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JG1GLDS: planner are u there Planner4U: Welcome to Financial Insights, I am Planner4U, your host.............. JG1GLDS: give me some input on a variable life policy. please Planner4U: We are it for the moment, pehaps I can answer a question while others join in? Planner4U: JG, variable life can be very attractive Planner4U: First, do you need any life insurance? JG1GLDS: yes JG1GLDS: i have a buy/sell term life GreyBrenna: Hello. Can you tell me where to get a "blue book" price on an older car? JG1GLDS: grey - no idea Planner4U: Grey, sorry, only resource I can suggest is a bank or credit union Planner4U: Many book stores also carry that information Planner4U: JG, OK back to VL GreyBrenna: Their books only go to 91. Planner4U: Grey, OK check out the banks tomorrow, they for sure have the info JG1GLDS: this is a financial planning room grey GreyBrenna: soorry!! JG1GLDS: no prob - good bye Planner4U: JG, variable life is basically a policy that allows you to direct investments through your Planner4U: life insurance policy JG1GLDS: correct - give me the run down pros&cons Planner4U: There are many companies that sell these, most are variable UNIVERSAL life products Planner4U: The pros are, tax deferred growth, potential tax free income and self directed investments JG1GLDS: how bout Equitable Incentive Life policy Planner4U: I believe Equitable has some very good plans Planner4U: Although I haven't actually run a comparison against others Planner4U: Interestingly, my favorite is Pacific Mutual because they offer Strategic Asset Allocation Planner4U: inside of thier policy JG1GLDS: some people tell me to stay away - why use a life insur as an investment vehicle Planner4U: JG, many will say that but really have no basis, they simply repeat what they have heard Planner4U: Ask for a numerical comparison of thier investments to a variable life policy and they JG1GLDS: i looked at PM, but EQ has the same - by this you mean different fund families manage the JG1GLDS: portfoilios? Planner4U: will tell you they don't understand what you are talking about JG1GLDS: i'm glad that someone knows if you fund it correctly it will pay off many fold Planner4U: No, I don't mean different account managers, I mean HOW the accounts are Planner4U: controlled JG1GLDS: example please Planner4U: Welcome TK Planner4U: OK, lets assume you decide to buy a Variable Life policy with 14 differenent subaccounts Planner4U: How do you allocate YOUR account? TKMANN7269: hi Planner4U: IOW, what method is being used to determine WHERE to put your funds? JG1GLDS: sub accts being - growth, aggress growth Planner4U: Yes Planner4U: and bonds, international, emerging markets, etc. Planner4U: What method was suggested to you in setting up your initial account? JG1GLDS: i bought a policy with 2.5 death benefit Planner4U: Do you mean the death benefit is 2.5 times a single payment? JG1GLDS: total invest is 250k - over 10yrs 2.5 million Planner4U: Welcome Gee...to Financial Insights Geebeau: thanx JG1GLDS: i plan to fund the policy within 5 years Planner4U: OK, JG, so you invest 25K/year for 10 years, yes? Geebeau: nite :) Planner4U: Welcome Zeke to Financial Insights JG1GLDS: 50k a year for 5 yrs Zeke253261: thank you Planner4U: JG, I see a potential problem with that amount of short funding Planner4U: Are you aware of the MEC rules in life insurance? JG1GLDS: what problem JG1GLDS: yes i'm aware of mec but it won't affect me Planner4U: Because? Planner4U: It isn't a MEC? JG1GLDS: i can put up to 70K over 3 yrs and still not mec it Planner4U: JG, OK, if you say so, the company is required to tell you, so you should be safe JG1GLDS: Equitable will monitor the acct so it doesn't mec it JG1GLDS: very safe Planner4U: OK, then when you make your first 50K investment into this contract, HOW is the Planner4U: money invested? What method is used to determine the allocation? Planner4U: 50% agg growth, 50% balanced, etc? JG1GLDS: i'm young so I put the majority into aggress growth, growth Planner4U: So IOW, YOU are deciding for yourself an allocation JG1GLDS: 25% aggres gwth, 11% common stock, 11% equity index, 55% small cap Planner4U: How were those numbers determined? JG1GLDS: I just picked them, do you see anything wrong? TKMANN7269: bye Planner4U: I don't know and that is why I believe strategic asset allocation is so important JG1GLDS: when you say strategic allocation - what do you mean Planner4U: You see, I wouldn't know if that was acceptable until I measured your risk tolerance JG1GLDS: i'm looking real long term Planner4U: Once that was done, I could use asset allocation to determine the most efficient mix JG1GLDS: i can handle the ups and downs Planner4U: of different types of investments that would give you the highest return Planner4U: Welcome GG1000K to financial insights Planner4U: Welcome BJP too! GG1000K: thank you, happy to be here Planner4U: JG, did I make