Do You Trust Your Trust?

Trusts certainly have their place in estate, wealth management and retirement planning but consumers need to be aware that not all trusts are created equal.

The Tax Court has held that several trusts were not legit trust vehicles and ordered that they be disregarded for Federal income tax purposes. If the taxpayers sought professional advice from a trust organization, how could this have happened?

In Vlach v. C.I.R. (T.C. 2013) 105 T.C.M. (CCH) 1690, the taxpayers were a married couple and the husband had a medical practice. Dr. Vlach was concerned about protection of his business assets and decided to purchase a trust package from a trust firm representative who presented at a seminar he attended.


Unfortunately, the representative had been involved in abusive trust promotions and practices. Dr. Vlach and his wife only became aware there was a problem with their own trusts after receiving tax deficiency notices from the IRS.

Although the Vlatches insisted the trusts were not created for purposes of tax avoidance and contended that the trusts were created for purposes of asset protection, the Tax Court disagreed. The Court stated that “Evidence of such tax-avoidance objectives is reflected in the operation of the trusts.” (Emphasis added). The Court further stated that the trusts “…were shams, lacking economic substance, and are to be disregarded for Federal income tax purposes.”

Does this mean all trusts are potentially bad? Of course not! The lesson to be learned from this case is to do a little due diligence when deciding who you want to hire to draft your trust. Be cautious about purchasing a “trust package” from an organization or firm you are unfamiliar with.

It is important that you find a suitable attorney or firm who can handle your needs (especially if you have a complicated estate). There are many great trust attorneys and firms that can help you!

Most Retirement Planners Ask the Wrong Question

Many people within striking distance of retirement are focused on one question: what’s my number?

It centers around the idea of how much money you will need to have squirreled away by the date you stop working to continue to provide you with enough income for the rest of your life.

People should instead be focusing on the different question: “what’s my paycheck?” That is, they should be looking at the income they will be getting, rather than how they will be drawing down from the lump sum they've been accumulating. By asking the paycheck question they may be better off both emotionally and financially for several reasons.

When people spend their life building up a capital base, it makes them uneasy to see the balances of their investment accounts go down. While intellectually they may understand that this money was accumulated for this very purpose, it still may be difficult for them to watch the erosion of the capital base that they have spent their whole life building up.

The paycheck method solves this problem because you don’t think about the ups and downs of your capital base when you frame it as getting a regular monthly “salary.”

Even if you hit your lump sum number, you still need to plan for large one-time expenses such as a new car, your child’s wedding, or unexpected health expenses. Once you have hit this lump sum “number” of cash and not prepared for more, you will clutch it even tighter every time you have a major expense at home. But with the paycheck approach, you’ll plan your budget based on the money you will receive each month, and not focus on what you will need to take from your lump sum each month.

Stock Blunders

When it comes to stocks, big blunders can be devastating. Big mistakes picking stocks can be nearly impossible to bounce back from. Why?

It's really a mathematical exercise. Here's an example. If you buy a stock for $100/ share and it falls to $60 a share that's a bruising 40% loss. Some investors assume a 40% gain would erase that loss. That's not true, unfortunately. A 40% gain would only get you back to $84 a share. To get back even after a 40% loss an investor would need a 67% gain.

Climbing back from stock losses is extremely difficult due to the harsh reality of math. That's why investors picking individual stocks need to be extra careful in not allowing losses to get so big that they are nearly insurmountable.

The sheer difficulty of coming back from a big market loss isn't just theoretical. A study of actual returns of the Standard & Poor's 500 stocks bear out how investors who get hammered with a big loss have such a difficult time coming back. What does all this mean? For the average investor it means avoiding the loss in the first place is the key to success. A wise investor should be willing to give up some of the upside of the market in return for downside protection.

The world of fixed indexed annuities (FIAs) offers exactly that. The opportunity to have 100% downside protection in return for a smaller portion of the upside return is the main value proposition of an indexed annuity.

There are three miracles of indexed annuities:

1. No loss of principal
2. Ability to reset and measure gains from the low point of the index annually.
3. The Ability to capture and lock-in all gains annually.

The advantage of a fixed- indexed annuity is that you can't lose your principal, regardless of indexed performance unless during the early withdrawal period you withdraw your money by surrendering your contract.  With FIAs, your clients can have their cake and eat it too.

