When A Relative Dies…A checklist: What To Do

When a loved one dies, the details that need to be taken care of by survivors may be particularly overwhelming during such an emotional time. This checklist is intended to help survivors handle the situations that need tending to, both at the time of death and afterward, as efficiently as possible.

Immediately…

There are tasks that family members will need to take care of very soon after the relative’s death.

◊ Arrange for a funeral or memorial service

• Find out what the decedent’s wishes were regarding their funeral or memorial service.

• Contact a funeral home or memorial society.

• Tell friends and family what the plans are. Ask them to help you contact people.

• Determine if all or part of the decedent’s funeral costs have been prepaid. (You can refer to agreement documents the deceased may have kept or ask at the funeral home. Also check with the cemetery to see if the deceased had a prepaid plot and/or burial insurance.)

• Veterans, service members, and their dependents can be buried in a national cemetery for free. If buried elsewhere, veterans who at the time of death were entitled to receive VA disability payments can receive an allowance toward burial and funeral expenses. This allowance may be greater if the death was related to military service or if it occurred in a Veterans Affairs (VA) hospital. Other benefits may include a ceremonial American flag, a headstone, and Presidential memorial certificate.

• Submit an obituary to the decedent’s local paper(s). Make sure you include a charitable organization for donations if that is preferred over flowers.

• Keep track of all donations, flowers, and cards received. Purchase sympathy acknowledgement cards, or use those sometimes supplied by the funeral home, and send to the list.

◊ Secure the decedent’s tangible property, such as silverware, dishes, furniture, or artwork.

Later on, you and the executor will need to have these items appraised and distributed according to the decedent’s wishes. This may be a difficult task if the property has already been distributed to various family members. The executor is responsible for filing an inventory and appraisal of the decedent’s assets with the probate court within 90 days following the death.

After The Funeral

There are several financial matters that need to be taken care of when a relative dies. However, you do not need to take these steps immediately. You and your family will need time to grieve. Most financial consultants recommend that you do not make any changes or long-term decisions about finances for at least six months to a year after your loved one’s death. But when you are ready to tackle the administrative details, there are some steps you’ll need to take.

◊ Notify the decedent’s attorney about the death.

◊ File the will and petition at the probate court in order to be appointed executor or personal representative.

◊ Contact witnesses to the wills and the executor of the estate, if someone else has been appointed to that role.

◊ Organize a meeting to review the will and handle the estate settlement.

If interested parties are unable to attend, they can obtain copies of the will.

◊ Ask the executor to determine the contents of the decedent’s safe deposit box and acquire permission to remove the contents.

◊ Meet with the attorney (or your own attorney) to review the steps necessary to administer the decedent’s estate (the probate process).

Bring as much information as possible about finances, taxes, and debts. Don’t worry about putting the papers in order first; the lawyer will have experience in organizing
and understanding complex financial statements.

Documents you should bring include:

• the will — The attorney of the deceased should be able to provide you with the will. Also check the decedent’s safe deposit box. (The safe deposit box, however, is not a good place to keep a will. The bank may seal the box upon notification of the box holder’s death.)
• copies of the death certificate — You can get these from the funeral director, and it’s a good idea to get at least 10 to 20 copies.
• a copy of the decedent’s birth certificate (and your marriage license if the deceased is your spouse)
• financial statements, including those from banks, brokerage houses, and insurance agencies
• other financial documents, including tax forms from prior years, unpaid credit and utility bills, and mortgage payments
• the decedent’s Social Security number and Veterans Affairs identification number, if applicable

◊ Find a financial institution (i.e., a bank or credit union) in your area who can provide you with signature guarantees for certain documents if necessary.

◊ Notify the decedent’s creditors. Close any credit card accounts.

◊ Bills and bequests should be paid from a single checking account, either one you establish or one set up by your attorney, so that you can keep track of all expenditures.

However, don’t pay off the decedent’s debts from your own funds. The estate is responsible for any debts of the decedent. Paying off the debts only increases the net value of the estate, which may mean you’d then have to pay higher inheritance taxes.

◊ Distribute property to heirs and legatees.

Generally, executors do not pay out all of the estate assets until the period runs out for creditors to make claims, which can be as long as a year after the date of death. But once the executor understands the estate and the likely claims, he or she can distribute most of the assets, retaining a reserve for unanticipated claims and the costs of closing out the estate.

◊ The executor must file an account with the probate court listing any income to the estate since the date of death and all expenses and estate distributions.

Once the court approves this fi nal account, the executor can distribute whatever is left in the closing reserve and finish his or her work.

◊ Make sure any homeowner’s or auto insurance policies offer coverage during the probate process.

◊ Restructure any homeowner, casualty, and life insurance policies, as necessary.

◊ Change the registration of investment securities by contacting the decedent’s investment professional or the brokerage firm. Also make sure that if the deceased placed any orders, they are immediately suspended.

◊ Change the title on any property (including real estate and automobiles) owned by the deceased.

◊ Contact fi nancial institutions to determine what information they need and in what format to change registration on any accounts the decedent may have had. If you have any joint bank accounts with the deceased, have the latter’s name removed.

◊ Review your own estate plan, including insurance policies, legal documents, investment plans, etc., and revise as necessary.

◊ File a federal estate tax return within nine months after the death if the estate exceeds $2.0 million in 2005.

(The Applicable Credit will be $2 million for 2006 – 2008, $3.5 million in 2009, and then will be fully phased out in 2010. After 2010, these provisions return to 2001 levels unless new legislation is passed. This presents challenges. It is essential to seek advice by consulting with an experienced estate planning professional.)

◊ Contact the employee benefi ts department of the decedent’s employer.

Ask for a list of death benefits and how they are paid. You will need to provide several certified copies of the death certificate as well as other documentation requested.

◊ Determine how to arrange for any income you may be getting from the decedent’s retirement plan benefits, union survivor benefits, Social Security, Veterans’ benefits, and life insurance policies.

