All About Investment ( Capital Gains) Life Insurance

Update Sept. 07- 2010 All About "Life Insurance For Investment Gain " By Insurance Experts

2010-09-06T07:45:00.000-07:00

Life Insurance For Investment Gains is defined as a life insurance policy which is used to protect any investment gains of policy owner (pay less tax) upon his or her death. Since all investments must be sold upon the death and any gain have to pay up to 25% according tax law including property gain, stock gain, retirement account, if no spouse to transfer, business gain, etc. Life insurance for investment is designated to pay for all taxes, because it is tax free. We provide you with information of all types life insurance which can be used by expert depending on your situation. As always, please consult with your insurance agent or financial adviser for more information

Joint and Survivor Annuity Benefit - For Two-Way Gains For Investors
By Robert C Eldridge Jr

A Joint and survivor annuity benefit refers to contractual savings with an insurance company meant for two individual combinable. For different saving and investment needs of people, an annuity comes in diverse structured formats and plans. These plans and programs of an annuity pertain differently to various modes and frequency of investment and consequently the benefits and the payments.

If an individual subscribes to an annuity plan for his later age benefits, he must take up a plan that actually provides him the benefits along, and to the spouse, and not one that provides a lot of hogwash but no real benefits. Now comes into the picture an ideal annuity plan that is known as the 'Joint and Survivor Annuity Plan'. This annuity plan offers to pay to the retiree the benefits on the basis of the joint-survivor system that allows the annuity holder and his or her spouse to receive the income irrespective of the situation of who departs from this world first.

Since the joint and survivor annuities are meant for two individuals and their consequent benefits, it is most preferred by people. A remarkable joint and survivor annuity benefit is that either of the recipients can derive, or expect to derive, the compensation for their entire lifespan, even in case where one of them is no more living. Another benefit of this annuity plan is that it provides the much needed financial security to the spouse of the first annuitant who may be or may not be an earning individual. Most common kinds of individuals who prefer to purchase this type of annuity plan are the husband and the wife especially where the husband is earning and the wife is a homemaker.

Here are some of the options that are covered under joint and survivor annuity benefit plan -

The 'joint and cent-percent survivor' option has the facility of paying the benefit to the existing spouse at the instance of the death of first spouse. The payment income basically remains same at the time when both of the spouses are alive. Due to this reason only, the income bracket is somewhat lower in comparison to what one generally finds in case of a condensed benefit joint-and-survivor income option.
The 'joint and two-third-survivor' option has provision of paying two-third of the actual benefit at the time of the death of the first spouse. When both the spouses are alive they receive a lofty and lucrative joint and survivor annuity benefit whereas the same benefit gets reduced at the time of the death of the first spouse.
The option of 'joint and 50-percent-survivor' facilitates the payment of half of the actual benefit at the time of the death of the first spouse. This payment option renders more income than the two-third option and less than the cent-percent option.

If the two annuitants of this type of annuity plan are unmarried individuals, the joint and survivor annuity benefit are paid to them in the form of a single-life annuity. This plan has been enterprising enough to allow the primary annuity holders to designate the same sex domestic partners also as their joint beneficiary.

Visit http://www.annuitycampus.com for more Annuity and Life Insurance Tips and Tricks.

Call Robert Eldridge directly at 800-643-7544.

Robert Eldridge holds over a decade of experience as a multiline agent in multiple states and currently serves on the membership council of the National Association of Insurance and Financial Advisors

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Update August 21- 2010 All About "Life Insurance For Investment Gain " By Insurance Experts

2010-08-20T09:53:00.000-07:00

Identifying Undervalued Stocks For Greater Investment Gain
By Sohan Wins

A stock price that is perceived to be very low or inexpensive, as pointed out by a specific valuation form is known as undervalued stocks. These are true to their value, that is higher than the existing value of stock market. Generally, the dividend generated will never notify the exact rate of the stock against market value.
The P/E ratio of the stock is one of the indicators that can show if it is undervalued. Another important factor that will definitely help you to identify the stock at the market prices below the exact value is to look at the volume of the trade. Low trading volume can signify an undervalued stock and, if trading volume is high, it indicates that most of the investors know already about the stock that is priced close to original value.
To determine if the stock is correctly valued or under valued, you can relate it to it's high net profit margin. Another important factor that can help you to signify undervalued stocks that is low is arrears to equity ratio. Companies performing consistently each and every year, but have their stocks priced very low are most likely undervalued.
Most easy and suitable method that investors commonly use to identify undervalued stocks is screener. These stock screener software programs allows you to decide the top stocks to buy, by giving a list of stocks that can meet the specifications and standards you set according to your need.
To enter into this market, it is very important that you know the ins and outs of the trade to avoid risk and maximize your benefits.
To know more about cheap stocks and Top stocks to buy you can visit those links to get an excellent and most recent updates with tips and techniques, to make you a great success at stocks.

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Update August 04- 2010 All About "Life Insurance For Investment Gain " By Insurance Experts

2010-08-04T08:13:00.000-07:00

Equity Indexed Annuities - The Dumbest Investment Ever?
By Matt McCracken

There are a lot of really dumb things you can do with your money and at the top of the list is buying an equity indexed annuity. Notice how I didn't say "invest" in an equity indexed annuity. That's because in order for a product to be an investment it must have some sort of redeemable qualities that merit the allocation of funds to it. In this article, I'll clearly (and painfully) outline why one should never, under any sort of circumstances, buy an equity indexed annuity. My case against these insidious products is divided into four sections which are as follows:

Part I: The Philosophical - How Insurance Companies Make Money
Part II: The Practical - The Nuts and Bolts of the Policies
Part III: The Historical - Track Record for Insurance Products
Part IV: The Actual - Worthless Guarantees

Part I: The Philosophical - How Insurance Companies Make Money

On traditional insurance products, insurance companies make money in three ways: actuarial gains, the float and fees (administrative expenses and such). In this section, I'll explain how insurance companies can only make money off the fees and expenses of equity indexed annuities (EIA) contracts and how these expenses rob you of any hope of appreciable gains.

Actuarial Gains: Actuarial gains are simply the difference between what an insurance company takes in as premium and what it has to pay out in the form of claims. The simplest example is that of a term-life policy. If you buy a term-life policy with a death benefit of $1,000,000 and you pay $2,000 per year over 20 years, then the insurance company will recognize a $40,000 actuarial gain if you don't die during the term. If you do die, they'll recognize an actuarial loss of $1M minus premiums paid.

There are no actuarial gains for an insurance company when you buy an EIA for two reasons. First, every policy holder gets paid. With most insurance contracts (i.e. Home, Auto, Life), the insurance company takes a small amount of money from a lot of people and pays out a lot of money to a small number of people. With an EIA, or any annuity product for that matter, the insurance company takes a lot of money from people and returns some percentage of that amount in equal proportions to all the policy holders.

Second, actuarial gains can only be achieved when insuring against non-systematic risk. An EIA is providing insurance against a systematic risk since every policy holder will be exposed to the same set of circumstances - the price performance of the index. If the market crashes, every insured account crashes. Insurance companies cannot realize actuarial gains when every insured realizes the same investment returns.

The Float: Interest and capital gains on the float are the primary means that insurance companies have of making money. The float is the use of insurance premiums up until a claim is paid out. Take a car insurance policy for example. Assume you pay $1K in premiums for 5 years. In the 5th year, you get in an accident and the claim is $5K. Even though the insurance company will not realize an "actuarial gain" on your policy, they will have realized income on the premiums dollars prior to paying your claim.

(Editorial Note: The float is why Warren Buffet's initial purchases were insurance companies. Berkshire Hathaway is technically an Insurance Company. Buffett knew that he could allocate investments better than just about anyone else so he bought a company that had a lot of money to invest.)

There is no float for the insurance company in an EIA. The vast majority of the purchase needs to be invested in the index. With all other types of insurance premiums, the company can do whatever they please with the money until they have to payout the claim but with an EIA, they have to fully invest the premiums so that they can keep up with the redemption value of the policy.

Fees and Expenses: This is the nickel and dime stuff. Those nasty little line items that appear on your statement or bill. This is the smallest piece of the profitability pie for insurance companies on normal insurance products (home, car, ect.)

But with an EIA, the only way for an insurance company to make money is from fees and expenses. These fees and expenses are carefully hidden underneath mountains of actuarial and legal documentation but they are most certainly there. It is well documented that the key to successful index investing is keeping expenses to an absolute minimum. The market only returns between 7-11% over any fixed period of time and if you load up expenses, your account will never outperform a more secure bond portfolio.

Part II: The Practical - The Nuts and Bolts of the Policies

In this section, I'll address four distinct attributes of index annuities which make them possibly the dumbest thing you can do with your money short of burning it. They are:

No credit for dividends
The number of people getting paid on the policy
Tax treatment of index funds vs index annuities
Market volatility
Surrender charges

No credit for dividends: When you own an EIA, you do not receive any compensation for dividends paid by the companies in the index. The contract value goes up in line with the price change of the value of the index. Currently, the dividend yield for the S&P 500 is 1.8%, therefore, before expenses and fees, an EIA will automatically under perform the S&P 500 index by 1.8%.

1.8% may not sound like a lot, but over 20 years the difference is substantial. A $100,000 lump sum earning 10% invested for 20 years would be worth $672,750 where as this same investment receiving 8.2% would only be worth $483,667 - a difference of $189,084. Now you know why the insurance company is willing to such steep commissions to sell these things.

The number of people getting paid on your policy: When considering any investment, you should always ask yourself, "How many people are getting paid before me?" With any "sold" investment product the investor is the last person to get paid. Everyone makes money before you, but the question is how many and how much. Here is quick rundown of who is going to get "theirs" before you get "yours".

The agent/salesperson/broker: Commission on these products range from 5% to 14%. The majority pay commissions in the high single digits.
The sales organization: Whether your agent is a broker or a captive salesperson, there are layers of sales managers on top of him who all receive a nice override on your purchase.
The underwriter: Insurance companies have never been or never will be the altruistic type. They have one objective and that is to make money.
The Investment Manager: Fidelity charges 1/10 of 1% for their index funds. Anything more and you're paying too much. While it is impossible to tell what sort of "cut" the investment team for an EIA is receiving, you can be assured that it exceeds what Fidelity or Vanguard charges for their index funds.

Tax treatment of index funds vs. index annuities: The only valid reason to ever invest in a deferred annuity contract is for the purpose of tax deferral. I cannot possibly conceive how an insurance company can even begin to promote the benefit of tax-deferral when selling annuities FOR ALL PRACTICAL PURPOSES, INDEX FUNDS GROW TAX-DEFERRED TO BEGIN WITH. THEY DO NOT NEED AN INSURANCE CONTRACT TO GROW TAX DEFERRED!

Furthermore, an annuity is the only investment where long-term capital gains are converted to ordinary income and taxed at a higher rate. The ugly truth about index annuities is that they create a greater tax burden for the investor than an index-tracking mutual fund. The fact that an insurance salesman even utters the term tax-deferred or tax-preferred when selling an EIA is practically blasphemy.

The largest mutual fund in the world is Vanguard's S&P 500 Index fund (VFINX). Over the last five years, only 3% of its average annual gains were recognized and taxed, where as 97% of its gains was tax-deferred. Therefore, it has grown 97% tax efficient (Source: Fidelity Investments). Furthermore, given the nature of indexes, it is safe to assume that all or most of the gains were taxed as long-term capital gains which carry a maximum tax burden of 15%.

Market volatility: While index annuities supposedly insure you against losses during down years, they also limit participation in up years. They limit the upside participation in two ways. First, they will limit the amount of upside by capping gains at a certain percentage. Second, they may limit the percentage of gains that you can participate in. The contract may have one or both types of restrictions. Often times, it is a combination of both such as 80% up to 10%. Index annuities are set up this way because the insurance companies are counting on you being naive about the nature of market volatility. The truth is that markets are very volatile year in and year out.

The average up year for the Dow Jones Index since 1920 is 19.2%. Therefore, if you're only participating in the first 9%, you'll realize less than half of the market's potential in up years.

Assuming that you invested in an EIA tied to the Dow Jones Industrial Index (DJI) that provided 100% participation but its annual earnings were capped at 9%, your average annual return from 1920 through 2005 would have been 5.1% versus an average return for the index of 7.6%. With dividends, an investment in the DJI would have yielded 11.8% annually. (I used the DJI because it has a much longer history than the S&P 500 and I already had the data. Most annuity contracts are tied to the S&P 500 which is even more volatile than the DJI so the impact would be even more severe.)

This is how the insurance company makes their money from an annuity contract. They have the capital and discipline to withstand market corrections because they know in the long-run they will make a killing on the policy. The truth is that average market swings are greater than 17%, in either direction. So while you'd miss out on some down years, you also miss out on most of the gains during up years.

Surrender Charge: Never buy anything where there is a penalty for liquidating it - PERIOD! If a product has merit, why is there a need to apply a penalty for getting out of it?

Part III: The Historical - Track Record for Insurance Products

History has not been kind to the investments recommended by Insurance Companies. In this section, I'll examine the track record of products sold by insurance companies over the past four decades. (I'm going to address the investment performance of life insurance contracts versus annuities because the variable/EIA is a relatively new phenomenon only dating back about a decade)

Life Insurance in the 70's

The majority of life insurance contracts sold in the 70's where called whole life policies. A whole life policy is one that is guaranteed to pay a specific death benefit. The nature of the contract is full guarantees. The premium is guaranteed not to increase, the death benefit is guaranteed for the life of the insured and so on. These policies were very popular in the 60's and early 70's when interest rates were at historic lows. But guarantees have one big enemy - INFLATION.

Inflation erodes the buying power of any future income so while the gross amount of money that the beneficiary receives never goes down, the real amount adjusted for inflation can depreciate substantially. In the 70's, possibly the worst investment you could have made would be one that paid a low, fixed, guaranteed rate of interest - which is what whole life policies did.

Life Insurance in the 80's

Inflation was destroying Whole Life sales in the 70's as interest rates soared for the entire decade. Insurance companies were slow to react but came up with a solution which was the Universal Life (UL) policy. UL policies pay a variable rate of interest which is linked to some sort of "official interest rate" (The "official interest rate" can be any number of options such as Treasuries, LIBOR, ect.)

Interest rates peaked in the mid-80's and have decreased ever since. The 10-year treasury peaked at 13.56% in June of '84 and bottomed in June of '03 at 3.33%. The track record for UL policies is pitiful (I know personally b/c when I first started in the Financial Services business, I was given a handful of UL policies that were about to lapse despite the original illustration showing them having millions of dollars.)

While bond investors in the mid-80's saw their investments appreciate as bond yields decreased, UL policy holders saw their policies lapse as the "illustrated" interest rates were significantly more than realized interest rates. One of the most foolish investments in the 80's would have been buying a non-guaranteed policy where the investment returns were tied to interest rates that would decline over the next two decades.

Life Insurance in the 90's

Declining interest rates and low inflation made UL policies obsolete so the insurance companies reacted with a new product called Variable Universal Life (VUL). This product allowed a policy holder to invest in pseudo-mutual funds, called Variable Portfolios that invested in equities and bonds.

While some early adopters started offering policies in the early 90's, the idea didn't really take off until the mid to late 90's - just in time to suffer the steep losses in the tech bubble. In order for these policies to "work" they had to be wholly invested in equity funds which got obliterated in the Tech crash.

Life Insurance and Annuity sales in the 2000's

As a result of the worst bear market since 1929, Insurance companies developed products that combined some of the benefits of market participation along with guarantees. There is a whole host of them of which EIAs is one of them.

An EIA provides limited upside market participation with a protection against losses. This is all well and good except for the fact that inflation is again taking hold of our economy. As I stated previously, the last thing you want to buy in an inflationary environment is a low-interest guarantee. EIAs provide nothing more than a dress-up low-interest investment product. They guarantee against loss in capital but not against loss in purchasing power.

Historically, insurance companies always get it wrong. They create "fad" products that their sales force can sell using manipulative sales pitches designed to create an emotional response in the prospective client. These products have never done well and I think its foolish to believe that it will be any different with the products they are currently pitching.

Part IV: The Actual - Worthless Guarantees

In my opinion, the guarantees provided by the insurance companies are absolutely worthless. Over the next decade, the stock market will either be higher or lower. If the stock market is higher, your guarantee is worthless and you would have done much better in an equity index fund. If the market is lower, it will be the result of a multi-year depression resulting form excessive US debt, a steep decline in the US dollar and a severe contraction in consumer spending by Baby Boomers.

There has already been a 50% decline in stocks this decade. While a severe pullback in equity prices over the next couple of years is possible, the likelihood that the markets will be in down over the next decade is minimal unless our nation's economy suffers some sort of catastrophic event (Banking crisis, US$ crash, ect.).

If the US economy suffers a catastrophic event, it would call into question the liquidity of our nation's banks and insurance companies. Every EIA will "be under water" a. This will lead to a run on these assets that the insurance companies won't be able to meet. Furthermore, whatever the insurance company has to invest of their own money is invested in the same asset classes as the EIA. If index annuities are under water, the insurance company's portfolio is going to be down as well. Combine both of these factors and I would assume that any insurance company offering index annuities will be insolvent.

Conclusion

As I stated earlier, index annuities are possibly one of the worst investment options for your money. If you have been approached by a salesman seeking to put your money into an annuity, I encourage you to ask him the following questions:

How much lower will my average returns be since I won't receive any dividends?
Why would I need the benefit of tax deferral when an index mutual fund essentially grows tax-deferred?
How much are you getting paid to sell me this product? (My personal favorite)
What is the average percentage change in the market index each year? (I would suppose that any salesperson doing any sort of due diligence on a product would know this. If the answer is anything other than around 17% per year, you're being lied to.)
How would the performance of an EIA stack up against a simple portfolio of laddered, investment grade bonds? (A portfolio of diversified investment grade bonds would theoretically have a lower default risk than an EIA, a more predictable income stream and in all likelihood higher returns over both the short and long-term.)
How much would I have to pay if I want to get out of my investment in one, two, three or four years? How long is the surrender charge?
How does this investment protect me against inflation? (the answer is that it doesn't because stocks and their indexes tend to perform poorly in an inflationary environment, furthermore, stock markets are extremely volatile in inflationary environments which means that you'd miss out on more upside.)
How long have you been in the business? What were you selling a decade ago and why aren't you selling that anymore? How do I know the same won't happen to my EIA?

Insurance companies prey on people's emotions. They sell greed when people are greedy and they sell fear when people are fearful. These new instruments are trying to meet both objectives - appeal to both greed and fear. The unfortunate trade off is huge fees and complicated formulas that guarantee one thing and one thing only - the insurance company will make money and you won't. If you want a real guarantee, buy short-term US Treasuries or a diversified, laddered portfolio of investment grade bonds. They are far safer than index annuities and will likely outperform them in both the short and the long-term.

Matt McCracken is the principal and founder of McKinney Avenue Capital, a Registered Investment Adviser based in Dallas, TX. He serves as a fee-only financial advisor and asset manager [http://www.investorsadv.com/market-outlook] working with individuals, foundations and trusts.

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Update July 18- 2010 All About "Life Insurance For Investment Gain " By Insurance Experts

2010-07-17T16:07:00.000-07:00

Best Variable Annuities - Retirement Investments Made Simple

By Robert C Eldridge Jr

To understand and choose the best variable annuities you should first be knowledgeable about variable annuities. A variable annuity may be defined in simple terms as a contract between the insurance company and the insurer (yourself). This contract is based on an agreement by the insurance company to make monthly payments to you; these payments can begin immediately or at a future date. The contract is purchased by the payment of a lump sum amount or through a series of payments.

Variable annuities offer the investor a range of investment choices and the value of your investment will depend on the investment options you choose. These options comprise mostly stocks, bonds, money market instruments or some combination of the three. Though variable annuities are invested in mutual funds they are not to be considered mutual funds because:

1. You receive periodic payments for the rest of your life or your designated beneficiary does.

2. There is a death benefit attached to variable annuities that guarantees that your beneficiary will receive a specified amount in the event of your death.

3. Variable annuities have the advantage of being tax deferred; no income tax is levied on income and investment gains until you actually start withdrawing your money.

One of the biggest financial risks most people face is not volatile market conditions and the loss of savings but longevity. 'Will you outlive your money?' has become a burning issue for most people. Preparing for a long and happy retirement life is of great importance and with it comes choosing the best variable annuities to see you safely through.

