The Seven Deadly Sins of Beneficiary Designations - #7

Deadly Sin #7: Do Not Be Afraid to Include a Charity as a Beneficiary

If you want to make a difference in the world, you can designate a non-profit organization as your beneficiary. By doing this, the organization will get 100% of the funds, and the IRS will not take any of the money going to the non-profit organization. Be sure to notify the non-profit organization of your intentions so they can tell you how to set it up properly.

The Seven Deadly Sins of Beneficiary Designations - #6

Deadly Sin #6: Do Not Name a Child Over a Spouse as a Beneficiary

For your IRAs, do not list your primary beneficiaries as your children over your spouse or partner. Obviously there are situations where this could apply, but in most cases this is not a plan you will want to consider for married couples, especially when there is a large age gap.

For example: take Lisa, who is in her late-fifties and Richard, who is in his late sixties. Rich has a $1,000,000 IRA and is living quite comfortably, while Lisa is still working and receiving income. Lisa loves her job and does not see herself retiring until 65. She has accumulated a nice little nest egg for retirement and is projected to have over $2,000,000 in retirement assets by the age of 65. Both Lisa and Rich spoke with their financial advisor and decided to take a small $200,000 annuity held within Rich’s traditional IRA and earmark these specific assets to be split between their children. Rather than titling the beneficiary to Lisa, the couple decided to give the annuity to their two boys, Jake and Josh, who are in their late twenties and early thirties.

Rich passed away, leaving the annuity to his children. Although the children’s’ inherited IRAs are not subject to the 10% penalty, Jake and Josh are required to take minimum distributions based on each of their life expectancies. This limited their ability to let the assets compound and continue as tax deferrals. Also, the IRA custodian or trustee will have to report these RMDs as "death distributions” on their IRS 1099-R. Failure to take RMDs will result in an excise penalty tax of 50% on the amount which should have been distributed.

In this case, Lisa and Rich should have named their two kids as contingent beneficiaries and Lisa as the primary beneficiary. The assets would then continue to compound and grow tax deferred. Lisa would not need to take required minimum tax distributions until 70 1/2. Once Lisa passed away, Jake and Josh could stretch these payments over their life expectancy and continue tax deferral.

The Seven Deadly Sins of Beneficiary Designations - #5

Deadly Sin #5: Do Not Name Minor Children as a Beneficiary

Roman and Maria were happily married with a 13 year-old-son Nick. Roman and Maria decided to take little road trip for their 10- year wedding anniversary. The couple would meet their demise from an oncoming semi-truck whose driver had fallen asleep at the wheel. Roman and Maria were struck head on, and the romantic pair passed away.

Thankfully Nick was staying with his grandparents, but unfortunately, Nick was named as the contingent beneficiary. During this time, no one was appointed guardianship, and since the insurance company can’t pay out death benefits to a minor without guardianship, Nick’s grandparents did not have the money to cover the additional expenses for Nick’s care and the probate costs for Roman and Maria’s estate.

Roman and Maria should have created a trust for the benefit of their minor child. You should do the same. Doing so will give you the ability to put restrictions on how funds are distributed, like minimum age or college graduation.

The Seven Deadly Sins of Beneficiary Designations - #4

Deadly Sin #4: Not Including a Contingent Secondary Beneficiary

Do not name a dead person as your beneficiary designation. If your primary beneficiary dies and you do not have a contingent beneficiary, this will create problems for you. You have the ability to name a contingent or secondary beneficiary, so take advantage of this. If you are predeceased by your primary beneficiary, naming a contingent one allows them to receive your insurance or investments.

********

5 Considerations To Help You Protect Your Jewelry

A client returned home from the grocery store to find that, in the 45 minutes they had been gone, someone broke into their house. They hadn't thought to set the alarm for such a short outing. Among the few items taken was their safe. An entire safe, dragged across the room, thrown down the stairs, and out the door. With it, tens of thousands of dollars in jewelry and other valuable possessions.

Sound unbelievable? This is actually a scenario that insurance claim teams have seen more than once. The following are five considerations we share with clients to protect their possessions:

1. Home Safes Are Not Equal

Many high-net-worth individuals are opting to store jewelry, especially frequently worn items, in home safes instead of safe deposit boxes.  We share these tips with our clients to make the selection, purchasing and installation of a safe easier.

