most prominent people, unprecedented riches. Think and Grow Rich tells you what to do and how to do it. Apply Hill’s basic techniques to your life and you too can master the secret of enduring success.

Success is not an accident, it’s a habit. Think and Grow Rich is where that habit begins. Throughout this inspirational masterpiece, which has influenced men and women on every continent, Hill gives examples and detailed analysis of how hundreds of exceedingly wealthy people earned and maintained their fortunes.

Tax-Free Retirement by Patrick Kelly

Tax Free Retirement will show you how to avoid 9 common Financial Landmines, teach you how to generate tax-free retirement income, explain how to muultiply your IRA two or three fold for future generations and help you leave a lasting legacy beyond your wildest imagination. Review from Amazon.com

The Power of Less by Leo Babauta

(From the authors website) With the countless distractions that come from every corner of modern life, it’s amazing that we’re ever able to accomplish anything. The Power of Less demonstrates how to streamline your life by identifying the essential and eliminating the unnecessary — freeing you from everyday clutter and allowing you to focus on accomplishing the goals that can change your life for the better.

The Power of Less will show you how to:

* Break down any goal into manageable tasks
* Focus on only a few tasks at a time
* Create new and productive habits
* Hone your focus
* Increase your efficiency

However, what if you could change the odds? If you were to take $10,000 to the blackjack table and were guaranteed to earn at least 3% with the potential to earn up to 13-14% on every hand, would that change anything? My guess is that you would have to be paid to leave the table. Honestly, casinos cannot make money in this particular arrangement; however, there are financial institutions that are currently offering you this ability.

The above example is exactly what an equity index plan can provide when used correctly and with the right strategy. It is simply upside potential with no downside risk. Utilizing these types of financial products will become more common due to the crumbling financial institutions that offer the typical solutions. From 2008 to December 13, 2010 we have seen 314 banks fail, so it is no surprise that consumers need better solutions from more stable institutions.  Insurance companies have perfected risk management so why not utilize their expertise and strategies for yourself? Equity indexed annuities and equity indexed life insurance products have gained more market exposure over the last few years due to superior products that are offered by the world's most stable and secure financial institutions.

Aside from the benefits mentioned above, these plans offer a self-completing benefit in the event of your premature death along specific tax advantages that allows you to receive tax free income (at any time without penalties).  Inquire today about how you can gain the ability to lock in gains while protecting you against loss.

Marital Living Trust

This trust is for married couples with estates of such size that estate tax avoidance is not the primary goal and the need for more than one credit is not necessary. In the Marital Trust, you do not reap some of the benefits of the A/B/C Trust. This type of trust is appropriate for smaller estates because there are no restrictions on the surviving spouse that may require all of the estates assets in order to maintain his/her quality of life.

Individual Living Trust

As expected, this trust is for individuals. It is for single people, whether divorced, widowed, or never married and works like a Marital Trust.

A/B/C Trust

The A/B/C Trust is primarily used an estate tax reduction plan. It is a combination of a Marital Deduction Trust and a Credit Shelter Trust. Normally each spouse has an estate tax credit. Any amount exceeding the the credit amounts for each spouse is taxable according to the year of the death of the second spouse and the value of the total estate at that time. The estate tax can be the most expensive part of the estate settlement process. Using this trust instead of a Marital Trust will allow each spouse a full estate tax credit, thereby increasing their estate tax exemption two-fold.

With the utilization of an A/B/C Trust, the financial outlook is much brighter. The A/B/C Trust actually contains two halves, the husband's share and the wife's share. Upon the onset of an illness, one-half of the assets are reserved in trust. Once the ill person's half of the estate in consumed, the person may then receive government medical assistance without reducing the other spouse's half of the estate.

When utilizing the A/B/C Trust after the death of the first spouse, the surviving spouse has complete control of one-half of the estate. The other half, the decedent's share, is earmarked for the final beneficiaries however, the surviving spouse can receive income from this half, and is allowed to use principal for health, education, maintenance and support under current IRS guidelines.

in the A/B/C Trust, the decedent's half does become irrevocable at death, thereby allowing tax savings and the advantage of catastrophic illness and nursing home protection.