One type of investment is the immediate annuity plan - you give the insurer an amount of money and the company will pay you an agreed upon amount of money every month for the duration of your life. This is a good scheme provided your insurer stays solvent and is able to make the payments over your life span. If you break the contract you could end up paying a very large penalty, so choose wisely.

When choosing the best variable annuities you need to base your selection on one main principle - the company should be a long standing one of high repute. Insurers should be able to offer you immediate annuity options and have an 'A' rating (for financial safety) from Moody's Standard and Poor's among others. Make sure the company you choose has ratings from at least 2-3 services that provide the ratings. Then you consider the size of the monthly payouts; women are expected to have a longer life expectancy ratio hence the payouts are smaller for them. You could add inflation riders to your annuities to guarantee yield return but need to be sure it is a good option for you.

One important tip to bear in mind when choosing best variable annuities is not to invest more than $100000 with any one insurer. The reason: the state guaranty fund covers the annuitant in case the company folds up to a limit of $100000, hence it does not make sense to invest more money with any one insurer.

Visit http://www.annuitycampus.com for more annuity tips and tricks.

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Update June 30- 2010 All About "Life Insurance For Investment Gain " By Insurance Experts

2010-06-30T07:41:00.000-07:00

Identifying Undervalued Stocks For Greater Investment Gain

By Sohan Wins

A stock price that is perceived to be very low or inexpensive, as pointed out by a specific valuation form is known as undervalued stocks. These are true to their value, that is higher than the existing value of stock market. Generally, the dividend generated will never notify the exact rate of the stock against market value.

The P/E ratio of the stock is one of the indicators that can show if it is undervalued. Another important factor that will definitely help you to identify the stock at the market prices below the exact value is to look at the volume of the trade. Low trading volume can signify an undervalued stock and, if trading volume is high, it indicates that most of the investors know already about the stock that is priced close to original value.

To determine if the stock is correctly valued or under valued, you can relate it to it's high net profit margin. Another important factor that can help you to signify undervalued stocks that is low is arrears to equity ratio. Companies performing consistently each and every year, but have their stocks priced very low are most likely undervalued.

Most easy and suitable method that investors commonly use to identify undervalued stocks is screener. These stock screener software programs allows you to decide the top stocks to buy, by giving a list of stocks that can meet the specifications and standards you set according to your need.

To enter into this market, it is very important that you know the ins and outs of the trade to avoid risk and maximize your benefits.

To know more about cheap stocks and Top stocks to buy you can visit those links to get an excellent and most recent updates with tips and techniques, to make you a great success at stocks.

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Update June 11- 2010 All About "Life Insurance For Investment Gain " By Insurance Experts

2010-06-11T05:29:00.000-07:00

The Facts About Cash Value Life Insurance - What Suzie Orman Won't Tell You About Buying Insurance

By Michael Lee McCoy

For years now, made for TV experts and infomercial wizards have been dispensing financial advice to millions of eager Americans. Celebrity advisors such as Suzie Orman and Dave Ramsey for example, utilize the television media, to provide consumers advice on everything from credit issues and home mortgages to stock market investing and life insurance. As a result, many of these advisors have amassed thousands of devoted followers of their brand of financial wisdom while making income from the sale of books, CD's, newsletters, etc. There is nothing wrong with utilizing the media to build your "brand" and increase your visibility. In fact, this is an accepted and highly successful technique for building a financial services business. However, the information provided by many of these "experts" often reflects a certain philosophical bias that can be short sighted, self serving and not reflective of individual financial circumstances. The hallmark of good financial advice is that recommendations are always based on conducting a thorough investigation to determine an individual's current financial situation and future plans. Only with the knowledge of a client's current assets and resources, investment risk tolerance and priorities for the future can a financial advisor be sure that their recommendations are right for any individual. Without this knowledge, all financial advice is generic and thus may not be right for everyone.

No where is this type of one size fits all advice more prevalent then in the belief that when it comes to buying life insurance, term coverage is always best. Suzie Orman, Dave Ramsey and others, have expressed the opinion that consumers, in all cases would be better off buying low cost term life insurance versus the more expensive cash value permanent life policies. They routinely advice listeners to purchase less expensive term insurance and utilize the money saved on costlier permanent life insurance to invest in the stock market mutual funds, IRA's or other market driven products. In the insurance industry, this is referred to as (BTID) "Buy Term and Invest the Difference". Proponents of the "BTID" philosophy argue that cash value policies are not sound long term investments because life insurance companies invest too conservatively in order to generate the returns guaranteed to cash value policy holders. The "Buy Term and Invest the Difference" crowd advocate a more aggressive investment approach for premium dollars beyond what life insurance companies can expect from the conservative markets. They also argue that you will only need life insurance for a short period of time anyway, just until you have accumulated enough through debt consolidation, savings and investments to live comfortably. Orman on her website explains, "If you are smart with the money you have today and you get rid of your mortgages, car loans and credit card debt and put money into retirement plans you don't need insurance 30 years from now to protect your family when you die".

Clearly eliminating personal debt and investing wisely are worthwhile and important financial goals for everyone and should be given the highest priority in any financial recommendations. On the other hand, if you are unable to achieve a debt free lifestyle or realize substantial market returns, you run the risk of losing your insurance protection due to premium increases or becoming ineligible to qualify for coverage when it is needed most.

Real World Experience
The "Buy Tem and Invest the Difference" concept makes sense until you examine it's it closely and compare it with the real world experiences of life insurance buyers. Looking at the experiences, of many policy holders who buy term life protection with the intent to invest their premium savings, we see why this strategy may not be practical for the average consumer. Most consumers are neither experienced nor consistent market investors nor do they have the time and discipline necessary to become successful market players. The results are that most consumers eventually buy term insurance and never invest the difference. Or in other words "Buy Term and Spend the Difference".
A 2003 Harris Interactive study found that 77% of more than 1,000 Americans surveyed had bought term insurance as a way to save for long-term financial goals. But only a third of them could identify those goals, and just 14% invested all the money they saved by buying the term policy. By contrast, 17% spent it all.
According to 2007 Dalbar Report', investor results over a twenty-year period (1987-2006), showed that the average investor only earned 4.3% during a period where the S&P 500 yielded 11.8%, And, this was during one of the best bull markets on record. And, it doesn't include the 2008 stock market downturn nor does it consider investor fees or expenses paid. Clearly many people are being misled when it comes to actual returns experienced by the average investor. The average investor never realizes higher interest gains on their premium savings and as a result of " BTID" generally find themselves without life insurance coverage because they can no longer afford the higher term premiums or no longer qualify for coverage.
IRS Taxes:
Another reason to question the "BTID" philosophy is that even where consumers are successful in achieving higher investment returns from mutual funds earning, all such returns are subject to capital gains taxes.
Insurance buyers must factor in taxes when comparing the guaranteed returns from cash value life insurance versus mutual funds shares. The interest returns on mutual funds gains are subject to as much as, 25-38% in taxes, depending on one's income tax bracket. In addition, mutual fund gains must also be adjusted to account for the investment fees these fund providers charge share holders for the opportunity to invest. These fees will further erode any positive market gains achieved. The question is what is the true rate of return on mutual fund shares compared to guaranteed returns found in most cash value policies?

Market Volatility:

The BTID concept presupposes you will have no further use for life insurance because you will have generated sufficient market returns through this more aggressive investment strategy which will out pace any potential cash values generated through conservative returns on whole life. However, we know the stock market can be a tricky thing to predict especially for investors who depend on market returns to provide retirement income, and create legacy assets. The stock market in 2008-2009 provides a recent example of how difficult it is to create returns when they are needed the most. "In the 12 months following the stock market's peak in October 2007, more than $1 trillion worth of stock value held in 401(k)s and other "defined-contribution" plans was wiped out, according to the Boston College research center. Whether it is 401K shares or individual mutual funds, all investors are subject to market risk and timing near the end of their working careers which can still blow their savings and future retirement plans.

Will you need Life Insurance?
What Suzie Orman, Dave Ramsey and others are missing is that the arguments about the rate of return you can get from cash value insurance are completely secondary. The main reason to own cash-value life insurance is the permanent nature of the coverage. We face greater financial risks during our retirement years than at any other point in our lifetime. Even if you can afford to self insure, many of these financial risks can be managed most effectively through owning life insurance and by shifting the risk to an insurance carrier rather than assuming all the risk yourself. The disadvantages of not having life insurance at retirement are far greater than any potential benefit gained by self insuring. Since life insurance is cheaper and easier to purchase when you are young and healthy it makes more sense to lock in fixed insurance premium rates and provide lifelong financial protection for your loved ones. In addition, life insurance can not only protect one from the risks of premature death, but can also provide protection from the risks of outliving your retirement savings, help pay estate taxes, and replace lost pension income. With more and more people living into their 80s, 90s and beyond, the real fact is that lifetime insurance coverage cannot practically or affordably be maintained with term insurance.

Price versus Value

Many people are familiar with the concepts of homeownership. In general, most Americans accept the financial principal of homeownership without question. The principal that owning is always better than renting is part of the American cultural legacy. Why because it is about value and not the price. Well this same principal can be applied relatively easily to owning a cash value policy. The example below shows you how closely buying and owning cash value life insurance resembles buying and owning a home:

o You pay more up front to purchase a house and to buy Cash Value Life Insurance.
o They both build equity over time and free of income taxes.
o After a number of years owners usually can get all their money back with a reasonable interest return.
o You can access your home equity and policy equity only buy selling or by taking out a loan against them
o If you take a loan against them, you can use that money tax-free.
o You don't pay income taxes on the value of the house or the CV Life Insurance until you sell them.
o Both a home and cash value life insurance are considered financial assets.

Advantages of Cash Value Life Insurance versus Term Insurance

Benefits of Ownership Cash Value Life Term Life
Premiums that never increase over time Yes No
Your cash values accumulate tax deferred. Yes No
The cash accumulated in your policy can provide you with a
tax-free income in retirement. Yes No
Creates a liquid 'Emergency Fund' Yes No
Considered asset when applying for bank loans Yes No
Guarantees - Only Life Insurance and Annuities guarantee your
investment principle Yes No
Cash values can be accessed income tax-free and penalty free prior

to age 59½. Yes No
Cash value life insurance is not attachable by creditors. Yes No
Cash value life insurance doesn't count as an asset when you apply
for college financial aide. Yes No

Conclusion

The success of people like Dave Ramsey and others in shaping the debate over term versus permanent insurance is largely based on unrealistic assumptions and misconceptions about the benefits of cash value life insurance. Their advice while otherwise sound, when it comes to buying life insurance does not reflect the realities of the experiences and habits of the American consumer. A larger question is why are so many people touting the benefits of "BTID", including insurance carriers like, Primerica, Inc., (Division of Citigroup), which bases it's entire marketing strategy on the BTID philosophy. In my opinion, the answer is two fold. One, the insurance industry has done a poor job of educating the public regarding their options. Two, term insurance is a highly profitable and less risky product for all life insurance carriers. Think about it! They are only on the hook for a short period of time-minimum of one year and a maximum of 30 years. There are no additional cash values obligations or potential dividend payouts to be accounted for.

Additionally, according to industry statistics, only 1-2% of all term policies actually pay out a death claim to the policyholder. This suggests that the majority of policy holders either lapse their term contracts before the end of the policy period and thus receive nothing for the years of premium payments made nor retain any of the insurance protection from the policy. In addition, companies like Primerica, also earn additional fees and commissions from the sale of their mutual funds to policy holders. This makes "BTID" a good marketing strategy for the certain insurance companies but not necessarily good for consumers. Consumers should consider the total amount of insurance coverage they will need to protect their families, and for how long they will realistically need the coverage, before purchasing any life insurance. The most important life insurance buying strategy is to make sure your family has the right amount of coverage, whether that becomes term, permanent or a combination of both. However, in my opinion, owning a cash value life insurance policy is a better value than buying term insurance as long as you can afford it. If you need life insurance and can get comparable returns to the market without the risks, more guarantees, tax free income, plus other benefits, then why not buy cash value life insurance? Consumers should not be fooled into accepting simplistic advice such as "buy term and invest the difference" just because it comes from someone with a TV show.

Michael McCoy is President of Las Vegas based McCoy & Associates. Mr. McCoy is well known financial educator and retirement consultant to affluent seniors and other retirees. He is the premier retirement income and defensive asset allocation strategist. He has published several articles on retirement investing and has been assisting senior investors for the past 8 years. Michael's practical investment experience has helped him develop a knack for working with retirees and those about to retire who are seeking to protect their principal and make their money last. He focuses on teaching investors age 60+ how to preserve their assets, increase their income and reduce the taxes they pay.

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Update May 21 - 2010 All About "Life Insurance For Investment Gain " By Insurance Experts

2010-05-21T06:03:00.000-07:00

Stock Market Crash Impacts Variable Life Insurance Polices

By Michael Kortz

More than just your stock portfolio will feel the pinch of the recent stock market crash. Your variable life policy may also be in danger of taking a downward spiral.

Variable life policies have experienced increased popularity over the past decade- currently accounting for 40 percent of life insurance premiums. This type of policy has become increasingly attractive because of the substantial tax advantages and larger cash value gains. However a variable life insurance policy exposes you to a higher risk because your policy's value is directly tied to the investments you make.

How Variable Life Insurance Policies Work

Variable life insurance develops a cash value over time. The cash value of the policy may be invested in a variety of different accounts, similar to those found in a 401(k). The mix of investments is completely at the discretion of the policy holder, and many policy owners select an all equity allocation. This subjects the policy to dramatic fluctuation of its cash value. Stock market gains can result in a rise in cash value which can lead to a cash rich policy. However, large market losses could result in negative consequences.

Polices in Danger of Collapsing

Many variable life insurance policies have been minimally funded in hopes that stock market gains will help fund their policy. A large amount of policies were sold with the assumption that the stock market would consistently provide big returns. But with the recent stock market plummet these policies face serious risk. Depending on which subaccounts have been selected, a policy may experience a 30-50% decline in policy value which could be devastating to the policyholder.

Protecting your Policy from Market Risk

There are strategies you can implement to protect your life insurance policy from lapsing. Understanding your choices in these tough economic times will assist in protecting your investment.

Ramp up funding. Funding your existing policy at a much higher level can make up for the "evaporation" of your cash value. This will help keep your policy in force, and possibly avoid a policy lapse.
Reduce the death benefit. Reducing your policy's death benefit may allow you to keep your premiums at their current level. However, this tactic may expose you to surrender penalties, especially if your policy is relatively new.
Invest in a fully-guaranteed policy. Switching your life insurance to a fully-guaranteed policy will protect your policy and cash value from lapses regardless of market conditions.

Understanding the correlation between the stock market's downward spiral and your variable life insurance policy is important. Evaluating your current policy and making the necessary changes can salvage your investment and protect from future risk.

For those who own a variable life insurance policy, it might be time to consider one of the newer fully guaranteed universal life policies. Regardless of what the stock market does, these policies are guaranteed to provide coverage as long as the level premiums are paid.

About the author:
Michael Kortz, RFC, RR is a Registered Financial Consultant (RFC) who holds a degree in Economics from the University of California at Irvine. He has been an insurance broker and investment advisor since 1999 and has helped hundreds of people with their life insurance nationwide. He operates a boutique financial planning firm in San Clemente, CA. He offers complimentary life insurance policy evaluations and can be contacted at (866) 606-2261 or Life Insurance Agent.

To request a policy evaluation by Michael Kortz, RFC, RR, please visit Life Insurance Quotes and Policy Reviews.

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Update May 01 - 2010 All About "Life Insurance For Investment Gain " By Insurance Experts

2010-05-01T06:03:00.000-07:00

How Can a Life Insurance Policy Be a Good Investment?

By Janet Majoulet Foust

With a lot of the news surrounding the economy and how bad it is, I thought it might be a great time to discuss life insurance and how it might be time to really consider it as a way to diversify your portfolio.

A dear friend of mine forwarded a link to a discussion on CNBC about how life insurance is a good investment. Now, I have to admit, I have always known that a life policy with a cash value option is a good product to have in your portfolio. I was really happy to see someone who agreed with me. If you would like the link, please email me at my address below.

Whether the economy is good or bad, you cannot go wrong with a life policy that allows you to save in a cash value account. Why? Because your cash value savings is tax-free! Yes, this is one of those very few places that the government still allows us to save tax-free. With a guaranteed interest rate of 2-4% on most of these life policies, if you calculate in the fact that you are not going to pay taxes on the GAINS, it's a win-win situation.

Why is tax-free savings a good thing? Here is an example of how taxation works:

If you take a dollar and double it 20 times and minus the tax, you will have about $28,466 left.

But, if you take that same dollar and double it 20 times, without tax, you will have about $1,048,576!

This example should show you the power of saving tax-free.

Here is a great explanation of EIUL that I found on line:

Equity indexed universal life insurance offers a unique combination of affordable life insurance with the ability to accumulate cash values that grow with the upward movement of a stock index without the normal downside risk associated with the equities market. Combine the benefits of upside cash value growth potential with the tax benefits associated with life insurance and a minimum guaranteed interest rate and you have an optimum vehicle for accumulating cash.

The important part to understand is that you are participating in the market, BUT you are not going to be participating in the downside risk. What that means is you will enjoy the gains, but if the market goes down, your cash value does not go down in the slightest. You will keep all your gains and not risk a dime.

I recommend that everyone should at least look into an EIUL policy as a way to diversify your investment portfolio without much risk. There are many things you need to know about an EIUL policy, and your insurance agent can help you determine if it is right for you. Some of these policies can be expensive to purchase. There are also limits to how much you can put in this account each year, but the good news is, the amount you can save within the policy is always more then the annual limit on an IRA. Also remember, this is tax-free savings, not tax deferred.

I help women and heart-based business owners learn how to get to the core of their inner and outer money blocks and to bring about a successful joyful relationship with money and finance.

Go to http://www.wealthharvest.com and sign up for my FREE gifts, including a free e-course called 7 Steps To A Successful Heart-Based Business.

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Update April 02 - 2010 All About "Life Insurance For Investment Gain " By Insurance Experts

2010-04-02T06:34:00.000-07:00

Alternative Minimum Tax Planning - Investments - Capital Gains

By George Bauernfeind

Capital gains are income derived from the sale of property, most typically investment property. While capital gains are not directly an AMT preference item, they do have an impact on a taxpayer's Alternative Minimum Tax, and, therefore, are an essential element of AMT planning. One real-life scenario with which the writer is familiar involved a retiree with what one would call a typical investment portfolio, including mutual funds, and it was solely a larger-than-usual year-end capital gain distribution from one mutual fund that threw that individual into the AMT.

For a little review, capital gain income historically has been taxed at a rate lower than the rate that applies to other, "ordinary," income such as salaries and wages and interest income. This lower rate applies only to "long-term" capital gain (LTCG), which means the taxpayer must hold the property for over one year before selling it. Under current law, most dividend income also receives this favorable LTCG treatment.

In general, the tax rates that apply in computing the Alternative Minimum Tax are different from the rates that apply in computing the Regular Tax. However, LTCG is taxed at the same rate for both computations - typically 15%. Thus, a LTCG by itself is not an AMT item. Despite this treatment, however, a LTCG definitely can be a factor that triggers the AMT.

Here's what happens. First, every taxpayer is entitled to an AMT Exemption amount. This Exemption is designed to prevent taxpayers with only small AMT items from paying the AMT. For example, a couple filing a joint return for 2009 is entitled to an Exemption of $70,950. Unfortunately, however, this Exemption is phased out as the taxpayer's income increases. The actual phase-out is the loss of $1 of Exemption for every $4 of additional income (i.e., at a 25% rate). So even though LTCG is not a preference item, the more capital gain a taxpayer has the more of his Exemption is phased out and, thus, the more likely he is to pay the AMT. This is exactly what happened to the retiree mentioned above, who, by the way, also happened to be 90 years old at the time. While it may not seem right, there certainly is no AMT forgiveness even for old age!

To illustrate how this works, assume a taxpayer realizes an additional $10,000 of LTCG. In comparing the tax rate schedules for the AMT and the Regular Tax, one would conclude that this capital gain income would have no impact on the taxpayer's AMT because it is taxed at the same rate under both computations. But here's what actually happens by adding $10,000 to taxable income:

(a) Income increase of $10,000
(b) AMT Exemption Phase-out (25%) = $2,500
(c) Increase in AMT Income (a) + (b) = $12,500

This increase in AMT income at a rate 25% greater than Regular taxable income is the problem. It is simple math - the more AMT income taxed, the greater the chance of being pulled into the AMT.

In summary, an AMT payer definitely needs to factor capital gains into the equation when doing any tax planning. With year-end now only a little more than two weeks away, anyone thinking of recognizing gains this year had better take this into account.

