Archive for the Other Wealth Management Issues Category

To schedule or Not to Schedule? Protecting Your Valuables

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To schedule or not? Protecting your valuablesIt’s likely you know that if your wedding ring is stolen, most homeowner’s insurance policies will cover the replacement, but what you may not know is that homeowner’s policies include sub-limits of coverage for certain items and may entirely exclude other items. For example, your homeowner’s policy may limit jewelry coverage to $5,000 if stolen, and most policies do not cover mysterious disappearance, or just plain losing the item.

The best way to make sure your investment in jewelry, art, or any other valuable possession is protected is to designate a specific amount of insurance on that item. When that is done, the item is considered “scheduled” and it is protected.

Chris Ballard of the Ballard Agency in Bellevue has years of experience scheduling many types of unique, high-value items including—Chiluly Art, masterpiece paintings, Native American baskets and rugs, and varied collections including wine, coins, stamps, and even baseball cards.

Chris writes:

There are many advantages to adding special coverage for your jewelry.  One advantage is a greatly reduced or waived deductible.  Many people carry high deductibles on their homes, because they will never turn in a small claim.  However, when people lose, damage or have jewelry stolen the high deductible is far less appealing.  Scheduling an item provides greatly enhanced coverage, such as mysterious disappearance or loss of a stone from the setting.  It also presets the value, (called AGREED VALUE) so there is no debate over the amount you will receive should you need to replace something.

Another solution to avoid scheduling each item used by many insurance companies is the “Blanket Limit of Insurance” which allows you to buy a lump dollar amount for Jewelry or other items.  One way this can be used, is to “schedule” your high value pieces and buy a blanket limit of $20,000 for the remaining part of the collection.

While the additional cost of scheduling an item is not high, some companies offer a reduced rate when jewelry is kept in a vault, or if the stone has been “Gem printed” (marked with an identifiable number) to prevent stolen items from being easily sold.  Additionally, central station alarms also help with the rates on both your home and jewelry collections.

In order to schedule your jewelry, collectibles, or other expensive items, you should contact your insurance advisor.  Working with them and your advisory team, you can determine what items should be scheduled.  It should not be a cumbersome process.  If, however, you have a unique collection or item, you will be wise to work with your advisory team to have at least one other insurance specialist provide a quote because while most firms cover jewelry, not all insurance companies have experience with all types of collectibles.

Managing insurance and related risk management issues is an extremely important part of your integrated wealth management plan, which is why we advise reviewing insurance coverage at least every five years to ensure your types and levels of insurance are in line with your long-term objectives.

Talking with Mom and Dad Before it’s Necessary

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Talking with Mom and Dad Before it's NecessaryAccording to a 2006 survey of 1,000 people by Home Instead, Inc., an Omaha-based provider of in-home elderly care, as high as 42% of adults between the ages of 45 and 65 say that having ‘the talk’ with their parents is the most difficult discussion of their lives. Deciding when aging parents can no longer live on their own, and what their next step should be is often an agonizing one – for parents and for their adult children.

According to 2008 federal data, however, it is a crucial step because:

  • Approximately 70% of people over 65 are expected to need some long-term care services.
  • More than 40% of people over 65 are expected to spend at least some time in a nursing home (the average is three years).
  • And 20% of people over 65 are expected to need long-term care services for more than five years.

Putting together a planned strategy with your parents can be a great way to start the discussion. It can give Mom and Dad a way to define and explain their goals and needs. The strategic plan can define the factors that determine when it is appropriate to get in-home help or make the move to assisted living.

Timing May Be Crucial

While many seniors do fine at home, others need long-term care facilities or something as simple as a visiting home aid. Either way, it’s important to start such conversations early. The rule of thumb is “the 40-70 rule”, which means if you’re 40 or your parents are 70 then it’s time to start talking.

Concerns about dementia, of course, will put additional pressure on the situation. People with dementia are eventually unable to make decisions in their own best interests. In addition, they may begin to misinterpret what other people are trying to do for them. Seniors with dementia may become paranoid, depressed or so confused as to be incapable of taking care of themselves.

Having the talk with your parents before the danger of dementia is crucial to their safety. Plus, having a strategic plan in place takes some of the pain out of the decision-making process if that time comes.

Considering the Options

While some busy working adult children may feel pressure to push their parents into choosing the most efficient option, taking the time to discuss the options and encouraging their parents to stay independent as long as possible is nearly always the better choice. Not only is this the less costly option, it also keeps the elderly parent in familiar surroundings.

Parents may resist their offspring’s efforts to relocate them for a variety of reasons. It’s important for adult children to recognize that their parents have their own reasons for wanting to stay in their homes. Some parents worry their children and grandchildren will miss the family home. In some cases, they fear their close friends or siblings will be left alone. Spending the time to figure out what those reasons are will help everyone find the right solution, not just the most expedient one.

