Debunking the Myths of Long Term Care Insurance

Back in the day (a while ago), long term care insurance policies were viewed to be pretty limiting. You may have heard that benefits would only cover care in a nursing home facility, or had to have very stringent triggering events before the benefits would kick in. These older policies were criticized by many people looking at the prospect of paying premiums for coverage they may never use.

As the aging population of baby boomers begins to consider their own potential long term care needs, it is important to point out that there are more options than ever before with regard to coverage. With the average annual cost of a private room in a nursing home as $74,806* , and the average nursing home stay as 2.5 years** , long term care insurance is worth considering. Here are a few myths about long term care insurance that need to be corrected:

Myth #1: You might be paying premiums for coverage you won’t need or use.
It is true that a percentage of Americans will never need long term care. But, the high cost associated with the potential care should be accounted for in your overall financial plan. In addition, there are many long term care products that are considered “non-traditional” or “hybrid” that offer a return of premium at any time if the care is not used or needed.

Myth #2: You will have to complete a physical exam and extensive underwriting to receive a policy.  The underwriting process is different than when applying for life insurance. While sometimes a physical exam is required, the majority of the time, long term care underwriting involves a Phone Interview where the interviewer usually asks you questions about your health and family history, as well as testing your cognitive abilities (memory test).

Myth #3: LTC insurance won’t cover in-home or assisted living care
Most traditional and non-traditional policies now cover care in skilled nursing facilities (nursing homes & assisted living) as well as in-home care, hospice/respite care, and adult day care. Check with your advisor to confirm that these options are available in your policy.

Myth #4: LTC insurance won’t cover Alzheimer’s disease or patients with dementia
Some older policies excluded dementia and Alzheimer’s as triggering events for long term care coverage. With most new policies, this is no longer the case. Most policies require that you either have a severe cognitive impairment or are unable to perform two or more “activities of daily living” to receive benefits. Activities of Daily Living include: Bathing, Continence, Dressing, Eating, Toileting, & Transferring.

Myth #5: Coverage cannot be shared between husband & wife or domestic partners
Many insurance providers offer “shared care” options that cover both spouses or domestic partners and include premium discounts for choosing this option.

Myth #6: Options for coverage & premiums are not flexible.
When reviewing your long term care insurance needs, you have the option to select the dollar amount of monthly benefit to be received, the number of years to receive the benefit, as well as the elimination period (the amount of time that lapses between the date care is initially needed & the date benefits actually commence). In addition, you have the choice to include or exclude inflation protection features in your policy. By working with these variables, you and your advisor can design a policy that is affordable and appropriate for your situation.

The most important part of planning for the potential need for long term care, is to remember that times have changed, your options may be different than they were years ago, and long term care insurance is an excellent way to protect your hard-earned assets from being depleted.

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*According to Genworth 2007 Cost of Care Survey, March 2007
**National Nursing Home Survey, National Center for Health Statistics, U.S. Department of Health and Human Services, June 2002; while 2.5 years is the average length of stay for all nursing home residents, the study indicates that of the residents who remain in nursing homes for more than 3 months, 30% are there 3 months to 1 year; 37% for between 1 and 3 years, and 33% for 3 or more years.

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Rebecca began her career in the financial planning industry in 2002. She joined PSG in 2007 and currently holds the role of Client Advisor, working closely with one of the firm’s partners, Tim Kvech. Her role involves managing client inquiries and requests, as well as providing advice and guidance in the areas of retirement planning, asset management, insurance, and the implementation of an overall financial plan. In addition to providing exemplary client service, she also takes part in the firm’s coordination of innovative marketing and community outreach initiatives. Rebecca holds the FINRA Series 7, 63 & 65 registrations, along with the Life & Health insurance license. She graduated with honors from St. Mary’s College of Maryland, with a focus in English & Economics.

Managing Your Family Office* – A Solution during Tax Season

For many of our clients, financial success can still be a financial burden. Although it would seem easy to say that a high net worth makes life easier that is not always the case. In fact, quite the opposite is often true. There is a significant amount time and administration involved in managing the affairs of a sophisticated client with a complex financial statement.

Business owners, retirees, and busy professionals are increasingly turning to other advisors to not only manage their investment accounts and deliver financial planning advice, but also to manage the day-to-day administrative tasks, including balancing the checkbooks of multiple business entities, family members, paying bills, and gathering information for tax time. Likewise, we find many of our clients fall into the so-called, “Sandwich Generation,” which requires them to not only manage their own financial responsibilities, but also those of their children and parents or other family members.