Irrevocable Life Insurance Trust

Over the past decade, estate taxes have become a problem for many Americans.-even in what were considered modest estates just 10 to 15 years ago. Due to ordinary inflation and modest growth factors, many heirs now face some degree of estate taxation. The good news is that the IRS allows the creation of an Irrevocable Life Insurance Trust (ILIT), which is specifically designed to pay taxes.

By utilizing gifting laws, the ILIT allows you to reduce your taxable estate through gifts to your beneficiaries into a life insurance contract, thereby creating the necessary funds and liquidity to pay the Federal Estate Taxes. This keeps the eventual heirs from having to "force sell" assets or borrow funds in order to pay estate taxes. This strategy allows 100% of your hard earned estate may be passed on to your beneficiaries. 

Sadly, history repeats itself today.  Our national debt is too high and will have to be repaid by either raising taxes, cutting benefits, or printing money. Current retirement plans are failing and not suitable for most individuals, and while market returns have proven themselves worthy in some past instances, they are dramatically lower for the majority of the American public. Now what?

THE SOLUTION

As planners, we often ask our clients to take out various types of insurance to protect against the possibility of a loss. We insure our cars and homes against hail, floods, accidents, and other unforeseeable disasters. We transfer the liability of a potential loss from ourselves to an insurance company by making routine payments. We take out liability and umbrella coverage to protect against the possibility of a law suite due to an unforeseen accident that may occur on our property. Some of this is required by law; however, most people have neglected to insure the most critical part of their lives: their retirement.

The life insurance industry has made tremendous strides to meet the needs of consumers, and the plans that are available today offer more benefits than any other retirement vehicle. The benefits of these uniquely designed policies significantly outweigh the traditional plans (such as 401(k)s) where most people have lost as much or more than 50% in the past 12 months. These substantial new plans are called equity indexed universal life (EIUL) which have the ability to provide consumers with the upside potential of the market with no downside risk. They allow consumers to lock in gains (generally up to 13.5%) while minimizing potential losses due to a guaranteed interest rate of 2% (for most products). The people that lost 50% last year would actually be up 2% (or 52% ahead of where they are now) had they chosen an EIUL.

The brilliance of these plans lies in their simplicity. Your money is not linked to the stock market.  Instead it is tied to an index such as the S&P 500 or Dow Jones then credited a rate of return within a specific pre-determined period.  This actually reflects a true 8% rate of return as your money grows tax free and is distributed income tax free.  To compare, if you were to profit 8% in a mutual fund, after paying taxes and fees, you may be looking at a 5-6% rate of return.

Example 1: A 45 year old male in a 28% tax bracket would like to withdraw $100,000 from his 401(k). First, he would pay a 10% penalty or $10,000 for early withdrawal. The remaining $90,000 is subject to his federal income tax rate of 28% ($25,200) with a final balance of $64,800.

Example 2: Now, using the previous criteria, let’s look at the results if he were to pull the money from his equity indexed universal life plan. There is not a penalty for withdrawing money from the account nor are any federal income taxes due. You leave with the full $100,000 completely income tax free.

The main difference between these two examples is the tax treatment of the plans. Any qualified account such as a 401(k) where you are making contributions and allowed a tax deduction for the current tax year would follow Example 1. In Example 2, you pay taxes on the total amount you contribute to the plan; however, everything accumulates tax free and is distributed income tax free. Why would anyone want to defer paying taxes today on small periodic contributions compared to the taxes you would pay on the total accumulated amount at retirement when you will be in a higher tax bracket?

If you were selling Picasso paintings, would you rather pay taxes on the paint he used or the finished work? Would a farmer rather pay taxes on the seeds or the harvest? Would James Cameron rather pay taxes on having the Avatar script prepared or final ticket sales? Get the idea?  Why continue to defer taxes and assume a larger tax liability?!

In addition to the tax benefits and flexibility of an equity indexed universal life plan, the policy includes a death benefit that self-completes in the event that income is lost in case the owner passes away before reaping the living benefits. In traditional IRAs and 401(k) plans, the beneficiary only receives the amount in the plan at that moment, minus any fees and taxes. With a properly structured EIUL plan, it can accomplish several goals you will have over the course of your lifetime.