Not all elderly parents have to move into assisted living immediately either. In some cases, when elderly parents show signs of not taking care of themselves well, they may simply need some in-home help with cleaning the house or keeping up with the bills. When one parent dies, the other may show signs of not caring for themselves well. The surviving spouse may simply need more regular contact with friends and a social support system to stay motivated and engaged.

Life Insurance – an Investment for Life

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Life Insurance - a golden egg or waste of money?While most people understand the primary idea behind life insurance – wage earners spend a little each month on a life insurance plan so that if they die, their dependents can enjoy some degree of financial security without their income – most do not understand the whole picture. For example, do those who are financially secure need life insurance?

Most individuals will say no, but the experts say, yes!

Traditionally life insurance is an investment because of the death benefit. Unlike equities, life insurance is a (some would say heavily) well-regulated industry that guarantees eventual payout assuming the client pays the premiums – an advantage that may not have sounded important a few years ago, but is likely more appreciated by everyone studying their equity portfolios today.

Life Insurance Advantages

In general, financial advisers see life insurance as a long-term investment useful to most of their clients. Life insurance has three primary advantages over other types of investments:

  • certainty
  • liquidity
  • favorable tax treatment

Let’s go over each of these advantages in a little more depth.

The question about certainty, that is whether life insurance will pay out or not is invalid, of course. The real question is how much the policy will pay out. As you well understand, the sooner the insured dies, the better the return on investment – this is the perverse truth about life insurance, and it’s true even for the types of policies used as investments, those that are whole life insurance policies. These require the insured to pay relatively higher premiums while they are young – to offset, of course, a potential payout if it becomes necessary. With these policies, part of each premium (the monthly cost of the policy) is isolated as cash value. This cash value is eventually used to keep premium costs lower as the person grows older. These cash values grow tax-free over the life of the policy and continue to remain so unless the owner makes a withdrawal while they are alive.

Life insurance is considered liquid because the insurance company is obliged to pay the proceeds as soon as a claim is filed. It’s also considered liquid because life insurance, in general, sidesteps probate. Liquid cash always has an advantage because it can be used immediately to buy things and it’s of particular advantage for an estate. Without that liquid cash, heirs may be stuck trying to pay estate taxes and may be forced to sell substantial property or other assets in order to pay them. So, having the balance of the life insurance proceeds can often mean significant savings for the insured’s heirs.

Lawmakers see life insurance as a hedge against catastrophic loss rather than a true investment and so it has retained, over the years and over the passing administrations, significant tax advantages. Specifically, all of the cash value collected in a permanent life insurance policy grows tax free. This includes the cash value in policies that move away from the classic life insurance model and instead serve as a wrapper for equity investments. This wrapping method can be especially useful for wealthy or affluent investors who invest their money in hedge funds, because short-term trades don’t benefit from low capital-gains rates. In almost all cases, life insurance can be passed on to heirs tax free as well. With federal estate taxes slated to return in the near future, those who want to avoid that particular tax may find setting up a special life insurance trust with a trusted individual as trustee will give them additional tax benefits. With the buyer/insured no longer in direct possession of the policy, it is not included in their estate and the proceeds of the policy can be distributed free of tax.

Other Advantages of Life Insurance

Life insurance policies also help those in the position to make large donations or gifts during their lifetime. In most cases, such transfers are subject to a gift tax, but an additional advantage of a life insurance trust, is that it accumulates cash over a rather long time. That is, over the life of the insured. When properly drafted, a life insurance trust can benefit from an annual contribution up to $13,000 for each beneficiary without being subject to gift tax. Those annual contributions are allowed to grow tax free and can eventually become a fairly significant sum. With the proceeds passing on without being subjected to additional income, estate, or gift taxes, it’s an excellent method for distributing comfortable sums of cash to your heirs. Of course, the key to this method is getting started early.

When you are making large contributions to a life insurance trust later in life, the gift tax will not be too great because the amount of the gift isn’t the amount the policy will eventually pay out, but rather the amount needed to pay the premium for a particular term. Also, the gift tax can be reduced even further by implementing some complicated planning techniques. Instead of paying the gift tax yourself, for example, you might loan the money to your life insurance trust to do that for you. This is only useful when interest rates are at favorable rates because you wouldn’t normally want the trust to have to make big interest payments (and interest-free loans are strictly limited under the tax code). With interest rates currently at rock bottom, you could loan the money to your trust for very little.

If you loan the insurance trust the money to purchase the policy outright, you could avoid the gift tax altogether, but that would require a larger and potentially costly loan.

