Book an appointment with GFS Financial Advisors using SetMore

SERVICES

MONEY ACCESS PLAN

What's Your M.A.P. Say?

Where is your money and how will you get at it…when you need it most? Having a plan to get at what you need when you need it is the core of financial planning. Developing a “Money Access Plan” or M.A.P. is essential.

Consider these situations:

  • Are you suddenly on your own or forced to assume greater responsibility for your financial future?
  • Unsure about whether you’re on the right track with your savings and investments?
  • Finding yourself with new responsibilities, such as the care of a child or an aging parent?
  • Facing other life events, such as marriage, divorce, the sale of a family business, or a career change?
  • Too busy to become a financial expert but need to make sure your assets are being managed appropriately?
  • Or maybe you simply feel your assets could be invested or protected better than they are now.








These are only some of the many circumstances that prompt people to contact someone who can help them address their financial questions and issues. This may be especially true for women, who live longer than men on average and therefore may face an even greater challenge in making their assets last over that longer life span.

One of the best things you can do for yourself and your family is to be prepared to manage your finances responsibly. Even if you see investing as overwhelming or complicated and boring, you need to know the basics behind a well-thought-out investment strategy — at least enough to protect yourself from fraud and/or communicate effectively with a financial professional or spouse. If you feel that consulting an expert might be helpful, don’t postpone making that call. The sooner you get your questions answered, the sooner you’ll be able to pay more attention to the things — family, friends, career, hobbies — that an organized financial life could help you enjoy.

Do You Have a Money Access Plan?

You wouldn’t start a trip across country without making a plan; where will you go, when you will stop, what you will eat. So why would you leave the future of your assets up to chance? Let us help you develop a Money Access Plan, or map, so you know where your finances are going and how you will get there.

ESTATE PLANNING

t

How and to whom will your property be distributed?

t

Is your property preserved for your loved ones?

At your death, you leave behind the people that you love and all your worldly goods. Without advance planning, you have no say about who gets what, and more of your property may go to others, like the federal government, instead of your loved ones. 

Simply stated, estate planning is a method for determining how to distribute your property during your life and at your death. It is the process of developing and implementing a master plan that facilitates the distribution of your property after your death and according to your goals and objectives.

Estate planning may be important to individuals with a wide range of financial situations. In fact, it may be more important if you have a smaller estate because the final expenses will have a much greater impact on your estate. Wasting even a single asset may cause your loved ones to suffer from a lack of financial resources.

WHO NEEDS ESTATE PLANNING?

Since incapacity can strike anyone at anytime, all adults over 18 should consider having: A durable power of attorney: This document lets you name someone to manage your property for you in case you become incapacitated and cannot do so. An advance medical directive: The three main types of advance medical directives are (1) a living will, (2) a durable power of attorney for health care (also known as a health-care proxy), and (3) a Do Not Resuscitate order. Be aware that not all states allow each kind of medical directive, so make sure you execute one that will be effective for you.

If you’re young and single, you may not need much estate planning. But if you have some material possessions, you should at least write a will. If you don’t, the wealth you leave behind if you die will likely go to your parents, and that might not be what you would want. A will lets you leave your possessions to anyone you choose (e.g., your significant other, siblings, other relatives, or favorite charity).

You’ve committed to a life partner but aren’t legally married. For you, a will is essential if you want your property to pass to your partner at your death. Without a will, state law directs that only your closest relatives will inherit your property, and your partner may get nothing. If you share certain property, such as a house or car, you may consider owning the property as joint tenants with rights of survivorship. That way, when one of you dies, the jointly held property will pass to the surviving partner automatically.

For many years, married couples had to do careful estate planning, such as the creation of a credit shelter trust, in order to take advantage of their combined federal estate tax exclusions. For decedents dying in 2011 and later years, the executor of a deceased spouse’s estate can transfer any unused estate tax exclusion amount to the surviving spouse without such planning. You may be inclined to rely on these portability rules for estate tax avoidance, using outright bequests to your spouse instead of traditional trust planning. However, portability should not be relied upon solely for utilization of the first to die’s estate tax exclusion, and a credit shelter trust created at the first spouse’s death may still be advantageous for several reasons: Portability may be lost if the surviving spouse remarries and is later widowed again The trust can protect any appreciation of assets from estate tax at the second spouse’s death The trust can provide protection of assets from the reach of the surviving spouse’s creditors Portability does not apply to the generation-skipping transfer (GST) tax, so the trust may be needed to fully leverage the GST exemptions of both spouses Married couples where one spouse is not a U.S. citizen have special planning concerns. The marital deduction is not allowed if the recipient spouse is a non-citizen spouse (but a $152,000 annual exclusion, for 2018, is allowed). If certain requirements are met, however, a transfer to a qualified domestic trust (QDOT) will qualify for the marital deduction.