Learn how to take advantage of full comprehensive planning at a truly affordable cost and address the following areas of your financial well-being.

• Tax Free Savings
• Tax Free Retirement Income
• Disability Protection
• Emergency Funds
• Mortgage Protection
• Income Replacement
• Life Insurance Benefit

If you are interested in seeing how this plan would work for you, please contact us and request a client questionnaire by sending an email to kyle@carltonfinancialgroup.com. 

To your financial prosperity,

The Carlton Financial Group

The National Debt

With the debt at $12.3 trillion and climbing, it is no secret that we are in the middle of an economic catastrophe. As taxpayers, the government has requisitioned us to support the baby boomers' social security, Medicare, and various other government assistance programs. The current administration has spent more in one year than the previous administration did in eight. We do not have the luxury of borrowing our way out of debt, and our country may establish a plan to repay the debt by raising taxes, cutting our benefits, or printing more money (therefore increasing inflation).  

When I hear any financial advisor recommend deferring current taxes until you start to withdraw from your IRA or 401(k) so that you will be in a lower tax bracket, it makes me cringe. First of all, why would you want to be in a lower tax bracket?  That means you are making less money! Second, who do we think is going to pay the national debt along with our parents' and grandparents' social security benefits?  Hello, Generation Y! At some point, we are all going to have to pay up!

I think you can now see this is your National Debt.

Current Retirement Plans Are a Failure

2009 marked the 30th birthday of the 401(k), and the baby boomers are the only generation that has had the time to follow this type of plan thus far.  Regardless of what the government’s intentions were when they set up the plan, this plan is not performing as needed because of the golden handcuffs and minimal market returns. Here are the hard facts for workers approaching retirement:

• 52% of workers have savings (not including home equity) of less than $25,000
• 75% of workers with no retirement savings have less than $10,000 in savings
• 35% of people over age 55 have less than $10,000
• 65% of recipients rely on social security for at least 50% of their income; 33% rely on it for 90% of their income! In 2005 the average benefit was $1,002. For a couple it was $1,501.
• Workers age 55-64, will only be able to replace an average of 9% of their income with 401k and IRA retirement savings alone.

People never plan to fail; they simply fail to plan. Saving for retirement is a must if you want financial security; however, the available options must become more transparent. Who wants to lock away their hard-earned dollars in plans that will only allow you to access your money while charging a 10% penalty?! The long list of red-tape, rules and penalties simply outweigh the decision to put a plan into action, so people fail to act.  If you spent a weekend in Vegas, how much money are you willing to gamble if you really do not understand the rules? Not much, right?

Market Returns

Brett A. Anderson, author of Last Chance Retirement, noted, “Over the last 61 years the average return in the S&P 500 index is 7.14% (before fees), and the story is worse for mutual funds. A report released in 2006 by Morningstar and the Harvard Business School revealed the performance of 4,000 mutual funds between 1996 and 2002 (pre- and post-crash of 2001) earned a 2.924% return for clients working with financial advisors.

In a 2001 study, Dalbar Inc. reported that for a 17 year period leading up to December of 2000, the S&P returned an average of 16.29% while the typical investor received a 5.32% return or 1/3 as much. It is rare for a typical investor to beat the index or even come close."

So, if most investors can not beat the index, why not bet the index?

Expert investor Bernard Baruch (1870-1965) once said, "Don't try to buy at the bottom and sell at the top. It can't be done except by liars."

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The mainstream financial influences, including newspapers, magazines, reputable internet sources, and even your next-door neighbor, recite these all-too-convenient financial misconceptions of 401(k)s, IRAs, and mutual funds.  These advisories have led you to follow a never-ending mirage of financial insecurity while counting on the retirement oasis to suddenly appear as a reward for having stuck to the popular investing methodology. The baby boomers have seen their 401(k)s become 201(k)s and many of them do not have the time to recoup their losses and achieve their financial goals.

Now, I agree with the financial institutions wishing for increased currency circulation along with proper planning planning, however; why give it back to the institutions that put you in the middle of this crisis? Did you receive a call from the brokerage firms where your money was invested before the market crashed? Did you receive a plan of action from the broker that was receiving commission payments and assets under management fees on your money?