Short-term Life Insurance – useful or no?

While the benefits of long-term, or permanent, life insurance are clear, the benefits of short-term policies is more debatable as it eliminates many of the advantages held by long-term life insurance. One of the advantages of permanent life insurance is that you can still indirectly access the policy’s current value – even after you have formally given it to a trust. This is because the trustee can always borrow against the cash value of the policy and loan you that money. If you don’t pay the money back, the depleted cash value may mean insufficient funds to completely pay the premiums on the policy in later years, which ultimately reduces the payout. On the other hand, individuals setting up life insurance trusts can take comfort in knowing their money is available if they absolutely need it – a technique that is not the case for many estate-planning techniques.

Some investors ‘overfund’ their life insurance policies with more cash value that is needed. Some experts consider this a useful investment technique because it avoids income taxes, and others aren’t so sure because there are other forms of financial planning that are far less cumbersome and don’t involve the charges imposed by many insurance companies. Rarely, however is an estate plan created without a life insurance component. With estate taxes set to return to over 50% soon, affluent investors would be well served to look into life insurance for a life investment.

Selecting the Right Trustees

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Choosing the right trustee for your trustThe inherent benefit of a trust as keeping your estate out of probate after your death has made trusts more popular than ever. Many people understand that trusts are different than a standard will, and some people simply want a trust because of the implied sophistication.

There are two approaches to drafting a trust. The first is drafting as directed, which means that much thought is put into crafting the metes and bounds of the trust to circumscribe the trustee’s behavior and decision-making process. The second is trustee directed, which means selecting the person who is most likely to carry out the purpose of the trust and who will avoid mismanaging or abusing the flexibility of the trust. The second option is typically used to draft trusts for children.

As trusts become more and more popular, the need to select the right trustee or trustees becomes more important as trusts are only as successful as the trustees who manage them. Many clients understand their own business model far better than they understand a trust. Therefore, it’s important to hire competent and experienced help when you are designing a trust and designating the trustees.

Family or Friends as Trustees

When a trust is designed to manage money left to children or grandchildren, choosing a relative or a close family friend can seem the first most logical option, but stop. Consider that when small children are involved, it is important to choose someone familiar with the family environment in which the child is living to continue the child’s care. This is widely understood as the least confusing option as this person is in the best position to maintain the child’s lifestyle and familiar patterns. This trustee, however, should not be the same person who is assigned the responsibility of maintaining the trust. If this sounds contradictory, consider this: the person caring for the child or children will not be the most objective person to care for the trust as they have a built-in conflict of interest.

Selecting a family member doesn’t always mean that family member is the most capable, but they do bring knowledge of family history and circumstances to the situation. Of course, old family hurts and unsettled issues can be brought to the table as well and those may create a poisonous situation.

It’s important to remember that acting as a trustee is more of a job – it takes work – and less of an honor. If the trust consists primarily of real estate, choosing a relative or close friend who is not involved with the direct care of the child also makes sense. Those assets may require ongoing and active maintenance that would take time and energy away from the person responsible for the child’s care. This is why trustees – even those who are family members – should be fairly compensated for their efforts.

Professional Trustees

Large and complex trusts are better run by a team of professional trustees. These trustees may be an independent trust company or financial adviser, but they are always an objective professional responsible for maintaining the trust. There are a number of benefits to choosing the professional trustee route in addition to objectivity – the first of which is that professional trustees have a better range of experience and updated resources on which to call. Professional trustees are also less likely to get involved in family disputes relative to the trust.

Some of the drawbacks to professional trustees are:

  • Lack of family context. For example, if a beneficiary asks for an extra distribution and the family knows this person has a gambling problem but the professional trustee does not, the trustee may inadvertently feed the addiction. Of course, well-designed rules for distributions can ease that lack of knowledge.
  • Lack of direct contact. In some cases, professional trustees are less responsive to beneficiary requests, particularly when they are managing a number of trusts.
  • Professional trustees can be more expensive as they usually earn a percentage of the value of the assets plus fees for additional services. In some cases, the cost is worth it to get the job done properly.

To get the best of both worlds and tap into the benefits of each, grantors may choose a family member and a professional trustee to serve as co-trustees. Each co-trustee has different responsibilities with regards to the trust, and they can balance the work while taking advantage of their basis of knowledge and skills. Institutional trustees are examined by federal and state authorities and they have internal audits, so they have some built-in accountability that isn’t implemented on friends and family trustees.

Choosing the Right Trustee and Safeguarding the Trust

You may not get it right the first time. Choosing a trustee should start with careful screening. Candidates should be carefully interviewed to understand how they would handle certain matters. Their fees and resources should be examined, and all of this is true whether they are family or not.