George Bauernfeind is with AMTIndividual.com, providing analysis, customized strategies, and an online dual tax calculator / planner to help you reduce your Alternative Minimum Tax. Visit http://amtindividual.com or http://amtblog.com for access to this tax software and to read more tax planning articles on the Alternative Minimum Tax.

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Update Mar. 13 - 2010 All About "Life Insurance For Investment Gain " By Insurance Experts

2010-03-13T04:33:00.000-08:00

Using Permanent Life Insurance to Fund a College Education

By Will Barnes

Permanent life insurance, either universal life or whole life, written on one of the parents is excellent as either a primary or alternate funding vehicle to pay for a child's college education. There are several good reasons.

1. Life insurance is a "self-completing" plan. If a parent dies while the child is still young, life insurance would pay an income tax-free death benefit to the beneficiary (presumably the surviving spouse) who can use that money for the child's college education.
2. Cash value in a life policy will not only grow tax-deferred, but can be removed tax-free (within limits) for college expenses, through policy loans.
3. After borrowing from the policy, it will still have cash value that can grow for years to come. When the parent is in retirement, he or she can access that cash through withdrawals and policy loans. This is using your policy to its greatest potential.
4. Also, money in a permanent policy is not a countable asset when a child applies for college financial aid.

Self-completion, locked-in investment gains, tax-favored access to cash throughout the owner's life, and exemption from countable assets are significant values to the client.

Furthermore, the client may choose to have his children take out student loans to pay for college knowing that the interest rate is very low and that the money in the life policy will grow at a better rate. This provides leverage and options for the parent, and the ability to give more money to the child tax-free later on, to pay off the student loans and then some.

Keep up to date with timely financial tips and subscribe to the free newsletter. Visit http://www.youcontrol.blogspot.com Will Barnes is a financial and personal growth consultant based in Illinois.

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Update Feb. 19 - 2010 All About "Life Insurance For Investment Gain " By Insurance Experts

2010-02-19T04:15:00.000-08:00

"Life Insurance is a Terrible Investment" - Or Is It?

By Michel B.

Focused on maximizing your gains, many financial counselors advise, "Life insurance is a terrible investment." When the Dow-Jones industrial average climbs 20% in one year and whole life insurance policy earns only 2%, why would you choose to live with that ten-fold discrepancy? It defies common sense, the advisors emphasize; and their logic speaks for itself.

However, financial advisors' numbers game overlooks two critical factors that influence your decision to insure your life: First, the advisors conveniently neglect the glaring fact that the Dow-Jones plunged by nearly half its value in 2008, so that a 2% gain would have looked and felt just fine. Most investment products put your money at risk, whereas a life insurance policy steadily builds cash value and assures reasonable liquidity after an initial "accrual" period. Second, and much more importantly, aggressive financial advisors neglect the purpose of insuring your life: You do not buy life insurance to build your wealth. You take out a policy for yourself and another for your wife to protect your wealth. When you buy a whole life policy, you make certain that your family can maintain its quality of life no matter what happens to its two primary income-providers.

The purchase of whole life insurance marks one of life's passages to adulthood, because it indicates you are set in your career, have married, purchased a home, and brought a child into the world. You actually have significant "net worth" and "equity," which you should protect against the unthinkable.

Some "insurance" products do serve as effective investment tools as they provide death benefits and rights of survivorship; but they do not strictly qualify as "life" insurance. Instead, they are sold as annuities, and they work better for retirement savings than for protecting your assets against your premature demise. An experienced insurance broker can show you the full array of insurance and investment options specially designed for young families who just have purchased their first home and delivered their first child.

I have done some research for you and found these Life Insurance Experts can get you the very best deals on a policy that fits your individual needs.You can be insured with the best policy as early as this week! Fill out the short form and a representative will contact you with the most competitive priced plans. Click Here To Save

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Update Jan. 31- 2010 All About "Life Insurance For Investment Gain " By Insurance Experts

2010-01-31T04:55:00.000-08:00

Part A. Life Insurance - What About Inheritance Tax?

By Richard Bishop

Inheritance tax (IHT) has come in for much criticism and the government has addressed these issues by raising the threshold to £325,000 (2010) - In real terms you only pay inheritance tax if your estate is valued at more than £325,000.

But what if the incoming lie policy is £200,000 - You have valued your estate at £300,000 this puts the individual under the current IHT threshold, the life company pays out the £200,000 lump sum to the estate and this takes the value of the estate to £500,000 - Do you now pay inheritance tax?

The short answers is no. Life policies do not form part of the estate for the purposes of calculating the individuals inheritance tax liability.

In some case the life policy will have been established to pay the inheritance tax.

For example Mr Green may have an IHT liability of £30,000 on his estate - you could take out a life insurance policy to cover the IHT bill. If Mr Green passed away the life policy would pay out to his estate or beneficiary to cover the IHT demand. Mr Green would of course need to pay a premium for the cover.

This type of life insurance product is called 'whole of life' - the policy would pay a set amount on death at any time during the individuals life - as opposed to term insurance which pays out during a set term.

What ever the circumstances if the individual has taken out a life policy on either whole of life or term basis there is no inheritance tax liability.

As discussed the lump payment does not form part of the estate when calculating any IHT due to the revenue.

If you need a life insurance quote or advice please contact me on: 0845 4765982 or email: richard.bishop@lighthousetemple.co.uk.

For more information on mortgages, life insurance and associated products - please visit http://www.100-mortgage-advice.co.uk.

Article Source: http://EzineArticles.com/?expert=Richard_Bishop

Estate Tax Planning Strategies

By Pauline Go

There are many people who will look for even the tiniest deduction on their annual tax return but will not bother about minimizing the ultimate tax they might have to pay on their assets. This tax is estate tax. In order to minimize estate tax, you have to plan and this takes effort.

Most people are reluctant to think about estate tax planning because they are do not want to think about dying or they are simply clueless that estate tax will eat up a large portion of their estate.

When we talk about estate, it includes your home, personal investments, all pension plans, life insurance and annuities. If your estate is valued over $2 million, you will have to pay estate tax and that is why it is imperative that you spend time on estate tax planning.

Some of the popular strategies for estate tax planning are as follows:

• Credit Shelter Trust: If you use this way of saving estate taxes, your spouse will not have to pay anything when you die. The same tax benefit applies when the second spouse also passes away leaving the assets to the heirs. This means that you can put assets worth $2 million in credit shelter trust so that both your spouse and your heirs benefit from it.

• Gifting: You can lower your estate taxes by gifting but there are certain annual limits. You can gift just $12,000 a year to each person without incurring gift tax. This is done during your life time and you can do this annually so that your estate value decreases by the time you die.

• Insurance for liquidity: Smart planning reduces estate tax but does not necessarily eliminate it. Therefore, you should provide a way for your heirs to pay estate taxes, which has to be paid within nine months of your death. The best way to provide for this is through life insurance where the death benefit is large enough to cover the taxes. However, this is where prudence comes in. If you own the insurance, it will be considered as part of the estate. So, instead of having the insurance in your name, the policy can be owned by an adult child or by a life insurance trust that you can set up.

About Author:

Pauline Go is a professional writer for many website like babyboomercaretaker.com. She also writes other great articles like Social Security And Government Retirement Benefits, Baby Boomers Aging Needs and Ten Most Popular Cosmetic Surgical Procedures.

Article Source: http://EzineArticles.com/?expert=Pauline_Go

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Update Jan. 12 - 2010 All About "Life Insurance For Investment Gain " By Insurance Experts

2010-01-12T03:58:00.000-08:00

"Life Insurance is a Terrible Investment" - Or Is It?

By Michel B.

Article Source: http://EzineArticles.com/?expert=Michel_B.

Infinite Banking - Serious Investment Tool?

By Scott Storace

As a financial concept growing in popularity and demand, the Infinite Banking System is beginning to receive a backlash of negative criticism. There are those that say infinite banking is a scam. But those who do so misunderstand the concept of what is being sold.

The Infinite Banking Scam
Let's start with what Infinite Banking is not. It's not a product that you can buy on the Internet. It's not a get rich scheme. And it's not for everyone. Those who claim there is an infinite banking scam misunderstand the premise of what perpetual banking is all about. The truth is, the basis for Infinite Banking is not even a new product. It is an established, proven product that is being used in a new and innovative way.

The Infinite Banking System is a philosophy of personal banking founded on a properly structured, dividend-paying whole life insurance policy. As a financial tool, whole life policies are a proven product. Historically, insurance companies have been one of the safest places for your money. Life insurance companies invest in very safe financial instruments such as bonds, which means lower investment risks for policyholders.

So Why Isn't Everyone Doing It?
At the core of this concept is the idea that you become your own banker. Doing this requires commitment to the idea, and discipline in carrying out the practices of Infinite Banking.

The Infinite Banking System means you are the Saver, the Borrower and the Banker of your own bank. You save money with your bank, you can borrow money from your bank (on terms that you set!) and you pay the bank (yourself) both the money borrowed and interest on that money--meaning you are making money by financing yourself. Your "bank" is based and financed by your dividend-paying whole life insurance policy.

When used as a banking application a whole life insurance policy is structured differently than other insurance policies. The policy provides a death benefit to your heirs, but places a greater emphasis on your ability to access the cash value liquidity within your account to finance your life. The amount of the Death Benefit is reduced in order to increase the amount of your policy's cash value.

Obviously, you could set up this same personal banking system with either a checking account or a mutual fund policy. But the financial gains are limited by the tax consequences of each. A whole life policy offers a bank-like platform but provides some tremendous additional benefits. By using the whole life platform, you benefit from the tax deferred growth of your money, tax-free distributions through your policy loans, and an income-tax free death benefit to your heirs.

The Cost of Infinite Banking
The basis of this system is a whole life insurance policy, and there are initial costs and administrative fees associated with that. Critics of the concept point to these fees as proof of the Infinite Banking Scam.

The truth is, any financial policy or tool will have administrative costs associated with it. With Infinite Banking, this cost is most visible in the first years of the policy when your access to cash values is less than the premiums you deposit. But like all legitimate financial tools, Infinite Banking is concerned about long-term success and the improvement of people's lives through financial independence. If policyholders are dedicated and diligent about their commitment to this system of banking, their eventual profits will more than compensate for the upfront cost of the insurance.

Understanding the Financial Industry
We can all agree that financing is a huge industry. It's also an industry that works to the benefit of the lending institutions, and not to the consumer. Let's start by pointing out the misconceptions surrounding interest. Individuals are sold on the concept of interest rates. If we get a 5% interest rate as opposed to a 6.5% interest rate, we think we're getting a good deal.

Financial institutions, on the other hand, are concerned with interest volume. If you've financed the purchase of a home, for instance, the Truth in Lending Statement will spell out exactly how much interest you are paying. You may think you are paying 6.5% interest on your loan, but your TIL will show that over a 30-year mortgage you will actually pay double the price of your home in interest. That's more like 50% interest, not 6.5%. So why do we do it? Because we don't know a better way.

The Infinite Banking System offers people a better way--a way of breaking this cycle of making money for the banks. Of course, when policyholders are just getting started with infinite banking, they won't be able to immediately finance a new home. But they can start with smaller, personal loans. And if they are disciplined about paying themselves back, they will soon find they can finance a car purchase, and perhaps eventually a home. In fact, when used correctly, the more loans an Infinite Banking policy finances, the more money it makes for its holder.

The Successful Infinite Banker
The success of Infinite Banking is predicated on the discipline of the policyholder as his or her personal banker. By borrowing from yourself and paying yourself back you will recapture more of the principal and interest that you normally were sending away. The structure of an insurance policy will reduce the number of payments required to payoff the loan, and by reducing the number of payments, there is an instant gain. More of the payment is applied to principal then interest.

Additionally, with whole-life insurance policies there are no transaction fees and funds are guaranteed to grow on a tax-deferred basis. Distributions from your cash values done as policy loans are tax-free. Withdrawals from the policy are tax-free up to the amount of your basis, or the amount of money you have contributed to the policy. The Infinite Banking Scam is a fallacy. This system is a proven financial tool that can improve the financial lives of those with the discipline and understanding to make it work.

Scott Storace is a financial expert that teaches the Infinite Banking concept utilizing whole life insurance. This concept creates financial wealth by creating your own personal bank. Get your free Infinite Banking report for more information on the concept.

Article Source: http://EzineArticles.com/?expert=Scott_Storace

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Update Dec. 25 - 2009 All About "Life Insurance For Investment Gain " By Insurance Experts

2009-12-25T05:13:00.000-08:00

Managing Cash - Value Life Insurance Policies

By Linda R Walker

Some insurance companies are criticized because it's not always clear how your premiums are used nor how the value of your policy is calculated. At a state level, insurance departments and commissioners do their best to protect your interests, but the majority of consumers are not well protected. This is less important with term insurance, but whole life and universal life policies have an investment element that slowly builds up and gives you a cash value in addition to the minimum guaranteed death benefits. Getting the most out of these more expensive policies is important.

Note that, unlike "ordinary" policies, cash-value policies do not lapse if you stop paying the premiums. Once you reach a minimum threshold, the policies remain valid and the investment element continues to accumulate value - this assumes the wider economy is doing well and the stock and bond markets provide a worthwhile return. So the best way of looking at these policies is as a saving fund. If you had run a savings account in your bank, this would give you a nest egg to draw down when you retired. You can treat cash-value policies in the same way.

Almost everyone with a whole or universal life policy pays long enough to reach protected status. Most take out a policy during their twenties and are still paying twenty or thirty years later. What seems a high premium when you started becomes more affordable as inflation works in your favor. Now the big decision is whether to continue paying. The longer you pay, the better the benefits. But if there's a family emergency, you can stop paying, withdraw some of the cash or take a loan, and keep the policy valid for when you die. If you hold a life policy, you should receive an annual statement telling you the minimum cash value and the guaranteed death benefit. But, with both a whole and universal policy, you can contact your insurer at any time, and get an up-to-date statement.

If you simply make a withdrawal or take a loan, check the effect on the death benefits. Always get the most information from the life insurance company before taking the decision. One key issue with a loan is the amount of interest payable. Borrowing always has a cost attached to it and, unless you want the interest to come out of the remaining cash value, you should make regular payments back to the company whenever you can afford it. One option to consider is using a cash withdrawal to buy a long-term care insurance policy. As everyone now lives longer, making provision for future health needs makes good sense. Alternatively, think about buying an income annuity. The only limit on your use of the cash is how much tax-free death benefit ultimately passes to your heirs. You can be selfish and use the money for your own comfort and protection or plan for your family's future. One word of warning. Do not be tempted to surrender your life insurance policy. You will owe back taxes on all the investment gains made since the policy came into force. Paying this as a lump sum is a big hit. It's always better to leave the policy in force and draw down cash or take a loan.

Linda Walker is leading expert of the team of the famous site dedicated to life insurance. She is well known for her constant professional point of view and she is happy to share it with you.

Article Source: http://EzineArticles.com/?expert=Linda_R_Walker

Senior Life Settlements-Understanding the Potential Tax Consequences

By Jim Prescott

If you’re considering “selling” your life insurance policy you must have some understand the potential tax consequences of the sale.

As a life settlement of an insurance policy is in effect the sale of the policy to a third-party, and not a surrender of the policy to the insurance company. Actually, the policy doesn’t need to have a cash value to be eligible for a life settlement transaction. The tax implications are twofold, and are relatively complex. While the IRS has not issued definitive guidance on life settlement transactions, it has relied on the application of its laws and regulations that address similar situations.

Basic income tax concepts clearly indicate that gains and losses are computed by taking the selling price of an item and reducing it by any selling expenses and the investment in the item. The investment in the item is known as its “basis.” When dealing with life insurance policies, the basis in the policy is the total of all premium payments made on the contract. The amount of basis in the policy has a direct bearing on the amount of gain to be recognized from both a surrender and settlement transaction. In general, the basis computation is straight-forward, simply being the sum of the premiums paid to the insurance company.

When a surrender of a policy to the issuing insurance company occurs, the difference between the surrender proceeds and the basis in the policy is subject to income tax at ordinary income rates. This concept is important, as it is the first taxable gain computation performed in a settlement transaction. In effect, this surrender value minus basis gain is treated identically whether the policy is surrendered or settled. If the surrender value is lower than the basis, there is no ordinary gain to be reported and the proceeds are treated as a return of basis without a tax cost.

The second taxable gain computation is unique to a settlement transaction, and results in a gain that is subject to tax at favorable capital gain rates. In this computation, the settlement proceeds are compared to the surrender value used in the ordinary gain determination. Because a settlement transaction involves selling the contract, and the insurance contract is treated as a capital investment, this portion of the gain is treated as a capital gain.

To see an illustration of the above tax consequences visit Insurance Settlement Review:
click here for Capital Gains Examples

Jim Prescott, CPA business consultant for over 30 years specializing in small and medium size businesses that range from closely held to publicly traded companies. Jim is a Partner in CPA firm Prescott Chatellier Fontaine & Wilkinson, LLP that offers audit, accounting, investment advice, tax planning services, estate plans, pension plans consulting and insurance advice. In addition to the CPA firm's web site Prescott Chatellier Fontaine & Wilkinson, LLP you can find more information and Articles on Life Settlements at Insurance Settlement Review [http://www.insurancesettlementreview.com.htm]

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Dec, 05 - 2009 All About "Life Insurance For Investment Gain " By Insurance Experts

2009-12-05T05:58:00.000-08:00

Life Insurance - A Right Investment Or Not?

By Lorne S. Marr

There are two basic kinds of life insurance policies: term insurance and permanent insurance. If you choose a term insurance policy, you will get a coverage for a temporary period of time, e.g. 10 or 20 years. Permanent policies on the other hand, can cover you for your whole life. Permanent life insurance products can be further sub-divided into three following groups: Term 100, Universal Life and Whole Life. There are several sub-types of the latter two policies. An independent and experienced advisor can help you to find which of them is best for you.

The primary difference between Whole Life and Universal Life is that on a Whole Life policy, the investment component is built into the premium, but on a Universal Life policy it is divided. Another difference is that for Universal Life policies, the offer of investment options is wider. However, the most important aspect when selecting a life insurance product is that it must fulfil your needs. If your needs are met and the premium for a permanent life insurance is reasonable for you, the next key aspect is whether it is a sound investment.

There are a lot of different and often opposite opinions on this subject, partly because not many people really understand the topic of life insurance as an investment. The main advantages and disadvantages of using life insurance as an investment will be introduced in the following part of our article:

Benefits

* The growth of the earnings within the policy and the MTAR lines are on a tax sheltered basis. For Whole Life policies, the premium is set so as no to exceed the MTAR limit. Universal Life products have a maximum premium set according to the MTAR limit.

* Both the investment part on an increasing death benefit Universal Life policy and the dividends on a Whole Life insurance are added to the face amount and paid out on top of this face amount, tax free.

* The investment portion on a permanent policy can be used for future premium payments, so that you can pay with pre-tax money rather than after-tax.

* Many Universal Life policies have minimum investment rate guarantees in excess of 4%. This is a big advantage for investors who don't like to risk, especially in today's low interest rate environment.

Drawbacks

* Many permanent insurance products have surrender penalties if the plan is stopped within the first few policy years.

* Generally, it is not a great idea to purchase a permanent policy, if you don't need a permanent life insurance, because the mortality charge for the life insurance would be higher.

Lorne S. Marr has been a very accomplished financial planner since 1993 and runs his own company LSM Insurance Services Ltd. He's recognized as an industry leader thanks to the commitment to providing clients with value-added services.

Lorne has also been a keynote speaker at numerous industry functions and has appeared in The National Post, The Toronto Sun, the Investment Executive, The Advisor's Edge and the Insurance Journal. Don't forget to visit his website http://www.lsminsurance.ca.

Article Source: http://EzineArticles.com/?expert=Lorne_S._Marr

Life Insurance - A Responsibility Towards Your Family

By Kamlesh Paisawaisa

In the fast paced and very fragile life style and stressed lives we live, insuring life itself has become a necessity so that your family have a financial support if anything unpleasant happens. It is difficult for family members to accept the loss of someone they all loved dearly. However, if the person they have lost is the principal earner or the chief bread winner of the family, monetary problems start haunting the family. Such problems could lead a family into the troubled waters, which everyone tries to prevent from happening. But there is a way to provide for your family and to prevent it from entering into this dark phase of life.