Your friendly broker more than likely suggested some of the following:
“Don’t worry, the market will recover.”
“Now is the time to invest to obtain the greatest returns.”
“More millionaires were created out of the great depression than any other time in history.”
“Invest more today, and your dollar cost average will improve.”

Garrett Gunderson, author of "Killing Sacred Cows" comments on these financial myths saying, "Compound interest. Dollar cost averaging. Show me one person that is truly wealthy because they have that or because they followed that. Typically they did something and that is where they stored it." Meaning, the IRA or 401(k) is only a container to store what they have accumulated and no one is truly wealthy just because they followed the conventional advice.

Most people took a hard lesson as brokers' actions are exactly what their title implies; they leave you "broker" for having known them. They advised you to enter into plans with high management cost, countless limitations and no exit strategy. You were advised to enter into these plans because they were familiar and it was the plan everyone was told to follow. Most likely you were only given one option/strategy and never shown the other plans available to you.

The good news is that you get one free pass to say, “I didn’t know; it is not my fault. I was not aware of any other financial concepts to help me obtain my goals!”  Why do you get this pass? Because everyone was getting bullied by these financial firms to invest hard-earned dollars into plans that were not suitable to help you accomplish your financial goals. This moment marks the end of financial ignorance and the beginning of your new financial future: one that you control.

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LifeHappens.org summed it up best as to why we utilize an entire month to spread the word.  "These are unsettling times. Over the past year, almost every pillar of our financial security has been shaken, one by one. The bursting of the real estate bubble, the precipitous decline in the stock market, a rapid spike in job losses. Now more than ever, Americans are searching for ways to maintain basic financial security. One source of financial security still stands strong, however, and that’s life insurance. It continues to do what it was designed to do – serve as the foundation of your family’s financial security."

In my hometown of Franklin, TN we have experienced several tragedies over the past three weeks. You hate to hear about anyone passing away, but when the situation entails young lives, we should take a moment to reflect on our own mortality. I purchased a cancer plan last year simply because of Lance Armstrong's story. (If he can get cancer, anyone can)!

However, unlike cancer insurance, life insurance is the one only insurance policy that you are guaranteed to need at some point. As I watch people provide the best vacations for their families, send their kids to prestigious schools, attend the best restaurants, purchase the most expensive clothes, and drive luxury cars, it is easy to see that everyone wants the best for their families. So, why gamble with your families’ financial security? Life insurance is a safety net to provide an income for your family in case you are no longer able.  You can guarantee your children will have their college education paid in full, eliminate any outstanding debt for the surviving spouse, and provide guaranteed income income for the remainder of their life. There are several other benefits that life insurance offers however the main benefit is that with life insurance, you give your family options while leaving your legacy.

We want to hear from you! Please send us your story about how life insurance has helped you or someone your know. Your story may just help someone notice their need for life insurance.

1. Ownership: who owns the policy?

If you own the life insurance policy, you may face a federal estate tax. Your estate is a compilation of: your investment and retirement accounts, property you own, inherited assets, life insurance, etc. If your estate already exceeds the federal estate tax exclusion (currently set at $3.5 million and $1 million in 2011) then this information is especially pertinent.

The easiest solution is to have your policy owned by a trust or another adult beneficiary. In cases when we work with income replacement policies for married couples, we usually structure it to where each spouse if the owner of each others policy. This is only a short term fix with the disclaimer that we will need to set up a trust in the near future to meet your long-term needs.

2. Naming your estate as the beneficiary

If the life insurance proceeds are named to your estate, you have most likely and unintentionally created the following issues:

• Incurring an estate tax. Most people think that life insurance is a tax free benefit, which is only half true. Life insurance is income tax-free but not exempt from the estate tax.

• Proceeds from the life insurance policy are probated and then distributed, which is another reason why we recommend a trust!

• Offers no protection from creditors

All of the previously noted issues wastes time and money, creates unnecessary aggravation, and immediately diminishes the value of what you pass on to your intended heirs.