The right trustee may not be the first you thought you’d choose. Indeed, trustee decisions are not designated once and then cannot be changed. Things change, divorces happen, and you may decide later to change the trustee or trustees. Your trust can be designed such that a trustee can be removed and a replacement option will be readily available to fill the void. This ensures that if a trustee misbehaves or is no longer considered as trust-worthy as they once were, they can be removed and their successor can quickly fall into place.

To safeguard the trust, be sure to require regular reporting as transparency is the key to ensuring mismanagement doesn’t occur. Most trusts report at least annually, but more frequent reporting can be established. Another useful safeguard is to choose bonded trustees. Therefore, if the trustee does steal you can seek restitution from the bonding company. Another safeguard can be to hire an independent trust protector to mediate family and trustee disputes.

Of course, the best protection for a trust is carefully planning from the start. A competent attorney specializing in trusts can be your best ally in designing your trust and choosing the right trustees to manage it. You can read more about selecting trustees at Financial Advisor Magazine.

Social Security: Shall I wait until 67 or 79 to claim mine?

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When should you claim Social Security?
Back in 1983 when the delayed retirement credits were raised from a mere 3% to a more comfortable 8%, the annual boost may not have seemed that significant. Treasury bills at that time were returning 9% and short-term bank CDs were paying as high as 9.5%, but in today’s world of scant yields on safe investments, an 8% increase for four years could be very hard to ignore.

Why delay?

This is an easy one and it reminds us of the old saying, “Patience is a virtue.” In this case, your patience will pay off as well. The longer you defer receiving social security benefits, the more you you’ll receive in delayed retirement credits. The current credits amount to an 8% increase each year, or a full 32% increase for those who wait four full years to start claiming social security at age 70.

Let’s do a quick comparison:

  • Senior #1 starts claiming at 66 and qualifies for the maximum benefit. This senior receives a monthly benefit of $2,346 in 2010, an annual amount of $28,152.
  • Senior #2 waits to start claiming at 70 and also qualifies for the maximum benefit. This senior will receive $3,096.75 each month or an annual benefit of $37,161.

Senior #2 enjoys approximately $9,000 more in benefits each year for the rest of his or her life. That’s a lot of money when we consider that life expectancies are rising steadily.

What’s the break even point?

If clients are unwilling to wait until age 70 for their benefits, we recommend reviewing the numbers to find your break even point. Our Senior #2 gave up $28,152 per year for four years, which means he or she starts out $112,608 behind. Calculating the 8%, it will take over 12 years to make up that shortfall, so our senior will have to live past the age of 78 in order to make the deferral worthwhile. Figuring the break even point requires understanding other factors that affect the calculation, such as marital status, investment growth rates, current inflation and personal tax rates.

  • A married senior may or may not live to 90-plus, but there is a much greater chance that their younger spouse will. A surviving spouse will often receive the benefits of the first spouse to die, so delaying the start of benefits will commonly increase the surviving spouse’s income.
  • Your investment growth rate will affect your break even point as well. The more money you could earn on early cash flow, the longer it takes for a late starter to catch up. Today, of course, short-term deposits yield virtually nothing and clients who delay their benefits may need to tap into money market funds or bank accounts for their spending.
  • When the relevant price index goes up – also known as inflation – your benefits move up as well. If you receive an 8% delayed retirement credit while waiting a year to receive benefits, and there is a 3% cost-of-living adjustment, then your benefit will actually rise a full 11% instead.
  • Personal tax rates are, of course, one of the magnifiers that point to delaying the claim of Social Security benefits as wise. Under current tax codes, delaying has tax advantages.

When should you defer?

If you put these concepts together, deferring the receipt of Social Security is a better choice if investment returns are low and inflation is relatively high. If tax rates rise in the future and the current laws remain, enlarged benefit checks will provide a more valuable tax shelter. Obviously, the time when deferring will be most important is when a senior lives beyond common life expectancy. A 96-year-old senior will appreciate receiving a $37,000 COLA annual benefit rather than a mere $28,000.

The bottom line is that the decision about whether and how long to defer your benefits goes beyond simple analysis you can do on your own. Some of the greatest risks to your retirement assets are longevity, poor investment performance (which is common these days), and inflation. Depending on what happens with the tax discussions going on in Congress currently, there may be higher taxes.

When do you want to be an early bird?

In some cases, seniors may find that being the early bird is best for their situation. For example, if a senior is in poor health and unmarried, it might be best to begin benefits as soon as possible. In some cases, clients choose to have their benefits start immediately in order to keep from depleting their other retirement savings, such as IRAs. This keeps their money in a tax-favorable account over a longer term. Many clients, especially the married couples, will find that the longer they live the better the deal.