Retirement Plan Still Working Exception

If you have a qualified employer retirement plan, you generally need to start taking your required minimum distributions (RMDs) no later than April 1st of the year following the year you turn 70½.  This is your required beginning date or RBD.  Certain employer retirement plans, however, may have a “still working exception” for their employees who reach 70½ but are still actively working for that employer.

An employee who is over 70½ years old, still working for the company and doesn’t own more than 5% of the business may elect to delay his/her RBD for taking RMDs until April 1st of the year following the year the employee retires.  It’s important to note that employer plans may offer this option but they are not required to offer a still working exception.

Assume you have a 401(k) and the plan permits a still working exception, an option you have elected.  Now assume you are 73 years old and you decide to retire in July this year.  Your retirement immediately triggers your RBD as April 1, 2017 - your RMD requirement begins the instant you retire.

In this example, if you chose to delay your first RMD and do not take it until, say, February 2017, you will still need to take your 2017 RMD by December 31st next year.    

*There is no “still working exception” for IRAs, Simple IRAs or SEP IRAs.

Portfolio Protection

Will the Wolf Destroy a Lifetime of Hard Work?

As a financial service professional, you take upon yourself the role of helping your clients build their financial futures. Undoubtedly, during your years of training for this demanding profession you have come across the financial planning pyramid (at least one of MANY versions) used by financial advisors to explain the concept of asset protection and financial priorities.

As you will recall, the foundation of the financial pyramid is protection yet many clients’ portfolios are completely unprotected from the “4 Risks of Retirement.” Those risks are:

• Longevity Risk
• Interest Rate Risk
• Market Risk
• Tax Risk

As a financial service professional, you take upon yourself the role of helping your clients build their financial futures. But many advisors have not dealt with the wolf that lurks in the shadows, the 5th risk to retirement…the financially devastating effects of expenses stemming from Long-Term Care (LTC).

Many top advisory firms are taking a fresh look at a better way to assure the foundation of protection is secured before discussing investing. Today we know that less than 10.7% of Americans have the correct protection in place to deal with the wolf. So are we suggesting you sell

them LTC insurance? Nothing could be farther from the truth! In fact, we are not fans of LTC insurance and don’t believe it’s the best option for dealing with and managing risk.

Advisors need to take this growing LTC risk seriously. Not only is the client’s portfolio at risk from an LTC illness they (or a spouse) may suffer, but an advisor’s income is in jeopardy. How? Clients begin to withdraw hundreds of thousands of dollars out of accounts that are being managed by the advisor to deal with this uninsured risk. This is portfolio protection for the client and it is portfolio protection for the advisor!

There are two questions every financial professional should ask clients:

1) You may never need care, but if you did, how will that affect your family, spouse, adult children, family dynamics and finances?

2) If you need care, how will you pay for it?

Today there are NEW solutions to the catastrophic problem of a Long-Term Care event. This solutions allows clients to reposition and leverage an existing asset, typically money in CDs, savings, annuities, IRAs or retirement plan funds, as a guaranteed single premium.

We have found that many advisors don’t feel comfortable discussing these gaps in protection with clients so they simply never raise the issue. But what about the likelihood that 70% of those reaching 65 will experience an LTC event before age 85 that will last, on average, 3.9 years and cost $100,000 per year?

Our Elite Marketing Program can help you articulate this problem and motivate prospects and clients into taking action. This solution can help safeguard a client’s assets by providing income tax free money to handle LTC expenses in their own home or in an assisted living facility.

Additionally, should the client’s needs change or the client simply changes his/her mind at any time, the client can request a full refund of the single premium.

• Special Highlights of this Solution:
• This is Not an LTC Policy
• Premiums are 100% Guaranteed - No Risk of Increase
• Joint Life Coverage
• Lifetime Benefits
• Qualified Money Allowed
• Turn Highly Appreciated Non-Qualified Annuities into Tax-Free Money

Helping your clients protect their assets and prepare for the future is essential as 10,000 Baby Boomers retire each month. By addressing this critical LTC risk, you will open new doors of opportunities and unearth new clients, creating new revenue streams. This will also differentiate and grow your practice, protecting it in the long term.