If you’re married and have children, you and your spouse should each have your own will. For you, wills are vital because you can name a guardian for your minor children in case both of you die simultaneously. If you fail to name a guardian in your will, a court may appoint someone you might not have chosen. Furthermore, without a will, some states dictate that at your death some of your property goes to your children and not to your spouse. If minor children inherit directly, the surviving parent will need court permission to manage the money for them. You may also want to consult an attorney about establishing a trust to manage your children’s assets in the event that both you and your spouse die at the same time. You may also need life insurance. Your surviving spouse may not be able to support the family on his or her own and may need to replace your earnings to maintain the family.

If you’re in your 30s, you may be feeling comfortable. You’ve accumulated some wealth and you’re thinking about retirement. Here’s where estate planning overlaps with retirement planning. It’s just as important to plan to care for yourself during your retirement as it is to plan to provide for your beneficiaries after your death. You should keep in mind that even though Social Security may be around when you retire, those benefits alone may not provide enough income for your retirement years. Consider saving some of your accumulated wealth using other retirement and deferred vehicles, such as an individual retirement account (IRA).

Depending on the size of your estate, you may need to be concerned about estate taxes. For 2018, $11,180,000 is effectively excluded from the federal gift and estate tax. Estates over that amount may be subject to the tax at a top rate of 40 percent. Similarly, there is another tax, called the generation-skipping transfer (GST) tax, that is imposed on transfers of wealth made to grandchildren (and lower generations). For 2018, the GST tax exemption is also $11,180,000, and the top tax rate is 40 percent. Note: The Tax Cuts and Jobs Act, signed into law in December 2017, doubled the gift and estate tax basic exclusion amount and the GST tax exemption to $11,180,000 in 2018. After 2025, they are scheduled to revert to their pre-2018 levels and cut by about one-half. Whether your estate will be subject to state death taxes depends on the size of your estate and the tax laws in effect in the state in which you are domiciled.

If you’re elderly or ill, you’ll want to write a will or update your existing one, consider a revocable living trust, and make sure you have a durable power of attorney and a health-care directive. Talk with your family about your wishes, and make sure they have copies of your important papers or know where to locate them.

HOW TO DO IT

As a process, estate planning requires a little effort on your part. First, you’ll want to come to terms with dying, at least to a degree that you can deal with the necessary planning. Understandably, your death can be a very uncomfortable subject, but unfortunately, the discussions in this area are full of references to your death, so it really can’t be avoided. Some statements may seem too businesslike and unfeeling, but tiptoeing around the subject of dying will only make the planning process more difficult. You will understand the process more easily and implement a more successful master plan if you approach it in a straightforward manner.

Designing a plan is a process that is unique to each estate owner. Don’t be intimidated or overwhelmed at the prospect. Even the most complex plan can be achieved if you proceed step by step. Remember, the peace of mind that comes with developing a successful estate plan is worth the time, trouble, and expense.

=

STEP ONE

Understand your particular circumstances

Begin the estate planning process by understanding your particular circumstances, such as your age: health, wealth, etc.

=

STEP TWO

Understand the factors that will affect your estate

You will also need to have some understanding of the factors that may affect the distribution of your estate, such as: taxes, probate, liquidity, and incapacity.

=

STEP THREE

Clarify your goals and objectives

When your particular circumstances and the factors that may affect your estate are clear, your goals and objectives should come into focus.

=

STEP FOUR

Understand the strategies that are available

With these goals and objectives now clear, you can begin to consider the different estate planning strategies that are available to you.

=

STEP FIVE

Seek professional help

Seeking professional help (an attorney or financial advisor) will help you understand the strategies that are available and formulate and implement your master plan.

=

STEP SIX

Find the right Fiduciary

Finding the right fiduciary to help you can make all the difference in your estate plan, and quality of life.

=

STEP SEVEN

Formulate and implement a plan

Finally, after following these steps, you can formulate and implement a plan that works for you. Here are a few basic tips: (1) make sure you understand your plan, (2) rely on people you trust, and (3) keep your documents and information organized and within easy reach.