any sense there? JG1GLDS: how do you determine risk tolerence Planner4U: I use a risk tolerance questionnaire to determine that Planner4U: It asked questions about your time horizon, long and short term aversion to risk and income Planner4U: requirements Planner4U: Many companies have this type of program JG1GLDS: that whole booklet, huh Planner4U: It isn't quite that complicated, about 8 or 10 questions will do the trick Planner4U: BUT, once we determine that, it is the math of the diversification effect that will JG1GLDS: planner are licensed to trade stocks Planner4U: determine the exact placement of funds JG1GLDS: anyone have good buys on this market? Planner4U: JG, yes, series 7 (stock broker), CFP and more... Planner4U: JG, I don't suggest individual stocks because of my belief in strategic asset allocation JG1GLDS: great i'll contact you later to see what you can do Planner4U: Welcome DanielNei: Hello Planner4U: OK, by the way, this is my last show, I have resigned Planner4U: Hi Daniel Planner4U: OK, JG is done for now, may I answer any questions? Planner4U: Welcome EJ to Financial Insights EJohanness: Hi everyone. Planner4U: I am taking any questions on financial planning, investing, retirement planning, new tax law Planner4U: etc DanielNei: I am in a 401k, my wife is still a student, should she start an IRA since we file jointly? GG1000K: i have an estate question? Planner4U: Daniel, total AGI, adjusted Gross Income? DanielNei: 80K Planner4U: GG, go ahead I will try working with everyone Galeno1: good evening all. what's the conversation? GG1000K: My grandmother has a large estate, she is leaving money to grandkids EJohanness: Is there a legal term limit for 100% vested, or can companies set their own rules? Planner4U: Daniel, next year, you wife will be able to invest in IRA and deduct, but not this year GG1000K: what's best way for her to do it, minimizing estate taxes EJohanness: My 401 vested limit is eight long years - is that typical? GG1000K: her estate exceeds 600k Planner4U: EJ, there are minimums and lots of variations DanielNei: Is this because of new tax laws? Planner4U: normally, you will be fully vested after 5 years Planner4U: EJ, I can assure that any company you may work for will have LEGAL vesting schedules Planner4U: EJ, you company probably has a higher turnover and want to use those non vested amounts Planner4U: to reward those who stay Galeno1: hi planner, can you help a non-US citizen with retirement planning? Planner4U: GG, how much over 600K? GG1000K: about 2.5 mil Planner4U: GG, OK, how is her health and age? EJohanness: P4U, that makes sense - they do have turnover! thanks. GG1000K: she's 90, health ok now but she say's her time is coming Planner4U: EJ, UR welcome Galeno1: gg, i hope that that 2.5 mil is invested in something that you don't have to sell at Planner4U: Generally, what type of assets does she own Galeno1: firesale prices GG1000K: half stocks half bonds Planner4U: How many family members will recieve her estate? GG1000K: she will either give half to her only son and remainder to 2 grandkids or all GG1000K: to grandkids Planner4U: Does she have a favorite charity? GG1000K: not really Planner4U: Is her son and grandkids married? GG1000K: her son is married and her grandchildren (i'm one of them) aren't. EJohanness: Isn't there additional tax because she skips the children, and goes right to the grandkids? Planner4U: OK, I have several suggestions GG1000K: she wan't her estate to go to her family GG1000K: wants Galeno1: no ej. tax is same. GG1000K: shoot planner Planner4U: EJ, yes but there is a million dollar exemption on generation skips Fzzyavengr: uh, hello Planner4U: Suggetion one, get a revocable living trust to insure management of assets in event of Planner4U: disability or mental incapacity GG1000K: who would manage her assests with that? Planner4U: Second, find a good estate planning attorney to handle this Planner4U: You could do it or even a corporate fiduciary, like a bank trust department Planner4U: Third, I would suggest looking into a family limited partnership or LLC for gifting purposes Fzzyavengr: ooooh. legaleeze in realtime sentence fragments Planner4U: The estate planning attorney can explain the discounts available by using this technique GG1000K: would these solutions enable her to escape paying that 55% tax? Planner4U: No, but can dramatically impact HOW much is taxed GG1000K: I just don't want the money to go into a trust that would be managed by someone else after GG1000K: her death Planner4U: GG, no, not AFTER her death, BEFORE Planner4U: but only IF she becomes incapable of managing it herself GG1000K: but with a limited partnership, is the money distributed after her death? Planner4U: Yes GG1000K: How much can be saved in taxes? Galeno1: planner, what about gg's STATE'S estate taxes? Planner4U: That depends on how aggresive your attorney wants to be in computing the discounts Planner4U: I