Top advisors are asking their clients these questions and adopting these new strategies – shouldn’t you too

Table Bay Financial Network is America’s Premier FMO combining preferred products, unparalleled marketing and world-class training designed to drive and increase revenue while drastically cutting marketing costs. Call us.

Today’s Safe Refuge for Lofty Returns and Matchless Tax Advantages

Are you looking for the flexibility of adjustable premiums and face amount, with the opportunity to increase cash value? What if you could do this without downside risk of investing in the market? It’s not a dream; it’s a reality with Indexed Universal Life Insurance.

What is Indexed Universal Life? 
IUL policies offer tax-deferred cash accumulation for retirement while maintaining a death benefit. It is perfect for those individuals that need permanent life insurance protection but wish to take advantage of possible cash accumulation. Indexed Universal Life works great for key-man insurance for business owners, estate-planning vehicles, premium financing, and retirement income.

How Can They Do That? 
A portion of the paid premium goes to annual renewable term insurance based on the life of the insured. All fees are paid and the remaining premium goes into the cash value of the policy. The cash value is credited with interest based on increases in the equity index. However, it is not directly invested in the stock market. Most IULs offer a guaranteed minimum fixed interest rate and a choice of indexes. The index gains are credited back to the policy either on a monthly or annual basis. For example, if the index gained 5% from January 2010 to January 2011, the 5% is multiplied by the cash value. The resulting interest is added to the cash value. If the index goes down instead of up, no interest is credited to the cash value, but their account value does not go down.

The Perks!

• Minimize Risk: The policy is not directly invested in the stock market, thus reducing risk 
• Death Benefit: Permanent coverage 
• Low Cost: The premiums are low 
• Cash Value Accumulation: Cash value credited to the policy grows tax deferred. The cash value can pay the insurance premiums, which over time may allow the policy-holder to stop paying premiums out of pocket.

Can Your Clients Really Trust Their Trust?

As the old saying goes, “people with trusts get them because they don’t trust.” If you have clients with a trust, are they sure that the trust terms are designed to distribute their assets the way they want? We always stress the importance of periodic reviews of your clients’ critical documents like beneficiary designation forms, especially whenever they experience a life changing event such as a birth, death, marriage or divorce. But have your clients also reviewed their trust and estate plan lately?

Many clients fail to understand that just because they may have spent a lot of time and money having a trust created, that doesn’t mean that they never need to look back once the ink is dry. They may have had the best law firm in their area draw up a comprehensive trust instrument, but what if their planning strategy and goals have changed? What if new laws have since been enacted?

Recently, an advisor’s client discovered that the trust her husband set up contained provisions that conflicted with their recently modified financial plan and distribution goals. The trust had been drafted several years before and they never reviewed the trust terms despite the fact that not only had many life changing events occurred in their family but their financial strategy and planning goals had also changed. Unfortunately, the client’s husband passed away and she is now stuck with the flawed trust terms, resulting in irreparable and unintended results for their beneficiaries, their children and grandchildren.

Marriage, divorce, birth or death may occur at any given time. Tax law changes go into effect on a routine basis. Even though you cannot predict what will happen and when it will happen, your clients can adjust their estate plan as needed when any life changing event occurs or new legislation affects their tax planning.

Help your clients ensure their assets flow the way they want and in the most tax efficient manner possible. It is important that clients regularly review important documents such as wills, trusts, beneficiary forms, powers of attorney and anything else they may have in place to provide for and protect their loved ones.

Do you know how to conduct document reviews with your clients? Table Bay advisors have exclusive access to our proprietary Discovery Checklist System. Our checklists were designed to help advisors and their clients identify potential problems and preventative steps can be taken before it is too late.

Who Will Pay For Mom's Or Dad's Nursing Home Bill?

Filial Support Laws and Long-Term Care

Imagine this: One day you’re sifting through your mail. In the pile of letters, bills and junk mail, you find a letter from a law firm informing you that you need to pay $50,000 to cover the cost of your father’s recent nursing home stay, or the care facility will sue you. While this may seem far-fetched, depending on your parents’ state of residence, this could be a possibility.