=

STEP EIGHT

Perform periodic reviews

When you have implemented your master plan, be sure to perform a periodic review and, if necessary, make revisions that reflect any changing circumstances and tax laws.

FINANCIAL PLANNING

t

WHY GET HELP FROM A FINANCIAL PROFESSIONAL?

Even if you have the knowledge and ability to manage your own finances, the financial world grows more intricate every day as new products and services are introduced. Also, legislative changes can have a substantial impact on your investment and tax planning strategy. A professional can monitor such developments on an ongoing basis and assess how they might affect your portfolio.

t

WHAT CAN THEY DO?

A financial professional may be able to help you see the big picture and make sure the various aspects of your financial life are integrated in a way that makes sense for you. That can be especially important if you own your own business or have complex tax issues.

If you already have a financial plan, a financial professional can act as a sounding board, giving you a reality check to make sure your assumptions and expectations are realistic. For example, if you’ve been investing far more conservatively than is appropriate for your goals and circumstances, either out of fear of making a mistake or from not being aware of how risks can be managed, a financial professional can help you assess whether and how your portfolio might need adjusting to improve your chances of reaching those goals.

A financial professional can apply his or her skills to your specific needs. Just as important, you have someone who can answer questions about things that you may find confusing or anxiety-provoking. When the financial markets go through one of their periodic downturns, having someone you can turn to may help you make sense of it all.
If you don’t feel confident about your knowledge of investing or specific financial products and services, having someone who monitors the financial markets every day can be helpful. After all, if you hire people to do things like cut your hair, work on your car, and tend to medical issues, it might just make sense to get some help when dealing with important financial issues.

WHEN SHOULD YOU CONSULT A FINANCIAL PROFESSIONAL?

You don’t have to wait until an event occurs before consulting a financial professional. Having someone help you develop an overall strategy for approaching your financial goals can be useful at any time. However, in some cases, a specific life event or perceived need can serve as a catalyst for seeking advice.

Events that can signifigantly impact financial plans, and may be a good time to seek professional help:

=

Marriage, divorce, or the death of a spouse

=

Having a baby or adopting a child

=

Planning for a child’s or grandchild’s college education

=

Buying or selling a family business

=

Changing jobs or careers

=

Planning your retirement

=

Developing an estate plan

=

Receiving an inheritance or financial windfall

INCOME PLANNING

t

Are You Planning Your Income, or Just Blind Investing?

Investments are great, but with so many options out there how do you know your investments are really working for you? Do they coincide with your goals? The objective isnt just to retire; it’s to retire well. That means knowing how your bills will be paid on the day to day, after you stop working. You can’t just focus on investing or saving, you need to make sure you will have accsess to your money when you need it, as well a strategy for paying daily expenses.

Factors to consider

It all starts with your plans for retirement — the lifestyle that you envision. Do you expect to travel extensively? Take up or rediscover a hobby? Do you plan to take classes? Whatever your plan, try to assign a corresponding dollar cost.

=

Housing costs

If your mortgage isn’t already paid off, will it be paid soon? Do you plan to relocate to a less (or more) expensive area? Downsize?

=

Work-related expenses

You’re likely to eliminate some costs associated with your current job (for example, commuting, clothing, dry cleaning, retirement savings contributions), in addition to payroll taxes.

=

Health care

Health-care costs can have a significant impact on your retirement finances (this can be particularly true in the early years if you retire before you’re eligible for Medicare).

=

Long-term care costs

The potential costs involved in an extended nursing home stay can be catastrophic.

=

Entertainment

It’s not uncommon to see an increase in general entertainment expenses like dining out.

=

Children/parents

Are you responsible financially for family members? Could that change in future years?

=

Gifting

Do you plan on making gifts to family members or a favorite charity? Do you want to ensure that funds are left to your heirs at your death?

RETIREMENT PLANNING

t

If you’re nearing retirement, the gap between your current expenses and your retirement expenses may be small. If retirement is many years away, the gap may be significant, and projecting your future expenses may be more difficult.

You may have a very idealistic vision of retirement planning–doing all of the things that you never seem to have time to do now. But how do you pursue that vision? Social Security may be around when you retire, but the benefit that you get from Uncle Sam may not provide enough income for your retirement years. To make matters worse, few employers today offer a traditional company pension plan that guarantees you a specific income at retirement. On top of that, people are living longer and must find ways to fund those additional years of retirement. Such eye-opening facts mean that today, sound retirement planning is critical. But there’s good news: Retirement planning is easier than it used to be, thanks to the many tools and resources available. Here are some basic steps to get you started.