Social Security Benefits

You will need to go to your local Social Security offi ce in person. Bring the decedent’s Social Security number, death certifi cate (a certifi ed copy), and proof of relationship (such as a marriage license and your spouse’s birth certifi cate). You should receive your benefi ts after the 60-day processing period. A spouse or any minor children who were living with the deceased at the time of death receive a one-time Social Security payment. A widow or widower can also receive monthly benefi ts at age 65 or at any age if he or she is caring for an eligible minor (under age 16 or disabled). Minor children (under age 18, or 19 if they are still attending school) receive monthly Social Security benefi ts. If you are divorced from the deceased after a marriage of at least ten years, you may be eligible for Social Security payments. Call the Social Security Administration at 1-800-772-1213 Monday – Friday from 7 a.m. to 7 p.m. Eastern time for more information on benefi ts for which you may be eligible.

Veterans’ benefits

Call the Offi ce of Veterans Affairs at 1-800-827-1000 to find the offi ce nearest you. You should go to the offi ce in person and bring the decedent’s birth certificate, Social Security number, death certificate, and Veterans Affairs records. Benefi ts to a spouse and heirs may include pension payments and fi nancial aid for education costs.

Insurance benefits

There are several types of policies. You should review the decedent’s policy carefully to determine the benefi ts you should receive. Policies specify that the payments are made either one time only, monthly for a fi xed period, or monthly for life. Some policies have different payment stipulations in the event of suicide or accidental death. Contact the insurance company or agent to obtain the death claim forms you will need to complete and submit. With the forms, you’ll need to include a certifi ed copy of the death certifi cate and copy of the insurance policy.

Retirement plan and pension benefits

Call the employee benefi ts department of the company that sponsors the plan. Some plans offer payment to a spouse and children over a set period. Other plans might have required the deceased to designate a benefi ciary who would receive a lump-sum payment or make the payment simply to the estate.

DOWN THE ROAD…

The probate process can be lengthy, sometimes stretching two to three years or longer. In some instances, however, probate may be avoided completely, such as when an estate consists of trust assets. The executor should be able to anticipate how long settlement of the estate will take. There is no quick fi x for the overwhelming grief and stress undoubtedly experienced after the death of a loved one. Survivors should consider putting off making any extraordinary changes in their lives, such as moving right away, reinvesting assets, selling the family home, remarrying, etc. Making rash decisions now could mean having great regrets later. Instead, it’s best to take time to grieve and heal from one of life’s inevitable, but most traumatic, experiences.

When Divorce Happens

Divorce can impact your life immensely. No one can ever be fully prepared to deal with the feelings of grief, anger, and sadness that follow — and few are prepared to face life alone once again. If you have children, the situation gets even more complicated and you must consider their prospect of being brought up in a single-parent household. The realization of being single again can be emotionally draining. The last thing you want to do is think about your finances, but it’s an important issue that you can’t afford to overlook. Money often becomes a point of contention in the battle between you and your spouse, and your own personal financial situation can be thrown into disarray. We have provided information that can help you with concerns you may face after your divorce.

Managing A Divorce

More than a million times each year in this country, couples call it quits. The price can be high. Emotionally, divorce turns lives topsy turvy, as the lives of everyone involved — wife, husband, children, other family members, even friends — can change dramatically. Even in the most amicable break-up, it is not uncommon for the wounds to take years to heal. On top of the emotional distress that can accompany the end of a marriage, finances are often thrown into disarray. If you have just gone through a divorce, there are some important issues you need to address. Unfortunately, it is not uncommon for at least one exspouse
to delay or ignore taking action…either because of the emotional pain involved or a desire to retain some tie with his or her ex spouse. To protect yourself and begin building financial security for the future, you should do the following:

• Revise your Will. Relationships and responsibilities have changed. Your Will usually determines how your estate is to be distributed at your death. Review it immediately to make sure it reflects your new situation and objectives so that, in the event of your death,
your assets can go to the people you designate. Talk to your attorney about your options.

• Sever all unnecessary financial ties with your ex-spouse. Your divorce decree may mandate child support, alimony, or life insurance on one of your lives for the benefit of the other or for your children. Other than these requirements, it is generally a good idea to disentangle yourself financially to reduce your liability. Start by contacting lenders and making sure all joint credit cards have been canceled and new ones have been issued in your name only. Otherwise, in many states, your liability for your ex-spouse’s bills will continue.

• Update your retirement plan beneficiary designations. As with life insurance, survivor benefits will be paid to the person you named in your qualified and nonqualified plans. Even if you obtain title to the funds as part of the divorce, this does not automatically change the beneficiary. Since the beneficiary is almost always a spouse, review your named plan beneficiary to make sure it reflects the changes in your life. Talk to your investment
professional for help or contact retirement plan administrators directly.

• Review your overall retirement situation. Divorce can scramble your retirement nest egg, separating you from assets that may have taken years to accumulate. You may want to start “powersaving,” or accelerating the amount of income you put aside, if you hope to retire on schedule. If you are not already doing so, this may also be a good time to start making maximum contributions to your employer sponsored 401(k) plan and your own IRA. You may want to consider supplementing these with annuities.

• Review your life insurance, especially ownership (if not addressed as part of the divorce) and beneficiary designations on your existing coverage. Beneficiaries cannot be changed by
your Will, so you should complete a change-of-beneficiary form with the insurance company. It is common for people to neglect this task; then, decades later, the “wrong” spouse receives life insurance proceeds at the insured’s death. That’s why it’s better
Divorce can impact your life immensely. No one can ever be fully prepared to deal with the feelings of grief, anger, and sadness that follow — and few are prepared to face life alone once again. If you have children, the situation gets even more complicated and you must consider their prospect of being brought up in a single-parent household. The realization of being single again can be emotionally draining. The last thing you want to do is think about your finances, but it’s an important issue that you can’t afford to overlook. Money often becomes a point of contention in the battle between you and your spouse, and your own personal financial situation can be thrown into disarray. We have provided information
that can help you with concerns you may face after your divorce to address the issue now. Divorce creates new relationships and new responsibilities, as well as uncertainties for the future. Taking the above steps will help reduce some of that uncertainty, at least
in your financial life.

Finances of Divorce

Case in point: During their 18 years of marriage, Susie and Bruce had built a comfortable, stable life. Through hard work, they had achieved the American Dream: a four-bedroom home in a suburban community with safe, quality schools; a growing nest egg that included a college fund for the children; and enough discretionary cash left over to vacation several times a year.

