Are There Blind Spots in Your Insurance Plan?

Deficient coverage may cost you someday.

Many households and businesses are insufficiently insured. The problem is not necessarily the quality of coverage, but the breadth and depth of it. Your own business or household may be more vulnerable than you realize.

  

Too many people go without disability insurance. If you work in a physically demanding field, your employer may provide short-term disability coverage – but many companies do not. According to the Bureau of Labor Statistics, just 39% of workplaces offer employees short-term coverage, and only 33% offer long-term coverage.¹

If you are disabled and cannot work, your income soon disappears. Short-term disability insurance, which may last anywhere from 10-26 weeks, commonly replaces around 60% of it. Not ideal, but better than 0%. About 8% of the time, however, a short-term disability lasts more than six months and extends into a long-term disability. Long-term disability coverage can replace 50-70% of your salary for a period of 2-10 years, perhaps even until you turn 65.^1,2

   

More people ought to have earthquake and flood coverage. You may think that earthquake insurance is only for those living right on top of fault lines. If your home sustains quake damage that you must repair with tens of thousands of dollars of your hard-earned money, or if your business is forced to close for two weeks after a major quake hits your area, your opinion will change.

 

Recent hurricanes and flood surges have underlined the value of flood insurance for those living in low-lying areas. Just 12% of U.S. homeowners have this coverage. A typical homeowner policy will cover minor water damage, but not flood damage.³

   

If you finance a car and it is stolen or totaled, will you have to pay for it? Not if you have GAP (Guaranteed Auto Protection) insurance. If you are going to finance a car, SUV, or truck, ask about this coverage – especially if you intend to use that vehicle for work or business. The coverage is cheap – payments are usually $10-15 more each month (over the life of the loan).⁴

If you buy a new truck for $25,000 and it is totaled a year later, the insurer providing GAP coverage will determine the current value of the vehicle and write a check for that amount minus your deductible. You may want GAP coverage if you are buying a vehicle with less than 30% down. Without it, you may risk owing more than the current market value of your vehicle if it is stolen or wrecked.⁴

Is your sewer line insured? Cities usually require homeowners to maintain the sewer lateral running onto their property – the “branch” of the main sewer system on the street that connects to their house. If that sewer lateral backs up, it could cost you thousands and create a health problem for your neighbors. (Businesses have the same responsibility.) Tree roots and even improper disposal of paper products and grease can lead to this problem. Coverage against it is relatively cheap – it just adds about $40-50 to the annual premium on a homeowner policy.⁵

Address the weaknesses in your personal or business coverage, today. You certainly do not want to look back with regret on “what you should have done.” Be prepared, and put coverage for some or all of these potential crises in place.

We may be reached at 800-916-9860.

www.wenadvisory.com

This material does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - time.com/money/4428179/short-term-disability-pay/ [6/19/17]

2 - thebalance.com/what-is-long-term-disability-insurance-1918178 [7/9/17]

3 - cnbc.com/2017/09/11/navigating-insurance-claims-post-hurricane-irma.html [9/11/17]

4 - chron.com/cars/article/Financing-a-car-GAP-insurance-can-keep-drivers-12200736.php [9/15/17]

5 - wnins.com/resources/personal/features/sewerbackup.shtml [9/15/17]

Retirement Plan Trusts

These tools can shield inherited IRA assets from lawyers and creditors.

Inherited IRA assets are vulnerable in bankruptcy proceedings. Many older IRA owners and their beneficiaries do not realize this, but it is true.

 

In Clark, et ux v. Rameker (2014), the Supreme Court ruled 9-0 that inherited IRAs cannot be defined as “retirement funds” under federal bankruptcy law. They now lack the protection that retirement savings accounts commonly get in bankruptcy courts.¹

So today, a longstanding estate planning dictum is being reevaluated. If you have non-spousal heirs who seem at risk for bankruptcy, you might want to leave your IRA to a trust.

 

When IRA owners make this move, it is usually because they want a legal and financial firewall in place, i.e., the potential heir to the IRA is a minor or someone who is bad with money. Add protecting inherited IRA assets against creditors and lawyers to the list of objectives. Spouses can inherit IRA assets and receive creditor protection for those assets when they roll them into IRAs of their own, but federal tax law does not yet give other heirs that perk.²

 

Two types of retirement plan trusts exist to help shield inherited IRA assets. The first is the conduit trust. True to its name, the trust is a means to an end. The conduit trust is designated as the IRA beneficiary, and an individual is named as the beneficiary of the trust.²

When the original IRA owner passes away, the (inherited) IRA goes into the conduit trust, and a series of yearly Required Minimum Distributions (RMDs) to the trust beneficiary begin. The trustee calculates and authorizes these RMDs; like other RMDs, they are characterized as regular income. The IRA assets held within the trust are protected from creditors, as the trust legally owns them (the RMDs out of the trust, however, are not).²