Determine Your Retirement Income Needs

It’s common to discuss desired annual retirement income as a percentage of your current income. Depending on who you’re talking to, that percentage could be anywhere from 60 to 90 percent, or even more. The appeal of this approach lies in its simplicity. The problem, however, is that it doesn’t account for your specific situation. To determine your specific needs, you may want to estimate your annual retirement expenses.

Use your current expenses as a starting point, but note that your expenses may change dramatically by the time you retire.

Remember to take inflation into account. The average annual rate of inflation over the past 20 years has been approximately 2.3 percent. (Source: Consumer price index (CPI-U) data published by the U.S. Department of Labor, January 2015.) And keep in mind that your annual expenses may fluctuate throughout retirement. For instance, if you own a home and are paying a mortgage, your expenses will drop if the mortgage is paid off by the time you retire. Other expenses, such as health-related expenses, may increase in your later retirement years. A realistic estimate of your expenses will tell you about how much yearly income you’ll need to live comfortably.

CALCULATE THE GAP

Once you have estimated your retirement income needs, take stock of your estimated future assets and income. These may come from Social Security, a retirement plan at work, a part-time job, and other sources. If estimates show that your future assets and income will fall short of what you need, the rest will have to come from additional personal retirement savings.

FIGURE OUT HOW MUCH YOU'LL NEED TO SAVE

  • At what age do you plan to retire? The younger you retire, the longer your retirement will be, and the more money you’ll need to carry you through it.
  • What is your life expectancy? The longer you live, the more years of retirement you’ll have to fund.
  • What rate of growth can you expect from your savings now and during retirement? Be conservative when projecting rates of return.

Do you expect to dip into your principal? If so, you may deplete your savings faster than if you just live off investment earnings. Build in a cushion to guard against these risks. Build your retirement fund: Save, save, save. When you know roughly how much money you’ll need, your next goal is to save that amount. First, you’ll have to map out a savings plan that works for you. Assume a conservative rate of return (e.g., 5 to 6 percent), and then determine approximately how much you’ll need to save every year between now and your retirement to reach your goal. The next step is to put your savings plan into action.

Are You Under Full Retirement Age and Still Working?

Your Social Security Benefit Could Be at Risk. Take the Earnings Test to Find Out More.

It’s never too early to get started (ideally, begin saving in your 20s). To the extent possible, you may want to arrange to have certain amounts taken directly from your paycheck and automatically invested in accounts of your choice (e.g., 401(k) plans, payroll deduction savings). This arrangement reduces the risk of impulsive or unwise spending that will threaten your savings plan–out of sight, out of mind. If possible, save more than you think you’ll need to provide a cushion.Understand your investment options.

You need to understand the types of investments that are available and decide which ones are right for you. If you don’t have the time, energy, or inclination to do this yourself, hire a financial professional. He or she will explain the options that are available to you and will assist you in selecting investments that are appropriate for your goals, risk tolerance, and time horizon. Note that many investments may involve the risk of loss of principal.

Use the Right Savings Tools

The following are among the most common retirement savings tools, but others are also available.

Employer-sponsored retirement plans that allow employee deferrals (like 401(k), 403(b), SIMPLE, and 457(b) plans) are powerful savings tools. Your contributions come out of your salary as pretax contributions (reducing your current taxable income) and any investment earnings are tax deferred until withdrawn. These plans often include employer-matching contributions and should be your first choice when it comes to saving for retirement. 401(k), 403(b) and 457(b) plans can also allow after-tax Roth contributions. While Roth contributions don’t offer an immediate tax benefit, qualified distributions from your Roth account are federal income tax free.

IRAs, like employer-sponsored retirement plans, feature tax deferral of earnings. If you are eligible, traditional IRAs may enable you to lower your current taxable income through deductible contributions. Withdrawals, however, are taxable as ordinary income (unless you’ve made nondeductible contributions, in which case a portion of the withdrawals will not be taxable).

Roth IRAs don’t permit tax-deductible contributions but allow you to make completely tax-free withdrawals under certain conditions. With both types, you can typically choose from a wide range of investments to fund your IRA.