Then they divorced. By the time the dust settled after two years of legal struggles, the house was gone, as were most other assets. Bruce lived in a busy apartment complex, with noisy neighbors and a three-by-six foot balcony; Susie, at age 40, declared bankruptcy and moved back in with her mother. Their two teenage daughters drift restlessly between Mom’s and Dad’s and the homes of friends, having abandoned earlier plans for college.

Divorce can be a financial disaster. When a couple decides to call it quits, it is almost always for personal reasons such as incompatibility or infidelity. The issues quickly shift to money, however, and the result can be a slugfest, even in so-called amicable break-ups. Everybody loses, except, perhaps, the attorneys.

It need not be that way. Few people will ever find the divorce process fun. Nonetheless, it need not turn your life into a financial wasteland. There are ways to reduce the costs.

Divorce is expensive, as many of the more than one million couples who call it quits each year will tell you. Exact figures are difficult to come by, says Lynne Diamond, president of a consulting firm called Divorce Wizards. In an exclusive interview in 1999 with newyorklife.com, Diamond said that, “by best estimates, the average cost is about $18,000 a person.”

High-conflict divorces, in which large assets are involved, can push the price through the roof, says Laura Johnson, family law consultant and author of Divorce Strategy: Tactics for a Civil Financial Divorce (Broken Heart Publishing, 1998). According to Johnson, the final price tag came to more than $200,000. Worse, the conflict can go on for years. Ms. Johnson’s book provides more information on stemming the cost of divorce.

Estate Planning For The Single Parent

The single-parent family is a fact of life today. According to 2002 figures provided by the U.S. Census Bureau, of the 72 million children under age 18 in the United States, 28% (19.8 million) live with one parent.

These single-parent households are economically unique, especially when it comes to protecting dependents from financial uncertainties. That is because, unless there is an absent parent providing support, economic security hinges on the custodial parent’s income. This creates an at-risk situation. The reason: The death of the custodial parent will almost certainly lead to the end of the existing family unit.

If you are a single parent, your premature death could have consequences for your children in several ways beyond the emotional loss of a parent. A third party could administer their inheritance if they are minors. Your assets could be put in a trust and managed by a court-appointed administrator whose fees would be taken from your estate. Other family members could become entangled in court battles over custody, guardianship, and financial control.

To protect your children, you should consider the following:

• Make sure your Will is updated. Otherwise, everything involving your estate and your children’s financial future may be decided by a probate judge.

• Select a guardian for minor children and do so with great care. Select someone who is capable and willing to take on the tremendous responsibility of raising your children if anything should happen to you. Make sure guardians understand that this is not a ceremonial honor (such as becoming a godparent), but the acceptance of a legal responsibility. Talk to your attorney about drafting a guardianship document and making it part of your Will.

• Leave written instructions regarding everything from how you want your children raised (religious preferences, college plans, etc.) to how you want assets managed and used to
benefit and protect your children. These will serve as guidelines to help those who assume the responsibility of raising your children. Put these instructions in your Will. NYLIM’s
LifeFolio personal document management system can help you prepare your loved one for an emergency situation. You can find that at www.mainstayfunds.com.

• Make sure your children’s future needs are funded. That is why it is important to maintain a strong insurance and investments program. Mutual funds, life insurance, and college savings plans can provide the funds to raise your children and help fund their
education. Do not name minor children as beneficiaries. Instead, consider using a trust, as indicated.

• Make trust arrangements. Pick a trusted advisor as trustee — so your assets are managed according to your wishes for your children’s benefits. Talk to your attorney about the details.

Recommendation: Don’t delay the need for estate planning for your peace of mind and the sake of your children.

If you would like to talk more in depth about your own situation or someone you know, please feel free to e-mail me.

2006 Tax Legislation Update

What You Need to Know About the Pension Protection Act of 2006

As you might expect from its name, the Pension Protection Act of 2006
(PPA) attempts to protect workers by imposing new regulations on
employer pension plans. It tightens minimum funding requirements and
places restrictions on employers that don’t, or can’t, comply with the
funding rules for defined benefit plans. Most of these new pension rules
won’t take effect until 2008.
However, the PPA also provides new benefits for savers, more flexible
withdrawals and rollovers, and makes permanent some savings incentives that
were previously scheduled to expire. Some of these provisions take effect
immediately. Here’s a summary of some upcoming changes.
Provisions Taking Effect in 2006

Tax-Free Direct Gifts to Charities

In 2006 and 2007 only, IRA owners 70½ and older can make tax-free
direct gifts of up to $100,000 each year from an IRA to qualifying charitable
organizations. Distributions to qualifying organizations can be used to satisfy
minimum distribution requirements. These charitable distributions are not
deductible; however, they are also not considered taxable income.
Penalty-Free Withdrawals for Reservists and Guardsmen
Premature withdrawals from certain qualified retirement plans and IRAs will
be penalty-free for reservists and members of the National Guard who are
called to active duty for at least 180 days. Distributions made while called to
active duty may be redeposited within two years after the end of the active
duty period. This provision applies to anyone ordered or called to active duty
after Sept. 11, 2001, and before Dec. 31, 2007. Affected personnel have up
to a year to request a tax refund for previous tax overpayments related to
premature withdrawals.
Saver’s Credit
The Saver’s Credit — a retirement savings income tax credit for lower-income
workers — is now available indefinitely rather than expiring after 2006. The
adjusted gross income (AGI) limit for eligibility is $50,000 for joint filers
($25,000 for singles), but beginning in 2007 it will be indexed for inflation in
$500 increments.

Penalty-Free Withdrawals for Public Safety Employees
Police officers, firefighters and emergency medical technicians
can now take penalty-free retirement plan withdrawals
as early as age 50 (down from age 55) if the employee
separates from service and he or she participates in a government
pension plan with a Deferred Retirement Option
Plan (DROP) benefit feature.