3. Name contingent (back-up) beneficiaries

Most people list only one beneficiary which should be avoided. If something happens to the insured and their beneficiary (at the same time), the proceeds will be made payable to the insurer’s estate.  By naming contingent beneficiaries, the proceeds may then be made payable to a person who you would like to have inherited the estate if something happened to your primary beneficiary. However, these proceeds will cut out the estate tax while saving the beneficiary’s time and money fighting with probate courts. Only placing one beneficiary on your policy is virtually naming the IRS as the contingent or backup beneficiary.  This not only applies to life insurance, but to annuities, IRA's, 401(k)s, SEP', 403(b)s, mutual funds, bank accounts, etc. Please note that these backup beneficiary accounts may be referred to as “payable on death” or “transfer on death” (POD/TOD) accounts instead of “naming a beneficiary”.

4. Failure to review policies

Most people take out life insurance to take care of the people they love after they pass away; however, most people seldom review their coverage on a routine basis. Policies shall be reviewed as time elapses and lives evolve.  Initial drafts may or may not include the potential settings: ex-spouses, future children, deceased beneficiaries, dramatic health changes, and so on. Not reviewing your life insurance program can result in failing to meet the demands of your current needs.

Ensure you are getting sound advice for your specific situation. Life insurance is a product to help maintain the quality of life for which you are accustomed, preserve a successful business venture, replace a key employee, alleviate an estate tax burden, and/or preserve your legacy. Make sure it is working with you, not against you.

First, what is an Equity Indexed Annuity?

An equity indexed annuity earns interest based on the performance of the equity index it is linked to. The value of the index might be tied to a stock or other equity index, typically the S&P 500 (which is an equity index). The value of any index varies from day to day and is not predictable but insurance companies offer guarantees (usually 1-3%) regardless of how the market performs. When you buy an indexed annuity you own an insurance contract, you are not buying shares of any stock or index. The benefit of an EIA is that you have the upside potential of the market with zero downside risk.

An Overview of Rule 151A

"In June 2008 the SEC issued a new proposed rule (SEC Release No. 33-8933, File No. S7-14-08) that would classify certain indexed annuities as securities. The proposal would accomplish this by creating a new Rule 151A that would change the treatment of indexed annuities under the insurance products exemption found in Section 3(a)(8) of the Securities Act of 1933. If the proposed rule is adopted, the SEC and FINRA would have authority over indexed annuity sales, and someone who wishes to market/sell indexed annuities will need a series 6 or 7 securities license and be required to have sales supervised by a broker/dealer. An insurance producer license, by itself, would no longer be sufficient. There is also concern that the application of proposed Rule 151A would not be limited to indexed annuities, and that other annuity and insurance products that fit the criteria set forth in the rule could be brought within the scope of the rule.

On December 17, the SEC held a public Open Meeting to discuss proposed Rule 151A, and by a 4-1 vote, adopted the Rule.  In response to comments submitted by The National Association of Insurance and Financial Advisors (NAIFA) and others, the SEC did indicate it was revising the text of the Rule to clarify that the Rule only applies to indexed annuities and not to other types of fixed annuities or insurance products. Rule 151A will only apply to indexed annuities that are issued after the Rule’s effective date, which will be January 12, 2011." NAIFA Website

What Rule 151A means to YOU, the consumer...

Indexed annuities are great products and when they fall under the SEC's authority, the value they provide to you is likely to be diminished due to high fees and cost associated with security products. With the current state of our financial markets, it is absolutely insane for this product to fall under the "supervision" of the SEC and FINRA. It has been the investment advisors that have lost the majority of your money over the last few years. My guess is that very few people ever received a call from their  "supervised investment advisor" recommending it may be a good idea to reallocate funds to a more safe/guaranteed product, just until the financial waters clam down.

Now, if your money had been in an EIA, what would you have lost over the last few years? Absolutely nothing, you would not have lost one penny due to the solid guarantees that these products offer. By now most of you are wishing that this product was offered to you about three years ago, right? Well, EIA's are not considered assets under management so your broker or investment advisor can not build their commission structure the same way which is why you were sold stock, mutual funds, or variable products, ouch!

If you have a story of about how your personal advisor/agent has helped you through the last few years without taking on a loss, please, take the time to share your story with me.

A call to insurance agents...

Please adhere to all guidelines when selling and marketing our products. Take time and invest back into your business, if you are not a member of NAIFA, please join; this is our voice in Washington. CLICK HERE to begin the registration process and let your voice be heard, equity indexed universal life will be next.