Do you want to stretch IRA assets out for future generations? Think about an accumulation trust. An accumulation trust requires no RMDs. It does require a separate trustee and beneficiary, just like a conduit trust does; the trustee can distribute the assets out of the trust as preferred. Those invested IRA assets can keep growing within the accumulation trust, but the trust will be taxed at the top marginal income tax rate if it earns more than $12,150 in a year.²

 

If the person in line to inherit your IRA faces a high risk of litigation or has poor financial habits, an accumulation trust may be worth exploring. As with a conduit trust, assets held inside an accumulation trust are out of reach of creditors and attorneys – and the trustee can hold back the money from being distributed until the lawyers disappear or the beneficiary is ready to handle it responsibly.²

IRA assets must be transferred into a retirement plan trust carefully. A trustee-to-trustee transfer (direct rollover) needs to be made, and the involved financial and legal professionals and IRA custodian all need to be on the same page.³

You should not attempt to create a retirement plan trust without an attorney’s help. As an example of what can go wrong for do-it-yourselfers, the 60-day rule applying to indirect rollovers of qualified retirement plan assets does not apply for inherited IRAs. If you make an indirect rollover of such assets and take possession of them on the way to setting up the trust, you will be considered to have received taxable income, even if you complete the rollover process within the 60-day window. To do this knowledgeably, seek those with the right knowledge.³

We may be reached at 800-916-9860.

www.wenadvisory.com

This material does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - wealthmanagement.com/estate-planning/retirement-plan-trusts-headline-ira-forecast [7/15/14]

2 - nerdwallet.com/blog/finance/how-to-protect-inherited-ira-assets-from-creditors/ [1/26/16]

3 - marketwatch.com/story/dont-make-this-mistake-with-an-inherited-ira-2017-09-29/ [9/29/17]

Actively Managed 401(k)s

An option that may help your retirement efforts.

How should your 401(k) be invested? While some investors manage their 401(k)s themselves, others may seek a different kind of “hands-on” approach: having their retirement plan assets actively and professionally managed.

Why should a 401(k) be actively managed? In a volatile stock market climate, there are potential drawbacks to leaving a 401(k) alone. If 401(k) participants don’t adjust asset allocations in response to market conditions or don’t adjust their investment mix for years, they can potentially lose on their investment. While “buy and hold” can be a successful investment strategy at times, passivity can be equally problematic.

Passive and reactive management can backfire. After years without adjustments, employees may change their 401(k) investment preferences following a bad stock market quarter – but months later, they might miss out on big gains by sitting on the sidelines during a Wall Street rally.

There are two central problems with a DIY management approach: 1) the average employee doesn’t have the knowledge base of a financial professional; 2) the stock market does not move once every three months, but is constantly moving. Investing without monitoring and acting upon changes in the market can have an undesirable result, to say the least.

Many funds offered to 401(k) participants can move with the market; target funds and asset allocation funds may be quite diversified. The problem is that their performance may simply emulate that of the broad market. In addition, passive investing will seldom outperform the market, because the investments involved are directly linked to the performance of stock market indices. In a healthy bull market, many investors can live with that limitation; in a sideways or bear market, many can’t.¹

Is there another way? If your goals are to make money in a down or volatile market or to reduce the losses brought on by volatility, an actively managed 401(k) may be appealing. Active investment management uses technical analysis with the twin goals of buying near support levels and selling at resistance levels.

Buy-and-hold investors often prosper in lengthy bull markets, in which the major indices tend to make steady incremental gains punctuated by occasional corrections. Bull markets are characterized by long periods of subdued volatility. Bear markets are another animal: many emerge through significant ups and downs, with institutional investors finally deciding to sell off steadily rather than buy.

A passive, buy-and-hold approach can hurt a 401(k) participant when stocks do sell off; waiting too long to respond to a market slump might be disastrous for a retirement saver, depending on that investor’s goals and time horizon. In contrast, active professional management of 401(k) assets may uncover opportunities for gains amid the volatility and help mitigate losses stemming from sector or asset class downturns.

  

If you are interested in having some or all of your 401(k) assets actively managed, you may explore this choice without having to obtain permission from your employer or plan administrator. Active 401(k) management can mean higher plan fees, but the fees may be a very small price to pay if the performance of the 401(k) improves.  

Ask about this option. While past performance is no guarantee of future results, an actively managed 401(k) may offer you the potential to outperform the market during volatile times. 

We may be reached at 800-916-9860.

www.wenadvisory.com

This material does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - investopedia.com/news/active-vs-passive-investing/ [4/22/17]