IRAs and Qualified Retirement Plans

• The law extends availability of the higher contribution limits and catch-up contributions introduced in 2001 for traditional and Roth IRAs and qualified retirement plans (see tables below) and indexes them for inflation. Without Congressional action, the higher limits and the ability to make catch-up contributions would have expired after 2010. As a result, Congress has preserved your ability to invest substantial amounts for your retirement. Keep in mind that based on these higher contribution limits plus catch-up contributions beginning at age 50, a 30-year old making the maximum IRA contributions annually could accumulate more than $1 million in his or her IRA by age 65.

• The definition of a hardship withdrawal now includes hardships suffered by the beneficiary of a 401(k). The beneficiary does not have to be a spouse or dependent. (This rule is effective when the IRS writes the regulations but no later than 180 days after PPA’s enactment.)

529 Plans
Qualified higher education withdrawals from Section 529
plans will continue to be tax-exempt. Under previous law,
qualified withdrawals after 2010 would have been taxed at
the beneficiary’s rate. Qualified withdrawals must be used
for tuition, fees, room and board, books, supplies, and
equipment required by a higher educational institution.

Provisions Taking Effect in 2007
Individual Retirement Accounts (IRAs)

• The law will make it easier for workers to save for retirement by letting taxpayers have all or part of their income tax refunds deposited directly into their IRAs.
• Rollovers from qualified retirement plans into inherited IRAs (also known as “for-benefit-of” or “FBO” IRAs) by nonspouse beneficiaries will be allowed. For example, children who are beneficiaries of a parent’s 401(k) will be able to roll the deceased parent’s retirement plan assets into an FBO IRA and stretch out distributions over the beneficiary’s life expectancy.
• Eligibility for Roth IRAs and deductibility of traditional IRA contributions are subject to limits based on a taxpayer’s modified adjusted gross income (MAGI). These MAGI limits will be indexed for inflation in $1,000 increments.

Investment Advice Rule
Qualified fiduciary advisors will be permitted to offer personal investment advice to participants in employer sponsored retirement plans. The investment
advice arrangement must provide that advisors’ pay will not vary depending on investment alternatives selected or that an unbiased computer model — certified by an independent
expert — will be used to generate recommended portfolios. The bill also directs the Department of Labor to determine the feasibility of applying computer models
to IRAs.

Defined Benefit and Defined Contribution Plans

• Defined benefit plans will be able to provide in-service withdrawals to employees who are at least age 62. Plan sponsors will also be required to periodically provide participants with benefit statements.
• All employer contributions to defined contribution plans (including nonmatching contributions) will be required to vest either 100% after three years or at a rate of 20% per year from years two through six.
• For plan years beginning on or after Jan. 1, 2007, simplified annual filing requirements will be available for retirement plans with fewer than 25 participants. One participant plans with less than $250,000 in assets will be exempt from annual filing requirements.
• Any defined contribution plan holding publicly traded employer securities will be required to permit participants to diversify out of employer stock beginning in 2007. The plan will also be obligated to offer at least three additional materially different investment alternatives. And the employer will need to provide participants with 30-days’ advance notice of their diversification right.

Provisions Taking Effect in 2008

401(k) and other Deferred Compensation Retirement Plans

• PPA clarifies how employers may automatically enroll their employees in 401(k) plans. This rule is expected to dramatically increase participation in these retirement savings vehicles.
• Direct rollovers of 401(k) plans and other qualified plans into Roth IRAs will be allowed. This change will eliminate the need to roll qualified plan assets into a traditional IRA first. Eligibility requirements (for example, MAGI cannot exceed $100,000) and tax consequences when executing a Roth conversion remain unchanged.

Defined Benefit Plans

• The minimum funding standards will be revamped by replacing the minimum funding standard accounting rule and the deficit reduction contribution (DRC) for certain plans with a single minimum funding calculation.
• Disclosure requirements will be enhanced, including new required notices to plan participants highlighting detailed information on plan funding.
• Interest rate assumptions used in calculating lump sum distributions from defined benefit plans will change. Current rules, which will remain in effect for 2006 and 2007, use 30-year Treasury rates. From 2008 through 2011, a participant’s lump sum will be determined based on a mixture of the corporate bond yield curve and the 30-year Treasury rate. Full implementation of the corporate bond yield curve will begin in 2012.
• Defined benefit plans that are less than 60% funded will not be able to pay lump sum distributions. In years in which plans are at least 60% but less than 80% funded, limited lump sum distributions will be allowed.

Conclusion

As with other far-reaching pieces of legislation, additional
guidance and further details regarding implementation
and oversight of these provisions is expected. Be sure to
consult your personal or business tax and legal advisory
team as you take advantage of these new investment
opportunities. Most important, take steps now to benefit
from the new resources, vehicles and tools available to
help build your nest egg.

SAFEGUARDING YOUR BUSINESS AND PERSONAL INCOME

Safeguarding Your Business And Personal Income – How Disability Insurance Works
Business Owners and Financial Risk

In today’s fast-paced economy, very few business owners
or professionals hesitate to protect themselves against
unforeseen but likely financial risks. That is why they
insure their valuable buildings, equipment and motor
vehicles against property damage and theft. Many business
owners also retain liability or malpractice insurance
to protect against the risk of unacceptable financial loss
arising from damages caused by them or their employees
to property or other people. Yet many business owners
fail to protect themselves from the financial effects of a
crippling injury or illness that can strike either themselves
or a key employee.

Unfortunately, the chances of a disability striking a business
owner and causing severe financial hardship are a
reality. A 1998 U.S. government study indicated that one
out of every 10 Americans between the ages of 18 and 64
cannot work due to severe disability.* For a business
owner dependent on himself or herself or a key employee
to maintain profitability and earn a living, the replacement
of personal income from outside sources is not likely.

• Social Security Administration records reflect that 50%
  of all disability claims are denied because applicants cannot
  demonstrate that their disability will last for at least
  12 months or will result in death.
• National Safety Council studies show that two-thirds of
  disabilities are not job-related and therefore are not
  covered by worker’s compensation.† Business owners are
  generally not eligible to receive worker’s compensation.
• A business owner with health insurance will find that
  such insurance only covers his or her medical expenses.
  Health insurance does not provide income to the
  business owner to pay his or her home mortgage, auto
  loan or other personal expenses for support of his or her family.

