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Leave More For Your Heirs

February 20, 2012 | Comments: 0 | Views: 126

As a small boy growing up in Kansas, There were precious few things to do to occupy my time. My personal favorite was fishing, buying fishing lures with the money I made selling Grit newspaper at the Dillon's grocery store, and taking mechanical objects such as my bicycle apart and putting it back together. My dad always enjoyed the learning process that seemed to take place as a result of my tinkering, as long as I put his tools back where I got them when I was done.

On occasion, summer would bring the county fair where we got to see all the different breeds of chickens and rabbits and my personal favorite- ducks. But we got a lot of extra enjoyment on the rare occasion that the carnival came to town. To this day, I can close my eyes, take a deep breath and smell the aroma caused by the hot oil frying fresh bread dough until it was golden brown. A little honey made it almost irresistible not to take at least one bite. Of course, I had to finish what I started.

A few weeks in advance, I would begin to save more money knowing I could spend more time on the rides or playing games when the carnival arrived. Sometimes I would have $10 or $20 saved up and I'm sure I felt pretty rich. I never spent it all because as soon as I spent at least one dollar, I began to re-member how hard I had to work just to make that dollar. Almost like a ritual, my mother would tell me and my 4 siblings, "before you get to the Carnival, take your money out of your back pocket and put it in your front pocket. That way you won't have to worry about losing it or someone stealing it from you when you're not paying attention to it." I'll never forget that lesson. Even to this day, I never carry money in my back pocket. No matter how hard I try, it just doesn't feel safe.

Maybe you feel that way about your hard-earned money, or your investments, or the retirement account that is supposed to last for the rest of your lives. Maybe you have all the money you need with Social Security, your pension, and interest off some of your investments. If so, congratulations. Now may be the time in your life where you begin thinking about your future and begin planning for the distribution of your hard earned assets to your wife, your children, or your grandchildren. Let me suggest a way to potentially take your investment portfolio out of your "back pocket", put it in your front pocket, and protect it from the risks and volatility that can reduce its value and wipe out years of patient waiting and growth. The "front pocket" I'm talking about will be accounts only available through entities that guarantee your principal, and provide insurance on their current and future value.

Now remember, one advantage of owning common stocks at your death with a large deferred capital gain is the current step up in basis at your death. This means your heirs could convert the stock to cash or a more diversified portfolio and pay no taxes on the profits. The disadvantage is that a concentrated position in one stock can be extremely volatile and risky. So let's assume you're concerned about the market and its impact on the inheritance value of your existing portfolio or assets.

Let me propose 2 potential alternatives to the stock market that may reduce your risk, provide insured guarantees, and provide liquidity if needed in the future. The first is Life Insurance purchased with the Required Minimum Distributions, and the second is a Fixed annuity with a guaranteed death benefit rider.

Some fixed annuities pay as much as 6% compounded growth on the initial premium if it is paid out as a death benefit. You can even combine both if the account is an IRA. Make sure you understand the terms of your contract before investing. Since IRA's are the most heavily taxed asset you will ever own, using your RMD's to buy life insurance can be a great way to diversify into Safe Guaranteed accounts while reducing your future tax exposure. If the account is not an IRA, placing value into a fixed annuity with a death benefit rider can allow your money to compound and grow at 5-6% depending on the company. Using only RMD's allows the IRA values to stay intact without growing a larger tax liability in the future and in case you need the money for healthcare or other expenses later in life. With this strategy, you may be able to double the inheritance value of your IRA. It is age and health dependent.

Your life insurance policy can be structured for high liquidity, which may provide a lower death benefit, or low liquidity to provide a higher death benefit in the future. Additional benefits may include chronic care or nursing home benefits provided by the death benefit in your policy. Again, it's important to seek the help of a competent advisor who's familiar with the various ways to structure your life insurance depending on your goals and liquidity needs. So in a way, repositioning some of your portfolio values into guaranteed contracts provided by a high quality insurance company is like taking money from your back pocket and putting it into your front pocket.

It's safe, predictable, and guaranteed to pay off in the future at precisely the time it's needed the most. Doesn't it make sense to consider the safety, and leverage that an insurance solution can provide for you today? In this example, only one insurance company was used to illustrate the death benefit, so make sure the advisor you work with has the ability to shop the rates of several companies and provide you with the best product, regardless of the commission he or she may earn.

Remember, not all advisors are required to act in your best interest. Do not be afraid to ask your advisor if he or she has a fiduciary responsibility to do what's in your best interest versus the best interest of their company or themselves before doing business with that advisor. All the best!

This article reflects the opinions of the author as of Feb, 2012. His opinions are subject to change with changes in the economy, taxation, and benefit changes. Disclosure: Investment Advisory Services offered on a fee only basis through Global Financial Private Capital, LLC an SEC registered investment advisor. This article is for educational pur-poses only and should not be considered as insurance, investment, tax, or legal advice. Please consult your own advisor as it relates to your specific condition. Insurance guarantees are subject to the claims paying ability of the underlying insurer and are not available through Global Financial Private Capital, LLC. Past performance is no guarantee of future results. May not be available in all states. Annuities are generally considered long-term investments, and early surrender charges may apply If you exceed the annual free withdrawal amount guaranteed by your individual contract. IRS Penalties may also apply if distributions are taken before age 59 1/2.

Robert B. Scott holds a series 65 securities registration in TN and TX and an insurance license in TN, MS and TX. He also has a CLU and ChFC designation from the American College of Financial Planning. He can be reached at 615-485-1768

Source: EzineArticles
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