Special examples of Financial Strategies in Turbulent Times (or even calm times) and how it effected one family——

SITUATION: JOHN AND JANE DOE, the Grandpa and Grandma of THE DOE CLAN (see above), lost 25% of one of their accounts ($100,000) in the stock market last year. This was a non-qualified account John and Jane had designated for passing along to the next generation(s).

GOAL: Since they have other sources of money for cash flow needs, they wanted to leave this money to their kids and grandkids. The DOES feel badly they don't have as much to pass on to their heirs and realize that market volatility could reduce this account even more. They would like to recover their losses (and then some, if possible), and pass it on to the kids in a tax-efficient manner.

SOLUTION:

Use the remaining $75,000 to purchase a special kind of single premium life insurance policy on John. The policy has very generous underwriting, which can usually be done with just a telephone interview. The company pays a 10% bonus* on the deposit and the policy provides an immediate death benefit for the heirs of $120,840. the interest is credited once a year and can be allocated to a fixed account or tied to two Index-related accounts, or a combination of these crediting strategies. Reallocation between crediting strategies can be changed once a year.
*All bonues and rates quoted are subject to change without notice, and vary between companies.

GOAL: JANICE would like to contribute to the college expenses of her brother's four grandsons after she passes. She would also like to see them receive this money in a tax-efficient manner, if possible. Also, even though she thinks she is pretty well set when it comes to her potential future expenses, she may need some money from her own assets to augment a rather small Long Term Care group policy she started when working.

SOLUTION:

SITUATION: JEFF,age 50, is the eldest son of JOHN & JANE DOE. He is a busy entrepreneur; he builds mousetraps for worldwide distribution. Unfortunately, Jeff lost his wife to a rare disease (picked up from a rogue mouse) a few years ago. He has two sons, JOSH & JASON, who are now 20 and 16 years of age. Both JEFF and JENNIFER worked hard to build their mousetrap business and very much believed in the virtues and advantages of being your own boss as entrepreneurs. Because of their business, JEFF is fairly well set up financially, and plans to continue working in this business until a ripe old age. Also, the parents had the foresight to have life insurance policies on each other, so it was the tax-free $100,000 death benefit from JENNIFER'S policy that funded this variable annuity, thanks to their faithful agent, Libby Carr.

GOAL: Before JENNIFER died, she had a heart-to-heart talk with JEFF about their kids. She wanted her husband to agree that he would do everything possible to encourage their sons to also become entrepremeurs, either as the successors of their mousetrap business or by starting businesses of their own. They didn't want to turn their kids into "trust fund babies" because they didn't think being "TFB's" would teach the boys anything, let alone assure their success as entrepreneurs. To figure this out, they turned again to their Retirement Planning Advisor,Libby Carr, and together they came up with a great solution.

SOLUTION:

SITUATION: JOSEPH DOE, fraternal twin brother of JOHN DOE, also age 70, has been a bachelor all of his life. He too has enjoyed being an entrepreneur. He started and owned the first green car company in the Puget Sound region for many years, as well as other businesses, and is now retiring. He has structured a nice retirement income and prefers not to live "high on the hog" anyway, so he isn't happy about having to withdraw money out of his IRA now to pay the RMD (Required Minimum Distribution) requirement imposed by the IRS on traditional IRAs. These distributions (withdrawals) are required on all IRAs by the IRS, and on all other qualified programs, except the Roth IRA. JOSEPH regrets not having converted this IRA account to a Roth IRA years ago, but he didn't, so now he must take the withdrawals because Uncle Sam is finally insisting upon collecting the taxes on that money. It has grown rather nicely over the years, and the income was all deferred until now.

GOAL: JOSEPH was smart enough to roll his IRA (formerly in mutual funds) into a new IRA using a Fixed Indexed Annuity as the funding vehicle. He had lost some money when the market weakened early in 2008. He had a big "feeling" he should get out of the market, fortified by the suggestion of Libby Carr, his family's trusted advisor. JOSEPH did a direct rollover to the new FIA (Fixed Indexed Annuity) so he had no tax liability from that action, since he kept it as a traditional IRA.
*Note: See our Fixed Indexed Annuity section of this website (click here) to see how these concepts work.

Once JOSEPH'S primary goals were to find ways to transfer this money as efficiently as possible, both from a tax and a leverage point of view, JOSEPH called Libby to see what she might recommend. They came up with these solutions:

SOLUTION:

The Wrong Way: If Joseph were to leave that IRA in a traditional IRA and died, then his heirs would have to pay about $400,000 in taxes, leaving only around $600,000 to his beneficiaries, assuming they each make the big mistake of taking the IRA balance in a lump sum.

The Right Way: If Joseph were to take the RMD each year and pay for a life insurance policy, he could keep the IRA and still have the remainder in that IRA as an inheritable asset.Because the heirs are smart (or at least well-advised), they will each take the balance as a Stretch IRA.This strategy would create far more than the above $600,000 over time.*
*Note: if JOSEPH designates one or more Charities as beneficiaries directly on the IRA or other qualified plan, then the remainder of that IRA passes to the Charities 100% tax free, and he will have also created a new asset, the policy itself, that will pass income tax free to its beneficiaries.