Even with the advent and success of many banks’ Bill-Pay services, there is still a “Do-It-Yourself” aspect to these web-based solutions, and we are finding that many of our busy clients have neither the time nor the desire to manage these day-to-day tasks.

A few years ago, PSG initiated its first concierge service, to include “PSG Bill Pay.” We encourage you to contact us to find out more about this service to see if it may help alleviate some of your own financial “burdens.” Contact us by filling out the form below.

*Securities offered through Triad Advisors, Member FINRA / SIPC.  Advisory Services offered through Planning Solutions Group, LLC.  Family Office services offered through PSG Family Office, LLC.  Planning Solutions Group, LLC and PSG Family Office, LLC are affiliates of one another and are not affiliated with Triad Advisors.
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Bill has over 15 years experience in the financial services industry. As Chief Operating Officer for Planning Solutions Group, Bill is responsible for business development and implementation, in addition to human resources and special projects.

Prior to joining the group, Bill was the Operations Manager and Director of Client Services for WMS Partners in Towson, MD. During his time at WMS, he worked exclusively with high net worth individuals and assisted the partners in helping these clients achieve their lifetime goals. As Operations Manager, Bill also provided assistance with its financials, compliance and human resources.

Bill graduated from Towson University where he majored in business administration. He lives with his wife of 18 years and two boys in Towson, MD.

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Do You Own Real Estate in Different States?

You do not have to look far to see what the mortgage crisis and recession have done to the real estate market since 2007. Prices have plummeted and many owners have lost what equity they had in their investment. It has been an extremely difficult environment for real estate sellers but a tremendous opportunity for buyers. Many of our clients have seized the opportunity and purchased real estate as an investment property. However, are you aware of the additional taxes and expenses you may incur?

If you own real estate property in different states, you are exposing your estate and family to additional costs, delays and publicity if you do not plan correctly. When you pass away, your estate has to go through the probate process in every state in which you own property. This can be an added headache and cost at a very difficult time for your loved ones. Also remember that if you own a rental property and cannot claim it as a personal residence in 2 of the previous 5 years, your gains on a sale are subject to capital gains.

Through proper planning, you can assure that the things you want to leave for your loved ones are passed along efficiently and with minimal costs.
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As a Family Wealth Advisor, Chris assists affluent professionals, successful business owners, and their families in helping them achieve financial independence. Chris specializes in providing advanced estate planning strategies, business succession plans, and independent wealth management and retirement advice. Chris joined PSG after a legal career specializing in estate planning and corporate law. Furthermore, Chris has worked in the sports industry as a representative and spent over three years working with one of the top sports and entertainment attorneys in the country.

Chris earned his Bachelor’s Degree from Boston College with a double major in Political Science and Philosophy. Chris received his Juris Doctorate* from the University of Baltimore School of Law and is a member of the Maryland Bar. Chris holds his FINRA Series 7 and 66 registrations as well as his Life, Accident and Health Insurance license.

*Licensed, not practicing.

Oops – I Accidentally Contributed to a Roth IRA

If you earned more than the Adjusted Gross Income (AGI) limit for Roth IRAs for 2011 ($179,000 for Married filing Jointly, $122,000 for Single), but you still contributed to a Roth IRA, there are 2 ways that you could be tax penalized for making the contributions:

1) Pay 6% excise tax on the contribution + earnings for EVERY year that you have the Roth IRA accounts open.
2) Withdraw the entire contribution + earnings prior to 4/15/2012, and pay income taxes and a 10% tax penalty on the EARNINGS alone.

For most people, option 2 is the lesser of two evils.

Some CPA firms may recommend that if you think you may exceed the AGI limit in a given tax year, but want the benefits of a Roth IRA, you can contribute to a traditional IRA and then CONVERT the IRA to a Roth IRA. There are income tax implications in doing this, but for many investors, it is worth paying the taxes now in order to secure tax-free earnings on your account for the future. Speak to you advisor or accountant about whether or not a Roth conversion is right for you and make sure you understand the options before making a decision.
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Rebecca began her career in the financial planning industry in 2002. She joined PSG in 2007 and currently holds the role of Client Advisor, working closely with one of the firm’s partners, Tim Kvech. Her role involves managing client inquiries and requests, as well as providing advice and guidance in the areas of retirement planning, asset management, insurance, and the implementation of an overall financial plan. In addition to providing exemplary client service, she also takes part in the firm’s coordination of innovative marketing and community outreach initiatives. Rebecca holds the FINRA Series 7, 63 & 65 registrations, along with the Life & Health insurance license. She graduated with honors from St. Mary’s College of Maryland, with a focus in English & Economics.