Basically, life insurance is an agreement or contract signed by the owner of the policy and the insurance company. Today, it is seen both as an investment and as an insurance. The life insurance agreement is such that the insuring company acts upon the pre-set sum of payment in event of an untoward occurrence of death of the insured individual. This agreement is backed by the payment made in installments for a pre-set and calculated time frame by the policy owner or policy payer.

As in today there is no shortage of investment options for a person to choose from. Modern day investment options include gold, property, fixed income instruments, mutual funds and also life insurance. When one opts for insurance, it can create a flexible money-saving scheme, which empowers one to accumulate, wealth to buy a new car, get one's children educational solutions, and even retire comfortably.

With different life stages, the financial goals change as well. The investment should offer corresponding benefits as befitting the needs of the new life stage. ICICI life Insurance plan is the only plan that offer specific products tailor-made for different life stages. On the basis of different life stage, one is under the various corresponding needs. ICICI Life Insurance plans can be categorized into the following types:-

A Education Insurance Plan:- As a parent, this is an important responsibility to ensure that your child gets the best possible education that can be provided. ICICI Life Insurance plans offers a wide portfolio of education insurance plans. This plan ensure that money is made available at the crucial junctures in a child's education-Class X, XII, Graduation and at the time of Post-Graduation, to fund crucial commitments to the child's future.

More importantly, education insurance plans ensure that in the unfortunate event of the death of a parent, the child's education continues unaffected.

B Wealth Creation Plan:- It provides the customer the dual benefit of protection along with the potentially higher returns of market-linked instruments. Wealth creation plans also offer the customer more liquidity options as compared to traditional plans.

C Premium Guarantee Plan:- In the ICICI Life Insurance portfolio, the Premium Guarantee Plan-Investshield cum-investment option for customers who want to enjoy the potentially higher returns over the long term, without taking any market risk.

Life insurance is a life long investment and thus should be made with circumspection and caution and is something which should be taken with morbid sincerity. All the possible options available in the market should be taken into consideration and also the family should also be brought in on this so as to make the most appropriate decision which would help your family in the future and not be source of trouble and stress in the future.

The author is a business writer for finance and credit products. Know more on Life Insurance, ICICI Life Insurance at paisawaisa.com

Article Source: http://EzineArticles.com/?expert=Kamlesh_Paisawaisa

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Update Nov. 16 - 2009 All About "Life Insurance For Investment " By Insurance Experts

2009-11-16T05:10:00.000-08:00

Investment Life Insurance and the Right Investment Life Insurance For You

By Andrew Stevenson Ph.D.

Before you make an investment in life insurance, you'll need to determine if it is right for you. Though there are many policies to choose from, only certain ones make for good investments.

While choosing the right policy and best premium is important, it's even more important to determine why you want to purchase the investment of insurance and what your purpose for investing in it would be.

An Investment in Your Family

An investment in life insurance can be an investment in your family. If they depend on your for income, then purchasing insurance means that they will be provided for if something happens to you.

While this isn't something that anyone wants to think about, these things do happen. If you want your family to continue to thrive and not be burdened by debt, life insurance may be the right investment for you.

An Investment in the Future

In addition, life insurance can be an investment in the future. Even if your family doesn't depend on your for their day-to-day survival, live insurance can mean a brighter future for them when you die.

Maybe your children want to go to college or your spouse would love to start their own business. While you might not be able to help them do these things while you're alive, it's possible that an investment in insurance would help them do these after you are gone.

An Investment in Your Retirement

Whole life or permanent life insurance policies have a cash value over and above the death benefit the policy offers. This is basically a tax-deferred investment for you that you can use to supplement your retirement savings.

While there are a lot of things to consider before you purchase a policy like this, it's definitely worth a consideration when you're thinking of the investment of life insurance.

Do You Need a Policy?

When you're thinking about purchasing insurance as an investment, the first question to answer is: Do you need a life insurance policy? If you're the main provider for your family, you do need a policy unless there is another way that those depending on you will be provided for if something happens to you.

If you are not a provider, you might still want to purchase a insurance policy. You might be a caregiver for someone, for instance, and while your family would not lose out on provision if you died, they would need to hire someone to provide the care that you usually provide. The funds from a life insurance policy could ensure that care continues even if you are not around to give it.

In addition, you may simply decide that you want to gift your family with the money that would come from a life insurance policy in the case of your death. If you have the financial means to do this, your insurance policy could provide a brighter future for your family.

No matter your reasons for choosing life insurance, if you decide to buy a policy, then it is an investment for you, your family, and the future.

t is so important to get you insurance questions answered. Your insurance policy will be the most important decision for you and your family. For a service that is totally free and so easy to understand please Checkout http://investmentlifeinsurance.org.

You can find plenty more easy hints and tips on how to find the best insurance premiums to suit you here Investment Life Insurance.

Article Source: http://EzineArticles.com/?expert=Andrew_Stevenson_Ph.D.

A Good Investment - Life Insurance Offers Security

By Andrew Stevenson Ph.D.

Life insurance can be a touchy subject. Nobody likes to think about when they're going to die, or even how they're going to die. Life is about living and if you dwell in death, some say, you're living with one foot in the grave already. However, it's better to think of it as a life insurance investment. Insurance provides security and it's a great way to provide for your family after you're gone.

If you're the main bread winner of your family, consider what your family will go through if you were to tragically die. Anything can happen to you, after all. Every time you leave your driveway, you are subject to an accident. Every time you eat a fattening cheeseburger, your arteries are clogging; and every time you pick up that cigarette, your lungs are becoming darker and darker. The bottom line is that nobody knows when death may come knocking at your door. And you owe it to yourself, and your family, to solidify that life insurance investment so that they're cared for even when you cannot be there.

Expenses

Death is expensive. If you get sick, there are often hospital bills that need to be taken care of. There could be an ambulance trip, a hospital stay, surgery or even medication. If you die, your family will carry on this burden of debt. That's not to mention funeral costs. There's the coffin, the cost of preparing your body, and then the funeral. All of this takes an unbelievable amount of money. If you don't have a life insurance investment in place, your family may become broke making sure you leave this life in a proper manner.

Most people think that making a insurance investment is very expensive. However, most insurance premiums are very low. Life insurance companies know that most people aren't millionaires and they only have a little bit of money to set aside each month to pay for a life insurance premium. Shop around and find the company that offers the lowest premium for the maximum amount of life insurance possible.

You can also lower your premium by quitting smoking, losing weight and generally living a healthy lifestyle. Join a gym, see a doctor regularly for checkups and try to eat right. You'll see that premium drop even lower so that you can sustain your life insurance investment easily and without any excess stress.

If you don't have a life insurance investment, and it's important to think of it as an investment, there's no better time than right now. There's no telling when your family might not have you around anymore and it will be better to have that investment there to care for them when you're unable. It's not morbid to think of it, it's not living with your foot in the grave; it's being smart about your future and your family's well being. It's showing that you love them and that you'll continue to love them even after you're gone.

Solve your insurance questions Today. Your insurance policy will be the most important decision for you and your family. Put your mind at ease today about your families Future. For a service that is totally free and so easy to understand please visit http://investmentlifeinsurance.org You can find plenty more easy hints and tips on how to find the best insurance premiums to suit you here Investment Life Insurance

Article Source: http://EzineArticles.com/?expert=Andrew_Stevenson_Ph.D.

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Update Oct. 28 - 2009 All About Life Insurance Information For Investment Gains By Insurance Experts

2009-10-28T09:11:00.000-07:00

The Uses of Life Insurance - Part 2

By Nate Perrott

Funding

Ms. D and her closest friend are the sole stockholders in a small corporation. Each of them wants to be sure that she would have complete control if the other one died, so they enter into a stockholder's buy-sell agreement providing for this. But neither of them, nor the corporation, has enough money to buy out the other's interest at her death, especially since the business has grown in value way beyond their original investment.

They use life insurance to provide funding in the following way: Each takes out insurance on the other's life, equal in value to a half interest in the corporation. If one of them dies, the necessary cash is immediately available to carry out the agreement and buy the deceased's half of the business at its current value. This establishes a new, higher cost basis for the newly purchased half of the business. They could accomplish the same goal by having the corporation insure both of them. Then the corporation would redeem the dead partner's stock, using the insurance money to pay for it. However, no new cost basis would be established. Should the survivor then sell the business, the first approach would result in capital gains tax on only the survivor's own original half of the business; a 50 percent reduction in tax. The corporate-owned insurance would result in capital gains tax on both halves of the business. In this case, not only having life insurance, but attending to its ownership makes a significant difference.

Mr. E is the sole owner of a $3-million-dollar corporation. He wants to be sure that his company will continue after his death for the benefit of his family, but he knows there will be a heavy demand for cash in the period immediately following his death. It will be needed by the company to redeem stock so that his estate has liquidity to pay estate taxes. It may also be required to pay off creditors, to hire key people to replace him, and to maintain the business community's confidence in the firm.

Life insurance can supply his company with this money. The company can take out what is known as a "key man policy" on E's life and pay the premiums out of its surplus. When E dies, the proceeds will be available, tax-free, to help the business through the many difficulties that lie ahead.

People in her community say that Ms. F is rich. They are right. When she dies, she will leave her family an estate worth $3 million. Having no surviving spouse, there is no marital deduction available to Ms. F's estate. Half her estate, less the $1,500,000 equivalent exemption that everyone is entitled to, will be subject to the estate tax. The trouble is that none of her assets are liquid. Where, then, is the cash going to come from to pay the $767,400 in taxes and administration expenses?

Insurance is the answer. It will be immediately available on her death to use for this purpose. If it is owned by her children, or an irrevocable life insurance trust, the death proceeds will not be a part of her taxable estate. This means that the other assets in her estate can be passed on whole, undiluted by losses that usually accompany a forced liquidation.

Mr. G is a man with a number of business interests. In some years he has heavy debts. He is afraid that if he died in one of these bad years his creditors might wipe out his entire estate. To forestall such a disastrous event, he carries insurance sufficient to meet all these obligations.

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The Guardian Life Insurance Policy

By Christopher W Smith

The Guardian Life Insurance Company was founded in New York in 1860 and has thus become one of four most successful mutual insurance companies in the United States. Its assets are valued over $50billion and they have more than 80 agencies working throughout the US. Guardian Life Insurance Company has been ranked by six highly rated agencies as being superior and excellent.

The company offers multiple insurance coverage plans to individuals and other companies or business organizations, and handles such issues as: death, disability, and health problems. It allows permanent insurance plans to cover regular living needs: education, income for retired policy holders, and so on. The insurance policies of the company are twofold: whole life and universal life.

Whole Guardian Life Insurance Policy

A fixed amount of premium is required to be paid by the owner throughout the duration of the policy, according to Whole Guardian Life Policy. A certain amount of the premium is saved for the client's needs and he/she can then withdraw it anytime while paying the premium. The guaranteed cash value can be withdrawn by the policy holder to satisfy his/her needs and it is the primary benefit of the Whole Life Insurance Program.

Another type of program is the Variable Whole Life policy in which the cash value and the amount of the death benefit vary with the particular kind of investment options chosen by the owner of the policy. In many variable whole life plans, the death benefit is fixed about a minimal level. The cash value does not have to be a specific guaranteed amount.

Universals Guardian Life Insurance Policy

The Universal Life Policy is yet another type of permanent insurance. In this one, the owner pays flexible premiums while deciding for either fixed or variable amount of death benefits. This selection of insurance also allows cash value to accumulate which is based on the profits of the company and the amount of premium paid by the client. A specialized type of Universal Life is the variable Universal Life Insurance Policy. A flexible investment situation is in this and can be chosen by the insured person while he/she selects the investment risk within the policy.

Benefits of Buying a Guardian Life Policy

The Guardian Life Policy, similar to other policies, in that; it affords one to: death benefits, maximum pension benefits, greater flexibility with expenditures, avoiding capital gain tax, greater savings, and profitable investments. The insured person is then able to pass this on in an appreciable amount to his/her family or charity of choice.

Save hundreds of dollars by compare life insurance carriers such as Colonial Life Insurance by visiting TipsOnLifeInsurance.com

Article Source: http://EzineArticles.com/?expert=Christopher_W_Smith

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Update Oct. 09 - 2009 All About Life Insurance Information For Investment Gains By Insurance Experts

2009-10-09T03:20:00.000-07:00

Want to Pay Less Tax? Pension Life Insurance Could Be the Answer
By Michael Challiner

If you want to pay less tax - and who doesn't? - there is a new way of reducing your overall bill. And it is also a way to get really cheap life insurance. But before you rub your eyes and try to wake up, read on as we investigate whether this is as good as it seems!

Beginning on the 6th of April 2006, if you pay for life insurance cover at the same time as paying into a pension plan, you can use your pension contributions allowance to lower the cost of your life insurance. This works by offering a tax relief rate of 22% for those who pay the standard tax rate, and 40% for those who qualify for the higher rate of tax. Voilà, less tax, cheaper insurance!

Your pension provider will automatically reduce your combined life insurance and pension premium by 22%, but higher rate tax payers will need to claim the balance on their self-assessment tax returns annually, to make sure they get the 40% rate they are entitled to.

By now, you may be bracing for the catch! Here are the three stipulations that your policies must take into account:

• Your life insurance and pension must come from the same company, and must be paid as a combined premium.
• The total value of the two together must not be over £1.5 million.
• The premiums you pay annually for the combined pension and life insurance must not be more than £215,000.

So although there are certainly savings to be made, those for life insurance will not be as great as they might at first seem. The cost of a combined policy will usually be more than a stand-alone policy with the same company, and it's unlikely that you will find the cheapest pension plan to fit your needs offered by the same firm that offers the cheapest life insurance. So your ability to shop around is reduced. Costs are further affected by the fact that to date, no online company offers combined life insurance/pension plans, so the usual online discounts will not be available.

So is it all a dream, after all? Not so. If you're a higher rate tax payer, the savings you make on tax will certainly make your life cover a lot cheaper! Standard tax payers should always check online to see if the separate plans come to less than a combined pension and life insurance package.

There are a few other points to consider. Existing life policies cannot be converted into combined pension and life insurance deals. Tax relief is only given when the two are bought together at the same time. And combined policies can only be taken out for yourself - it isn't possible at this time to take out a joint combined policy for you and a partner.

Another point to consider is that this kind of combined insurance deal cannot include critical illness cover. You can still take it out separately, and in fact this is a good idea as critical illness insurance makes sure that if you are diagnosed with a specified serious illness, you will get a lump sum.

So if the perks of a combined policy have tempted you, consider carefully if you are thinking of cancelling an existing life policy. Since taking out that policy, time has passed and naturally you have aged! So your premium will be higher. And if you have developed any new medical conditions, they will be factored into the new premium cost too. Even a little weight gained with the passing years could adversely affect your premium costs. It may even be that a new provider will not offer you cover if your existing illnesses seem too serious. So you would be well advised to obtain written permission from your pension company, compare the cost after you apply the tax break, and see if you will actually save before committing to a new policy.

Home insurance information offers articles covering home insurance in the uk. Its sister site Brokers Online provides more home insurance articles and help in choosing the right policy for you

Article Source: http://EzineArticles.com/?expert=Michael_Challiner

Do You Tax Life Insurance?
By Don Lewis

Many people wonder if it's possible for the government to tax life insurance. The basic answer to this is "no", they cannot tax life insurance (although you can rest assured that the Congress tries to enact legislation that would allow it every year). However, it's possible that money you get from your life insurance policy could lead into a taxable event.

Typically, if you receive a death benefit payment from a life insurance policy, that money comes to you tax-free. Every cent of it is yours and yours alone. Furthermore, if you have a cash-value-building life insurance policy like a Universal Life or a Whole Life policy, the money that accumulates inside that policy is all tax-sheltered.

However, there are some loopholes in these regulations that allow the government to dip its hand into your pocket when it comes to life insurance.

Cash-building life insurance policies have the possibility of eventually pushing up the ceiling on the death benefit, so that the death benefit when paid out is more than the face amount of the policy. If this happens, then all of the death benefit proceeds that you receive over and above the original face amount is considered taxable income when you receive it and must be reported. So, let's say that someone had named you the beneficiary on a Variable Universal Life Policy that they took out for a face amount--the original death benefit amount--of $1,000,000. They have the policy for 30 years and they do quite well with the investment side of the policy, so that when they die you are paid $1.4 million. You must report the $400,000 on your income tax, but not the $1 million. The $400,000 is considered a withdrawal from the policy (the ultimate withdrawal!), and it's possible for policy withdrawals (which of course can also be made by the insured while he's still alive) to become taxable events. (But see below about how withdrawals are taxable.)

With cash-building life insurance policies, you never have to pay taxes on insurance company dividends given to you, for they are legally considered a return on premiums, and premiums are tax free. However, if you receive interest on your dividends, you do have to report them for tax purposes. If you take a withdrawal from your cash-building life insurance policy, if you exceed the total amount of premiums you have put in to that point, you have a taxable event on the amount you take out that is in excess of premiums. So, if you have paid $5,000 of premiums into a life insurance policy then take out $6,000 when there's enough cash there for you to do so, you must report $1,000 on your income tax for the year that you took the money out. However, there is a way around this by taking advantage of life insurance companies' loan-against-policy privileges. You'll have to pay the money back with a very low interest rate, but this keeps you from being taxed.

With VUL insurance, you have actual investments inside the policy. These accumulate their money tax-sheltered. When money comes out of the policy and it's not a loan, you have a possible taxable event. But, there's more good news here: this taxation is done on a FIFO basis (first in, first out), meaning that you are considered to be taking out your input first. Whatever you put into the policy cannot be taxed (usually), only your gains can be. So this minimizes your taxable event. VUL policies are used more and more by financial planners to help their clients accumulate money for retirement while minimizing their taxes by capitalizing on the limited ability of the government to tax life insurance.

Are there Taxes On Life Insurance? Click here to find all the Life Insurance Advantages and Disadvantages

Article Source: http://EzineArticles.com/?expert=Don_Lewis

Helpful Advice About Inheritance Tax
By Simon P Jennings

Inheritance tax is a tax paid by individuals or families who have inherited something from a deceased person. The heirs pay it after the death of a certain individual who has passed on his property or estate to them.

A common misconception is that inheritance-tax and estate tax are the same. However, this is not so, as the inheritance tax is not levied on the entire estate; it is only to be paid on the property that is passed on as inheritance. Still, in some countries such as the UK, the two are not very distinct from each other. Inheritance-tax is also known as Death Duty.

Inheritance-tax applies to anything of value, which is part of an inheritance. This can include property, jewellery, collectible items and even intangible assets, such as investments and life insurance. In the UK, this tax is levied on inheritances worth £325,000 or more. In the event of death, the instant surviving family becomes responsible for the inheritance tax, as they become owners of the property. Also, a dying person can specify the beneficiary in his/her will, who then becomes responsible.

A person is exempt from paying inheritance-tax in some instances. If a UK citizen has lived outside the country for more than three years during a twenty-year tax period, then he is not liable for paying this tax. In addition, if the assets are overseas, there is no tax charged on them.

If a person handed down a property to someone at least seven years before his death, then there is no tax levied on that property. Similarly, if a property or assets are relocated to spouses or children, they exempt from taxes. Moreover, there is no inheritance-tax charged on life insurance policies for children.

Inheritance-tax has always remained under criticism and most people are against it. Many are of the view that it is unfair to put this burden on the family of the deceased who has already suffered a loss. In most cases, the tax is quite high, sometimes even being around forty to fifty percent of the entire asset value. Thus, it is important to implement inheritance-tax planning to reduce this burden.

There are many ways to reduce inheritance-tax. Firstly, it is important to write a will and specify who your heirs are, so that there is no confusion later on. It is also a good idea to transfer your estate into life insurance funds, or trusts on which tax does not have to be paid. In this way, the spouse as well as the further generations can benefit from your estate. They will receive regular income without the burden of the tax, as they will not own the entire estate.

It might also be a good idea to engage your money in investments that are charged with a lower tax rate. Utilise the annual allowances granted to you with gifts. Regular gifts made from your estate are exempted from taxes, thus, you can help your family without the trouble and hassle of inheritance-tax.

Simon P Jennings is a personal insurance consultant. Take professional services to learn how to avoid Inheritance Tax Trust from your property at http://www.claimsadvicecentre.com.

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Update Augaust 31 2009 All About Life Insurance Information For Investment Gains By Insurance Experts

2009-08-31T04:32:00.000-07:00

Life Insurance For Investment Gains is defined as a life insurance policy which is used to protect any investment gains of policy owner upon his or her death. Since all investments must be sold upon the death and any gain have to pay up to 25% according tax law including property gain, stock gain, retirement account, if no spouse to transfer, business gain, etc. Life insurance for investment is designated to pay for all taxes, because it is tax free. We provide you with information of all types life insurance which can be used by expert depending on your situation. As always, please consult with your insurance agent or financial adviser for more information.