believe up to 30 to 40% may be possible using both the minority and lack of liquidity GG1000K: How does a living trust work? Planner4U: discounts GG1000K: Isn't that where the money is held buy someone else? GG1000K: by Planner4U: No, Your grandmother would GIFT interests in the partnership to her son and two grandchildre Planner4U: but at a discounted rate GG1000K: so the thing to do is see an estate planner GG1000K: ? Planner4U: For example, she can give 10K per year per person without any tax consequence GG1000K: she already does that EJohanness: I like the cleverness of reducing the taxes. Name of the game! Planner4U: YES, she does that, but it takes 10K to gift 10K without using the family partnership GG1000K: ? Galeno1: gg, you are talking about some major bucks here. the cost of a GOOD estate plan would be Planner4U: WITH the partnership, she may be able to transfer 13K or 14K of value and still not exceed Planner4U: the 10K limit Galeno1: more than worth its cost. Planner4U: I also suggest that she use ALL of her UNIFIED CREDIT now EJohanness: by discounting it right? Planner4U: Are you familiar with the credit? GG1000K: unified credit -- that's the 600k limit? Planner4U: Actually the CREDIT is currently $192,800 which is exactly the amount of tax Planner4U: on a $600,000 estate GG1000K: I thought the first 600k is tax free. Planner4U: Actually, it doesn't work that way GG1000K: ? Planner4U: For example, if your grandmother is worth 2.5 million, most think you subtract Planner4U: 600K from that and then pay tax on the 1.9million left, right? GG1000K: yeah Planner4U: WRONG GG1000K: uhh ohh Planner4U: What you do is calculate the TAX on the 2.5 million dollar estate, THEN subtract $192,800 Planner4U: from that number GG1000K: ? Planner4U: If you do it the other way, you will be too short Galeno1: but planner, what state does grandmother live in? GG1000K: (estate taxes is one of the most confusing things i've ever encountered) Planner4U: GG, Galeno1 is right, you need compentent estate planning council right away Planner4U: Have you talked to any estate planning attorney yet? EJohanness: I agree, sounds like you could get really hit with taxes GG1000K: I think she may have done an initial consulting, but she hasn't made a move yet. Planner4U: You need to get involved NOW and find out what is happening GG1000K: She's asking me because I used to be a stock broker. Planner4U: I suggest she maximize her gifts now, by giving away $600,000 this year GG1000K: You're right, I'm going to get her set up with one. Galeno1: gg, i calculate (no state estate tax, you have to add that yourself) you and your family Planner4U: plus the annual gifts GG1000K: i see Galeno1: will wind up with 1.3 mil if you do nothing. GG1000K: I don't think she'd be comfortable giving that much away, she claims that she might need the GG1000K: money for herself if she gets sick Planner4U: That way, even though she will have used up her credit, the appreciation on that $600K will Planner4U: not be included Galeno1: gg, your grandmother has medicare, no? GG1000K: i heard about that Planner4U: Be careful though to use only assets that have a high cost basis GG1000K: yeah, but when you get disabled medicare isn't enough GG1000K: ? planner GG1000K: cost basis? Galeno1: she's 90 for crying out loud!! EJohanness: what is a high cost basis? Planner4U: That is because low basis assets will be stepped up at death to their full market value Galeno1: exactly planner! GG1000K: planner, you mean bonds will be taxed on maturity value? Planner4U: IOW, lets assume you paid 10K for a stock and now it is worth 30K GG1000K: yeah Planner4U: If she sells it now, she must pay tax on the 20K profit Planner4U: with me so far? GG1000K: yup Planner4U: OK, instead of selling it, she dies and then you get it GG1000K: ok Planner4U: If you sell it, you pay NO INCOME tax on that 20K profit Planner4U: That is because the government will STEP UP your basis to the market value on date of death GG1000K: really? Planner4U: yes Sebydog: hello Galeno1: income tax of 28% (capital gains tax)? GG1000K: because her stocks were bought way back in the 1950's and 1960's Planner4U: 20% if over 18 month old now Galeno1: estate tax of 55%? Galeno1: correct planner!! i'm a foreigner. Sebydog: what is the topic GG1000K: planner, practically all of her million plus stock portfolio has a cost basis of like 20k Planner4U: Gal, I am talking about WHICH assets to gift, high basis or low, answer is HIGH GG1000K: she pulled a warren buffet Galeno1: right. Galeno1: i'm following your logic planner. GG1000K: so her stocks will be taxed on that 20k not million plus? GG1000K: planner? Planner4U: GG, if ALL assets are very low, then perhaps it may NOT be a good idea to gift the $600K now Planner4U: GG, When you recieve any inheritance, you also recieve the NEW cost basis which is market Planner4U: valued on date of death GG1000K: planner, her costs on her stocks