“C” Stands for Conserving One’s Assets for Oneself and One’s Family

Conserving one’s assets for oneself obviously must occur during lifetime (which clearly also serves to Conserve those assets for one’s family at death). Conserving assets during lifetime will be covered in detail in this newsletter.

Assuming one has done a good job of Conserving assets during lifetime, Conserving those assets for one’s family at death requires careful and thorough lifetime planning, even though this planning may not take full effect until death. This subject will be covered in detail in our next newsletter.

Conserving assets during lifetime - general considerations

One of the major problems facing all of us during our entire adult lifetimes is the possibility of some adverse, or even catastrophic, event occurring that could wipe out all, or a significant portion, of our assets. This is why almost all of us carry homeowner’s (or renter’s) insurance, automobile insurance, and liability insurance. Some of us in earthquake country also carry earthquake insurance, and some of us in low-lying areas also carry flood insurance. But all of these types of coverage protect only our hard assets. They overlook what are really our most valuable assets: ourselves and our future income-producing capacity. Those of us who work in the financial services field are in a unique position to help our clients correct this typical deficiency in their planning.

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“B” stands for Benefiting from ones asset accumulation efforts

This is perhaps the one component of estate planning that many estate owners and estate planners tend to overlook. This is surprising since Benefiting from the fruits of one’s labors during lifetime is the one component that has a selfish motive rather than a generous or loving motive, and it is undoubtedly the main reason that most of us work so hard to build our net worths.

Planning for retirement

The need for retirement planning is certainly well recognized in the United States these days, especially with the future viability of Social Security being at least somewhat in doubt and in light of the recent trend of reduced tax-qualified pension plan benefits being provided by most employers. Nevertheless, too many of us defer this important task because of the other pressing priorities we face during our working years. This presents those of us who are in the financial services industry with both a challenge and an exciting opportunity.

Tax-qualified retirement plans

One of the ways we can help fill the retirement planning void is by becoming proficient in the area of tax-qualified retirement plans, both employer sponsored plans such as pension and profit-sharing plans, 401(k) plans, and sometimes even ESOPs, and individually initiated plans such as IRAs, SEPs, and Roth IRAs. Many pension and profit-sharing plans incorporate life insurance into the asset mix. In addition, 412(i) plans in particular (plans fully insured with life insurance and annuity contracts) have become especially popular in the life insurance industry because of the large premiums they can generate. 412(i) plans are also of significant benefit to those clients, primarily small companies, that are in need of a large current income tax deduction. This large deduction occurs because of the conservative assumptions built into the policies that are specifically designed for these plans as well as the generally compressed premium payment schedule. Detailed discussions of these techniques is beyond the scope of this newsletter, but materials and courses are available from many sources, and we here at Provada can certainly be helpful in the product area and with certain design features.

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“A" stands for the Accumulation of asset values

As we stated in our prior post, estate planning really begins with the Accumulation of asset values. That is what we all spend a good part of our lives trying to accomplish, some of us more successfully than others; but all of us have undoubtedly been successful at least in creating an estate at our deaths by purchasing the life insurance necessary to meet our needs and desires for our families.

Planning for young couples

For young couples, life insurance provides essential family protection in the event of premature death and builds an instant estate. It thus represents the first essential step in the client’s overall estate planning process. In order to provide the largest death benefit with limited available funds, most life insurance purchased in these situations is, quite properly, term insurance, but it is always a good idea to try to incorporate some permanent coverage into the package as early as possible, perhaps a carrier- guaranteed universal life policy.

The beneficiary designation

Regardless of the type of policy, however, all too often not nearly enough attention is paid to the policy’s beneficiary designation, even though that designation represents the estate plan for what is typically the client’s single largest estate asset. How often do we simply name the spouse as primary beneficiary and the children as contingent beneficiaries, without giving adequate thought to how this large sum of money will be managed if both the insured and the spouse die leaving minor children? Without other proper arrangements made in advance, this will generally result in a court-appointed guardian, which is not only expensive, but also very time-consuming and cumbersome.

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Many people think that estate planning is only for the wealthy or only for older individuals. They may also feel that it is much too complicated and expensive.

Nothing could be further from the truth!

Bob Burton breaks down estate planning into its essential components — the A-B-C-Ds of Estate Planning. Utilizing this breakdown will give your clients the ability to view their estate planning with a wide angle lens.

A. = Accumulate

Estate planning really begins with the Accumulation of asset values, and actually occurs every time you write a life insurance policy.

B. = Benefit
When sufficient net worth has been achieved and family obligations permit, one should think about reaping the Benefits of one’s wealth accumulation efforts with careful and thorough retirement planning.

C. = Conserve
The uncertainties of life and aging coupled with the high cost of dying make it necessary to take active steps to Conserve your accumulated property for yourself and your family during your lifetime, and ultimately for your heirs and beneficiaries.

D. = Distribute
The final step in the estate planning process is to arrange for the desired and orderly Distribution of your estate to the chosen objects of your bounty; even the beneficiary designation in a life insurance policy or for retirement plan assets is an act of estate distribution of those assets.