Senior Life Settlements-Understanding the Potential Tax Consequences
By Jim Prescott

If you’re considering “selling” your life insurance policy you must have some understand the potential tax consequences of the sale.

To see an illustration of the above tax consequences visit Insurance Settlement Review:
click here for Capital Gains Examples

Article Source: http://EzineArticles.com/?expert=Jim_Prescott

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Update Augaust 11 2009 All About Life Insurance Information For Investment Gains By Insurance Experts

2009-08-11T00:27:00.000-07:00

Foundation For Retirement
By E. O'Brien

What a difference a year makes. People entering retirement early last summer had a strong market to boost their nest eggs and cushion any anxiety over their life transition. On July 19, 2007, the Dow Jones Industrial Average hit a record high, closing above 14,000 for the first time. To the extent that the subprime crisis had even registered, most observers expected the damage to be contained within the housing sector.

The investment outlook has darkened since then, however, especially for those who may not have decades ahead to smooth the effects of volatility. Regardless of how the markets perform, most retirees count on withdrawing income regularly from their nest eggs, while preserving as much of their principal as possible.

On an institutional level, foundations face a similar task. Congress requires them to give away at least 5% of their assets each year; their challenge is to grow principal to keep pace with inflation, so they can meet commitments to grantees and cover operating expenses. It's like retirement... in perpetuity. "The problems of the retired investor and of the endowed institution are very closely related," says Laurence Siegel, director of research in the investment division of the Ford Foundation. "Both seek to produce an income stream that grows with inflation."

You don't need to invest your clients' nest eggs exactly like the Rockefeller or Ford Foundations-to say nothing of Harvard or Yale. In fact, most investors can't act like Harvard or Yale, despite the books and articles that espouse to teach how-they just don't have enough money. But foundations and endowments can teach advisors strategies for constructing and maintaining retirement income portfolios. Here's a look at how.

All-Important Allocation

Retirement income planning didn't even exist a couple of generations ago. Through the mid-20th century, most people didn't have a decades-long retirement, for the simple reason that life expectancies were shorter. People stopped working, lived a few years on Social Security and then died. Later on, in the 1980s, retirees could pack their portfolios with double-digit-yielding Treasury bonds and bank certificates of deposit and live comfortably off that income. During the same decade, as inflation cooled, a bull market began that persisted for the rest of the century.

Today, the picture is decidedly more complex. People are living longer than ever. The life insurance industry has adopted new actuarial tables reflecting this: As of January 1, 2009, all policies must be issued with rates that extend through age 121, replacing tables that end at age 100. And the markets are less friendly. Market watchers predict that stocks may languish for years in a range-bound market that provides none of the oomph of the bull market that ended in 2000.

Meanwhile, people's spending needs haven't changed-if anything, they've risen, as healthcare costs have exceeded inflation-and inflationary pressures have mounted. Yet 30-year Treasury bond yields hover under 4.50%.

Recent research reinforces the importance of asset allocation in retirement as one of the safest, most efficient ways to meet long-term portfolio needs today. Because of compounding, more than half of every dollar that's withdrawn from a defined contribution plan comprises investment returns generated after retirement, according to a study conducted by Russell Investments and released last month. The study looked at a prototypical 25-year-long retirement of a 65-year-old who dies at age 90. Out of each dollar the retiree withdrew from a defined contribution plan, 10 cents came from contributions made to the plan while working, 30 cents came from investment returns generated prior to retirement, and a full 60 cents came from investment returns generated after retirement. "The pool of assets is so much bigger after retirement," says Bob Collie, director of investment strategy for Russell. Post-retirement investment returns account for an outsize portion of each dollar withdrawn from a defined contribution plan simply because the asset pool is larger in retirement, and because people's longer lives are putting their money to work over longer horizons than before.

Today's long life expectancies mean that an overly conservative asset allocation won't go the distance for most retirees. Indeed, advisors recognize that only their wealthiest clients can derive a secure retirement from, say, bond ladders. "You can't do it with bonds alone, because that would erode the assets," says Thyra Zerhusen, manager of the $1 billion Aston/Optimum Mid Cap Fund and of a New York-based foundation's portfolio, which she declined to name and which she runs the same way as her mutual fund. When Zerhusen began managing the foundation's portfolio, it had roughly 70% of its assets in bonds and the rest in stocks. This breakdown mirrors the traditional retirement portfolio. But longer life expectancies, lower bond yields and a potentially stagnating stock market have zapped the effectiveness of this allocation. Zerhusen persuaded the foundation's finance committee to adopt the inverse allocation, and today the portfolio is roughly 70% stocks and 30% high-quality bonds.

Alpha Alternatives

The foundation portfolio Zerhusen manages is unusual in that it doesn't have an allocation to alternative investments. "We only buy what we understand," Zerhusen says. Her expertise in identifying undervalued and misunderstood mid-cap stocks has helped the foundation meet its annual operating goals, which involve withdrawals of 8% to 10% per year, without sacrificing principal.

Most large foundations and endowments (foundations are mandated to give away a minimum of 5% of their assets per year, while endowments are not) have at least a quarter of their assets in investments outside of traditional, long-only publicly traded equities and bonds, Siegel says. "Alternative investments are, in principle, a more efficient way of generating alpha (if the manager has skill) than traditional, long-only investments," he writes in an email message. "This is because short selling, the ability to leverage and use derivatives, the ability to lock up funds for long periods of time, and other features of alternatives each contribute in various ways to portfolio efficiency (the expected return per unit of risk taken)."

The Harvard and Yale endowments have about 50% of their portfolios in alternatives such as private equity, hedge funds, real estate and commodities, according to Frontier Capital Management, a Boston-based investment management firm. At $34.6 billion and $22.5 billion, respectively (as of the end of fiscal year 2007), Harvard and Yale's endowments could weather any liquidity challenges that this high alternative allocation presents. But less-capitalized funds and private foundations without access to new money from alumni or other contributors (and whose circumstances are more analagous to those of retirees) could face trouble in a bear market if they allocate such a high percentage to alternatives, Siegel says. Margin calls or forward commitments on private equity can force the selling of assets, and there are fewer liquid assets to choose from if a large chunk of the portfolio is in real assets. Similarly, your clients will have less flexibility in their income withdrawals if they have too much allocated to real assets.

Some advisors have embraced the use of alternatives. "In portfolio design, the ultimate goal is to have investments that are not correlated," says Greg Plechner, principal and senior wealth manager at Greenbaum and Orecchio, a fee-only advisory firm in Old Tappan, N.J. "With alternative investments, you're able to attain that." Greenbaum and Orecchio allocates an average of between 15% and 20% of their clients' portfolios to alternatives. Retired clients have a slightly smaller allocation to alternative investments, he notes, since their fixed-income portion is higher.

The firm's clients with more than $1.5 million to invest have access to private investment partnerships, while those with less than $1.5 million can access similar strategies through exchange-traded funds and notes, and institutional share mutual funds. For example, the firm uses PIMCO CommodityRealReturn Institutional, Vanguard Energy ETF, and Rydex Managed Futures Fund for market-neutral exposure.

Choosing private equity and hedge fund opportunities requires considerably more due diligence than does selecting investments sold on an exchange, as the former have far fewer reporting requirements. Greenbaum and Orecchio employs three full-time professionals whose sole job is to evaluate private investments and do the related legal work.

Endowment Products for the Rest of Us

Over the past year, the financial services industry has introduced new products to help consumers generate retirement income and to capitalize on the wave of retiring baby boomers. Endowments inspired the design of at least one of the new retirement income mutual funds on the market: The Vanguard Managed Payout Funds, launched in early May. The three funds of funds target payout rates of 3%, 5% and 7%, respectively, while maintaining capital, and in this approach function something like a university endowment, Vanguard executives say. The underlying funds are Vanguard stock and bond funds, and other investments, including REIT and TIPs (inflation-protected Treasury bonds) funds and commodity-linked investments.

Vanguard's approach contrasts with that of Fidelity Investments, whose new payout mutual funds are designed to liquidate an investor's principal by a target date. Vanguard chose its approach because "there was a sense generally that there's a strong desire among retired clients to preserve their capital in liquid form for the duration," says John Ameriks, a Vanguard principal and economist. Vanguard's research among the company's mutual fund shareholders reveals that many older people continue to save in retirement. "It's very hard for people to turn on a dime in retirement," Ameriks says. "They've been saving their whole lives." In other words, even if your clients aren't saving enough for retirement, their saving habits are nonetheless ingrained.

According to the Vanguard funds' prospectus, the 3% payout fund is expected to appeal to investors who want to see their capital and payouts increase over time and seek only a modest current payout from their assets; the 7% payout fund, on the other hand, is expected to appeal to those who need a greater payout to satisfy immediate spending needs. While the payments and capital on the 7% fund are not expected to keep pace with inflation, Vanguard will seek to preserve the fund's original value. The 5% fund is designed to provide long-term inflation protection and capital preservation. The funds could function as the investment vehicle of a small endowment, and in fact, Vanguard has fielded a few inquiries from such institutions, Ameriks says.

The funds' payout rates are targets, not guarantees. "These products are not annuities," which offer a guaranteed income stream for life, Ameriks notes. "There are positives and negatives to that." The company believes that positives, such as liquidity and flexibility, outweigh the lack of a guarantee. Indeed, annuities have failed to gain widespread acceptance in the marketplace largely because consumers are loath to relinquish access to their principal.

But Then Again...

As much as retirees and foundations share similar challenges, there are some noteworthy differences between the two. For starters, individuals die. No one needs to produce income in perpetuity, as foundations endeavor to do. Retirees need to plan for at least 30 years in retirement, and annuities can insure they won't outlive their assets. Amid the general unpopularity of these insurance products, advisors and their clients often overlook the benefits provided by risk pooling. "Annuities produce a much higher income than bonds or TIPs because the people who die help pay for those who survive," Siegel explains in his email. In fact, you need 25% to 40% less capital to provide for yourself in retirement using risk pooling than you would structuring an investment portfolio on your own, according to a study by David F. Babbel and Craig B. Merrill of the Wharton Financial Institutions Center, co-sponsored by New York Life.

Annuity companies have introduced cash refund options that have increased their products' popularity. This popular feature insures that investors' heirs will receive money back after they die, yet it eats into the benefits of risk pooling. A 65-year-old male would receive 8% less income and a 75-year-old man 13% less from an immediate annuity with a cash refund than he would from one without, says Mike Gallo, senior vice president for retirement income at New York Life.

Another approach is to deconstruct the traditional annuity by layering a low-cost insurance guarantee on top of a separately managed account. In March, Pershing LLC launched such a hybrid retirement income product, which pairs a managed account solution with a lifetime income guarantee offered by The Phoenix Companies. The product, known as Lockwood Investment Strategies Longevity Income Solutions, or LIS2 for short, will ensure that investors won't outlive their assets, says Len Reinhart, the former president of Lockwood who worked on the product design and now consults for Pershing Managed Account Solutions.

LIS2 features a 5% annual payout, after fees, which begins when an investor is 65 years old. The 5% rate is applied to the initial investment for a fixed dollar amount that stays the same each year. For example, an investor who puts $1 million into the product would get $50,000 each year for the rest of his or her life. The Phoenix Companies buys 10-year puts as hedges for the guarantee, which assures consumers of their fixed payout regardless of the underlying funds' performance.

This structure will ensure that investors don't become too conservatively invested in retirement, Reinhart says. "The whole point is for the client to be in an aggressive growth strategy," he says. In other words, ensured of a guaranteed income stream through LIS2, retirees can invest the rest of their portfolios more aggressively. This argument is frequently applied to annuities as well.

Another major difference between retirees and foundations lies in their tax treatment. Private foundations pay an excise tax of 1% to 2% on investment income and realized capitalized gains, and endowments pay nothing. Needless to say, individuals don't enjoy such favorable treatment at the hands of the Internal Revenue Service.

Furthermore, many retirement income strategies are not designed for their tax efficiency. For example, investors in Vanguard's Managed Payout Funds receive a 1099 tax form each year stating how their monthly payments were generated for the previous year, whether by a combination of income, capital gains or a return of capital. This complex tax treatment means investors would benefit from holding these funds in a tax-advantaged account. If Lockwood's LIS2 product is able to generate income payments through income or capital gains, then investors will be taxed at the 15% capital gains rate, Reinhart says. But if the account balance plunges and the insurance company must make the payments, the investor will be taxed at regular income rates. Investors who open an IRA account managed by Lockwood Capital Management and hold the LIS2 offering inside it would enjoy tax-deferred treatment on the income.

Advisors at Greenbaum and Orecchio actively work to minimize their clients' tax burdens. If a client needs income, the firm uses iRebal rebalancing software to quickly determine how to use principal, income and rebalancing proceeds to generate the income in the most tax-efficient way, Plechner says. Clients with more than $1.5 million to invest may choose the firm's ETF and mutual fund-based alternative investment strategy for tax purposes, he notes. Clients with alternative investments including hedge funds, private equity, venture capital and real estate receive a K-1 tax form that state the investor's share of the partnership's taxable income. The forms often come late, requiring clients to file an extension on their taxes, Plechner says, a hassle some wish to avoid.

Despite the most careful planning, many institutions and individuals will fail to meet their income goals at some point. Following a year of poor returns, a foundation can simply cut the size of its grants. Your clients' bills, however, won't disappear in a bear market. When clients fail to meet their income goals, they can cut their spending or increase their equity allocation, says Deena Katz, chairman of Evensky & Katz in Coral Gables, Fla. The choice, as her partner Harold Evensky puts it, is clear: "Do you want to eat less well, or sleep less well at night?"

For more information, visit our website at http://www.financial-planning.com -- the leading resource for the informed independent advisor.

Article Source: http://EzineArticles.com/?expert=E._O'Brien

Revocable Trust (Revocable Living Trust) vs. Irrevocable Trusts
By Rocco Beatrice

Be open and notorious, Sue me! You’ll never get a dime. If you reposition (transfer) your assets through the use of an IRREVOCABLE TRUST, you will no longer own them. If you don’t own assets, no one will want to sue you; no one will want to track your spending habits; no one will call you to interrupt your dinner.

You don’t have to go offshore. US Laws, US courts will defend and support your asset protection system. These laws have been defined by numerous court cases, over and over, right up to the Supreme Court. You must however, give-up control over your assets to a true independent trustee.

Legitimate repositioning (transfer) of assets from you to an irrevocable trust is perfectly legal. The fact is, if your assets are owned by a subchapter S. Corporation or a Limited Liability Company and in turn the shares of the Sub S or membership units of the LLC are owned by an irrevocable trust, it’s the fortress of US Asset Protection. The ultimate asset protection device is the use of an offshore asset protection trust.

REVOCABLE TRUSTS VS. IRREVOCABLE TRUSTS:

1) On Asset Protection -

Revocable Trust (Revocable Living Trust) - NO Protection, NONE. The Grantor, The Trustee, and the Beneficiary are generally the same person. The Grantor did not give-up control of the asset(s).

Irrevocable Trust - YES. The Grantor no longer owns the assets. Assets have been transferred to the INDEPENDENT Trustee who has a fiduciary duty to manage the assets for the benefit of all beneficiaries, which may include the Grantor.

2) On Eliminating Probate -

Revocable Trust (Revocable Living Trust) - YES.

Irrevocable Trust - YES.

3) On Eliminating Estate Taxes -

Revocable Trust (Revocable Living Trust) - NO.

Irrevocable Trust - YES. Assets are not subject to the Estate Tax. The deceased did not have “ownership” of assets nor have assets in his possession at the time of his death.

4) On Deferring or Reducing Capital Gains Taxes -

Revocable Trust (Revocable Living Trust) - NO.

Irrevocable Trust - YES. Assets transferred to the Trust can be structured without capital gains taxes.

5) On Deferring or Reducing Income Taxes -

Revocable Trust (Revocable Living Trust) - NO.

Irrevocable Trust - YES, if combined with international structure.

6) On Form 1040 income tax benefits -

Revocable Trust (Revocable Living Trust) - YES. You have done nothing. You still "own" the assets. All Income and Expenses flow-through to the Grantor’s form 1040.

Irrevocable Trust - YES. If this is a Grantor-Type Trust, for income tax purposes, all income and expenses flow-through to the Grantor’s form 1040.

7) Comments -

Revocable Trust (Revocable Living Trust) - The Revocable Trust is designed to eliminate probate. DOES NOT eliminate estate taxes; ABSOLUTELY NO asset protection, nothing more than an extension of your will.

Irrevocable Trust - For asset protection purposes the trust is irrevocable. Under certain conditions, the trust can be designed to be a pass-trough trust for income taxes.

THE REVOCABLE TRUST (REVOCABLE LIVING TRUST):

What’s wrong with a revocable trust (revocable living trust) is that the owner of the assets (the Grantor) retains too much power over the disposition of the trust assets. This direct control nullifies any defenses against potential frivolous lawsuits. His deemed control is equivalent to ownership, and if you still own the asset you are liable to lose them in a lawsuit. And if you own the asset you will incur an estate tax.

The laws of most states permit the formation of a variety of revocable trust instruments (AB “Family” Trust, QTIP Trust, Crummey Trust, Retained Interest Trusts such as GRITS, GRATs, GRUTs, and QPRT), whereby the trust creator (Grantor) contributes assets for the benefit of others to be managed by a Trustee. While it is also possible for the creator to be either the Trustee or a Beneficiary of the trust he or she has created, such dual capacities will usually destroy the trust's ability to shelter its assets from creditors of the Grantor.

When a Grantor reserves an unqualified power of revocation, he or she is deemed the absolute owner of the trust property, as far as the rights of creditors are concerned. This is true even if a Grantor of a trust does not retain a beneficial interest in the trust, but simply reserves the power to revoke it.

THE IRREVOCABLE TRUST:

Unlike a revocable trust, (revocable living trust), assets transferred to an “irrevocable” trust cannot be changed or dissolved by the Grantor once it has been created. The Grantor no longer owns the assets. An independent Trustee is your best defense.

With an independent trustee, you generally can't remove assets, change beneficiaries, or rewrite any of the terms of the trust. An irrevocable trust is a valuable estate-planning tool. First, you transfer assets into the trust--assets you don't mind losing control over. You may have to pay gift taxes on the value in excess of $1million of the property transferred at the time of transfer or you may be able to set-up a mock sale by using a device known as a private annuity to avoid capital gains taxes.

With an irrevocable trust, all of the property in the trust, plus all future appreciation on the property, is out of your taxable estate. That means your ultimate estate tax liability may be less, resulting in a more tax efficient way to transfer your accumulated wealth to your beneficiaries. Property transferred to your beneficiaries through an irrevocable trust will also avoid probate.

As a bonus, property in an irrevocable trust may be protected from your creditors. Of late this irrevocable trust device is being utilized by many planners for avoiding the Medicare nursing home spend-down provisions whereby if the elderly has to enter a nursing home he must first spend all his money until he does not have any money left.

THE INDEPENDENT TRUSTEE:

A quick word about the independent trustee: most people don’t like to give-up control over their assets because of their perceived notion that giving up control is equivalent to leaving the wolf in charge of the henhouse. The law imposes strict obligations and rules on trustees including a duty to account for any benefits the trustee may have gained directly or indirectly from a trust. This goes beyond fraudulent abuse of position by a trustee.

The courts regard a trust as creating a special relationship which places serious and onerous obligations on the trustees. The law regards the special "Fiduciary" relationship of a trust as imposing stringent duties and liabilities on the person in whom confidence is placed - the trustees - in order to prevent possible abuse of that confidence. A trustee is therefore subject to the following rules:

1) No private advantage. A trustee is not permitted to use or deal with trust property for direct or indirect private advantages. If necessary the court will hold him personally liable to account for any profits made in breach of this obligation

2) Best interests of beneficiaries. Trustees must exercise all their powers in the best interests of the beneficiaries of the trust.

3) Act prudently. Whether or not a trustee is remunerated he must act prudently in the management of trust property and will be liable for breach of trust if, by failing to exercise proper care, the trust fund suffers loss. In the case of a professional the standard of care which the law imposes is higher. Failure to exercise the requisite level of care will constitute a breach of trust for which the trustee will be liable to compensate the beneficiaries. This duty can extend to supervising the activities of a company in which the trustees hold a controlling interest.

