Expanding Your Insurance Horizons

You may remember the classic "I Love Lucy" show. Do you remember how Ricky Ricardo was always happy and relieved when Lucy went shopping and actually got her money's worth? One such incident involved an expensive dress. Lucy remarked, "But Ricky, I got two for the price of one!" That's smart buying!

While this underscores the advantage of smart shopping, it also illustrates the importance of considering what is actually needed to get the job done—to get more "bang for your buck."

Well, over the years, a variety of life insurance products have been created to meet the needs of individuals with specific needs and circumstances like yourself. That's how the concept of survivorship life was conceived. Survivorship life (also known as second-to-die or last-to-die) is a unique type of life insurance that allows two people to be insured under one insurance policy. So, you may be wondering, what's the big deal?

Survivorship life insurance pays a death benefit at the death of the second insured. Therefore, these types of policies are generally less expensive than two individual policies, a considerable advantage. In addition, even if one of the insureds is considered medically uninsurable, a policy can generally still be obtained. However, it's important to recognize that survivorship life insurance may not be for everyone.

Since these policies pay a death benefit at the death of the second insured, the uses of survivorship life are a little different than traditional "single life" policies. Their cost-effectiveness generally makes them an ideal tool for funding future estate tax liabilities, maximizing gifts to future generations or a favorite charity, or keeping a business within the family.

Regularly reviewing your insurance coverage can help you make an assessment of your current program and help you determine if survivorship life insurance fits into your overall goals and objectives. And, when you buy the right coverage that works for you, the cost savings (like Lucy's "smart buy") would please even Ricky.

New Law on Social Security "Give-Back"

In April of this year, President Clinton signed into law the Senior Citizen's Freedom to Work Act of 2000. Among other things, this new law eliminates the so-called "give-back" for working Social Security beneficiaries who have attained full retirement age (currently 65). Earlier, for recipients of Social Security benefits ages 65 to 70, the "give-back" amounted to $1 for every $3 earned above $17,000. Lawmakers now hope that this new measure will encourage seniors to join, rather than avoid, the workforce.

Note that this change does not alter the rules affecting the taxation of Social Security benefits. In addition, it does not eliminate the "give-back" of $1 for every $2 earned above $10,080 for individuals who are between the ages of 62 and 65, and are receiving Social Security benefits. If you wish to know how this new development might affect you, it makes good sense to discuss it with your tax advisor.

What Makes Up Your Estate?

Many people wonder how federal estate taxes will affect them after death. The federal estate tax is a transfer tax on the value of assets in your net taxable estate at the time of your death. Federal estate taxes will generally be due if the sum of your net taxable estate and taxable gifts exceeds $650,000 (in 1999). The first step in understanding the federal estate tax is to understand what comprises your estate.

Treasury regulations relating to the taxation of property owned at death contain a catch-all definition that the "gross estate of a decedent who was a citizen or resident of the United States at the time of his death includes the value of all property, whether real or personal, tangible or intangible, and wherever situated, beneficially owned by the decedent at the time of his death."

Among those often overlooked items that are includable in your estate are your rights to future income, such as your right to payments under a deferred compensation agreement or partnership income continuation plan. These rights are commonly referred to as "income in respect of a decedent" and are included at their present commuted value. Likewise, your interests in any business you own at your death, whether as a proprietor, a partner, or a shareholder in a corporation, are includable in your gross estate. In addition, your personal property, investments, real estate, retirement plans, and proceeds of any life insurance policies that you own are also included.

The value of Social Security survivor benefits, either lump sum or monthly annuity, are not included in your gross estate. This is one benefit of the Social Security system.

The actual task of determining what is includable in your gross estate can require some professional, in-depth analysis. Your estate should be re-evaluated each year so your beneficiaries and heirs will not face agonizing decisions over your wishes and federal estate tax requirements. In addition, the use of certain estate planning documents, coupled with any necessary adjustments to property ownership, has the potential to minimize estate taxes and maximize any estate tax credits. However, it is important to consult with qualified legal, tax, and insurance professionals to ensure your planning decisions are consistent with your overall goals and objectives.

Financial Savvy in Seven Simple Steps

Even well-compensated individuals sometimes find it difficult to achieve long-term success in the realm of personal finances. Although they may attain an income level others envy, their primary focus may be on their professional or work lives.

Yet, it doesn't necessarily require a huge allotment of time to get things moving in the right direction. It is often simply a matter of understanding and attending to the "basics." The following seven steps are intended to put even the most harried and dedicated high-earners in solid control of their finances:

1. Pay yourself first. Transfer a set amount from your earnings to your savings or investments each month. An investment of $1,000 per month earning 8 percent annual interest will grow to over $180,000 before taxes in just ten years.

2. Reduce consumer debt. Avoid high credit card finance charges by paying off the balances monthly or, if you must carry a balance, use only cards offering low finance rates.

3. Diversify your investments. Spread your risk across many investments, including liquid assets, mutual funds, stocks, bonds, and real estate. Conservative savings vehicles, such as annuities and traditional whole life insurance, can reduce much of the risk associated with variable return investments.

4. Profit from tax-deferred savings. If you qualify, contribute to an Individual Retirement Account (IRA), a 401(k), or another similar retirement plan. These plans offer tax benefits that can help enhance your retirement savings.

5. Update your estate plan. Have your will and any trusts reviewed by a lawyer. Prepare advance directives, such as a durable power of attorney, living will, and health care proxy. This is important for everyone, since a disabling illness or injury, or an untimely death, could occur regardless of age.

6. Review insurance needs. Periodically review your risk management program. Your life, health, and disability insurance needs will likely change as you progress through various stages of life.

7. Set long-term financial goals. Establish one-, three-, and ten-year goals. Evaluate your progress yearly and make adjustments as appropriate to achieve long-term success.

Make a commitment now to start this planning process. Attention to these seven basic areas can help you achieve a secure financial future.