As always, it’s entirely dependent upon your personal situation and we make our recommendations on a case-by-case basis to ensure that you have the information you need to make your decision. After all an 8% increase may be attractive, but it’s not a rule of thumb that applies to everyone.

Funding College – should you go private or federal?

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Funding college - should you go private or federal?An unlikely change resulting from the recent Health Care and Education Reconciliation Act of 2010 relates to the federal student loan program. Beginning the first of July, 2010, all student loan lending through the Federal Family Education Loan Program (FFELP) will originate from the federal government’s Direct Loan program. This means that private banks will no longer be able to make government-backed loans to students and their families. The intent is to streamline the process, which was often confusing and sometimes misused by dishonest lenders.

What difference will the changes make?

The process of applying for college loans is now simplified into a single system. You won’t have to shop around to find a lender offering the most competitive rates and loan rate terms. Remember the 2007 student loan scandals, which revealed that lenders were providing university kickbacks to be on a ‘preferred lender’ list handed out to students and parents? Well, those are long gone.

It’s important to remember too that private educational loans also often came with variable interest rates, no caps, high origination fees, and less flexible repayment terms – all features the Stafford loans were designed to eliminate.

So what’s the College Loan Process now?

The process won’t change – students and parents will fill out the Free Application for Federal Student Aid (FAFSA) to apply for Stafford loans, which are unsubsidized loans made directly with the federal government. Interest rates are fixed at 6.8% (the same as in 2009-2010) and no credit check is required.

Stafford loans have limits:

  • freshman can borrow no more than $5,500

  • sophomores can borrow no more than $6,500

  • upper-class undergrads can borrow no more than $7,400

  • the lifetime cap remains at $31,000

When your student reaches these limits, parents can apply for a Parent PLUS loan, which is also available through the FFELP (the federal government). The rules on PLUS loans are slightly different, however. Parents are required to pass a credit check and sign a promissory note. The interest rates on PLUS loans is now fixed at 7.9% (reduced from the previous 8.5%), which is great for parents.

How does Repayment work now?

The new health bill also contains some provisions for future repayment of college loans that will help low-income borrowers. Borrowers taking out student loans on or after July 1, 2014 can choose a repayment plan that is income-based, with an accelerated duration of 20 years instead of 25.

2010 Graduate – current repayment rules
$40,000 in student loans
standard 10-year repayment schedule
6.8% interest rate
= Graduate pays $460/month

Post 2014 Graduate – new repayment rules
$40,000 in student loans
standard 10-year repayment schedule
6.8% interest rate
married with a child
earning less than $27,000 (150% of poverty level)
= Graduate pays $160 per month and any unpaid balance is forgiven after 25 years.

Note! These changes do not affect current borrowers.

Should You go with a Private Loan?

It depends. First, many parents expect their children to assume some of the debt related to their higher education and, in that case, your student should fill out the FAFSA which will entitle them to Stafford Loans and their relatively easy terms.

After that, if you want to borrow in your own name, you should generally consider the PLUS loans because of the relatively low interest rate (7.9%). If you prefer to borrow educational funds for your children from a bank where you have a personal relationship, you may be able to get a better interest rate than those offered by the PLUS loan program.

A word of caution, however: many private student loans have typically held variable interest rates in the past. While some private lenders are returning to the incentives they abandoned during the credit crisis, it’s important to understand the terms before you sign the loan agreement.

Of course, it’s important to remember that saving for your child’s education comes after saving for your own retirement and security needs. Losing sleep over how to pay for college pales in comparison to losing sleep over how to pay for your own retirement.

So, the most important rule is to take care of your own needs first.

Will someone please tell me when bonds become the Next Big Thing?

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Stop watch with S&P 500 In the first ten months of 2009, investors plowed $313 billion more into bond funds than they took out … that’s a staggering shift in the investing market considering that over the same time investors also withdrew about as much money as they put into their stock funds. In a remarkably short period, a good many of the bond funds are now yielding around half what they did just a year ago.

We understand that many investors, scared by the realities of the economic market woes and fears of losing their nest eggs, are just looking for some safety. Bonds, the once dull and staid investment product, are now being heavily advertised as the safe refuge for your money. Investors have also gotten a huge push from the financial industry lately as everyone started touting diversification through bonds right after the latest crash and bonds have continued to be pitched – even as bond yields are flattening out or dropping.

We’re not opposed to bonds as a whole, they have their place in many well-considered, diversified financial portfolios. What we are concerned about is the lemming-like about face investors seem to have taken toward stocks and we believe that many investors are being lured into some pretty bleak investments simply for the sake of ensuring a risk-free portfolio.