Legal safeguard: In cases of substantial assets, you may add one other safety measure, "the Trust Protector." The trust protector’s sole function is to hire and fire trustees, at will and without explanation. We use limits on how much a trustee can be authorized to spend without a second signature.

author bio - Rocco Beatrice, CPA, MST, MBA
award-winning estate planning & trust expert
MS - Taxation, Master of Science Taxation
MBA - Management / Taxation
BSBA - Management / Accounting
CPA - Certified Public Accountant
-----
Irrevocable Trust Services
Living Revocable Trusts
Original article posted here: Living Revocable Trusts vs Irrevocable Trusts
71 Commercial Street #150, Boston, MA 02109
tel: +1.508.429.0011 fax: +1.508.429.3034

Article Source: http://EzineArticles.com/?expert=Rocco_Beatrice

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All About Life Insurance Information For Investment Gains By Insurance Experts

2009-08-03T08:48:00.000-07:00

In today's uncertain economic climate people are really struggling to make that first step onto the property ladder. In many cases parents are helping children make this first move. However, you need to be clear whether any financial help you do give to your child is classed as a gift, a loan (whether it is with or without interest) or an investment.

If your help is a loan or investment then you should safeguard this. The best way to do this is to have your solicitor draw up a legally binding agreement. This will stipulate the nature of any agreement.

There is always a chance your child will go ahead and sell the property without your knowledge, even with a legally binding document in place. So this does not happen and the property cannot be sold without your permission, you need to complete HM Land Registry form RX1.

Also remember to regularly update your will if you do decide to take on a percentage of the property. This will reflect what you would like to happen to that stake in the event of your death.

Tax liabilities - When you purchase a property be prepared to pay a large amount of tax. It is not easy to foresee how it is calculated and what tax you would have to pay on an investment, loan or gift.

Inheritance tax - If you give your child any cash, your child will not have to pay any income tax, at the time you give it. You will however need to be aware of any implication on the inheritance tax position.

Any gift that you do make during your lifetime, as long as you survive the gift by seven years, will be free from inheritance tax.

Capital gains tax - If you are thinking about investing in your child's property, than another tax you must consider is capital gains tax (CGT). This is only a factor when you come to sell the property. As your child's property is not your main residence, capital gains tax is imposed on any profit you receive from the sale of the property. This would only come into affect when you exceed your personal exemption limit, which for the current tax year is nine thousand six hundred pounds.

For example, if you invest ten thousand pounds in your child's home, and this equates to 20 per cent of the property, you may be liable for tax on 20 per cent of the profit made.

Do not think you can avoid capital gains tax by giving your share away or selling the property for less than the market value, as the house would be your child's main place of residence they would be exempt from capital gains tax.

Any money you loan your child to purchase a home would be seen as a debt against your estate until it is repaid in full. However, any interest you charge on the loan counts as your income and is also taxable.

Are you wanting to buy a new house and need a Mortgage, visit Brokers Online for a great deal. Brokers Online also provides its UK clients with Life Insurance, Mortgage Payment Protection Insurance and many more financial products.

Article Source: http://EzineArticles.com/?expert=Michael_Challiner

Understanding Your Incentive Stock Options
By Thomas Corley

If you receive stock options as part of your employee compensation package then you are one of the lucky ones. This article is intended to shine a little light on how one of these options, incentive stock options, works from an employer incentive standpoint and how they function for tax purposes.

The fact that you are receiving stock options is a testament to your value as an employee. Management realizes that competent people are critical to the success of any organization. For public companies, stock options are a way to motivate employee behavior, while at the same time anchoring good employees to the company by virtue of placing certain vesting requirements or restrictions on the exercise of the stock options.

How valuable are stock options? Let me give you an example that, to this day, is still fresh in my memory. When I was just starting out my career and working for a large international accounting firm, I was put on assignment for a project with a large, publicly-held pharmaceutical company. I was into my sixth month on the project and I remember it was a Friday and there was an unusual congenial buzz about the facility, much more than the typical Friday in the summer in New Jersey.

I began to ask around as to the source of this congeniality and soon found out that some stock option vesting window opened (vesting is a restriction on an employee's ability to exercise stock options) and because the stock price had been flying high at that moment, there were many individuals who were about to make a lot of money by exercising their stock options (purchasing the stock) and selling their newly acquired shares.

Well, the weekend passed uneventfully for me, but on that Monday, when I made my way into the parking lot of my big client, I noticed something very different. It appeared to me as if the parking lot had, over the weekend, transformed itself into a new car dealership -- BMWs here, Mercedes' there. It seemed surreal to me, all these new cars magically appearing over the weekend. It quickly dawned on me that, indeed, there had been some spending of those stock options over the weekend. This disproportionate distribution of wealth is what stock options are all about. The American Dream of "overnight" wealth.

Companies that grant stock options to employees refer to such grants as Compensatory Stock Options. These are broken down into two categories: Incentive Stock Options ("ISO", the subject of this article) and Nonqualified Stock Options. Most employees receive incentive stock options. Nonqualified stock options are usually earmarked for senior executives or non-employees that the company feels are critical to the management of the company's business.

ISOs give the employee the right to purchase the company's stock (called "exercising" the stock option) at a fixed price (called the "exercise price"), for a period of time not to exceed ten years from the date the options are granted to the employee (called "grant date"). The employee can only exercise the ISO as long as they are an employee of the company or within twelve months after termination of employment. There is no taxation to the employee when they receive their ISOs. Even better, there is no regular income tax when the employee exercises the stock option (buys the stock). Taxation occurs in two instances:

1. When the employee exercises the stock option (purchases the stock) there is no regular income taxation, but there may be an alternative minimum tax on the excess of the fair market value of the stock on the exercise date over the employee's exercise price (discounted purchase price of the stock).

2. When the employee exercises the stock option (purchases the stock) and subsequently sells the stock there is taxation. Here is where ISO taxation gets complicated. When you buy your company stock (exercise the stock option) and sell the company stock the taxable amount is determined based on when you sold the stock. You can purchase the company stock (exercise the ISO) and sell the stock in the same year (called a disqualified disposition) or you can purchase the company stock and sell the stock in a subsequent year. When you sell the company stock in a subsequent year the regular tax treatment depends upon how long you held the stock and how long you held the stock options.

*Buy and Sell the company stock in same year or within twelve months. You may have both W-2 income and short term capital gain income as follows:

- W-2 Income is equal to either A or B below, whichever is the lower amount:

(A) The fair market value of the employer stock on the exercise date (date you purchased stock) over the exercise price (discounted purchase price) or

(B) The sales proceeds on the sale of the company stock over the exercise price (discounted purchase price) and

- Short-Term Capital Gain Income is equal to the excess of the sales proceeds on the sale of the company stock over the fair market value of the company stock on the exercise date (date of purchase).

* Buy company stock in one year and sell it in the next year. If you hold the stock for more than twelve months (and you held the ISO for more than two years), then the difference between the sales price and the exercise price is a long term capital gain which is subject to a maximum 15% federal tax rate. If you hold the stock for twelve months or less than the tax calculation is the same as if you had bought and sold the stock in the same year (W-2 income and possibly short-term capital gain income).

ISO Example: Stan Smith is an employee of Savurlife Pharmaceutical Inc. and is given ISOs on January 1, 2004 that entitle him to purchase (exercise) 100 shares of Savurlife at $1,000 (exercise price) on January 2, 2006 (exercise date/purchase date). The fair market value on January 2, 2006 is $3,000. If Stan does not sell the stock in 2006, then $2,000 ($3,000 less $1,000) will be subject to alternative minimum tax in 2006, but not subject to any regular income tax in 2006. If Stan sells the stock in 2006 for $3,000 then the $2,000 will be treated as W-2 wages in 2006. If Stan sells the stock on January 3, 2007 (one year and one day after purchase and ISO held more than two years) for $3,000 then the $2,000 gain will be treated as a long-term capital gain and taxed at no more than the maximum capital gains federal tax rate of 15%.

Employers will grant ISOs to employees but place certain restrictions on an employee's ability to exercise the ISOs. This is done, in part, to provide a means of preventing employees from seeking employment elsewhere. Employers use "vesting" (a typical restriction placed on the employee's ability to exercise an ISO that may be tied to some vesting date) as a means of motivating the employee to stay with the employer. ISOs are typically granted annually and may be tied to some specific goal achieved by the employee or an overall goal (i.e. earnings target) achieved by the company. Over time these ISOs can become a substantial incentive to stay with the employer. If you find yourself the lucky recipient of an ISO, bide your time, work hard, and wait for that ISO Friday to cash in on the American Dream.

Tom is a Certified Public Accountant, a Certified Financial Planner, CLTC (Certified Long-Term Care) and President of Cerefice & Company, the largest CPA firm in Rahway, New Jersey. Tom works with clients helping them manage their money, retirement planning, college savings, life insurance needs, IRAs and qualified plan rollovers with an eye towards maximizing tax benefits and minimizing taxes. Tom is founder of the Rich Habits Institute and author of "Rich Habits."

Article Source: http://EzineArticles.com/?expert=Thomas_Corley

What Exactly Is a Term Life Insurance?
By Sky Joe

The two most common forms of life insurance policies are term life insurance and whole life insurance. The names are remarkably apt. A term life insurance policy lasts for a set period, say 10 years. If you die during that 10-year term, the policy will pay. If you don't, it expires and that's that.

A whole life insurance policy lasts for your whole life. You absolutely will die during the policy period for a whole life insurance policy. Although most insurance company will pay you the benefit before you die, if you live to be 100.

Typically, term life insurance provides protection for a period of from one to 20 years. The best way to think of term life insurance is as temporary insurance. A whole life policy is permanent insurance.

Term products usually are used when you have a temporary need, such as a mortgage, business obligations or a particular need for income when your children are young. Whole life products are effective when you have a permanent need, such as to supplement your surviving spouse's income, cover funeral costs, pay capital gains taxes, to make charitable donations and even pass a family business from one generation to the next. For this reason, it is usually the least expensive form of life insurance ad the one most likely to be used by cash-strapped young families. Its low cost allows you to buy higher levels of coverage at a younger age, when your need for protection is often greatest.

Of course, it would be simply if there were only one kind of term life insurance to consider. Instead, there are three. Level term provides a consistent amount of insurance throughout the policy period. Decreasing term, which is a good type of insurance to use to cover a shrinking debt obligation, such as a mortgage, starts with a specified face amount, which decreases annually until it reaches zero when the policy expires. Increasing term provides a growing amount of insurance, but the need for this type of protection is rare.

Some term life insurance policies are renewable. The benefit here is that you don't need to prove to the insurance company that you are still "insurable" to renew the policy. But, each time you renew, the premiums will be higher because you are older and, therefore, more likely to die during the policy's term. Many term life insurance policies are also convertible, which means they may be exchanged for another type of life insurance. Choosing a convertible term life insurance policy is one way to make sure you will be able to get permanent coverage at a later time, without having to prove that you are still insurable.

You won't want to stick with term life insurance for your entire life. By the time you reach 70 or 80 years of age, the premiums for a term policy usually approach the face amount of the insurance, because the insurance company figures you are going to die soon.

For more information on buying affordable whole life insurance policy, getting cheap term life insurance online rates or low cost universal life insurance quotes, please visit the following website: Life Insurance Resource Guide

©Skyjoe. All rights reserved. This article may be freely distributed as long as it remains unaltered inclusive of the active links and the copyright notice. No alteration is allowed without express written permission from the author.

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All About Life Insurance Information For Investment Gains By Insurance Experts

2009-08-03T08:45:00.000-07:00

Importance of Life Insurance Coverage
By John Fagan Jr.

Life Insurance coverage is something that most people consider late in life, but it is a very efficient financial support program that policy buyers should actually think about purchasing when they are young, in order for their dependents or beneficiaries to avail death benefits from the policy.

A wide coverage, affordable and feature-rich life insurance policy is recommended by finance experts as something that should be a part of every smart individual's investment portfolio not just as a means to accumulate wealth, but also so as to feel financially secure.

This is because with any life insurance policy one chooses there is always the choice of opting for many other benefits along with the usual death benefit (which actually benefits the persons named as beneficiaries in the policy rather than the policy holder). Some of these advantages of holding down a life insurance policy includes tax-deduction options, and in some cases long-term capital gains.

Thus, buyers who want to avail a value for money policy should also take into consideration the additional benefits like the above mentioned two features that come with some polices, apart from the important factors like price line and term (duration) of the life policy.

However, the importance of proper coverage cannot be stressed enough. It is a great monetary tool for providing financial support to the family in the event of the policyholder's death. So, in order to raise the financial death benefits from a policy for the family members, a policy shopper is strongly advised to look at term and plan features, like flexible payments or other advantages related to the policy. These are aspects that increase the value of a policy to grant maximum financial rewards to the beneficiaries in case the policyholder dies.

Taking time to research the insurance industry for reputed providers, policy types, price lines, terms and additional advantages is the best way to ensure one is moving in the right direction as making a hasty decision and buying a policy from the first insurer, without proper assessment of personal financial needs or monthly budget etc. can result in a wrong deal.

Furthermore, proper, pre-insurance shopping that is started by research and comparison of quotes from different providers and plans enables buyers to access guidelines for insurance buying as many online websites provide handy work sheets and free software programs for site visitors to check their financial coverage needs against basic policy features. Some web tools even enable users to determine rates for life insurance policies after feeding in some basic data into an online form (e.g. dependents, their needs, current and future financial commitments - like college fees, mortgage etc.), which is computed by the web program to guide buyers about the kind of policy they can best afford.

Thus, taking help from these useful online websites and programs allows buyers to purchase an important financial protection plan for their loved one - and also take care of future liabilities and commitments in the long term.

John Fagan is one that will direct you to the lowest possible price for your insurance needs. No matter the type of insurance you need we have it right at the tip of your fingers. Insurance Needs and a very short form Personal and Business needs.

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8 Critical Estate Planning Mistakes
By Mark Connell

I'd like to discuss eight critical estate planning mistakes that can create serious problems for those you leave behind. These estate planning mistakes can be easily avoided.

1. No Plan At All: Probably the worst mistake you could make is having no plan at all. It is estimated that between 50% and 70 % of Americans do not have a Will. You are the only one who can protect yourself, your loved ones and your hard-earned assets. The intestate laws of Connecticut will determine who inherits your assets when you have no Will. You can refer back to the February, 2009 issue of STRUCTURES to see what that Will would look like. Also remember to review and update your estate plan regularly.

2. No Estate Tax Planning: With proper planning, a married couple can protect up to $4 million from State of Connecticut estate taxes and $7 million from Federal estate tax. The basic level of planning to accomplish this is called a "Credit Shelter Trust". In larger estates, irrevocable life insurance trusts, qualifired personal residence trusts, charitable trusts and family limited partnerships can be used to protect assets from estate tax. Without such planning, an unexpected and surprisingly large estate tax due can be due.

3. No Incapacity Planning: There is more to estate planning than distributing assets after death. A comprehensive estate plan begins with planning for your own incapacity. You should name a health care representative to make health care decisions for you if you can't. You should have a Living Will to prevent unnecessary or unwanted life support. Either a durable power of attorney or a living trust should be in place to handle your affairs if you're not able to.

4. No Guardians for Minor Children Named: Parents devote considerable time to providing for the needs of their children. But, these same parents often fail to appoint guardians for their minor children in the event both parents are gone. Who should be the guardians to raise your minor children? What special instructions would you give them? You must legally appoint the guardians in your Will. Most importantly, a stanby guardian is an absolute must. Many people rely on a guardian designation in their Will. But, this would be completely ineffective if the parent is disabled or cannot be immediately located.

5. No Planning for Life Insurance: Life insurance is a useful financial tool for many Americans to help support a surviving spouse and minor children or to pay estate taxes. One of the greatest tax myths is that life insurance is tax-free. Even though the death benefit is income tax-free to your beneficiary, the entire value of the death benefit is counted for estate tax purposes. You can structure life insurance to avoid estate taxes and still fulfill your objectives through a properly structured "Irrevocable Life Insurance Trust". Otherwise, you could unintentionally make the IRS a beneficiary of nearly half of your life insurance.

6. No Planning For "Out of State" Real Estate: If you own real estate outside your home state, a probate proceeding may have to be opened in that other state to transfer title to that "out of state" real estate. This can be avoided if you make appropriate legal plans in advance. The probate process is much more burdensome in some states than in others.

7. No Tax Planning for Qualified Retirement Plans: A great deal of the wealth in America is currently in qualified retirement plans. Without careful coordination more than half of your retirement assets can go to the IRS instead of to your loved ones. The effect of taxes on these assets can be substantially reduced with proper planning.

8. No Lifetime Gifting Plan: A terrific planning opportunity is the annual gift exclusion. You can give up to $13,000 each year to as many individuals as you want without any gift tax due. This removes the value of the gifted asset from your estate and removes any future appreciation on the gifted asset. But, be careful because lifetime gifts can be subject to capital gains tax later on.

Mark R. Connell Attorney At Law, LLC
420 East Main Street, Suite 12
Branford, CT 06405
Phone: (203) 488-5586
http://www.markconnellattorney.com

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Life Insurance and the Estate Planning Cycle
By Kyle J Norton

Estate planning is the process of accumulating and disposing wealth before death of an individual or estate owner. The most important goal of estate planning is to make sure that the greatest amount of the estate passes to the estate owner's intended beneficiaries while paying the least amount of taxes. In this article, we will discuss the important role of insurance in estate planning cycle.

1. Creating wealth
Before one can build their wealth through investment vehicles, he or she must know how to save. In this stage, life insurance is always the first stage of estate planning cycle so it can guarantee there are funds around for the beneficiaries in case of sudden death. Most of the time, this stage applies to people just starting a family and have little savings. The type of life insurance used generally is term life insurance because it provides larger amounts of insurance with affordable premiums.

2. Wealth protection
a) In the later stages of a person's life, when debt is diminished and wealth has been created, protection and conservation of the asset becomes more important. In this stage of the estate planning cycle, term life insurance is no longer provides enough protection. Therefore universal life insurance may be considered, since all investment funds up to maximum amount allowed each year that have been deposited in the universal life policy is tax exempt upon the death of policy insured.

b)Universal life insurance now becomes more important because all unrealized capital gains from stock accumulation, and the appreciation of rental property will have to pay upon the death of the owner. Since life insurance is tax free and is considered as a liquidate asset, it can be used for various purposes such as funeral expense, and paying income tax without selling estate asset at a cheap price if the person dies in the economic down turn.

c) Life insurance also helps to pay off liabilities of estate testator and acts as an emergency fund in case there are no other liquidate assets around.

I hope this information will help. If you need more information of insurance or series of articles of the above subject at my home page at: http://medicaladvisorjournals.blogspot.com

http://lifeanddisabitityinsuranceunderwriter.blogspot.com/

All rights reserved. Any reproducing of this article must have the author name and all the links intact.
"Let Take Care Your Health, Your Health Will Take Care You" Kyle J. Norton
I have been studying natural remedies for disease prevention for over 20 years and working as a financial consultant since 1990. Master degree in Mathematics, teaching and tutoring math at colleges and universities before joining insurance industries.

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All About Life Insurance Information For Investment Gains By Insurance Experts

2009-08-03T08:42:00.000-07:00

The Best IRA Rescue Plan is Not a Traditional Or Roth IRA
By Rocco Beatrice

Roth IRA on Roids is the Better Alternative to the Traditional and Roth IRA

Roth IRA on Roids is like a savings account deposited with an insurance company, rather than a commercial bank, such as Bank of America. It's an improved wealth-building tool. The purpose is to grow your retirement nest egg without taxation and be able to withdraw your savings tax-free, in your sunset years. The benefits of this plan is a wealth building tool which acts like a traditional one but with:

1) No contribution limitations tied to your earned income, marital status, or if you have another pension plan in your business or with your employer.
i) Both, the Traditional and regular are limited to $5,000 or $6,000 if you're over the age of 50. With Roth on Roids™ you can contribute $10,000, $20,000, $50,000, $200,000 or more. The only qualification is that you must be healthy.
ii) There are no earned income, marital status limitations, or age limitations.

2) No early withdrawals penalties or sur-tax based on your age 59 1/2 or forced distributions after your age 70 1/2. You decide when to begin withdrawals from your savings, without restrictions. Of course the longer you delay your retirement, the better the numbers.

3) No risk of loss with the violent ups and downs of the stock market, the real estate market, commodity market, or any other market. Your principal is guaranteed by the insurance company with a minimum guaranteed tax-free return on your deposit.