Annuities are contracts issued by insurance companies. Annuities are generally funded with after-tax dollars, but their earnings are tax deferred (you pay tax on the portion of distributions that represents earnings). There is generally no annual limit on contributions to an annuity. A typical annuity provides income payments beginning at some future time, usually retirement. The payments may last for your life, for the joint life of you and a beneficiary, or for a specified number of years (guarantees are subject to the claims-paying ability of the issuing insurance company). Annuities may be subject to certain charges and expenses, including mortality charges, surrender charges, administrative fees, and other charges.Note: In addition to any income taxes owed, a 10 percent premature distribution penalty tax may apply to taxable distributions made from employer-sponsored retirement plans, IRAs, and annuities prior to age 59½ (prior to age 55 for employer-sponsored retirement plans in some circumstances)

WEALTH MANAGEMENT

t

If you haven’t done any wealth management or asset protection planning, your finances are vulnerable to potential future creditors and, should the worst happen,you could lose everything.

Lawsuits, taxes, accidents, and other financial risks are facts of everyday life. And though you’d like to believe that you’re safe, misfortune can befall even the most careful person. What can you do? First, identify your potential loss exposure, then implement strategies that are designed to help reduce that exposure without compromising your other estate and financial planning objectives.

Asset Allocation: How Many Eggs in Which Baskets?

Asset allocation is one of the first steps in creating a diversified investment portfolio. Asset allocation means deciding how your investment dollars should be allocated among broad investment classes, such as stocks, bonds, and cash alternatives. Rather than focusing on individual investments (such as which company’s stock to buy), asset allocation approaches diversification from a more general viewpoint. For example, what percentage of your portfolio should be in stocks? The underlying principle is that different classes of investments have shown different rates of return and levels of price volatility over time. Also, since different asset classes often respond differently to the same news, your stocks may go down while your bonds go up, or vice versa. Though neither diversification nor asset allocation can guarantee a profit or ensure against a potential loss, diversifying your investments over various asset classes can help you try to minimize volatility and maximize potential return.

So, how do you choose the mix that’s right for you? Countless resources are available to assist you, including interactive tools and sample allocation models. Most of these take into account a number of variables in suggesting an asset allocation strategy. Some of those factors are objective (e.g., your age, your financial resources, your time frame for investing, and your investment objectives). Others are more subjective, such as your tolerance for risk or your outlook on the economy. A financial professional can help you tailor an allocation mix to your needs.

More on Diversification

Diversification isn’t limited to asset allocation, either. Even within an investment class, different investments may offer different levels of volatility and potential return. For example, with the stock portion of your portfolio, you might choose to balance higher-volatility stocks with those that have historically been more stable (though past performance is no guarantee of future results).

Because most mutual funds invest in dozens to hundreds of securities, including stocks, bonds, or other investment vehicles, purchasing shares in a mutual fund reduces your exposure to any one security. In addition to instant diversification, if the fund is actively managed, you get the benefit of a professional money manager making investment decisions on your behalf.

Note: Before investing in a mutual fund, carefully consider its investment objectives, risks, charges and expenses, which are outlined in the prospectus that is available from the fund. Obtain and read a fund’s prospectus carefully before investing.

 

Choose Investments that Match Your Tolerance for Risk

Your tolerance for risk is affected by several factors, including your objectives and goals, timeline(s) for using this money, life stage, personality, knowledge, other financial resources, and investment experience. You’ll want to choose a mix of investments that has the potential to provide the highest possible return at the level of risk you feel comfortable with on an ongoing basis.

For that reason, an investment professional will normally ask you questions so that he or she can gauge your risk tolerance and then tailor a portfolio to your risk profile.

Investment Professionals and Advisors

A wealth of investment information is available if you want to do your own research before making investment decisions. However, many people aren’t comfortable sifting through balance sheets, profit-and-loss statements, and performance reports. Others just don’t have the time, energy, or desire to do the kind of thorough analysis that marks a smart investor.

For these people, an investment advisor or professional can be invaluable. Investment advisors and professionals generally fall into three groups: stockbrokers, professional money managers, and financial planners. In choosing a financial professional, consider his or her legal responsibilities in selecting securities for you, how the individual or firm is compensated for its services, and whether an individual’s qualifications and experience are well suited to your needs. Ask friends, family and coworkers if they can recommend professionals whom they have used and worked with well. Ask for references, and check with local and federal regulatory agencies to find out whether there have been any customer complaints or disciplinary actions against an individual in the past. Consider how well an individual listens to your goals, objectives and concerns.