We’re also concerned with a few facts that are not well known by many investors. The first of which is that while returns on any corporate, municipal, or Treasury bond looks better than say a bank account, it’s important to understand that many bonds these days are carrying a lot more risk. Plus, when investment professionals look at the frenzied buying on the bond market and the high demand for fixed income, it starts to look a lot like a bubble.

A bust in the bond market isn’t as obvious as a stock-market crash, but it could still have a nasty effect on investor’s nest eggs. If interest rates are to rise, for example and many analysts believe that’s likely, bond prices could suffer. Even prices on so-called ‘safe’ Treasury and municipal bonds could fall 30 percent or more if interest rates slip higher in the next few years. It’s important to understand that bonds are not the end of all investor risk – even with government funds, investors can still lose money in bonds.

Of course, if a bond’s price falls, the investor can choose to simply hold and collect the interest it pays and wait. Doing so could mean holding a bond for years, perhaps even decades. While a 4.7 percent annual interest on a current 20-year Treasury bond looks good right now when compared with a CD, it will seem ridiculous if interest rates rise and banks start to offer 7 percent CDs. Then, you could be stuck with a bond that doesn’t mature for a decade more and earning the lesser rate.

Still, the perceived safety of bonds and bond funds is a powerful draw for investors who’ve really been tossed around and shaken lately. If rushing willy-nilly into the bond market isn’t the answer, what is?

A well diversified portfolio is always the answer. Every investor’s portfolio should be unique to their age, their financial goals, their wealth status, and their current earning power, so each investor’s portfolio is as different as they are and it changes as you change. At Private Advisory Group, we want to help our clients manage their risk, and even a few of their fears, with a strong diversified portfolio that works for you.

Filed Under: Retirement, Risk Management

Facts about Your Security and Private Advisory Group

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We thought we’d take a minute to share some facts about your security and Private Advisory Group.

Our system is non transactionable.

• This makes it impossible for money to be moved in or out of the system.
• It is therefore unlike online banking, online shopping or bill pay where money can be moved.

Data is stored at SunGard Data Systems

• SunGard is a revolutionary Internet server hosting space that is the most secure environment available in the industry, offering software or processing solutions for $15 trillion in investment assets worldwide daily.
• SunGard’s world-class Hosting Centers protect and support our mission-critical servers and applications.
• Physical access at SunGard is limited to authorized personnel, and requires multiple levels of authentication, including fingerprint scanning.
• SunGard’s services include: fire protection and electronic shielding, redundant Internet access, 24 x 7 monitoring and database backups.
• SunGard helps ensure uninterrupted service and the highest levels of performance, security, and reliability.

Data is secured behind firewalls

• A firewall is a security device that creates a barrier between the Internet and computing equipment and applications.
• Firewalls block unauthorized data access. If an incoming packet of information is flagged, it is not allowed to enter the system.
• An additional layer of protection is created by also trafficking data from the application server to the database server
through the firewall.

Our password-protected system can only be accessed by valid users

• Each User has a unique User Name and Password.
• If three consecutive, incorrect login attempts are made, the system automatically locks the account for
a period of 10 minutes, rendering manual or programmatic hacking attempts ineffective.

Wealth Management System login

• If the account is accidentally locked or a password forgotten, the “forgot password” button can be selected
on the login screen and a temporary password will be sent to the registered email address.
• User IDs and passwords are never given out over the phone or sent to email addresses that are not preregistered
with the account. No one has access to an individual’s password unless they supply it.
• As added protection for financial information, the system can instruct the user’s browser to not store any financial information on the user’s computer.

Our system is Certified Hacker Safe

• Hackersafe approval means our ASP-based system is updated every 15 minutes with tests for newly
discovered vulnerabilities and validated fixes from hundreds of sources worldwide.
• Meets the highest published government standards.

Our system uses Watchfire’s AppScan Technology

• During development test situations are simulated and potential vulnerabilities identified so they can be eliminated before public release.

Designated as a VeriSign Secure Site

• All information is routed through Secure Socket Layer (SSL), which creates an encrypted connection
between the browser and the web servers.
VeriSign Secured Site

• The application cannot be accessed through an un-secure connection, the latest and most secure available.

It supports 128-bit encryption with current browser technology

• Encrypted information is simply scrambled data. Once scrambled, the data can only be read after it has been decrypted. Decryption mathematically unscrambles the information using a secure session “Key”.
• To date no one has been able to crack 128-bit encrypted data. High level encryption, at 128-bits, can calculate 288 times as many encryptions as 40 bit encryptions. That’s over a million times stronger. The same hacker with the same  tools would require a trillion years to break into this data.