In 2008 did you lose money in the market with your IRA account? Are you afraid to put your money back in the market? With Roth on ROIDS™ you get a guaranteed tax-free minimum return of 2 percent, and typical but not guaranteed annual tax-free returns of 5 to 9 percent, translating equivalent taxable returns of 8 to 15 percent assuming a 40 percent tax rate.

How does this work? Is it legal?

Absolutely. It works because your savings account is deposited with an insurance company, rather than a commercial bank, such as Bank of America.

This savings account is technically "wrapped" by an insurance policy. Insurance companies do not pay income or capital gains taxes on insurance policy returns - and neither will you. As a bonus of having your savings account wrapped by an insurance policy, you get a death benefit included at no additional cost.

1) It is a tax-free wealth building savings account wrapped in a life insurance policy. If you die prematurely, your family will receive a death benefit.
i) The Traditional and regular will never own a life insurance policy; it's one of the restrictions. It has no limitations. In fact, it's a savings account wrapped inside a life insurance policy designed for tax-free growth and tax-free withdrawals.

Example: At age 52, Dr. Smith contributes to his wealth building of $50,000 for 7 years, for a total $350,000. Beginning his age 65 Dr. Smith begins to withdraw $30,455 per year for 35 years or a total $1,065,925. His death benefit beginning at age 52 to his age 65 is $1,249,976 then is steadily reduced by his withdrawal of $30,455 representing his policy loans against his death benefit.

IRA conversion: My Accountant has been talking to me about converting my Traditional IRA to a Roth, can I use Roth on Roids™ as the alternative tool?

Yes. If your accountant, financial planner, investment advisor, lawyer, or other professional advisor has discussed converting your money or other "qualified" retirement money to a regular by paying the tax now and repositioning your money to this account, you should strongly consider the third tax-free bucket, wealth building tool.

1) It has all the similarities of a regular Roth without the restrictions.
2) Contributions are after tax, tax-free growth, tax-free distribution, and can be passed on tax-free of inheritance taxes.
3) Noteworthy difference between a regular Roth and Roth on Roids™: Death benefit. (You cannot buy life insurance within a Traditional and a regular).

How much does it cost to set this 'third bucket' account up?
There are no fees associated with this account.

How can I finance this account, the third bucket, wealth building tool?

1) Cash or investment dollars.

2) By repositioning your home equity.
i) You borrow from your equity to reposition other people's money by buying the third bucket.

3) By repositioning your Commercial Real Estate Equity.

4) If you have lost your money in the stock-market? Is it fair to say that you are scared to invest in the stock market today? You can strategically place some of your money in the third bucket by eliminating the risk of losing your money. Risk management by allocating amongst classes of assets.

5) If your tax adviser, investment banker, financial planner, or other professional is talking to you about conversion to a regular by paying the tax now and reinvesting it into the account, the third bucket is the better way to go. This third bucket is not under the control of IRS mandated restrictions.

Best IRA Rescue provides services on your Roth IRA, IRA investments & traditional IRA and will help you reduce your inherited and beneficiary independent retirement account taxes in your estate assets. Roth on ROID™ is your advanced Roth IRA retirement planning strategy. It is Cash Value Life Insurance and one of the best IRA tax-savings strategies with benefits of a guaranteed death benefit, guaranteed principal, tax-free growth, and tax-free distributions from policy loans. Traditional IRAs and ROTH IRAs cannot invest in life insurance. Please contact us if you have any questions. Rocco Beatrice, CPA, MST, MBA
Best IRA Rescue-Roth IRA
Other article: What's Better Roth 401K Contribution Limits
Boston, MA: 71 Commercial Street #150 Boston, MA 02109
Costa Mesa, CA: 543 Victoria Ste. J, Costa Mesa, CA 92627
toll-free: 888-93ULTRA (888-938-5872) tel: +1.508.429.0011 fax: +1.508.429.3034

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What the 1 Million Dollar Investor Should Know
By Michael K Robinson

The following article will be discussing four important wealth management issues that the $1 million investor should know about. Naturally, it stands to reason that there are far more than four important issues. However; the topics discussed here are four that are rarely mentioned in the press or in mainstream financial publications, and often times are not even mentioned by the average financial advisor.

The intention of this article is simply to inform and educate affluent individuals about wealth management and retirement planning issues that may pertain specifically to their demographic and may not be heard about elsewhere. These issues include having the ability to gain access to investment options reserved exclusively for wealthy clients, minimizing tax obligations on investments, efficiently transferring wealth to chosen heirs and tying it all together in a comprehensive financial plan.

Exclusive Options for Affluent Investors

As your wealth grows, so too do your available options for investment management. It's important to be aware of your options as they can have a significant impact on the type of investment management you receive, the fees you pay and the number of restrictions on your money.

Growing quickly in popularity, what remains as one of the lesser known options, although one of the most effective is the private "investment counsel" firm. Investment counselors (ICs) work almost exclusively with affluent Canadians. We say almost exclusively because in addition to working with wealthy clients, IC firms may also manage private trusts and endowment funds.

For very wealthy Canadians, usually with a minimum of $3 million to invest, an investment counsel firm will create a customized portfolio of securities in a segregated account and provide direct hands on service. This means meeting personally with the firm or even the portfolio managers themselves. Some IC firms will work with lower minimums, particularly outside the major cities in Canada, but this author would argue that $3 million is the minimum amount needed in order to create a properly diversified portfolio that encompasses fixed income, Canadian equities, U.S. equities and foreign equities, in addition to other specialty securities such as royalty trusts or REITs. Many investment counselors agree, which is why they will also offer their service in the form of a 'pooled fund' for lower minimum investments. A pooled fund's minimum investment is usually $500,000 although some will be as low as $250,000. The pooled fund approach is an efficient means of accessing the management abilities of the investment counselor while still building up to the larger minimums and efficiencies required for a personal segregated account.

The investment counsel firm differs from a stock broker in many ways. The investment counselors are all professional portfolio managers, mostly with Chartered Financial Analyst (CFA) designations. Managing the investment portfolio is their primary role. Further, IC firms don't underwrite new issues of securities and they don't charge transaction fees on buying and selling securities. However; unlike stock brokers, your investment counselor may not be local. Although you can meet personally with the IC firm it is usually at a scheduled frequency and your investment counselor is unlikely to call you on a regular basis to discuss the holdings in your account.

The investment counsel firm is also different from a mutual fund company in that they may offer a personal segregated account to very wealthy clients. When the IC uses the pooled fund approach it is still different from a mutual fund company in that typically the investment management fees are lower than a traditional 'loaded' mutual fund. One of the reasons why they often have lower management fees is that they spend very little money on marketing and publicity, as opposed to some mutual fund firms that employ very aggressive and expensive marketing campaigns. Many investment counsel firms will also provide pooled fund clients very clear statements that show assets invested, what securities are being held, what fees are being paid and a personal rate of return.

Many wealthy investors have expressed a desire to stay away from mutual funds, often because they have had a prior negative experience relating to fees, perceived average performance or being "locked in" to a particular fund or fund family. For the $1 million investor, investment counsel firms are something to be aware of, particularly the pooled fund offering, which provides access to the IC firm and its money management strengths. However, this does NOT mean that we should rule out mutual funds for wealthy investors, but rather pay particular attention to the type and class of mutual fund being offered. Most mutual fund companies offer a class of funds designed exclusively for the affluent client that address the issues causing concern.

The concept of a mutual fund is arguably the best wealth management option for investing under $3 million and is fundamentally the same concept as the pooled fund offered by the investment counsel firms. A fund (mutual, pooled, or other type) is an efficient way to build a diversified portfolio of both domestic and foreign investments while accessing professional investment management. Some mutual fund companies even hire investment counsel firms to manage their funds in a 'sub-advisory' relationship. It's important to know that most mutual fund companies offer a class of funds designed exclusively for affluent clients, although like investment counsel firms, they are not as widely publicized as their traditional 'retail' mutual funds. While different mutual fund companies use varying nomenclature, the most common classes of funds designed for the affluent are known as "F-class" and "I-class." These classes of funds differ from traditional "loaded" funds (back-end load, front-end load and low-load) in that they are completely "unloaded." This means that you don't pay a fee when making the initial investment and you won't pay any fees if you withdraw your money before the load period expires. Further, the investment management fees are typically lower, as there are economies of scale in managing only large accounts, and the fee you pay the mutual fund company and the fee that gets paid to your financial advisor is separated. This way you have clarity as to how much you pay for investment management and how much your advisor is paid for providing you financial advice.

Important for non-registered money, some mutual fund companies will offer F-class and I-class funds that can be accessed on a 'corporate class' platform. Corporate class funds are designed to provide more opportunities for tax-efficiency over typical mutual fund trusts, but are nearly identical investment vehicles in terms of underlying investment mandates and access to professional management with liquidity, flexibility, and simplicity. Mutual fund corporations are discussed in more detail in the next section on tax-efficiency.

While some affluent investors may have expressed a negative feeling about mutual funds, it's usually because they have only been exposed to traditional loaded mutual funds and have never experienced their lesser known big brothers. An investor with $1 million in an F or I corporate class fund has access to a professionally managed portfolio (possibly even by an IC), low fees, clarity on what they pay in fees and tax-efficiency on the non-registered assets.

Minimizing Tax Implications on Non-Registered Investments

Given the relatively low maximum RRSP contribution amount more and more successful affluent individuals hold their wealth in non-registered accounts. While RRSPs are tax-deferred, the growth in a non-registered investment is taxed every year, and the level of taxation differs depending on the type of growth the investment earns. Interest income, which comes from more conservative vehicles such as Guaranteed Investment Certificates (GICs), bonds and T-bills, is taxed at the highest rate -the same as employment income. Dividends and capital gains are both taxed more favourably, relative to interest income, and come primarily from equity-based securities such as stocks.

The impact of taxation on investment earnings, particularly interest income, can take a significant bite out of your net returns and your overall financial plan. Consider an example of $1 million invested in a bond portfolio that earns 5% annual interest. That means that there will be $50,000 of interest income, which is fully taxable. At the top marginal rate in Alberta of 39%, that means just under $20,000 in taxes owing!

Tax-efficient strategies are available. Despite the fact that growth in non-registered investments are taxed every year there are investment programs available to affluent investors that makes non-registered investing extremely tax efficient and in most years the amount of taxes due are mitigated significantly if not deferred completely, and you don't need to change your investment strategy in order to do it.

Mutual fund corporations are designed to provide more opportunities for tax-efficiency over typical mutual fund trusts. Mutual fund corporations are nearly identical investment vehicles in terms of underlying investment mandates and access to professional management with liquidity, flexibility, and simplicity. This means you don't need to change your investment strategy in order to access them. They are however, enhanced in terms of taxation with the following benefits:

• The potential to reduce or possibly eliminate taxable investment distributions in any given year through pooling of income with expenses and pooling all investment gains with investment losses. This means lower taxes and therefore, the potential higher after-tax growth.

A typical investment trust must deduct the expenses of operating the pool against the income earned in the pool, which is not as efficient in an equity pool as it earns dividends and capital gains. The mutual fund corporation provides the ability to deduct the expenses of operating an equity fund (more tax efficient) against the earnings generated in a cash or fixed-income pool (less tax efficient income) and then dividends and capital gains earned in the equity pools. This way, if there are any taxable earnings left to distribute, they are dividends or capital gains and never interest.

• The potential to receive capital gains or dividend income only -even from the fixed income and cash management classes, which normally attract interest income. This means lower taxes and therefore, potentially higher after-tax growth.

The corporation will use the pooling mechanism mentioned above to eliminate all interest earnings, and/or use a derivative mechanism to replicate the earnings in the fund. The use of this mechanism will generate a nearly identical return to the underlying basket of securities but generates capital gains on the turnover.

• The ability to defer paying capital gains generated from switching between pools of the same corporation (taxes are paid when exiting the corporation). This can be of great benefit when rebalancing a portfolio.

The Canadian Income Tax Act allows individuals to exchange different classes of shares of the same corporation, with a change to the Adjusted Cost Base, but deferring the triggering of capital gains or losses until disposition of the corporation's shares. The different pools in a mutual fund corporation (such as Canadian Equity or Bonds) are different classes of shares of the same overall corporation.

The traditional advantage to the RRSP is that the contribution is tax deductible and the growth is tax deferred. The potential downside to the RRSP is that you are mandated by the government to begin withdrawing retirement income at age 71 and the withdrawals are taxed entirely as income. With the use of a non-registered mutual fund corporation, while you do not receive a tax deduction for the contribution you can achieve significant tax efficiency on the growth. Withdrawals are made whenever you want, for the amount that you want, and they are taxed as capital gains rather than as income, which again is more preferred from a taxation standpoint.

The Effective Transfer of Wealth

For many wealthy individuals an effective and comprehensive financial plan will show that they have enough wealth to provide the income they require well beyond their life expectancy, even after factoring in some potentially 'unexpected' variables such as additional travel expenses, healthcare costs, or helping out children and grandchildren later in life.

Despite having an "excess" amount of wealth, people typically continue to manage their assets cohesively and often times conservatively. Usually, there's no need to take any unnecessary risks in the portfolio as income is being generated and relied on and the excess wealth is destined for chosen beneficiaries such as children, grandchildren or charitable causes. With non-registered money the challenges are that any growth in the investment is taxed each year, and when the last surviving spouse passes away the assets are brought into the estate, the estate gains are taxed, the estate may be probated and whatever remains is dispersed according to the will (not having a will should be unthinkable!). While the use of a corporate class investment may be employed to help mitigate the annual taxation on any growth, there will still be taxes owing on any gains of the investment upon the death of the last surviving spouse and the proceeds are paid into the estate, which may then be probated.

Having excess wealth is indeed a great problem to have. Fortunately there's also an insurance strategy to turn this problem into a great opportunity, known as the "personal asset transfer" or the "insured asset transfer." This is a financial security planning strategy that is designed for people who have achieved a strong measure of financial success, are experiencing tax obligations from growth on their investments, have a desire to reduce taxes on income and assets and want to increase the value of their estate and pass that value efficiently to their chosen heirs.

When most people think of life insurance they think of traditional uses such as replacing the income of a deceased spouse, providing for burial costs or covering final tax liabilities. What many people don't know about, or don't think about, is that permanent life insurance policies, such as universal life or participating whole life, contain provisions for the accumulation of money in a tax-advantaged policy, within certain legislative limits, without paying tax on the growth. By transferring existing wealth into a tax-advantaged insurance policy you are able to retain control of your capital in a tax-advantaged policy, and depending on the type of policy implemented, the investment component of the policy may very closely resemble the type of investment strategy they may be using currently. Universal life has investment options utilizing market indices or options modeled on mutual funds and segregated funds. Once the assets are inside the policy (which also carries an acquired death benefit), any withdrawals of are subject to taxation based on rates and rules in effect at the time of withdrawal, however; the death benefit, as well as the cash value remaining in the policy (less any withdrawals), are paid out to your beneficiary tax free.

Ultimately, what this means is that if you have wealth invested that will likely be passed on to the next generation, you are subject to tax on any growth each year and upon the death of the last surviving spouse, a tax will be due on the estate gains, the estate may be probated and what's left will be dispersed. By implementing the personal asset transfer strategy you have a chance to transfer your excess assets into a tax-exempt life insurance policy (with an investment component that may be similar to your current investment strategy) where you will not be subject to the tax on any growth unless funds are withdrawn. Upon the death of the last surviving spouse, the value of your accumulated cash surrender value (the investment component) plus the death benefit of the policy, is paid out directly to your named beneficiaries completely tax free and by-passing the estate. You have now saved tax annually on any growth of your money giving you the potential to provide an even larger estate to your named beneficiaries tax-free, all with wealth that was considered "excess" and already destined to land with the next generation, and you have maintained complete control of your assets.

Bringing it all Together in a Comprehensive Financial Plan

As is hopefully outlined already, it's important for wealthy individuals to be aware that they have effective wealth management options and strategies available to them, such as investment counselors, F and I corporate class funds and the personal asset transfer strategy. However, caution is advised when attempting to implement complex financial planning strategies in isolation. In order to determine if any financial planning strategy will be suitable and effective a comprehensive financial plan should be completed. After all, how would you know that you have "excess" wealth if you don't have a complete financial plan?

A discussion on a financial plan often brings out the key question on this topic: just what is meant by a comprehensive financial plan? What is often shown as a financial plan is often little more than an investment plan, with an outline on what to invest in and how your money is projected to grow. While an investment plan is vitally important, it is really only a sub-set of a complete financial plan. The objective of the financial plan is to provide a clear path of achieving financial security. It should outline where you are today, where you would like to be and how you are going to get there. It should also outline potential risks and how to protect yourself, and your plan, against those risks. Components of the financial plan should include a retirement strategy, a risk management strategy and often times an estate plan.

It's vital that a financial plan be comprehensive in that, not only will it contain the above segments plus your income and assets, but it will also account for inflation, include government benefits, integrate pensions, reflect a sale of business or an executive retirement compensation arrangement and include insurance policies for life, disability and critical illness. Ideally, this plan will also be able to accommodate contingency planning to deal with concerns such as increased retirement spending, variable growth rates and the potential of living well beyond life expectancy.

Ultimately, the financial plan is what ties everything together. The investment plan or insurance strategies are really methods of implementing a financial plan. They are tools used to help the plan come to fruition. For someone with $1 million considering retirement, the discussion with a financial advisor should centre first on what level of income can be expected in retirement, where it will come from and how it will be protected. Once that has been determined then a discussion can follow on how assets should specifically be invested in order to help achieve the income plan, or specifics on an insurance recommendation in order to help protect the plan. Too often, discussions with financial planners focus first on investments and returns, without discussion on what's really important about money, which is what it can do for you.

Summary

As previously discussed, there certainly are more than four important issues with respect to wealth management for the $1 million investor. However, the intention of this report is to outline four important financial planning issues that are rarely publicized and often rarely discussed, that affluent investors should be aware of. The intention here is NOT to suggest that everyone with $1 million should go out and make sure they are using an investment counselor or investing in F or I corporate class funds, or implementing a personal asset transfer. What this report will hopefully do is prompt wealthy investors to engage in a discussion with their professional financial advisor about ensuring that they have a comprehensive financial plan and that they are taking into consideration investment strategies reserved for affluent clients, tax-efficiency and estate planning.

Calgary-based financial advisor Mike Robinson is the principal of Signature Financial Security, an independent, professional wealth management and retirement planning firm specializing in working with successful affluent and self-employed individuals. Having spent several years as an educator and advisor to Canadian financial advisors in the affluent market, Mike founded Signature Financial Security in 2006 and is now based in Calgary, Alberta, Canada.

The information provided is based on current Canadian tax legislation and interpretations for Canadian residents and is accurate to the best of our knowledge as of the date of publication. Future changes to tax legislation and interpretations may affect this information. This information is general in nature, and is not intended to be legal or tax advice. For specific situations you should consult the appropriate legal, accounting or tax expert.

Mike Robinson is an investment representative of Quadrus Investment Services Ltd.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

Article Source: http://EzineArticles.com/?expert=Michael_K_Robinson

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All About Life Insurance Information For Investment Gains By Insurance Experts

2009-08-03T08:38:00.000-07:00

How to Avoid Capital Gains Tax and Inheritance Tax on the Transfer of Property to Children
By Lee Hadnum

Capital gains tax. Lets look first at the capital gains tax position of a transfer of property. On the assumption that the parent is UK resident and domiciled any transfer of property will be subject to UK capital gains tax. You'll therefore need to calculate the gain arising and crucially to consider the offset of reliefs to reduce this gain.

It's worth noting that the residence of the child is irrelevant for UK tax purposes. Therefore, even if they are tax resident in a tax haven, the UK resident and domiciled parent will still have to consider their own capital gains tax position.

As parents are classed as 'connected' with their children for capital gains tax purposes, any transfer from the parents to the child is treated as a market value transfer. As such, even though the children don't pay any proceeds to the parent for the property when calculating the capital gain it is the market value of the property that needs to be considered.

The gain will therefore represent the uplift in value from the date of acquisition or probate value to the market value at the date of transfer. Note if the property was acquired before March 1982 there are special provisions that can apply to deem the cost to be the market value at March 1982.

What reliefs are offset?