First, consider the value of the items being protected. Clients can expect to pay anywhere from $5,000 to more than $25,000 for a high-quality safe. Second, weight is the No. 1 factor in determining a safe's ability to protect from theft. If the safe is being installed on a ground floor, the suggested minimum weight is 1,000 lbs. Third, there is no substitute for high quality materials. We advise our clients to consider nothing less than a 1/2-inch solid steel door with 1/4-inch walls. Fourth, look for a safe that has a UL rating for strength of at lease TL-15 or comparable, which means that a team of engineers working for 15 minutes using common hand tools could not crack it. Finally, install the safe in a spot that is out-of-sight as well as convenient. A master bedroom closet is often the first spot burglars look.

2. Careful and Timely Maintenance

Everyone is human; pieces may be unintentionally worn to the beach or loose claps may go without repair for one day too long. Avoid loss by having a professional inspect pieces, especially higher-valued ones, regularly and at first sign of damage.

3. Background Checks

We recommend that our clients conduct background checks on all domestic employees. All too frequently, thieves know exactly which entrances are not monitored by camera or where a spare key is stored.

4. Security While Traveling

For clients who travel with high-value jewelry, we advise them to hold the hotel room safe to the same standards as they hold their home safe. If they have doubts as to its security, they should ask hotel management to hold them in the hotel's master safe.

5. Proper Insurance Coverage

Some consumers may not realize that their Homeowners' policy does not offer enough protection for high-value items. Mass marketed insurers typically offer only $1,500 of protection and most insurers that cater to the high-net-worth cap coverage at $5,000.

In addition, an outdated jewelry appraisal could mean that you are underinsured, so even the 150% of value coverage offered by many insurers could be insufficient. Insurers typically increase coverage by 5% each year to account for jewelry value inflation, but this may not account for the market's actual movement. Appraisals should be updated every 3 to 5 years, at minimum.

********

~ Uncle 'D'

5 Reasons You Need Car Insurance

It's a fact: When you start driving, you also need to be insured. Most likely, you'll purchase your own car insurance policy when you get your own vehicle or become financially independent. Here are five reasons you need car insurance.

To Comply With State Laws

Car insurance is legally required in most states. At a minimum, drivers must purchase liability coverage with state-mandated bodily injury and property damage limits. If you cause an accident that injures someone or damages their property, liability coverage may help pay for the other person's losses.

Learn more:

• VIDEO: What Is Liability Insurance?
• What is Bodily Injury Liability Insurance, and What Does it Typically Cover?
• What Does Property Damage Liability Insurance Typically Cover?

To Satisfy Loan or Lease Requirements

If you're financing or leasing your vehicle, your lender may require you to purchase collision and comprehensive coverage. Since the lender or leasing agent is the lienholder of your vehicle while you're making payments, these two coverages may help protect their investment. Comprehensive or collision coverage may help pay to repair or replace the vehicle if it's damaged in a covered loss.
Learn more:

• VIDEO: What Is Collision Insurance?
• What Is Comprehensive Auto Insurance?

To Help Protect Your Finances

If you cause a car accident, you may be held responsible for costs associated with it. These may include legal fees, the injured person's medical expenses or their lost income compensation. Liability coverage may help pay for these costs. Without liability coverage (or adequate liability limits), you would likely have to pay these costs out of your own pocket.
Learn more:

• Are You Underinsured? Make Sure You Have Adequate Coverage

To Help Protect Your Passengers

Medical payments coverage and personal injury protection may help pay for your medical bills if you're injured in an accident. And it also may help cover your passengers' expenses due to the accident. Coverage may help pay for hospital visits, doctor bills and surgery.
Learn more:

• VIDEO: Understanding Medical Payments Coverage and Personal Injury Protection

To Help Protect Yourself

Even though liability coverage is a legal requirement, many people drive without it. Uninsured motorist coverage may help pay for your medical bills if you're hit by a driver without insurance. This coverage is required in some states and optional in others.
Learn more:

• What Is Uninsured Motorist Coverage?

Having the proper car insurance coverage in place can go beyond fulfilling a legal requirement. A car insurance policy may help protect your vehicle, your wallet and even offer peace of mind. Talk to a local agent, who can help you choose the coverage that's right for your needs.

********

3 Key Things You Must Consider When Closing Branches

It seems like every week you hear about another agency’s plans to close a branch office. Some analysts predict (though I don’t agree) that half of all branches open today will close in the next few decades as online and mobile insurance services fully takes hold with consumers and small businesses.

Due to today’s very low commission rate environment, margins have been squeezed for several years.  Agencies have felt unrelenting pressure to cut expenses. And branch closures represent a natural target because customers have migrated many of their transactions to the newer, more flexible e-channels rolled out over the last ten years.