A business reliant upon the skills of an owner for its
financial success will likely suffer a noticeable decline in
revenues accompanied by fixed or increasing operating
expenses in the event of an owner disability. Unable to
work and operate the business profitably, a disabled owner
may be unable to pay employee salaries, rent, mortgage,
utilities, property taxes, casualty insurance, and installment
payments for equipment or motor vehicles. If a
severe decrease in revenues should occur, the disabled
business owner may experience a “freeze” on his credit
lines or be denied loans by a commercial lender. If the
owner’s disability is perceived as severe or irreversible:

• Key employees may leave the business to find
  other employment.
• Customers may turn elsewhere to have their needs met by competitors.
• There may be no choice but to liquidate the business to satisfy debts and prevent further financial loss.

Types of Disability Insurance Plans
There are three major types of disability insurance coverage
available to business owners. They are:
Income Replacement
This type of policy is designed to replace up to 60% of
the business owner’s or key employee’s pretax income in
the event of either a short- or long-term disability due to
injury or illness. This is income for personal and family
use. Short-term disability benefits are paid from the date
of illness or injury for a period of up to six months.
Generally, long-term disability benefits are payable for a
period beginning six months from the date of illness or
injury. If the business owner cannot return to work, longterm
disability benefits are usually payable to age 65.
Some disability insurance carriers will pay a benefit up
to age 75.
A business owner or key employee can protect his or her
personal income through an individual or group disability
insurance policy. Group disability insurance policies tend
to be more cost-effective with less stringent medical
underwriting and issue requirements than individual policies.
Group policies usually require 10 or more participants
and are designed to replace loss of personal income
with the extra advantage that particular professions or
vocations are guaranteed issuance of coverage. Group
policy applications require a complete employee census,
including name, gender, birth date, W-2 compensation,
job duties and state of residence.
Income replacement plans will pay a maximum monthly
benefit based on a percentage of an employee’s or business
owner’s pretax salary (usually 60%). In the case of a
highly compensated person, these percentage-based plans
will only insure a maximum of 60% of salary for a maximum
monthly benefit of $12,000.

Overhead Expense Protection
A business must still meet its monthly expenses even if a
disabled owner or key employee is no longer generating
revenues to meet those expenses. This type of policy pays
a stream of cash to the business every month for meeting
expenses arising from employee payroll, federal and state
taxes, rent, mortgage, utilities, office supplies, equipment,
manufacturing plant operations, or motor vehicles. With
some insurance carriers, maximum monthly benefits can
be as high as $15,000. These payments are made after
a long-term illness or injury has disabled an owner or
key employee who is critical to the financial success of
the business.
Overhead expense policies only pay temporary benefits
to a business. Benefits paid under an overhead expense
policy generally last for a maximum period of 12 to 24
months or until the key employee returns to work. If the
owner or key employee does not return to work, the business
has only 12 to 24 months to recruit, hire and train a
suitable replacement or wait until business revenues have
had a chance to recover. If a business cannot recover from
an owner’s permanent disability, it may have to be sold.
Overhead expense policies require the business to furnish
financial statements and tax returns to document monthly
expenses to determine the amount of coverage available.
Keep in mind that overhead expense payments do not
replace the business owner’s salary or other income generated
from the business. The owner would need an
income replacement disability policy to accomplish that.

Buyout
This type of insurance coverage is appropriate for a business
with more than one owner. A disability buyout policy
will make a lump sum payment to the business or any
remaining owner(s) after any owner has been disabled for
12 months or longer with no likelihood of recovery.
Disability buyout insurance is typically accompanied by a
written buy-sell agreement between the business and each
of its owners that obligates the business to redeem a disabled
owner’s interest in the business. The business or
other owner(s) will use the lump sum payment to purchase
the interest of the disabled owner. The remaining
owners will then own the business without having the
financial burden of borrowing money, liquidating business
assets, taking severe reductions in salary or making
installment payments to buy out the permanently disabled owner. Generally, disability buyout policies will have a
coverage limitation of $500,000 to $1,500,000 per person,
depending on the value of each owner’s shares, so these
policies are typically most appropriate for smaller businesses.
These types of policies require the business to
furnish extensive financial information or a formal
appraisal to determine the amount of coverage available.
For all disability plans, business owners can take advantage
of significant premium discounts if they are nonsmokers
and pay premiums on an annual basis.

Important Features of Disability Insurance Plans
When reviewing a personal or group disability insurance plan, the business owner or professional is advised to
look for the following nine key features:

1. A reasonable definition of sickness. A policy should
define illness so that the business owner(s) or the
business won’t be denied benefits when a claim is
filed. For example, disability from an illness or injury
should be considered to start when a person
becomes aware of the condition, not when the condition
originates. Similarly, benefits should be available
when the policyholder (owner) tests positive for an illness
or disease, not when symptoms begin to appear.

2. Partial disability protection. With this coverage, a
disabled business owner can collect some personal
income or overhead expense benefits even while
working part time. The policy should not require the
business owner to become totally disabled for a
period of time before collecting partial payments.
This feature is important because a business
owner who develops a degenerative disease over
many years may not otherwise qualify for any
disability payments.

3. Own-occupation clause. A business owner will
receive benefits under this clause if he or she can no
longer work in his or her chosen profession or vocation.
The alternative, any-occupation coverage,
denies benefits if you can perform any job outside
your work field, however menial. This feature is
important because a business owner is seldom so
disabled that he or she can’t qualify for some less
physically demanding employment.

4. Occupation or job duties A business owner’s occupation
or job duties are important for determining
the maximum period for which benefits will be
paid for any illness or injury. A business owner who
is engaged in potentially hazardous activities is
presumed to be at greater risk of injury and may
therefore be limited to a benefit period of two to five
years in the event he or she suffers a disability. For
example, it is more likely that a business owner who
operates or works with heavy machinery is more at
risk of being injured than a business owner who performs
management duties in a retail store.

5. Inflation rider. Benefits paid on a policy with an inflation
rider will increase with changes in the Consumer
Price Index. The inflation-adjustment rate should be
calculated on a compounded basis rather than a
simple yearly addition. The inflation rider shouldn’t
cap benefits at an arbitrary level. With an inflation
rider, benefit levels are typically adjusted upwards
only for the first five years a policy is in force or after
a claim is filed and approved.

