Pension Payout Options—
An Alternative Strategy

   Many people overlook the important role life insurance can play in helping to protect their retirement income. Suppose you have the option of receiving a pension of either $3,000 per month for the rest of your life (the single life option), or $2,500 per month to be spread over the lifetimes of both you and your spouse (the joint and survivorship option). (This scenario assumes you are not interested in receiving a lump sum distribution.) For a married individual, the joint and survivorship option may seem like the best choice, even with a lower monthly benefit, since it ensures continued income for a surviving spouse.

   However, another strategy involves selecting the single life option and using a portion of the higher monthly benefit to purchase a life insurance policy on yourself. This approach offers some important advantages:

1) You and your spouse may receive a higher monthly pension benefit during your lifetime.

2) If you predecease your spouse, the death benefit may be used to help offset the loss of your pension benefit. Death benefits are generally received free of income tax. Also, cash value or death benefit proceeds are not subject to the minimum distribution rules that are inherent to other tax-deferred vehicles.

3) In addition to providing a death benefit, a cash value policy can help provide a ready source of funds for emergencies or other needs. The cash value accumulates on a tax-deferred basis and can be borrowed against during your lifetime, generally at a reasonable cost. However, it is important to note that withdrawals and loans taken against a policy's cash value could affect the death benefit and may have adverse tax consequences.

Some Important Caveats

   Despite its advantages, this strategy requires disciplined management to achieve the desired results. First, your life insurance policy may lapse if the premiums are not paid or if interest on cash value loans is not paid. Second, a lump sum death benefit must be properly managed to yield the required income. Third, by waiving the spousal provision, your spouse may lose other pension-related benefits, such as cost of living adjustments or company-sponsored health insurance. Fourth, the issuance of a life insurance policy, or a policy with a reasonable premium, is not guaranteed. It is best to proceed carefully with this approach until a policy has been issued in your name. For assistance with your situation, our trained professionals can be of service.

Can You Keep a Secret?

   Most people are shocked when they find out exactly how much of their personal and financial information is floating around on various consumer lists. What can you do to help protect yourself?

• Don't give out personal or financial information— including your date of birth, Social Security number, employment information, and your maiden name or your mother's maiden name—to telemarketers or solicitors.
  
• Try to avoid listing income and work- related information on product registration and warranty cards.
  
• Be secretive about passwords or personal identification numbers (PINs) on bank cards, telephone cards, and cellular phones.
  
• Don't use your Social Security number as your driver's license number. States that do so typically will give you a different number upon request.
  
• When making purchases over the Internet, only use websites that offer a secure connection. Or, use an escrow service.
  

   These are good, common sense steps to help secure your interests. Remember, your personal information is just that—personal—and it's worth protecting.

The "Power" of a Durable Power
of Attorney

   An attorney is someone legally entitled to conduct business on your behalf. Did you know you have the right to grant this power to anyone? If the power of attorney you grant is limited, the individual can conduct only that business specified in your agreement. If the power of attorney is general, the person's authority is much broader, however, it still assumes you are competent to review and approve his or her decisions.

   If you become incapacitated, your attorney in fact can no longer handle your affairs. If you have an agreement that contains what is known as durable language (made possible by the passage of laws in certain states), it allows your attorney in fact to make decisions regardless of your competence. This "durable" feature has important implications in estate planning because it can prevent an unwanted, court-appointed guardianship should you become incapacitated or disabled.

   In essence, the durable provision allows you to specify, in advance, the person you want to make critical decisions regarding your medical care, personal finances, and legal decisions in the event you become incapable of making those decisions for yourself.

How It Works

   Suppose a 62-year-old woman is scheduled to undergo exploratory surgery. She is advised of the risks of the procedure, including the chance that mental incapacitation could result. When she consults her attorney, she learns that her state has passed a law authorizing the addition of 'durable' language to a general power of attorney document. She requests her adult daughter to act as attorney in fact in an agreement that includes the words: "This power of attorney shall become effective in the event of the disability or incapacity of the principal." The woman then proceeds with the operation, secure in the knowledge that someone she trusts is there to handle her affairs in the event of her diminished capacity.

   Bear in mind that a will is not the appropriate vehicle for granting a durable power of attorney, since it only becomes operative at death. Instead, a durable power of attorney should be created by legal counsel familiar with the appropriate language necessary to do so. Since incapacity could occur from an accident or unforeseen event at any time, addressing this concern now will be an invaluable step in helping to create peace of mind for you and your loved ones.

Trusts: Here Today, Here Tomorrow

   When it comes to an estate, "here today, gone tomorrow" often describes the transformation of unprotected property once estate taxes kick in. In 2001, only the first $675,000 per person is excluded from estate taxes. A trust—an agreement allowing a third party, called the trustee, to administer another's property—is often the foundation of an estate plan. Trusts can be used to help reduce or defer estate taxes by sheltering property.

   To ensure assets are around for tomorrow, an estate planning professional may recommend a living trust, sometimes known as an "inter vivos" trust. An irrevocable living trust (ILIT) stipulates that the agreement cannot be revoked or modified after the creator's or settler's death. An ILIT allows trust assets to be transferred to the beneficiaries as a gift. This shifts the tax burden from the estate to the beneficiaries. One related benefit is the possibility of avoiding probate court, which costs time and money for the review and filing of a will. Probate court proceedings, moreover, are public, compared with settling an estate held in a living trust, which is a private agreement.