Beware of Interest Rate Risks in Your Portfolio

Longer term U.S. Treasury Bond yields remain well below their long term average. The current yield on the U.S. 10 year Treasury is approximately 2%. Long term Treasury bonds were top performers last year as they earned well over double digit returns. The 10 year Treasury returned over 17% last year as rates dropped from over 3% to under 2%. We have covered in earlier posts reasons as to why rates are so low. In the quest for income, we are continuing to see investors stretch for yield by purchasing longer term bonds. If rates were to rise, these bonds would fall in price. Investors need to begin to evaluate their portfolio for interest rate risk. Those with short term memories only need to recall that four years ago, a one year CD yielded more than 5%.

For a buy and hold investor, purchasing a long term bond could be a significant mistake. If you purchase a 10 year Treasury today and hold it until maturity, you will earn about 2% annually. While inflation is currently below trend, let’s assume it averages 3.5% (the long term average is nearly 4%). This means that if you buy and hold a 10 year Treasury, each year you will be losing 1.5% in purchasing power. In 10 years your investment will buy less than it does today. Consider the following example: A $100,000 investment that compounds at 2% per year, will be worth $125,892 in 10 years. To keep up with inflation, that $100,000 needs to be worth $141,060 in 10 years! Use a higher inflation figure like college costs or healthcare costs and the difference becomes that much larger.

We are not making a call on the bond market or interest rates. Interest rate forecasting is very difficult. A history of 10 year US Treasury Bond rates is below. It is pretty clear from this that we are near a bottom in rates and they cannot go much lower. If history is cyclical and rates were to rise, what would happen to your portfolio? We are encouraging investors to evaluate their portfolios. Stress test your portfolio for what a rise in interest rates would do to the holdings. Analyze your holdings to make sure that you have asset classes that can preserve purchasing power (beat inflation).

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As the Director of Investments for Planning Solutions Group, Jon Giordani provides clients with innovative investment planning strategies. Prior to joining Planning Solutions Group, Jon worked in the institutional market place as a Vice President of Institutional Sales for Deutsche Bank and a research analyst for Croft-Leominster. Jon is a Chartered Financial Analyst (CFA) charter holder and holds NASD Series 7 and 63 registrations. Jon graduated from the Johns Hopkins University where he majored in Economics.

Is This Income Taxable?

Many clients have received various types of income over the years and are not sure whether or not they have to pay taxes on the proceeds. Here is a list of some sources of income and whether or not they are taxable:

Lawsuits: Awards that are received as “Punitive” are taxable while “Compensatory” awards are nontaxable. Compensatory awards are paid to compensate for a prior loss and do not represent a “gain” to the plaintiff, unlike Punitive awards. The judge will determine to what extent the award is allocated between punitive and compensatory.

Social Security Benefits: 85% of your Social Security is taxed if your income exceeds $44,000 if your filing status is Married Filing Jointly, and $34,000 if filing as Single. The Maximum Earnings threshold is $14,640 if under your Full Retirement Age (you lose $1 of Social Security benefit for every $2 of income above this threshold) and $38,880 in the year of Your Full Retirement Age (you lose $1 of Social Security benefits for every $3 of earnings above this threshold).

Child’s investment income: The “Kiddie Tax” taxes all investment income over $1,900 of a child under age 19 (if dependent and full time student, age 24) at the Parents’ rate. (The first $950 is tax free, the next $950 is taxed at the child’s rate).

Disability Income: Disability income benefits are generally taxable if the disability insurance premiums were deducted on a corporate or personal tax return. If not deducted, the benefits are income tax free.

Alimony: Alimony payments received are included as taxable income (and deductible to the party making the payments)

Child Support: Payments are generally not taxable to the recipient.

Cash Rebates: Are generally not taxable but should be subtracted to lower the basis of the asset in question.

Gambling/Lottery Winnings: The winnings must be included in your income, however you may claim (itemizers only) any gambling losses against these winnings.

Life Insurance: Generally, death benefit payments are not taxable to the individual receiving them, however, if the policy is surrendered, the “gain” in the cash value that exceeds total premiums paid is considered taxable income.

Property Damage: As long as the total payments are less than the total cost basis in the property, the award is tax free.

Scholarships: Scholarship awards are nontaxable income, although amounts for Room and Board are to be included in taxable income.