Now, before I begin, you history buffs may be interested to learn about how the estate tax came to exist and how many times it has been reformed since its inception:

1797                 Estate tax enacted to pay for tensions with France
1802                 Repealed when the threat of war ended
1862                 Estate tax re-enacted to fund the Civil War
1870                 Estate tax repealed
1898                 Estate tax reinstated for Spanish-American War
1902                 Repealed when war was over
1916                 Estate tax back for World War I
1930                 Various changes; similar to today's estate tax structure
1976-1993       Nine major pieces of estate tax legislation introduced
1997                 Unified credit increases and new family business exclusion
2001                 Economic Growth and Tax Relief Reconciliation Act of 2001

Most people today are (unknowingly) using 2010 estate planning techniques which combined with current market conditions it is very similar to playing Russian roulette. Currently the estate tax exclusion is  $3,500,000 for 2009 and in 2010 the estate tax is repealed (gift tax remains) before reverting back to the 2002 limit of $1,000,000 in 2011. NOTE: the Obama administration is highly considering keeping the estate tax in 2010.

Below are just a few KEY benefits/reasons as to why you would need to have a up-to-date estate plan.

    •    makes sure children and dependents are cared for
    •    avoid probate which could immediately diminish 10% of your estates value
    •    reduce estate taxes and pass more on to your heirs
    •    provides complete privacy and peace of mind

To design an estate plan you will need to form your team which consist of an attorney, insurance professional, and your accountant/CPA. They should coordinate efforts to align the financials of the estate with the necessary documents (wills, various trust, business agreements, powers of attorney, beneficiary designations, etc) and provide the correct funding source (life insurance) to pay the appropriate taxes. Now, I hear a lot of clients say, "I have a Will, so everything is taken care of." The problem with only having a Will is that it can be contested by anyone (in most states). Some examples of inadequate estate planning would be Leona Helmsley, J. Howard Marshall and Anna Nicole Smith, Terri Schiavo, and Elvis Presley. Get this, the $10,165,434 Presley estate was diminished by $7,374,635 as a result of taxes and various other fees (which could have been prevented). Had they properly planned, we would not even have access to this information. The end result of a properly designed plan will enable you to control the distribution of your estate while minimizing taxes and doing so in complete privacy.

"Twenty years from now you will be more disappointed by the things you didn't do than by the ones you did do." Mark Twain

1. Safety

Without question, safety is the top priority for everyone when they are saving their money. But safety means different things to different people. To some people, safety means putting money with their bank while complying with FDIC limits. To others, it means having money diversified across a variety of stocks and mutual funds or even picking their own stocks after they have researched the underlying companies; and to others, it is entrusting their money with a financial professional. Regardless of your definition or safety, we can all agree that everyone expects to earn a nice rate of return while protecting principle.

Annuities offer three different levels of safety:

    •    By contract, a fixed annuity guarantees that your principal is protected and that you can get it back again. There may be a penalty for early withdrawal, but as the annuity owner, you can control your withdrawals. So, there is no circumstance that can cause you to lose money in a fixed annuity.

    •    Even if your insurance company fails, the value of your annuity (up to $100,000, or more in many states) is guaranteed by your state insurance guaranty fund. In other words, your annuity is backed by a government guarantee similar to those that protect your bank deposits.

    •    If you have a problem with the insurance company that issued your annuity and you want to get a regulator involved, the regulator is located in your home state no matter where that insurance company is located. Here, annuities even beat money in the bank. Since most banks are regulated at the federal level, your bank's regulator may be in Washington, D.C.

2. Growth

Once you are assured that your money is safe, the next objective is to have that money grow as quickly as possible. A fixed annuity will guarantee a specific rate of return, regardless of market fluctuations!

Fortunately, insurance companies are not ignorant of that fact. Many carriers offer annuities with very attractive interest rates or the option to purchase an equity index annuity which can provide the opportunity to earn a higher rate of return (I will cover indexed annuities in another post).