Stockbrokers

 Stockbrokers work for brokerage houses, generally on commission. Though any investment recommendations they make are required by the SEC to be suitable for you as an investor, a broker may or may not be able to put together an overall financial plan for you, depending on his or her training and accreditation. Verify that an individual broker has the requisite skill and knowledge to assist you in your investment decisions.

Professional Money Managers

 Professional money managers were once available only for extremely high net-worth individuals. But that has changed a bit now that competition for investment dollars has grown so much, due in part to the proliferation of discount brokers on the Internet. Now, many professional money managers have considerably lowered their initial investment requirements in an effort to attract more clients.

A professional money manager designs an investment portfolio tailored to the client’s investment objectives. Fees are usually based on a sliding scale as a percentage of assets under management — the more in the account, the lower the percentage you are charged. Management fees and expenses can vary widely among managers, and all fees and charges should be fully disclosed.

WHERE THE DANGERS LIE

Unexpected liability can come from just about anywhere:

  • The IRS and other tax authorities
  • Marital or other live-in partners
  • Creditors of other individuals, where you have cosigned or guaranteed obligations for those individuals
  • Accident victims, including victims whose injuries were caused by the actions of minor children or employees
  • Business creditors, including employees and former employees, governmental agencies, suppliers, customers, partners, shareholders, and the general public
  • Credit card companies
  • Doctors, hospitals, nursing homes, and other health-care providers

Asset Protection Techniques

There are three basic asset protection techniques: insurance, statutory protection, and asset placement. None of these techniques is a complete solution by itself, but may make sense as one limited component of an asset protection plan.

INSURANCE

The simplest way to cope with risk is to shift the risk to an insurance company. This should be your first line of defense. Before you do anything else, review your existing coverage. Then consider purchasing or increasing coverage on your insurance policies as appropriate. You should be adequately insured against: Death and disability, Medical risk (including long-term care), Liability and property loss (both personal and business),Other business losses.

STATUTORY PROTECTION

Creditors can’t enforce a lien or judgment against property that is exempt under federal or state law. While exemption planning can’t offer total protection, it can offer some shelter for certain assets. Both federal and state laws govern whether property is exempt or nonexempt in nonbankruptcy proceedings (separate federal and state laws govern whether property is exempt or nonexempt in bankruptcy proceedings). Generally, you can choose whether the federal exemption or the state exemption applies. When looking at exemption laws, be sure to find out how much of an exemption is allowed for a particular type of property — it may be completely exempt, or exempt only up to a certain amount or restricted in some way. Types of property often receiving an exemption include: Homestead (principal residence), Personal property, Motor vehicle, IRAs, pension plans, and Keogh plans, Prepaid college tuition plans, Life insurance benefits and cash value, Proceeds of life insurance, Proceeds of annuities, Wages. Tip: In those jurisdictions that recognize ownership by tenancy by the entirety (TBE), creditors of the husband or creditors of the wife cannot reach TBE assets.

ASSET PLACEMENT

Asset placement refers to transferring legal ownership of assets to other persons or entities, such as corporations, limited partnerships, and trusts. The basis for this technique is simple — creditors can’t reach property that you do not own or control.

If you have high exposure to potential liability because of your occupation or business, it may be advisable for you to shift assets to your spouse. Your spouse would retain the assets that are subject to the exposure as his or her separate property, and you would retain assets that enjoy statutory protection, such as the homestead, life insurance, and annuities, as separate property. Furthermore, the shifting of assets to a spouse or children may help accomplish other estate planning goals.

Caution: To avoid complications in the event that your marriage ends in divorce, both you and your spouse should agree to the division of assets in writing. This is especially important in community property states.

If you own a business and aren’t already a corporation, changing your business structure to a corporation will make it a separate legal entity in the eyes of the law. As such, a corporation owns the business assets and is responsible for all business debts. Thus, incorporating your business separates your business assets from your personal assets, so your personal assets will generally not be at risk for the acts of the business.

Caution: The limited liability feature may be lost if, for example, the corporation acts in bad faith, fails to observe corporate formalities (e.g., organizational meetings), has its assets drained (e.g., unreasonably high salaries paid to shareholder-employees), is inadequately funded, or has its funds commingled with shareholders’ funds.