If your parents live in one of 29 states or Puerto Rico that has filial responsibility laws on the books, you could potentially be held legally responsible for their care under certain circumstances, such as when your parents are ailing and without sufficient financial resources to take care of themselves. Until recently, these statutes have been largely ignored. However, several recent court decisions indicate that there might be renewed interest in enforcing them.

Filial support laws aren’t new. In fact, they were initially derived from England’s 16th century “Poor Laws.” At one time, as many as 45 U.S. states had statutes obligating an adult child to care for his or her parents. Some states repealed their filial support laws after Medicaid took a greater role in providing relief to elderly patients without means. Other states did not, and a large number of filial support laws remain dormant on the books.

Now, with long-term care costs on the rise and funding sources under pressure, nursing homes and other health care providers may have increasing incentive to seek to use the courts to compel children to either help a parent financially or be at risk for covering the cost of his or her care. Today we have tremendous solutions to battle back against the long-term care dilemma. Learn more by calling us today at 1-866-225-1786.

Disclaiming an Inherited IRA

There are several reasons why someone may choose to disclaim an inherited IRA. However, once that decision is made, it is important for the disclaiming beneficiary to avoid common errors.

In short, a disclaimer is a legal document and formal refusal of an inheritance by a beneficiary. Disclaimer rules apply to all IRA beneficiaries. Beneficiaries are not required to accept an IRA (or any portion thereof) and may instead choose to disclaim all or a portion of their share.

To have a valid disclaimer, the beneficiary must not have accepted or benefitted from the IRA assets or property. The only exception to this rule is the year of death RMD taken for the deceased owner. All disclaimers must be submitted in writing to the IRA custodian within 9 months of the IRA owner’s death.

Disclaimers are irreversible, permanent decisions. Some beneficiaries make the mistake of disclaiming an IRA, with the intent to pass on the disclaimed assets to someone else like their child or spouse. Disclaimed IRA assets may only go to the contingent beneficiary or beneficiaries named by the original owner. Disclaiming beneficiaries have zero control over the disclaimed amounts and how they flow.

Launch Your Marketing Plan to New Heights

The Table Bay Partners Marketing Advantage Program is a complete packaged marketing program that will provide you with a lead generation roadmap. Within this roadmap is a year-long schedule of field-tested proven activities that will help the advisor develop a tactical approach to lead generation.

We understand the challenges advisors face today. That is why we will provide you with a unique customized strategy based on your practice, geography, specialty and niche markets served. Our customized strategy includes methods for building market awareness, marketing strategies for generating leads and referrals, and best practices for managing your business and prospecting pipeline.

We’ll help you build a powerful and sustainable brand with our 4-step process:

1. Set your specific goals for the year
2. Determine the quantity of appointments you need
3. Determine the quantity of leads you need to generate appointments
4. Select and plan activities and determine a budget required to generate those leads

Don’t miss out on this exciting new sales opportunity! Let the Table Bay Partners Marketing Advantage

Program launch you into your best year ever! Call us today for more information!

Tax-Free Retirement

QUESTION: Is that even possible?

ANSWER: Yes!

Most people are already familiar with typical taxable investment plans that include tax-deferred assets such as stocks, mutual funds, bonds, traditional IRAs, 401(k)s, and 403(b)s.  But are you looking for a tax-free retirement plan? You can enjoy tax-free retirement by incorporating tax-free investments into your existing retirement strategist.

On Monday June 20th, Table Bay Financial will be hosting a Tax-Free Retirement training.  Join Director of Advanced Markets Joe Mignogna and I for a fresh look at the Tax Free Retirement Concept. Joe will demonstrate his incredible consumer presentation and teach you the key components of the program and how to leverage his presentation and concepts to make incredible sales.

Give us a call to register for this important one-day training!

DOL Lawsuit Complaint Allegations

Here are the eight counts that form the basis for the complaint, which asks the U.S. District Court for the Northern District of Texas to immediately vacate the rule:

* Count One: The Labor Department has “improperly exceeded” its authority in violation of the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code and the Administrative Procedure Act. ERISA grants the DOL authority only over covered employee benefit plans, not over individual retirement accounts, or IRAs, when “sold to individual savers,” the plaintiffs allege.

* Count Two: The rule violates the Administrative Procedure Act because it is “arbitrary, capricious, and irreconcilable” with ERISA and the Internal Revenue Code. The rule is so broad that it includes activity “long been understood to be sales-related and not fiduciary,” the plaintiffs argue.