6. Guaranteed policy renewal. With this provision, a
disability insurance carrier can’t refuse to renew the
policy if the insured person’s health becomes worse.
Many plans offer noncancelable coverage, guaranteeing
an annual level premium until a business
owner reaches age 65.
7. Additional purchase benefit. This feature lets the
business owner buy additional coverage at specific
intervals without proof of insurability. For example,
an additional purchase benefit increase lets a business
owner increase his or her coverage every five
years between the ages of 25 and 50 upon showing
proof of a 20% or greater increase in personal
income or business revenues. This is a critical feature
because a growing business or a successful professional
could end up severely underinsuring his or
her needs for personal disability, buy-sell or overhead
expense needs for coverage.

8. Flexible waiting periods. Disability insurance policies
offer waiting periods of 30, 60, 90, 180 or 360 days
until a claim is paid for illness or injury. It is more
cost-efficient to save on premiums if you opt for a
waiting period of 90 days to one year. A longer waiting
period may cut premium costs up to 40%. A
longer waiting period is comparable to a higher
deductible on your homeowner’s or auto insurance.
If you opt for a longer waiting period to save on
premiums, it is advisable to have emergency savings
to meet personal or business income needs.
9. Catastrophic disability. This policy rider or provision
lets a business owner collect an additional disability
benefit in addition to his or her base benefit. This
additional benefit could amount to several thousand
dollars each month. A catastrophic disability occurs
when the business owner suffers the loss of speech,
hearing in both ears, sight in both eyes, the use of
both hands or both feet, or one hand and one foot. In
these cases the catastrophic disability benefit will be
paid to the business owner up to age 65 or for the
first five years after disability occurs.
Well-known disability insurance carriers can offer you
detailed written samples of the various plans that they
have available to meet a business owner’s personal
income, overhead expense or buyout needs. These sample
plans will contain the contract terms and provisions
for the business owner to review and consider in helping
him or her determine whether a particular plan is suitable
and cost-effective.

Protect Yourself and Your Business Today
Cost-effective disability insurance plans can serve a wide
variety of needs to insulate the business owner against
financial catastrophe by providing him or her a guaranteed
stream of cash to meet personal income, overhead
expense or buyout needs.
Ask your financial consultant how they can help you
design and implement a personal disability, overhead
expense or buyout plan to protect your income and business
from the devastating and irreversible financial losses
arising from the serious injury or illness of an owner or key employee.

Factoids for the week of August 21st-25th

Monday, August 21, 2006
Timber’s Consistent Performance
Timber has been one of the best performing alternative investments to equities
over the past several decades. Timber has also been more consistent than
stocks. Over the past 45 years, timber has experienced only three down years,
vs. 12 for stocks, according to Yaser Anwar at SeekingAlpha.com. From 1972
through mid-2006, timber returns averaged around 14.5%, vs. 11.1% for the
S&P 500. According to an article by David Berman featured at MoneySense.ca,
one of the great advantages that timber growers have is that when market
prices are unattractive they simply harvest less trees. As trees grow,
their worth increases.

Tuesday, August 22, 2006
Total Net Assets of Variable Annuities
The total net assets held in U.S. variable annuities grew from $1.205 trillion
at the end of 2005 to $1.260 trillion at the close of Q1’06, or an increase
of 4.5%, according to the National Association for Variable Annuities. Net
assets were up 14.2% from Q1’05. The following figures indicate that net
inflows to variable annuities have grown steadily over the past three quarters:
$7.04 billion (Q1’06); $5.82 billion (Q4’05); and $4.61 billion (Q3’05).

Wednesday, August 23, 2006
Foreign Investments in U.S. Securities
Net foreign purchases of U.S. securities totaled $75.1 billion in June, slightly
above the average for the past year, but up 18% from May’s $63.6 billion,
according to the Treasury Department. The inflows of foreign capital to our
securities markets outpaced our $64.8 billion trade deficit. Foreign ownership
of Treasury bills, notes and bonds stood at $2.09 trillion in June. Japan and
China own $635.3 billion and $327.7 billion, respectively.

Thursday, August 24, 2006
2006 M&A Activity
The combination of a strong global economy and global savings glut has
boosted M&A activity in 2006, according to MSN.com. Global GDP
growth has averaged nearly 4.0% over the past five years and debt
securities worldwide total nearly $14 trillion. Year-to-date, global
mergers are running 38.9% ahead of last year’s pace, which finished
the year at $2.75 trillion, according to Thomson Financial. M&A
deal volume totaled just $1.2 trillion in 2002.

Friday, August 25, 2006
Utility Stocks
Electric utilities have historically been a sector investors can turn to in troubled
times because their earnings are dependable since the need for electricity
never goes away and the rates utilities charge are regulated. Valuation,
however, matters even when it comes to utilities. The average P-E of utility,
stocks normally runs about 70% of the P-E of the S&P 500. Currently, on a
trailing 12-month earnings basis, the average P-E of utility stocks is 14.6, vs.
15.6 for the S&P 500, according to USA TODAY. Utilities are now trading at
94% of the P-E of the S&P 500.

What Are Exchange-Traded Funds?

WHAT ARE EXCHANGE-TRADED FUNDS?
While you cannot invest directly in a market index such as the S&P 500 or the

Dow Jones Industrials, you can invest in a representative sample of the

securities that make up a market index. These investments, called exchange

traded funds, or ETFs, are passively managed portfolios designed to track the

performance of specific indexes or baskets of stocks. ETFs trade primarily on

the American Stock Exchange (AMEX) and have many of the same

characteristics of traditional investments. However, when you invest in some

ETFs you take the risks associated with investing in a narrowly focused

group of stocks.