Caution: A number of issues should be considered when selecting a form of business entity, including tax considerations. With a C corporation, taxation may occur at both the corporate and shareholder level; with an S corporation, income and tax liabilities pass through to the shareholders. Consult an attorney and tax professional.

An LLC is a hybrid of a general partnership and a corporation. Like a partnership, income and tax liabilities pass through to the members, and the LLC is not double-taxed as a separate entity. And, like a corporation, an LLC is considered a separate legal entity that can be used to own business assets and incur debt, protecting your personal assets from other nontax claims against the LLC.

Professionals (e.g., doctors, lawyers, and accountants) face liability for damages that result from the performance of their professional duties. While no business structure will protect you from personal liability for your professional activities, an LLP will protect you from the professional mistakes of your partners. That is, if one of your partners is sued, and the LLP is also named in the lawsuit, any malpractice judgment is the personal liability of the partner who’s been sued, but a business liability for you and the other partners. Your personal assets aren’t at stake if your partner commits malpractice, although your investment in the business may still be at risk.

An FLP is a limited liability partnership formed by family members only. At least one family member is a general partner; the others are limited partners. A creditor can’t obtain a judgment against the FLP — it can only obtain a charging order. The charging order only allows the creditor to receive any income distributed by the general partner. It does not allow the creditor access to the assets of the FLP. Thus, a charging order is not an attractive remedy to most creditors. As a result, the limitation to seeking a charging order can often convince a creditor to settle on more reasonable terms than might otherwise be possible.

A protective trust can protect both business and personal assets from most creditors’ claims. A trust works because it splits ownership of trust assets; the trustee has equity ownership and the beneficiaries have beneficial ownership. Essentially, a protective trust works like this:

Example: Harry would like to leave property to Wendy. However, Harry is afraid that his creditors might claim the property before he dies and that Wendy will receive none of it. Harry establishes a trust with both himself and Wendy as the beneficiaries. The trustee is instructed to allow Harry to receive income from the trust until Harry dies and then to distribute the remaining assets to Wendy. The trust assets are then safe from being claimed by Harry’s creditors, so long as the debt was entered into after the trust’s creation.

Under these circumstances, any of Harry’s creditors would be able to reach assets in the trust only to the extent of Harry’s beneficial interest in the trust. Say that Harry’s interest in the trust is a fixed income distribution each month in the amount of $1,000. Assuming Harry’s creditors obtained a judgment, they would only be entitled to the $1,000 per month.

As the name implies, an irrevocable trust is a trust that you can’t revoke or change. Once you have established the trust, you can’t dissolve the trust, change the beneficiaries, remove assets from the trust, or change its terms. In short, you lose control of the assets once they become part of the trust. But, because the assets are out of your control, they’re generally beyond the reach of creditors too. You may further protect those assets from your beneficiaries’ creditors by using special language (known as a spendthrift clause) in the trust.

Caution: Unlike an irrevocable trust, a revocable trust provides the assets in the trust with absolutely no legal protection from your creditors.

It’s possible to transfer assets to trusts that are formed in foreign countries (certain countries are preferred). While the laws of each country are different, they share one similarity — they make it more difficult for creditors to reach trust assets.

Here’s how it works: In order for a creditor to be able to reach assets held in a trust, a court must have jurisdiction over the trustee or the trust assets. Where the trust is properly established in a foreign country, obtaining jurisdiction over the trustee in a U.S. court action will not be possible. Thus, a U.S. court will be unable to exert any of its powers over the offshore trustee.

So, the creditor must commence the suit in the offshore jurisdiction. The creditor can’t use its U.S. attorney; it must use a local attorney. Typically, a local attorney will not take the case on a contingency fee basis. Therefore, if a creditor wants to pursue litigation in the offshore jurisdiction, it must be prepared to pay the foreign attorney up front. To make matters even less convenient, many jurisdictions require the creditor to post a bond or other surety to guarantee the payment of any costs that the court may impose against the creditor if it is unsuccessful. Taken as a whole, these obstacles have the general effect of deterring creditors from pursuing action.