The entire production network is automatically monitored and policed for intrusion attempts 24 hours a day, 7 days a week

Clock image

• All servers, including the firewalls, are protected by intrusion detection software within the network infrastructure.
• Any recorded intrusion attempts would be analyzed to determine the identity of the intruders and the extent of the
• If unauthorized server access was detected the software would sound an alarm and notify operation’s staff.
• The Secure Network Infrastructure is regularly audited and inspected to ensure that the security tools utilized are up  to date.

Our Privacy Policy is comprehensive.

Security policy document

• Detailed Privacy & Security Policy links are accessible at the bottom of every web page.
• We do not pass personal data to any third party.

A Security (and Incident) Response Team is maintained.

• The team members, from the executive staff, operations, customer service and technology and development groups each has their own responsibilities to help ensure system security.

The security of your data is top priority!

Generation Transfer

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As children grow into adults, there are many skills that are
important for them to learn. These ‘life skills’ are not often taught
in schools or through other educational avenues available to kids and
teens, so it becomes another responsibility of the parents,
grandparents, aunts and uncles to teach kids accountability, the
value of hard work, the importance of individual success. Before they
become fully independent, young adults need to learn especially how
to manage their personal finances.

The earlier the individual learns solid personal financial
practices and commits to investing, the more financially sound that
individual will be in the future. Responsible investing is the direct
result of understanding how money works and it’s vital that we take
the time to educate the younger ones we love how to handle this
correctly so that they avoid common pitfalls – probably the
same ones you and I made when we were younger!

One useful way to productively teach responsible investing and
personal money management is by creating a workbook based on the five
topics discussed below. Of course, the depth of teaching is up to you
and it should be relative to the student’s age, but these lessons are
designed to teach the basics of financial responsibility to anyone of
any age.

Lessons for Gaining Financial Responsibility

  1. Establish and keep an accurate budget. This may be
    among the biggest challenges for young adults – even for our
    nation’s population in general. Excessive spending is rampant, and
    many people feel powerless in the face of rising debt, but debt has
    a lasting and negative impact on a person’s future savings and their
    current and future lifestyle. Debt causes unnecessary stress for the
    individual and it can damage close relationships and trust. Notice I
    said to establish and keep an ‘accurate’ budget. An accurate budget
    is sometimes the hardest of all because most of use live day-to-day
    and don’t spend a lot of time really analyzing where each dollar is
    spent. Plus, for a budget to be realistic, it must include regular
    and consistent efforts toward investing. Long ago, they told people
    to ‘pay yourself first’. This meant to set aside money for you –
    that’s investing. Before your young adult starts paying any regular
    bills, they should understand that they have to make enough money to
    pay themselves first so that that money is available for the future.
    This teaches your young adult (indeed, this works at any age) to
    live off less than they actually earn, and thus, to always be
    building wealth. Help your young adult set up a monthly budget for
    everything they regularly spend money on. One technique you can use
    to help your young adult see this is to help them set up at least
    two accounts: one for spending and one for saving for later. They
    can proceed to pay for things on their budget with the account
    designated for spending and watch the account for saving grow.

  2. Get financially organized. Keeping all important
    financial documents in systematic order can be done in a variety of
    ways, so it’s important to find the one that works for your young
    adult. Help them set up and keep their financial documents in a
    filing drawer or cabinet, or in a digital filing system when they
    are young. As young adults practice this fundamental skill, it will
    help them easily locate papers they need now and in the future. When
    it comes time to do taxes, they’ll be able to easily access the
    documents they need. Staying organized is one of those good habits
    that can save a lot of time and reduce stress as they move into
  3. Consolidate debt and destroy all credit cards. Many
    credit card companies and loan agencies made their early fortunes on
    18-year-old kids fresh out of high school as they headed into
    college or their first jobs. These young adults were ignorant of how
    credit cards and loans work, and there are countless stories
    (perhaps you were a victim as well) of young adults getting access
    to plastic and running up enough debt to bury them. A proper
    education can help your young adult avoid these devastating
    financial situations. Teach your youngsters the proper meaning of
    credit cards and loans. Instruct them to be wise and prudent when
    making large (and small!) purchases. Show them how interest rates
    can either be their friend or their enemy. This education will save
    them future headaches, sleepless nights, damaged marriages, and
    more, and it will show them how to take advantage of other financial
  4. Know your credit score. Early in my own career, when I
    worked as a paralegal helping individuals try to restore their
    credit scores, I learned what an important thing your credit score
    is. I spoke with over 40,000 individual Americans who had hammered
    their credit with unwise spending habits. By the time they came to
    me, it was late and they were trying to purchase a badly needed
    vehicle to get to work or a new house for their children.
    Regrettably, with a sub-prime credit score, you can barely finance
    an apple, let alone an automobile. So, teach your kids how the
    credit score system works. For information, check out common
    websites like