Workers Compensation: Payments received for personal injury and/or sickness incurred on the job are generally not taxable.

Municipal Bond Income: is generally tax free unless you are subject to the Alternative Minimum Tax (AMT). Certain “private sector” Municipal bonds are not exempt from taxation under the AMT system.

Retirement Plan Loans: Withdrawals from your IRA are not taxable if the funds are “repaid” to your account within 60 days. Unpaid 401(k) loans are considered taxable income if you are terminated or leave your employer.
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Don Hannahs has been a Financial Advisor since 1987. He is a founding partner of Planning Solutions Group, LLC. His practice focuses on high net worth business owners, physicians, and retirees in the areas of wealth management, business continuity planning, fringe benefit design, and qualified plan analysis. Don is a Certified Financial Planner (CFP) who has clients throughout the Mid-Atlantic region and Florida.

Control What You Can

Over the last several years of difficult economic times, there is one alarming trend that I continue to see at all income levels that affects your financial security. While incomes remain flat and the markets continue to generate modest, if not negative returns, the American consumer continues to spend above their means. In its simplest form, there are three variables to your financial security: what comes in the door (income), how your assets behave (return), and what goes out the door (spending). The only variable that can truly be controlled is what goes out the door: spending. Incomes are predominately fixed, returns are controlled by the markets, but spending is 100% in your control. Yet, this is not happening. The end result of fixed income, modest returns, and excess spending is a plan behind schedule and reduced long-term financial security. My recommendation is that if there was ever a time for fiscal responsibility, it is now. Reconsider and evaluate expenses!!! Whether it is that trip to Europe, the unnecessary new car, or the extra night out for dinner; everyone should evaluate how these extra expenses will affect their long term security. Don’t get me wrong, I am a true believer in rewarding yourself for a hard day’s work. I just recommend that it is more important now to evaluate the one variable in your control – spending. If you don’t know whether or not you have financial security, or if your plan is 2-3 years old, contact us by entering your information and question in the form below for a review of your situation.

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Robert (Bob) Carson has been a financial planner to the affluent since 1993. He specializes in providing comprehensive financial planning solutions to individuals and business owners. His primary focus is to provide advanced strategies for estate preservation, business succession planning, and asset management. In addition to his focus on clients, he also oversees a group of financial planners and an administrative support team for Planning Solutions Group. In 2001, the partners nominated Bob to act as the Managing Partner for the firm. As the Managing Partner, Bob leads the strategic direction of the firm and implements new business initiatives to improve PSG’s planning, client service, and communication. Bob earned his Bachelors degree in Accounting from the University of Baltimore. He received his Masters of Business Administration from the same institution.

Hobby versus Business?

Many clients are looking for ways to take a hobby and turn it into a legitimate business in hopes of making a profit. While the best outcome would be to generate a profit, taxpayers would be satisfied if they could claim deductions for expenses incurred in pursuing their hobby, even if the losses exceeded the income generated. The IRS has clear rules as it affects Hobby vs. Business issues. Businesses can (and do) lose money, especially in the early years. However the IRS looks at your intention to make a profit and your efforts. Additionally a business needs to makes a profit 3 out of 5 consecutive years (2 out of 7 years for horse racing). If these 2 Safe Harbor conditions are met, then the burden of proof for the lack of profit motive is on the IRS. If a business is classified as a Hobby, you are faced with nondeductible hobby losses. However, 2 years of additional deductions can be of great help to a taxpayer while determining if you truly have a valid business concept.
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Don Hannahs has been a Financial Advisor since 1987. He is a founding partner of Planning Solutions Group, LLC. His practice focuses on high net worth business owners, physicians, and retirees in the areas of wealth management, business continuity planning, fringe benefit design, and qualified plan analysis. Don is a Certified Financial Planner (CFP) who has clients throughout the Mid-Atlantic region and Florida.

Low Rates: Good for Borrowers, Bad for Savers

Since the beginning of the financial crisis, the Federal Reserve has employed several monetary policy tools in the hopes of stimulating the economy and improving employment. One policy has been a commitment to keep short term interest rates near zero for the foreseeable future. Longer term rates have followed the shorter term rates lower. The hope is that the low rates will encourage borrowing which will stimulate demand. For example, corporations could use the cheap money to finance growth strategies, consumers could fund large purchases such as houses or automobiles and local governments could finance capital projects such as upgrading infrastructure. For potential borrowers, these low rates are a tremendous benefit. A $350,000 loan for 30 years is nearly $500 cheaper per month than it was a couple of years ago.