The laws in Alaska, Delaware, Nevada, and a few other states enable you to set up a self-settled trust. Alaska was the first state to enact such an anti-creditor trust act, and Delaware quickly followed. Hence, this type of trust is often called an Alaska/Delaware trust (sometimes also referred to as a domestic asset protection trust, or DAPT). A self-settled trust is a trust in which the person who creates the trust (the grantor) can name himself or herself primary, or even sole, beneficiary. These trusts give the trustee wide latitude to pay as much or as little of the trust assets to any or all of the eligible beneficiaries as the trustee deems appropriate. The key to this type of protective trust is that the trustee has the discretion to distribute or not distribute the trust property. Creditors can only reach property that the beneficiary has the legal right to receive. Therefore, the trust property will not be considered the beneficiary’s property, and any creditors of the beneficiary will be unable to reach it.

Caution: Domestic self-settled trusts may not be as effective as a foreign trust, because a judgment from an individual state must be honored by another state under the United States Constitution.

LIFE INSURANCE

t

Do you have what you need?

t

Have the lowest cost, or highest performing product available to you?

Life insurance is not necessarily an exciting topic to discuss. But that is also the reason why many people haven’t taken the time to review what they own.

What is life insurance and why do I need it? Life insurance is an agreement between you (the insured) and an insurer. Under the terms of a life insurance policy, the insurer promises to pay a certain sum to a person you choose (your beneficiary) upon your death, in exchange for your premium payments. Appropriate life insurance coverage may provide you with a feeling of confidence, since you know that those you care about should be financially protected after you die.

Consider an analysis of your current coverage:

u

Do you currently have the appropriate amount and type?

u

Whether you need more or less, is there anything better available?

Over the last few years, life insurance is one thing that has actually gotten cheaper – and better. Changes in interest rates, mortality rates, and the regulatory environment make today’s products much different than they were even a few years ago. There are many options in the market today that feature longer guarantees, more flexible premiums, and additional features and benefits that were unheard of until recently. Reviewing your life insurance doesn’t have to mean buying more insurance. Much like any other part of your financial strategy, it needs to be something that works perfectly – for your situation.

The Three-Level Approach

LEVEL ONE:

Save Money On What You Already Have

Life insurance is one of the few things that has actually gotten cheaper over the last few years.

If you haven’t done any cost comparisons, it is likely you could pay less for the coverage you have, get more death benefit for the same cost or find longer guarantees.

LEVEL TWO:

Examine The Performance Of Your Existing Products

Based on your annual statements or a projection from your insurance company, your current policy may not be performing up to your expectations when you purchased it.

There are elements of your policy that are subject to change, and if left unchecked, your coverage might be in danger of lapse or require significantly more premium than you originally thought.

A policy review now can save you from tremendous problems later. You can examine alternatives and make a fully informed decision about what is right for you and your family.

LEVEL THREE:

Re-Evaluate Your Life Insurance Needs

Every day, your financial picture changes a little bit. Sometimes there are major life changes, and sometimes there are smaller events that over time can cause you to drift onto a different course.

If you feel that your plan requires a more significant examination, we can utilize planning tools that will help you get a handle on your total financial picture.

While life insurance may only play a small part of this work, you will gain a more holistic perspective.

  • Do you know how much life insurance you need?
  • How have your needs changed?
  • How much insurance do you need to protect your family?
  • What would be an optimal amount of coverage?
  • Which of the needs are temporary? When do they go away?
  • Will they be replaced by new needs at a later date?
  • Which needs are permanent?
  • What was the purpose of your insurance when you originally bought it?
  • Is that still your purpose or have your priorities changed?
  • Has it performed the way it was supposed to?
  • Have premiums gone up?
  • Have cash values performed near expectations?
  • Did your last annual statement notify you that your policy will lapse earlier than expected?
  • AHow has your health changed since you last purchased life insurance?
  • Marriage or wedding
  • Birth or adoption
  • Death in the family
  • Divorce
  • Child starting high school or college
  • Graduation
  • Become the legal guardian for another person
  • New job or promotion
  • Job layoff
  • Change in employment benefits
  • Critical illness, injury or disability
  • Retirement
  • Inheritance or other financial windfall
  • Financial setback
  • Move, relocated or sold home
  • Refinanced home mortgage or opened an equity line of credit
  • Purchased vacation home
  • Started your own business
  • Sold or closed a business
  • Become or added a partner
  • Hired a key employee
  • Significant change in accounts receivable or payable
  • Increased business debt
  • Anticipating capital expenditure
  • Changed ownership structure
  • Preparing for succession or ownership change
  • Economic conditions
  • Fluctuations in fixed interest rates
  • Stock market volatility
  • Change in income tax or estate tax code
  • Legislative changes that affect the insurance industry