Advantages of ETFs
For the average investor, ETFs compare favorably with more traditional investments but offer several advantages:
Easy-To-Track Portfolio Holdings.
The holdings within an ETF will be the same as or very close to the underlying index it is
tracking. ETFs disclose their holdings on a daily basis, unlike traditional open- or closed-end
mutual funds that disclose holdings on a semiannual or quarterly basis. With ETFs, you know what stocks you own and what percentage they are of your portfolio.
Low Expenses
The expenses for ETFs are generally lower than those of actively managed mutual funds
and some traditional index funds. ETFs give investors some of the lowest expense ratios in
the fund industry today.
Tax-Efficient
ETFs pass few capital gains to shareholders because of low turnover in the funds’ positions, which occurs only when a change in the underlying index is made. Unlike traditional open-end mutual funds,ETFs do not have to sell stocks to meet investor redemptions, which can result in realizing taxable gains that must then be distributed to investors.

Greater Trading Flexibility
ETFs trade on the stock exchange and can be bought and sold throughout the day. The
typical open-end mutual fund sets the price once a day based on that day’s closing net asset value (NAV), the per share value of a mutual fund. However, with ETFs, you can trade anytime during the day based on an up-to-the second price. Also, investors can use limit and stop-loss orders, buy on margin* and sell short shares of ETFs.
* Please note there are special risks associated with investing on margin. If the market value of the securities in your margin account declines, you may be required to deposit
more money or securities.

Help Meet Your Financial Objectives With ETFs
Here are some examples of how you could use ETFs to help meet your investment objectives:
Add to Core Holdings/Portfolio Completion

With their low expense ratios and tax-efficient nature, ETFs are an ideal choice for long-term, diversified equity exposure, especially in taxable accounts. Well-known, broad market index ETFs — the S&P Composite (500), Dow Jones Industrials, or the Russell 1000 — are available for investments.
Adjust Asset Allocation or Customize Portfolios
ETFs let you either build a customized portfolio or add selected exposure to an existing portfolio in an easy, cost-effective manner. You can build a diversified portfolio using various ETFs for exposure to select large-cap, mid-cap, small-cap, growth, value or foreign indexes. In addition, you can add or reduce exposure to specific sectors or industries in their portfolios by buying or selling short ETFs that focus on specific sectors, industries or investment styles.
Diversify.
With ETFs, you can gain diversified exposure to favored sectors or industries without the
company-specific risks associated with individual stocks. However, ETFs do not allow you to pick and choose the underlying stocks in the sector or index. You should be aware that when you invest in a specific sector, you may experience more volatility than when you invest in a broad-based index.

Participate in Short-Term Trading
With an active daily trading market and the ability to sell shares short, ETFs are an obvious
choice for investors who want to take advantage of short-term movements in the overall market or in specific sectors or industries. Investors who tend to move assets around on a regular basis have found ETFs attractive. Keep in mind, your investment return and principal value will fluctuate. You may receive more or less than your original investment when you sell your shares.

NINE BIG MISTAKES

What to Avoid When Saving for Retirement

When it comes to funding your retirement, you have to watch your step. What seems reasonable today may not ultimately help you reach your goals. You’ve heard the stories. Hardworking people on the road to achieving their retirement dreams become sidetracked by unforeseen developments. Unexpected medical expenses. A downturn in the stock market. A job loss. You may have experienced setbacks in your own retirement plans. Maybe you haven’t contributed as much to your retirement savings as you’d originally planned. Maybe you’ve been too aggressive with your investments in an attempt to improve your portfolio’s performance and reach your goals sooner.

Watch Out: Factors That May Throw You Off Course

Many investors fail to consider how the following may become obstacles along their road to retirement:

• Inflation

• An improperly allocated portfolio

• Taxes

• Underestimated expenses

• Unrealistic expectations

• Reliance only upon returns

• Length of retirement

• Tax-deferred asset mismanagement

• Health care expenses

To learn more about why these issues are concerns, and about the importance of addressing them before they cause you to stray from your retirement path, read on.

 

Everything changes. To learn from the past, we must first look at the common mistakes many of us make. In this report, you’ll learn about nine mistakes investors often make with their retirement

savings and receive tips for avoiding these errors.

1. Forgetting About the Effects of Inflation

Inflation can eat away at your savings and threaten your ability to maintain your lifestyle during retirement. During the next 20 to 30 years, your cost of living will likely double — or even triple.

For example, a retirement fund of $1 million generating 7% interest today may generate a $70,000 income. But in 20 years at a conservative 4% inflation rate, you’d need more than double that income — $153,379 — to maintain the same standard of living. Will your investment income keep up with the cost of living? Through a simple analysis, your financial consultant

can help you evaluate your ability to meet future needs considering your current expenses, inflation, taxes and annual savings.

2. Not Having a Properly Allocated Portfolio

Asset allocation is the combination of asset classes (such as stocks, bonds and cash) in your portfolio and their proportions to one another. Proper asset allocation can help you take advantage of return potential while balancing risk. Many investors’ retirement assets are not properly allocated based on their risk tolerance and stage in life. By not having an appropriate asset allocation, these individuals could be exposing their portfolios to undue risk or investing

too conservatively. Either way, they will likely fall short of reaching their retirement dreams.

For example, if you are in your early 30s and have many years until retirement, an asset allocation that is too conservative (e.g., investing only in bonds) may hurt your ability to accumulate enough for the future, especially after taking the effects of taxes and inflation into account. On the other hand, if you are a retiree in your late 60s, investing too aggressively (e.g., investing only in growth stocks) could keep you from meeting your income needs and expose your portfolio to more risk than necessary. When evaluating your portfolio’s asset allocation, don’t overlook the asset allocation of your taxable investments. All of your investments should

work together to help you reach your goals. Therefore, your taxable investments’ asset allocation should complement the asset allocation of your tax-deferred investments. Please remember that all investments carry some level of risk, including the potential loss of principal invested. Asset allocation does not guarantee against loss; it is a method used to help manage investment risk.

To find out whether your current investment mix is appropriate for your retirement goals, ask your financial consultant for a free Asset Allocation Analysis. This analysis will provide you with a snapshot of your current portfolio and recommend how you can reposition your assets to betterachieve your objectives or reduce your portfolio’s volatility.