During my 30-plus year career I was fortunate to work in an environment that allowed us to develop and test some creative analytics. In the past dozen years or so I’ve had the opportunity to use those learnings to close several branches successfully. Branch closures can only work if the agency can do three things:

1)            Get some immediate expense savings

2)            Retain the vast majority of impacted customers

3)            Retain the vast majority of future sales from the closed branch

The first item deals with timing of the closure. Agencies must have a longer term plan for their branch and local market; those one-time hits can completely offset any immediate expense savings. A long-term plan also guides basic items such as the repair and maintenance of some expensive infrastructure. Would you want to invest $75,000 in a new heating and air conditioning system for a branch you’re going to close in two years?

The second item is driven by two key metrics: How much do customers depend on the closing branch? And: Do you have adequate capacity to handle their needs at nearby branches?

In my research, dependency represents one of the key predictors of customer attrition in closures. It’s a behavior largely driven by the state of your local branch and market. The stronger your agency brand is, the more likely that your customers will depend less on any one site.

But you need to be careful. I’ve found many situations where the majority of customers using the closing site also seek insurance services at multiple sites – but a small group exclusively chose only the closing site. So be warned. If a retirement center offers local bus service for retiree shopping and insurance needs, and is located near your closing site, you have exclusive users you could lose in a heartbeat.

A related consideration involves the need for adequate servicing capacity in the local market after you close the branch. If you shutter a busy “transaction” branch and lack the adequate capacity at nearby “receivers,” you’ll create a poor customer experience for both the displaced customers and those already using the receiving branch. Left unresolved, these situations will drive incremental attrition, lower customer satisfaction and hurt future sales volumes.

If the receiver can’t accommodate the increased volume and has no room for additional capacity, you may need to conduct a new site search near the closed site to handle the volumes. In my experience, finding a new site can take six months, followed by another six to 12 months to deploy if in involves construction and permitting. So you must plan ahead. It doesn’t take much customer attrition to offset the expense savings.

The third item builds on the second. If you have successfully retained 90-plus percent of the impacted customers, you also have a good shot at retaining 90-plus percent of future sales from the now-closed branch. Do you leave behind access to a convenient branch location? The vast majority of sales still happen in the branch today. If you abandon a market by closing its only branch and don’t leave behind some reasonable alternative, you retain the customers but lose a significant amount of future sales volumes. Over time, those reduced sales levels will fail to offset normal attrition – and your expense savings will evaporate. Retaining the sales generated by the closed branch is crucial to sustaining long-term, lasting savings.

So to sum up the three key questions and answers:

1)            Can I retain the customers? Only if those customers were already comfortable using multiple agency sites and you’ve left behind adequate options, with ample capacity, to absorb the additional traffic.

2)            Can I retain the future sales of the closed branch? Only if you first retain the customers, then provide convenient branch access at a nearby location.

3)            Can I sustain the expense savings? Only if you retain the customers and future sales, while timing the closing to minimize any major write-offs.

The bottom line is that successfully closing a branch means you’ve captured the expense savings and protected them long-term by keeping the customer base. And to be sure, the smartest agencies know all about savings and serving customers.

********

Doug Myrick

The Seven Deadly Sins of Beneficiary Designations - #3

Deadly Sin #3: Not structuring life insurance properly will create a taxable gift

When it comes to life insurance, there are three people every client should consider when structuring and signing a life insurance application with your financial advisor. The policy owner, the insured, and the beneficiary. The last thing you want to do is create a taxable gift to your beneficiaries, as you will see with Judy and Larry.

Larry was a VP, who contributed the maximum amount of $18,000 to his 401 (K). His advisor suggested that Larry should only contribute what his employer would match to his 401 (K), 5%. With the remaining after tax dollars, his advisor recommended Larry to invest in life insurance as additional investment for retirement. This gave Larry the option to take tax free withdrawals, along with continued tax deferrals and the flexibility to take early pension prior to 59 1/2. Larry followed through with suggestions and signed the application.

Two years into the policy, Larry realized there were tax consequences with the way he structured his original policy. Normally, life insurance proceeds are tax free, however this was not the case for Larry and Judy. When Larry opened his life insurance policy, he had his wife Judy own the life insurance policy because she handled all of the bills. Larry wanted to leave his life insurance policy to his daughter Karen (from his previous marriage), who he had listed as the primary beneficiary. Little did he know this would create a taxable gift liability for his wife Judy if Larry were to pass away.