is probably about 20k, does that mean that the estate taxes Planner4U: When you recieve a GIFT, you receive the OLD basis GG1000K: on her stocks will be based only on 20k cost? Planner4U: No, There are two DIFFERENT taxes, one is ESTATE tax the other INCOME tax GG1000K: uhh ohh, i'm getting very confused again Planner4U: We have to look at the whole picture to determine what is best for all Planner4U: GG, what state do you live in? GG1000K: NU GG1000K: NJ Planner4U: You must get a good attorney and financial advisor to help you Galeno1: nj has an inheritance tax also. what % planner? Planner4U: Gal, I do not know that answer GG1000K: I guess so, that cost basis sounded real good. GG1000K: because she hasn't bought any new stocks in the last 25 years Galeno1: i'll look it up. be right back. Planner4U: GG, a good place to start might be to ask your grandmothers accountant for a refferral GG1000K: good idea because she has a good accountant EJohanness: Does the STEP UP only work when someone dies and you inherit it? Are there other scenarios? Planner4U: I also suggest using a CFP for your planner Planner4U: EJ, yes, only on death Planner4U: No other scenarios for step up GG1000K: why a CFP, what's a broker needed for? GG1000K: Isn't it in a brokers interest to manage her money after death. Planner4U: GG, most CFP are also brokers, BUT they are PLANNERS, and you really need options Planner4U: GG, yes that is absolutely true too EJohanness: My company paid about $12,000 to relocate me across country for new job position, do I have GG1000K: I just don't want a broker persuading her to set up a trust where the broker manages EJohanness: to declare this as income and pay taxes on this? GG1000K: my inheritance after her death, that would kill me. Planner4U: GG, no, that was not what I was suggesting Planner4U: While she is alive, she controls everything and makes all decisions GG1000K: I know planner, I just don't want that scenario to unfold. Planner4U: ONLY if she becomes disabled or mentally incompetent does the succesor trustee take Planner4U: over, and that trustee can be anyone (YOU) she wants GG1000K: But the broker might persuade her to set up a trust with that broker, the broker would love GG1000K: have that GG1000K: money to manage Planner4U: GG, that is possible, but simply explain to the planner that you want advice on estate plan Planner4U: ning and not investment management GG1000K: ok Planner4U: GG, certainly, you may also need investment advice if suddenly, YOU must manage these assets Planner4U: That is up to you GG1000K: I used to be in the financial business, I know how to manage money. Planner4U: GG, that is great GG1000K: I'm a stock guru. Planner4U: Then get some good estate planning advice and you will have something to invest Galeno1: gg, how old are you? GG1000K: 26 Planner4U: I want to thank you all for stopping by Galeno1: thanks planner. Planner4U: Normally I would invite you all to come back same time next week BUT GG1000K: Planner, I can't thank you enough, you were most helpful. Planner4U: this is MY LAST SHOW GG1000K: what? your last show? how come? Galeno1: too bad planner. for whom do you work? Planner4U: I have resigned from AOL to work more with my own clients EJohanness: Sorry to hear that. Thanks for your insight. GG1000K: Uhhh Ohhh Planner4U: I work for myself, Sentra Securities Corporation is by broker dealer Galeno1: tired of pro bono work planner? lol. GG1000K: Planner, I would think that you could get new clients here? Planner4U: GAL, you got it GG1000K: I know a broker that picks up lots of clients via AOL. Planner4U: Extremely difficult due to licensing requriements and SEC regulations GG1000K: So the guy I know is doing something illegal? Planner4U: GG, that broker is probably in violation of several securities regulations GG1000K: Planner, I see lots of brokers soliciting here, future crackdown by SEC? Planner4U: First of all, you must be licensed in the state you clients RESIDES, regardless of where he Galeno1: planner, that's what americans and canadians don't understand...how unfree their money is. Planner4U: buys or invests Planner4U: GG, very good question Planner4U: The answer depends on whether or not they are using a HOME PAGE or in a chat room GG1000K: I would think so planner, they are already cracking down the motley fool boards Planner4U: SEC says, a chat room is free speech Planner4U: BUT a HOME PAGE is advertising and must meet all NASD and SEC requirements GG1000K: people get on the boards and will really tout stocks with bogus info Galeno1: planner, what if you post your home page in the UK? Planner4U: Their latest position was that anyone with a securities license that has a HOME PAGE MUST be GG1000K: or from the cayman islands? Planner4U: licensed in ALL 50 states GG1000K: that's how E-Trade got busted some months back Planner4U: Any licensed broker is STILL subject to misrepresentions and fraud in the chat rooms