Inflation’s Powerful Effects
If Prices Rise 4% Annually

 

 

3. Underestimating Taxes

Like inflation, taxes can erode your investment savings. Many people do not take full advantage of tax-deferred investment vehicles when saving for retirement. By investing in a tax-deferred investment — such as an IRA, 401(k) or annuity — your money can accumulate free from tax until you withdraw it at retirement. That means you may have more money to generate more retirement income for a longer period of time. Any withdrawal before the age of 591⁄2, however, may be subject to a 10% IRS penalty and fully taxable. The hypothetical example at right shows how much more you can save for retirement in a tax-deferred investment versus a taxable investment. It illustrates an 8% rate of return on a $3,000 investment for 40 years. If you were in the 33% tax bracket, you would see that after 40 years of investing that amount annually, tax deferral would double the account where the earnings were taxed each year. If you withdraw the money all at once at the end of the period and pay the taxes at the 33% rate, you will still

end up with about $184,869 more than you would have with a taxable account.* Only the earnings are taxable and, if taken before the age of 591⁄2, may be subject to a 10% IRS penalty.

Lower tax rates on capital gains and dividends may result in more favorable returns on taxable investments, thereby reducing the difference in performance between the accounts shown. You should consider your personal investment horizon and income tax brackets, both current and anticipated, when making an investment decision because these may further affect the results of the comparison. Fees and charges are not reflected in the illustration and would reduce the performance shown if they were. To help counteract the effects of taxes as well as inflation, you should maximize your participation in your company-sponsored retirement plan and contribute regularly to an IRA.

4. Underestimating Your Spending During Retirement

Many people make the mistake of assuming they’ll need less than 50%† of their preretirement income to sustain their retirement lifestyle. When they eventually retire, they find themselves spending at least 85% of their preretirement income — if not more. They take more vacations, make home improvements and dine out more frequently. Plus they often face unexpected

health care, long-term care and other expenses. Will you have enough money to fund your retirement lifestyle? Your financial consultant can help you estimate how much money you will need during retirement and show you strategies that could help you supplement your income.

* The amount of your withdrawal, combined with other income sources, will determine which tax bracket is applicable to your specific situation. Please consult your tax advisor. †2005 Retirement Survey, Employee Benefit Research Institute 3

$417,091

The Benefits of Tax Deferral

5. Having Unrealistic Investment Expectations

Some investors believe when the market is down they should sit on the sidelines until it rallies. If the market is up, they wait for a correction and buy at bargain rates. These tactics seldom work. When building assets for retirement, you need to stay focused on your long-term goals. Prudentinvestors stay in the market. The chart to the left shows the effect on someone who invested on

Jan. 1, 1996, and missed the best 10, 20, 30 or 40 market days of a 10-year trading period. Missing just a few of the market’s best days during that period resulted in significantly reduced returns. If you missed 30 or more of the best days, you would have actually lost money. It’s not market timing, but time in the market that can bring about long-term success. It’s important to base your long-term investment planning around realistic return expectations. Keep in mind, there will be up and down years. Successful investors, however, develop the discipline and patienceto shrug off market fluctuations.

6. Relying Solely on the Investment Returns of Your Portfolio

Some retirees vow never to touch their investment principal and plan to live off only their interest and dividend payments. However, by doing this, they can create serious income and estate tax consequences for their heirs. Your financial consultant can help you determine whether you are at risk of leaving more to the IRS than to your loved ones. He or she can prepare a complimentary estate tax projection for you that will calculate your current and projected estate tax liability and show you ways to keep more of your money in your family.

Market Timing — The Risk of Missing Major Opportunities

S&P 500 Annualized Returns 1996-2005

Source: FACTSET Data Systems, Inc. This hypothetical illustration is based on the Standard & Poor’s 500 Composite Index

with dividends reinvested over the 10-year period of 1996 through 2005. This chart is for illustrative purposes only. Past

performance is no guarantee of future results. This chart is not indicative of the performance of any specific investment.

 

 

7. Underestimating the Time You Will Spend in Retirement

Because of better nutrition, quality medical care and a growing health consciousness, life expectancies continue to increase in the United States. You may not realize it, but many Americans now live until they are 90 or 95 years old. In fact, the time you spend in retirement may equal or even exceed your working years. That means you may live 20 to 30 years without receiving a paycheck. Will your assets last until you are in your 90s, or will you outlive your nest egg? Your financial consultant can help you determine how long your retirement savings will last and help you develop a plan to make sure you continue to receive an income stream throughout retirement.

8. Mismanaging Your Tax-Deferred Assets

Some investors start taking withdrawals from their IRAs and annuities as soon as they reach 591⁄2. In fact, some people take withdrawals even earlier. However, this may not be the best approach. Remember — you could live 20 or 30 years in retirement, and taking withdrawals earlier than necessary may cause your nest egg to deplete faster. Consider withdrawing funds from taxable investments first. This will give your tax-deferred vehicles more time to work for you.

Americans Are Living Longer

Life Expectancy (Years)

Source: CDC National Vital Statistics Reports “United States Life Tables, 2002”

9. Failing to Plan for Unexpected Health Care Expenses

One of the greatest risks to your retirement nest egg is long-term care expenses. People age 65 face at least a 40% lifetime risk of entering a nursing home sometime during their lifetime.* Today the average annual cost of a nursing home stay is more than $64,000.† If you require nursing home care in 20 years, it could potentially cost you more than $170,000 each year, assuming a 5% annual increase in costs. Keep in mind, government assistance for these expenses is very limited, and few people qualify for it. Without proper planning, you could see long-term care expenses wipe out your life savings, leaving you no money to live on and nothing to leave behind for your loved ones. Your financial consultant can introduce you to insurance strategies that could help you safeguard your retirement assets and preserve your wealth for your heirs.

*America’s Health Insurance Plans “Guide to Long-Term Care Insurance,” 2003, 2004†“The MetLife Market Survey of Nursing Home & Home Care Costs,” September 2005.

 

 

 

 

This is my first blog entry.  Some of you will have to be patient with me.  I’ll pick up on the technology pretty quick.  My intention with this blog is to open up discussions about saving and investing.  I am a licensed, practicing, financial advisor.  By holding a license, I am forbidden to give advice to someone without knowing them. I also must by, SEC and NASD rules, hold a license in the state in which you reside.   For this reason,  I will stay anonymous.  If through the blog and discussions you would like to contact me directly, I will facilitate that.