In most situations, this can be avoided by having the husband own the life insurance policy and remain as the insured. This can become more complex if you reside in a community property state. Please consult with your financial advisor to conduct a policy review to make sure your life insurance is structured properly

The Seven Deadly Sins of Beneficiary Designations - #2

Deadly Sin #2: Naming Your Revocable Trust / Estate Beneficiary­­­ for Roth IRAs & Traditional IRAs

Carefully consider your options when naming your primary beneficiary as either a revocable trust or estate for your Roth IRAs & Traditional IRAs retirement accounts.

Take Lorraine for example. Lorraine grew up during the Great Depression and was a thrifty saver. She would contribute the maximum percentage allowed to her employer’s retirement plan and would match each year what percentage her employer would match into her 401 (k) retirement account. On top of this, her husband Rick opened and contributed another $400 dollars a month, before tax dollars, to his traditional IRA as a supplement to their retirement.

Rick passed away at the age of 75, and Lorraine obtained control of his assets as his spouse. Here’s the kicker: Lorraine, now widowed, decided to name her primary beneficiary as her revocable trust. After accumulating over $1,000,000 in retirement assets between both Lorraine and Rick’s Traditional IRAs, she did not realize the tax implications that would occur from listing the revocable trust as the primary beneficiary.

Consequently, Lorraine’s daughters are required to withdraw the assets within 5 years. This resulted in a higher federal tax (between 30-40%) and state income tax bracket (up to 15%) and the inability to continue tax deferrals for Lorraine’s heirs. This mistake will cost her daughters a lofty tax bill close to $400,000 over a five-year period. At the time, Lorraine thought naming her revocable trust as the beneficiary would ultimately save her two daughters going through probate and the expense. If she had named the two daughters as primary beneficiaries, this would have allowed each daughter to continue tax deferral by stretching the payments over their life expectancy. Consequently, this would place each daughter in a lower tax bracket, and half of their inheritance would not be subject to Uncle Sam.
                                                            ********

15 Inspirational Quotes Every Professional Should Read

Push yourself to the next step in your career with these motivational quotes.

For some reason we tend to find inspirational quotes irresistible. With life being filled with constant obstacles and difficulties, a few words of wisdom can truly resonate with us during times of uncertainty.

Whether you’re looking to start up a new business, change your career path, or just need a productivity boost, here are a few quotes to help you along the journey:

The Seven Deadly Sins of Beneficiary Designations - #1

Deadly Sin #1: Not Updating Your Beneficiary Forms

The beneficiary designation form takes precedence over the will, trust, or any other legal document. If you do not pay attention to detail and update your beneficiary forms after life events such as marriage, death of a loved one or even divorce, you may be in for a rude awakening.

To illustrate, a Brooklyn man was left without a dime even though his wife’s pension was valued at almost a million dollars. Bruce Friedman, 61 and his wife Anne were married for almost 20 years, when Anne passed suddenly from a heart attack. Bruce had no doubt her school pension would go to him, since on the teacher’s monthly pension statement it indicated no named beneficiary.

Because he was Anne’s closest beneficiary he knew he would receive those funds. But, the state found a form filled out 27 years prior indicating the named beneficiaries were Anne’s mother, uncle, and sister. Her mother and uncle were dead, so the funds went to her sister, Anne McLaughlin. Even though Bruce appealed the ruling, a Manhattan Supreme Court stated “that Anne’s intention of making her husband the beneficiary could not be assumed and that the paperwork on file was clear” (Haberman).

Bruce Friedman will not get a dime of his wife’s retirement. Make sure you update your beneficiary forms, or your money may not go to the proper person.
                                                                ********

Personal Injury Protection (PIP) for Auto Insurance

Florida is one of ten states that have personal injury protection (no fault) auto insurance. The intention was to provide injured drivers up to $10,000 in immediate medical coverage in lieu of establishing fault through the court system. The goal was to reduce payment delay for injured drivers, as well as limit the utilization of the court system. In Florida, PIP coverage is required to be purchased by all owners of motor vehicles registered in this state. PIP coverage makes the individual responsible for their own injuries in an accident regardless of fault.

In recent years, the number of drivers and auto accidents has remained relatively constant, but the amount of PIP claims, and PIP payments has skyrocketed. The National Insurance Crime Bureau lists Florida as having several cities reporting the highest amount of “questionable claims” nationally. While PIP premium represents roughly two percent of Florida’s collected insurance premium, this issue accounts for nearly 50 percent of fraud referrals.

In 2012, the State of Florida passed HB 119 – Personal Injury Protection (PIP) for Auto Insurance Fraud to address this issue by reducing PIP fraud, and passing these savings to consumers,

********