* Count Three: The DOL “unlawfully created a private right of action.”

The Best Interest Contract (BIC) Exemption and the Principal Transactions Exemption (PTE), which allow advisors to collect third-party fees and commissions, violates the Administrative Procedures Act by enabling IRA participants and other non-ERISA plans to sue financial institutions and advisors for “breach of standards” imposed by the DOL.

* Count Four: The DOL failed to provide adequate notice and to consider and respond sufficiently to the thousands of comments it received last year. Citing just one example, the plaintiffs allege that DOL regulators failed to review its Regulatory Impact Analysis even after dozens of commentators informed the department of the analysis’ defects.

* Count Five: The Federal Arbitration Act prohibits the Best Interest Contract (BIC) and Principal Transaction Exemptions’ (PTE) Regulation of class action waivers in arbitration agreements. The DOL does not have the authority to override the Federal Arbitration Act’s protections of “enforceability of arbitration agreements,” without Congressional authority, plaintiffs argue. There is nothing in ERISA that contains such an override, the lawsuit says.

* Count Six: Regulation of fixed indexed annuities and group variable annuities through the BIC exemption is “arbitrary, capricious, barred by the Dodd-Frank Act, and was not subject to proper notice and comment.” By placing variable annuities and fixed indexed annuities under the BIC, the department is looking to regulate products that Congress removed from federal regulation when it prohibited the SEC from regulating FIAs if the products met state standards, the lawsuit claims.

* Count Seven: DOL regulators “arbitrarily and capriciously assessed the rule’s benefits, consequences, and costs.” DOL analysis of the rule’s benefits – saving retirement savers up to $4 billion a year – would outweigh the costs are “thoroughly flawed,” as the analysis ignores and underestimates the costs of class action lawsuits, lost access to retirement help, the plaintiffs allege.

* Count Eight: The BIC violates the free speech guarantees in the First Amendment because it “impermissibly burdens speech.” The rule “improperly abridges” the right of advisors to engage in truthful, non-misleading speech related to their products and services since the rule sets parameters as to what advisors may or may not discuss with their clients.

Plaintiffs in the dispute include the U.S. Chamber of Commerce, the Financial Services Institute, the Financial Services Roundtable, the Greater Irving-Las Colinas Chamber of Commerce, Humble Area Chamber of Commerce, the Insured Retirement Institute, the Lubbock Chamber of Commerce, the Securities Industry and Financial Market Association and the Texas Association of Business.

Don’t miss our update webinar at 8am on Wednesday June 8th

Here is the link - https://attendee.gotowebinar.com/register/6779126177419240963

One of the Greatest Tax Breaks in the U.S. Tax Code

Thanks to the salutary effects of tax-free growth, the miracle of compound interest and tax breaks aimed at saving spendthrift Baby Boomers from themselves, many people are going to accumulate more money in IRAs, pensions, profit sharing plans, 401(k)s, and similar plans than ever before. Why?

Some retirees may be able to sustain their lifestyles, meet obligations and still leave some percentage of their IRAs to their heirs. These individuals may want to pass on the unused portion of an IRA to a spouse, children or even grandchildren. Creating a Multi-Generational (MGIRA) or “stretch” IRA can result in substantial distributions being made over the life expectancies of the owner, the owner’s spouse and their children.

Consider, for example, a 72-year-old married man with three children who has accumulated $2,550,000 for retirement. By making the most of Multi-Generational IRA planning, total distributions from a $2.5 million retirement nest egg could exceed $11 million!

Unfortunately, putting together a successful Multi-Generational IRA takes careful planning, as there are plenty of potential traps and pitfalls. As Forbes® Magazine explained, “The rules covering inherited IRAs are the most complex that ordinary taxpayers ever encounter; even the IRS hasn’t filled in all the gaps.”

The biggest obstacle to an IRA legacy strategy, believe it or not, is the Federal Government. Congress created IRAs to encourage Americans to plan for their retirement. However, it never intended for them to accumulate funds and defer taxes indefinitely. Unless an IRA owner takes specific steps to continue to defer tax liability, the IRS stands to take 35 to 80% of those hard-earned IRA funds upon the death of the owner.