  5. Protect your identity from being stolen. Identity
    theft is the fastest growing crime in the world right now and it can
    be one of the most personally devastating occurrences that a young
    adult can experience. When I was in college, one of my best friends
    had her identity stolen by unwarily stating her social security
    number. The person who heard that number was able to drain her bank
    account and leave her stranded far from home with little more than
    the clothes on her back by that afternoon! Because her identity had
    been stolen, she had to drop out of school, move in with friends,
    and work two jobs for years until she finally recovered all that
    she’d lost. By keeping her social security number to herself, she
    could have avoided this ordeal. Teach your youngsters to examine
    their financial records and shred anything that may reveal clues as
    to their identity to someone rooting through the trash. Show them
    how to safely purchase items online, and how to be wary of luring
    e-mails that fall into their in boxes. Teach them to check their
    accounts regularly for any sign of misuse or abuse and to call their
    financial institutions when anything that seems odd occurs.

Money can be a powerful resource when it’s managed responsibly but
without the proper understanding and tools, your young adult can face
serious financial disasters. Remember that better understanding and a
richer education leads to more informed decision making down the
road. Some financial stress is inevitable, but your young adult will
be able to think their way through it and make smart decisions when
they are armed with the right information.

You can find more information on managing risk at our website. If
you have a question about this blog post or want us to examine a
particular topic in the future, please let
us know

Filed Under: Retirement, Risk Management

Flip Your Family Limited Partnership?

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With the onslaught of new tax laws you may be wondering if you should dissolve your FLP (Family Limited Partnership)? In short: no. If your FLP was formed for the appropriate reasons and was managed properly by your advisor this is no time to dismantle it. As a financial planner The Private Advisory Group strives for efficiency and accuracy of appropriately managing our client’s capital better. By using an FLP we can effectively do this. The following are five commonly used myths to dissolve an FLP. Below are reason why one shouldn’t do this.

1. The cost of maintaining an FLP (bookkeeping, tax returns, legal bills) is too great,

Why Not? Actually the truth is when and FLP is administered properly, there are no costs. Lamentably in an effort to save money and cut corners clients undermine the planning objectives that were the basis for originally setting up the FLP. Any costs should be offset by the benefits that the FLP is currently giving them. For instance, if a particular family has 10 different investment accounts, would they incur more costs with the management of those 10 individual accounts than using one aggregated FLP? If there is a savings using the FLP meaning the savings will be large enough to lower management fees then it’s worth it. Although an FLP requires more management its total costs are not incremental. Finally, what are the added benefits? They include but are not limited to asset protection, control, and avoidance of probate.

2. Dissolution is simple and shouldn’t cost much: just return my shares of the assets.

Why Not? Disturbing securities from an FLP to the partners may not be tax-free if the value of those securities exceeds the adjusted tax basis in the FLP. Your client needs a CPA to figure it out. Also, many FLP’s contain a variety of assets, from interests in a family business to marketable securities. Usually, different family members want different assets. That results in disproportionate distribution and that spells tax complexity.

3. Congress is repealing the gift and estate tax on FLP’s owning passive assets like securities and real estate, so why keep them?

Why Not? It’s a true statement that the Pomeroy bill H.R. 436 would just that. But this bill has been proposed before and hasn’t passes, so perhaps the same is still true and there is a window of planning opportunity. Further, FLP’s should never have been set up only to obtain gift- and estate-tax discounts. All those other benefits are unaffected by the gift- and estate-tax change, even if it does happen.

4. While an FLP can provide some asset protection, it’s not perfect.

Why Not? Few things in this life are perfect. However, this does not exclude the fact that we use them. If an FLP is properly operated and planned to maximize asset protection, It can provide a greater level of protection. There are also different types of risks that an FLP can protect against. Such as, divorce which can annihilate a clients assets. An FLP can help maintain the integrity of separate assets a client might receive, such as gifts or inheritance. FLP’s prevent a commingling of assets.

5. FLP’s are big tax audit triggers. It’s better to get rid of them so the IRS won’t know.

Why Not? Having an FLP interest, especially with discounts for lack of marketability or control, is a gift- and estate-tax hot button. But before you dismantle your FLP, step back. IRS gift- and estate-tax auditors are very sharp folks. If you filed gift-tax returns reporting early FLP gifts, they’ll know about it. Its routine on an estate –tax audit for agents to ask for more than two years prior income tax returns. So unless you dismantled the FLP years before death, its existence will be easy to spot. Most importantly, if you had real nontax savings motives for setting up an FLP, and you administered it properly, why hide?

ref: Martin M. Shenkman. December 2009

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