3. Tax advantages

Again, everyone want their money to grow as quickly as possible, and besides having a great return, why not maximize on your tax advantages in the mean time.  Annuities cannot claim to have the best tax advantage possible. However, neither can stocks, stock mutual funds, even 401(k)s and IRAs. Please consult with your CPA in regards how an the purchase of an annuity will effect you.

4. Liquidity

Most people recognize that liquidity, safety and growth do not co-exist very well. For example, with a checking account, you get excellent safety and total liquidity, but you lose growth. With the stock market and mutual funds, you get good liquidity and hopefully a good rate of growth, but you are sacrificing safety. So, if an annuity is going to give you bulletproof safety and a good rate of growth, there needs to be some sacrifice in liquidity, right? The good news is that most annuity products build in enough liquidity to make many customers comfortable. Even retirees who need to withdraw money every year to supplement their incomes can find annuities that allow them to take such withdrawals (based on the guidelines of the annuity contract).

Please feel free to leave any comments or contact me with any questions.

If you are looking to purchase life insurance for the first time or you have life insurance and need to review your coverage, you will want to follow these simple steps to better understand the process to have certainty and piece of mind you are properly insured, after all, is that not why you buy it in the first place?

1. Understand why you need life insurance

While most people may need life insurance at some point in their life, they do not buy a policy just because it sounds like a good idea. Life insurance is designed to provide families with financial security in the event of the death of a spouse or parent. Life insurance can help replace lost income, fund a college education, inhance retirement and is a key element in estate planning. If others depend on your income for support, you need life insurance!

2. Determine how much should you buy

There are several ways to calculate the amount of life insurance you should have. Most calculations seem like a they were designed by insurance companies to help increase the amount you need, in turn, increasing your premium. One concept that is commonly preached is to multiply your annual income by 7,8, or even 10 times and most people ask, why and don't buy (leaving their family unprotected). Below is a way that you can accurately calculate the amount of coverage you need for income replacement.

• Determine the annual income your family needs.
• Divide that number by .07, which is the interest rate you can expect to earn on your money (please feel free to adjust the interest rate to your comfort level).
• Account for immediate and future expenses (final expenses, misc debts, college tuition, etc)
• Subtract any savings, inheritance, current insurance, or other assets from the total amount

Now, you should not only have a more precise idea about the exact amount of life insurance you need, but have a better grasp on how to determine your need.

3. What type of policy should I buy?

Once you have an idea of how much insurance you will need, it's time to think about the type of policy that best fits your needs. There are two main types of plans (term or permanent) that are used for very specific situations. If you are protecting your home and you have 24 years left on the mortgage along with two young children you are planning to send to college in 12-13 years you can customize a policy to protect against all of those needs. Now, if you are looking to help fund your children's education or transfer your estate to your family instead of the government, you will want to consider a permanent plan.

I will have more information in the future regarding the different types of plans that are available to you. It is more important to have the correct amount over getting wrapped up in all the features (also called riders) you can add on to policies. In the mean time please visit our life solutions page for an overview on each product type.

4. Consult an agent

Agents do (or should) provide an amazing service. A qualified agent can help you determine your exact need by helping you identify easily overlooked "human" elements and provide the appropriate solution and product. Insurance companies are always releasing new and innovative products and an agent can make the appropriate recommendations based on your specific needs.

5. Check the companies ratings

The policy you purchase is only as good as the company that backs it. Some agents are required to sell for certain companies while others are independent. Regardless of the agency you work with, you will want to make sure the company has a strong financial rating and will be around to pay the claim. There are four leading agencies you can check with: A.M. Best, Standard and Poors, Moody's, and Fitch.

6. Become a student

This may seem like a ridiculous statement, however, I believe it is an extremely important point in regards to anything you purchase on a continual basis. The average person will purchase life insurance seven times throughout the course of their life due life events that change the need for coverage. You will want to make sure you understand the type of coverage you have, why you have it, and how the amount was calculated. This way when an another agent approaches you about reviewing your coverage you will know how to answer their questions and determine if you should review your options -- especially if you have not heard from your agent since you last handed them a check.

Any discussion of insurance will include words such as cash value, premium, beneficiary, owner, etc. To discuss life insurance knowledgeably, it will help to understand the terms. This site offers a glossary of terms to help you better understand some of the industry lingo.