However, the low rates aren’t welcome relief to everyone. If not already, individuals will soon begin to feel the effects of low rates in their pocketbooks:
• Penalty to savings: Prior to 2008, it was pretty easy to find a shorter term CD yielding     5%. Today, this same CD yields less than 0.50%. This is a loss of $4,500 per year of income per $100,000 invested.
• Profitability is being squeezed at financial service companies. Consumers are likely to face   rising fees from banks (remember Bank of America’s attempt to charge $5 per month to use an ATM card?). Here at PSG, we are already seeing insurance premiums being increased by life insurance companies.
• Pension funds and endowments are not hitting their needed returns. Most of these funds are assuming actuarial returns of 7% or more. With 10 year treasury bonds yielding less than 2%, these funds likely don’t have a chance of generating these types of returns. Municipalities may be forced to raise taxes to plug holes to meet the promises made to retirees. Colleges may have to raise tuition if a significant portion of their operating expenses is coming from the endowment.

As an investor, be careful of stretching for income. Any potential investment that is not guaranteed has downside risk. Countless times over the past year, we have been asked by clients how to reposition savings accounts, money market investments or proceeds from a CD that has matured. Our answer has been that if you can’t tolerate any losses, keep it safe. Give up the interest and upside to protect against capital loss. Be wary of investments that offer above average rates.

We recently had a client contact us to look into an investment that another firm was recommending. The client was elderly and did not like losses. However, she also did not want to earn near 0% which was what her savings account was paying. The proposed investment was pitched as a safe, income alternative. We looked at the investment and found that the assets would be invested in a collection of closed-end municipal bond funds. Yes, the investment did offer significant income above that of CDs and savings accounts. However, we pointed out that several of the bond funds lost over 20% in 2008! There was no guarantee the the client’s principal would be returned. In our opinion, this investment did not meet her primary goal of capital preservation.

The bottom line is to understand the opportunities that low interest rates present, but also evaluate your investment options carefully before you take unnecessary risks with money that you need to keep secure and liquid.
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As the Director of Investments for Planning Solutions Group, Jon Giordani provides clients with innovative investment planning strategies. Prior to joining Planning Solutions Group, Jon worked in the institutional market place as a Vice President of Institutional Sales for Deutsche Bank and as a research analyst for Croft-Leominster. Jon is a Chartered Financial Analyst (CFA) charter holder and holds NASD Series 7 and 63 registrations. Jon graduated from the Johns Hopkins University where he majored in Economics.

Financial New Year’s Resolution—Pay Yourself First

For many of us, January is a time to make New Year’s Resolutions. For others, it is a time to start sorting through the bills leftover from the holidays. Regardless of your situation, it is important to put yourself first…especially when it comes to your retirement. Each year, it is wise to consider increasing the amount you save to your 401(k) or other retirement plan and the new 2012 salary deferral limits may encourage you to make a change to your current savings plan.

There have been several changes to the Pension Plan Limits for 2012. The Salary Deferral Limits for 401(k), 403(b), & 457(b) plans have been increased to $17,000 (from $16,500). Unfortunately, for all those individuals over the age of 50, the catch-up contribution limits remain the same at $5,500.

Quick Summary:
• Annual addition limit (now $50,000, formerly $49,000);
• Salary deferral limit (now $17,000, formerly $16,500);
• Maximum compensation to be considered (now $250,000, formerly $245,000);
• Compensation used to determine a Highly Compensated Employee (now $115,000, formerly $110,000);
• Compensation used to determine a Key Employee (now $165,000, formerly $160,000);
• Social Security taxable wage base (now $110,100, formerly $106,800);
• The catch-up contribution limit remains the same ($5,500).

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Richard is the Director of Retirement Plan Services for Planning Solutions Group.  He provides the strategic oversight to the firm’s retirement plan consulting services, and also provides the oversight of the firm’s design, servicing, and monitoring of the retirement plan services offered to our clients.  Richard has been working in the financial services industry since 1994.  As a Retirement Specialist with Brown Advisory in Baltimore, he was responsible for coordinating the marketing, sales, and client service efforts for the firm’s brokers and strategic advisors.  Prior to that, he spent 12 years at T. Rowe Price in Baltimore, working with their largest institutional clients in varying capacities including client service and marketing.  Additionally, he was the manager for the firm’s institutional proposal support team.  Richard holds his FINRA Series 6, 7, 63, 65 and Life & Health Insurance licenses.  Richard graduated from Towson University where he majored in Economics and Political Science.