It is the reliefs that can significantly reduce any capital gain. The main reliefs that any parent would be looking to consider to reduce the capital gain would be:

Indexation relief if the property was acquired before April 1998. This adjusts the cost (or probate value) for the effects of inflation up until April 1998
Taper relief. You'll need to consider what type of property it is. If you're looking at transferring a residential property it will nearly always be a non business asset. This will reduce the capital gain by up to 40% if you've owned it for at least ten years. Ownership of less than this will qualify for a reduced rate of taper relief (eg ownership of 5 years will qualify for taper relief of 15%) dependent on the period of ownership above three years. So three years ownership qualifies for 5% relief, four years for 10% etc.If however the property is either a Furnished holiday let or is used for the purposes of a trade (eg it is a shop, office or factory that is transferred and it has been used by a trader) it will qualify for at least some business asset taper relief. This can be very beneficial as maximum business asset taper relief can reduce the gain by 75%. So if you're looking at transferring a business asset the gain is likely to be significantly reduced.
Gift relief. If a property is used for the purposes of the parents trade or their trading company they may be able to claim gift relief. This allows a deferral of the gain arising (provided the child agrees!) and allows the parent to pass the property to the child free of capital gains tax. The future disposal of the property by the child would then crystallise the deferred capital gain.
Annual exemption. If the parents own the property jointly the humble annual capital gains tax exemption should not be forgotten. It allows each individual to exempt (currently) £9,200 of any gains from capital gains tax in each tax year. So if the parents had no other capital gains, the annual exemption could ensure that a gain of around £18,400 was fully exempt from tax.

Other capital gains tax exemptions such as rollover relief and the EIS deferral relief would not apply as there are no disposal proceeds!

Non UK resident parents

If the parents are non UK resident and non UK ordinarily resident they can transfer UK property to their children free of CGT subject to two caveats.

Firstly this doesn't apply to any property that is used for the purposes of a UK trade. Therefore if you run a UK business and use the property for that business you can't claim the CGT exemption even if you're non UK resident.
Secondly if you own the property at the date you leave the UK you'll need to ensure that you remain non UK resident for at least five complete tax years to avoid UK capital gains tax. If you come back before the expiry of five tax years the capital gain will be charged in the tax year of your return.

Non UK domiciled parents

If the parents are UK resident but non UK domiciled they can transfer overseas property to their children free of capital gains tax. This applies irrespective of the residence and domicile status of the children. If the property was UK property this exemption would not be available and the capital gain would simply be charged as usual.

Form of transfer

It's important to note that the transfer needs to be of the beneficial interest in the property. This does not necessarily tie in with the legal interest.

This means that if you wanted to transfer the property to your children you could transfer just the beneficial interest and retain the legal interest, or transfer the legal and beneficial interest together. If you transferred just the legal interest and retained the beneficial interest there would be no effective transfer for Capital Gains purposes and you'd still be treated as the owner of the property in law.

It can sometimes be easier to just draft a deed of gift and arrange for the beneficial interest to be transferred.

Inheritance taxAny transfer at undervalue from the parents to the children will usually be a potentially exempt transfer ('PET') for inheritance tax purposes. Again I'm assuming initially that the parents are UK resident and domiciled.

So in the case of a gift of the property the full market value of the property will be treated as a PET. If the children were to pay some of the value to the parents it would only be the difference between the market value and the amount paid that would be a PET.

With a PET there is no immediate Inheritance tax charge on the parents and provided they survive for at least seven years from the date of the transfer the amount gifted would be excluded from their estates for inheritance tax purposes.

Note that the residence and domicile status of the children is again irrelevant.

Non Resident parents

Non UK resident parents would have no impact on the Inheritance tax position, and the transfer would still be a PET for inheritance tax purposes.

Non Domiciled parents

If the parents are non UK domiciled they can transfer overseas property to their children free of any Inheritance tax implications -- irrespective of whether they survive for seven years or not. UK property is unaffected (unless it's owned via an offshore company) and non UK domiciled parents would still be classed as making a PET on the transfer of UK property to their children.

Gift with reservation of benefit rules

If the parents make a gift to the children and retain a benefit in the property transferred there are special anti avoidance rules than can ensure that the property is not classed as a PET for Inheritance tax purposes.

Instead the property remains within their estate for Inheritance tax purposes until the benefit ceases. This could apply for instance if the parents continue to live in the property, of if they continue to benefit from the rental income obtained from the property. One way that they could get around having the property still in their estate would be to pay the children a market rate for the benefit that they get from the property (eg market rental).

Stamp duty Land TaxUnless the property is mortgaged the parents should be able to transfer the property to the children free of stamp duty providing it is a genuine gift. If there was any proceeds payable to the parents this would then be classed as 'chargeable consideration' for stamp duty purposes and a stamp duty charge would need to be calculated.

Note that if there is a mortgage or any other form of debt that is transferred from parents to the children with the property this would also be classed as 'consideration' for the purposes of stamp duty.

Lee J Hadnum is a rarity among tax advisers having both legal & chartered accountancy qualifications. After qualifying as a prize winner in the Institute of Chartered Accountants entrance exams, he went on to become a Chartered Tax Adviser.

He previously ran his own his own tax consulting firm, and has written a number of tax books as well as editing the popular tax planning website http://www.wealthprotectionreport.co.uk.

For a limited time, Lee is offering a Free report from his Company and Offshore Tax Site Wealthprotectionreport.co.uk. Wealth Protection Report offers a wide variety of information on tax matters including, Property and Capital Gains Tax, Inheritance Tax and UK Emigration.

Article Source: http://EzineArticles.com/?expert=Lee_Hadnum

Comparing Term and Whole Life Insurance - Find Out the True Advantage
By Adam Hefner

Having life insurance lessens the chances of being without coverage for catastrophic losses. Life insurance originated when there was a need for a person to have protection for an amount of time. The person covered chose a benefactor to receive benefits if he died within this time. Unfortunately, the timeframe in which an individual could be insured was not long. Changes were brought about, and protection for a person's whole life became available.

With term insurance, as time passes there is more possibility of death, so premium rates go up. There are several different term policies available: renewable, where a person can renew the police after an amount of time with a premium increase; decreasing, where policy protection lessens annually; and convertible, where a policy can be changed to capital after a term. A whole life policy provides a fixed premium throughout life. A whole life policy usually has a higher premium than a term policy.

Initially, premium coverage for a term policy will start low, and then increase over time. The increase provides for the expense of the policy. Whole life insurance has a high premium with a low initial amount. The extra cost is invested with a yearly gain of five to six percent. Over time, the amount increases over the premium, then the amount is taken back when capital is gained from the investment.

Term policies have a lower premium, enabling a person to consciously invest extra capital resulting in a greater profit. The value of a whole life policy allows a person to take out a loan for uses like classes for his or her children. Plenty of cutting-edge policies come with benefits like dividend disbursements and guaranteed returns.

When choosing between whole life and term policies, it is crucial to keep in mind how much capital is available, and the goal outlined in the policy. Also the policy holder's age, children, and prospective needs must be considered.

For additional information about term life insurance, please visit the #1 life insurance resource on web: http://TermLifeInsurance2.com

Article Source: http://EzineArticles.com/?expert=Adam_Hefner

ULIP's - Life Insurance Coupled with Equity Returns
By Rajalakshmi Satish Kumar

UNIT-linked insurance plan which is popularly known as 'ULIP' is the flavour of the season.
The conventional Insurance policies have a fixed relationship between the premium and the sum assured. Whereas ULIP allows the policyholder to choose his own sum assured within certain limits, for any given premium. The policyholder may then have the right to adjust his sum assured up or down, again within certain limits according to his circumstances.

Features of a Unit Linked Insurance Plan

Unit linked insurance plan (ULIP) is life insurance solution that provides for the protection and flexibility in investment. The investment is denoted as units and is represented by the value that it has attained called as Net Asset Value (NAV). The policy value at any time varies according to the value of the underlying assets at the time.

ULIP provides multiple benefits to the consumer. The benefits include:

" Life protection

" Investment and Savings

" Flexibility - in Sum assured, to increase the sum assured, investment, etc

" Adjustable Life Cover

" Investment Options

" Transparency

" Options to take additional cover against - Death due to accident, Disability, Critical illness etc

" Liquidity

" Tax planning

Unit linked Insurance plan provides insurance protection against the risk of death combined with a provision for long term investment in the equity market, which are structured differently.
ULIPS are basically an investment type of plan, wherein the Life assured decides the quantum of contribution which he can set aside on a regular basis towards premium. He also has the flexibility to decide the risk cover, i.e the Sum Assured for his policy.

Based on the Sum assured and the contribution for the policy, insurer deducts charges towards life insurance mortality charges i.e, risk premium, administration charges and fund management charges. The rest of the premium is invested in funds that invest money in stocks or bonds.

The policyholder's share in the fund is represented by the number of units held in his account. The value of the unit is determined by the total value of all the investments made by the fund divided by the total number of units.

At any point of time i.e., maturity or surrender, the cash value will be equivalent to the number of units held by the insured multiplied by the unit price. In case of death claim, it will be unit value, plus the sum assured if any under the policy.

Pricing of Units

Method of pricing the units depend on whether the company is purchasing or selling assets (stocks). While purchasing of assets the units will be priced on Appropriation basis and while selling of assets the Expropriation basis of pricing will be applied.

Different method of pricing is adopted to safeguard the existing policyholders from the inflow and outflow of funds due to purchase/sale of units.

Appropriation Price

This will be applied when the fund is expanding. In this method of pricing, the unit price is calculated as follows:

Unit Price = (Market value of fund + expenses for purchase of assets + current assets + income - charges - current liabilities) / Number of units in the fund.

Expropriation Price

Expropriation Price will be applied when the fund is contracting. In this method of pricing, the unit price is calculated as follows:

Unit Price = (Market value of fund - expenses for sale of assets + current assets + income - charges - current liabilities) / Number of units in the fund.
The bid/offer spread

There are two different prices for a stock. One is a Bid price and the other is Offer price. Bid price is the price at which you can sell the shares and the offer price is the price at which you can buy them. The first is always lower than the second, and the difference between them is called the spread.

Insurance companies offer a range of funds like Growth Fund (Equity Fund), Balanced Fund, Secured Fund, Income Fund etc. The insured can direct the company to invest his contribution in the fund of his choice.

Balanced Fund

This type of fund buys a combination of common stock, preferred stock, bonds and short-term bonds, to provide both for income and capital appreciation while avoiding excessive risk. Such diversified holdings ensure that these funds will manage downturns in the stock market without too much of a loss.

Growth fund

This fund aims to achieve capital appreciation by investing in growth stocks. They focus on companies that are experiencing significant earnings or revenue growth, rather than companies that pay out dividends. The hope is that these rapidly growing companies will continue to increase in value, thereby allowing the fund to reap the benefits of large capital gains. In general, growth funds are more volatile than other types of funds, rising more than other funds in bull markets and falling more in bear.
Income fund

This fund emphasizes on current income in the form of dividends or payments from bonds, rather than emphasizing growth. Income funds are considered to be conservative investments, since they avoid growth of stocks.

How is it different from conventional insurance plan?

Unit-linked insurance plans are distinct from the more familiar 'with profits' policies sold for decades by the Life Insurance Corporation. In conventional insurance plans, the sum assured is decided by both the insured and insurer jointly. Insured will opt for a sum assured based on his family's requirements and the insured will agree to that sum assured based on the insured's repaying capacity. 'With profits' policies are called so because investment returns (profits) are distributed to policyholders in the form of a bonus, which is declared on a yearly basis based on the Company's performance in a year.

In 'with profits' policies, the insurance company credits the premium to a common pool called the 'life fund,' after setting aside funds for the risk premium on life insurance and management expenses.

Every year, the insurer calculates how much has to be paid to settle death and maturity claims. The surplus in the life fund left after meeting these liabilities is credited to policyholders' accounts in the form of a bonus.

In both 'with profits' policies as well as unit-linked policies, a large part of the first year premium goes towards paying the agents' commissions and other expenses of the management.

But Unit linked polices has an edge over other forms of insurance because -

" Liquidity is high,

" Return on Investment is high,

" investor knows exactly what is happening to his money,

" investor can choose the assets in to which his funds are to be invested

" investor gets the same returns that the fund earns, he also bears the investment risk.

" transparency makes the product more competitive.

ULIPs claim to give an investor the best of both worlds - high returns and risk cover.

Top Ups

Insurance companies allow an insured to make lump-sum investments in excess of the regular premiums. They are called top-ups and are charged at a much lower rate - usually one to two per cent. The expenses incurred on a top-up including agent commissions are much lower compared to the regular premiums.

Some insurers, like Aviva, also give credit on top-ups. For instance, if you pay in Rs.100 as a top up, the actual allocation to units will be for Rs.101 instead of Rs.100. If we keep the regular premiums to the minimum and increase the top ups, we can save up on charges, enhancing returns in the long run.

Switching

Most of the Insurers provide switching facility. Switching refers to sweeping of funds either partially or fully from one fund to another. This is subject to certain charges and completion of minimum period from inception of policy. Normally insurers maintain multiple funds consisting of varied portfolios and the policy holder is free to choose his fund type.

After sometime if the assured wants to move his fund to another fund owing to the increased returns, security of funds etc. he is free to switch his funds.

Conclusion

In the changing scenario of economic development where the globe has shrunk to a village, everyone has to seek the ways and means of exploiting the opportunity to one's best ability. Insurance companies give this opportunity to small investors who have money but lack intelligence in the field of investment in the capital market. Unit linked products help small investors also to play a role in the share market with minimum risk and maximum profit.

S Rajalakshmi,
Product and Life Insurance Functional Trainer,
3i Infotech Limited,
Chennai, INDIA.

Article Source: http://EzineArticles.com/?expert=Rajalakshmi_Satish_Kumar

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Managing Multiple Funds Through a Single Variable Life Insurance
By Denny Kuty

Variable Life Insurance offers cash value derived from investing a portion of the premium in various types of funds. Thus, premium from a single Variable Life Insurance can be used for investment in multiple funds to obtain cash value.

Variable Life is a permanent insurance policy that allows investment of the premium amount in separate investment funds such as fixed income investments, stock, bonds or the money market fund. Policy buyers are permitted to switch investments two to five times every year depending on the terms of the insurance provider. Unlike Universal Life, Variable Life Insurance allows complete control of the investment.

Variable policies allow policy buyers to earn tax free income. Also, the interest earned through investment can be used towards premium payments.

However, poor performance of funds reduces earnings considerably. Therefore, the policy buyer may have to pay an extra amount towards premium in order to keep the policy in force. Poor performance of funds may reduce the amount of death benefits although such reduction is well above the specified level. Also, it is not permitted to withdraw from the cash value during the lifetime of the policy holder.

Variable policies are expensive but offer more control and flexibility as compared to other policies. There is enough potential to earn tax free profits and provide the beneficiary with a substantial amount of tax free money. As it is possible to save on estate taxes, policy buyers purchase Variable Life Insurance for their heirs who are eligible to withdraw the cash value or borrow against it.

Variable Life Insurance policy holders can switch investments without incurring any charges or taxes. Most insurance providers limit the number of such investment switches to twelve per year.

The downside of Variable Insurance is the risk involved in the cash value component which depends largely on the performance of investments. The insurance provider is not responsible for the investment decisions of the policy buyer. Also, the insurance provider cannot guarantee a minimum balance towards the policy sum which is invested. Therefore if investments do not perform well in the market, then the cash value will be forfeited by the insurance provider towards payment of premiums. However, by investing wisely policy buyers can benefit from substantial earnings as compared to other policy types.

Also, there is significant tax advantages associated with Variable Policies. The cash value portion of the policy is tax free until the policy is redeemed. Unlike standard personal investments, the profits earned through the cash value portion of Variable policies are not subject to capital gains tax. Thus the growth of earnings is deferred from tax.

Denny is a Top Insurance Traffic Producer in the US. He drives traffic to top insurance carriers across the country. If you need any type of insurance or would like a free quote then get your Free Online Insurance Quote Today and check out our national insurance leaders Get Yours Now

Article Source: http://EzineArticles.com/?expert=Denny_Kuty

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All About Life Insurance Information For Investment Gains By Insurance Experts

2009-08-03T08:32:00.000-07:00

Capital Gains Tax Rates in the UK
By James Acheson

It is mandatory to pay capital gains tax if you dispose of any asset by transferring or giving it way. You are also subject to paying the CGT if you receive compensation, for example, you may receive compensation for a damaged good from an insurance company.

You do not have to pay any capital gains tax on the sale of your car, and first home, under most conditions, ISAs or PEPs, UK government gilts (bonds), income from betting, lotteries or pool winnings, or in other words, any money that is already subject to income tax.

Calculating the CGT:

When you sell an asset: Let us assume you bought some shares for £1000 and you sold them for £2000. You would need to pay CGT on the gain which in this case is £1000.

When you give an asset: It is important to point out that you need to pay CGT on the value of the asset and not what you get from it. To illustrate this, let us consider that you bought a flat for your son at £70,000 four years ago and its value has now appreciated to £100,000. Suppose you let him have it at less than the market value, £75,000. Your gain would be £100,000 minus £70,000 which is £30,000.

When you dispose of an asset: If you dispose of an asset which you received as a gift, your gain will be based on the market value when you received it. For example, you are gifted a garage whose value at the time when the gift was made was £5000. Now you sell it for £8000. Your gain in this case will be £3,000.

James Acheson lives in Canada but writes about a variety of UK financial topics including Capital Gains Tax, life insurance, debt management, and debt consolidation. He also sometimes writes for the life insurance site http://www.lifeinsure.co.uk. If you have any questions about finance in the UK, let him know.

Article Source: http://EzineArticles.com/?expert=James_Acheson

Tax Implications of Life Settlement Funding
By Jonathan Proby

One of the most common questions asked about Life Settlements is "What are the tax implications?"

Typically, any amount the policy owner receives for a policy in excess of the cash surrender value is treated as a capital gain.

This graph illustrates how the proceeds from a sale would be taxed on a policy with a total value of $1 million, a cash surrender value of $90,000, and cumulative premiums of $70,000. When considering this or any other financial planning option, clients are advised to consult their tax advisor.

Tax illustration

10 Year Old, $1 Million Face-Valued Policy

$300,000 Settlement Price

$210,000 Taxes as Capital Gain (difference between Settlement Price and Cash Surrender Value)

$90,000 Cash Surrender Value (basis and earnings)

$20,000 Taxed as Ordinary Income (difference between Cash Surrender Value and Tax Bais)

$70,000 Tax Basis (premium paid)

Most life settlements are considered taxable.

Tax Free Portion (cost basis) - The proceeds of the settlement up to the cost basis (the premiums that one has paid into the policy).

Tax As Ordinary Income (CSV) - The amount of the settlement that is between cost basis and the policy cash surrender value. The policy's cash surrender value is the amount the client would receive if they were to surrender their policy back to the insurance carrier from which it was purchased.

Capital Gains - For the portion of the settlement that is over and beyond the policy's cash surrender value.

Jonathan H. Proby, CSA, MBA is a South Florida native having been born and raised in Coral Gables, Florida. He is the son of the late Judge Lucien C. Proby (U.F. Hall of Fame) and mother Kathryn, a prominent publisher. Jonathan is the author of "The Seven Most Costly Financial Mistakes Made By Seniors", "The Ten Most Essential Things That You Must Know When Selling Your Insurance Policy", and "Life Insurance Settlements and the NASD... A Study in Compliance", is the past host of the Southern Most Wall Street Report on Conch FM and has authored other literary and columnist works.

Jonathan frequently provides lectures and workshops for approved continuing education to professionals such as CPAs, (CPE) Attorneys, (CLE) Financial Planners (CFP) and Insurance Agents (CE). Jonathan has provided lectures on advanced wealth management and estate planning strategies including "Life Settlements, Premium Financing, Charitable Giving, Premium Financed Life Insurance and The Insurance Audit". Through his lectures, Jonathan has introduced and taught these strategies to notables including the Florida Bar, the Society of Financial Service Professionals, The Financial Planning Association, The Florida Institute of CPAs, the National Association of Estate Planners and Councils with distinguished honors of the "NAEPC Speakers Bureau" and at Georgetown School of Law.

Jonathan received his Bachelor degree from Florida State University and earned his MBA in 2003. Jonathan is a Certified Senior Advisor (CSA) member and fully certified CE instructor of the Financial Planning Association (FPA), the Florida Institute of Certified Public Accountants (FICPA), the American Bankers Association (ABA), the National Association of Estate Planning Councils (NAEPC), The Society of Financial Service Professionals (SFSP), and the Planned Giving Council of Miami Dade County. He began his career as a Financial Consultant over a decade ago with Nationsbank/Dean Witter.

Article Source: http://EzineArticles.com/?expert=Jonathan_Proby

No Load Life Insurance
By Julie Shields

A no-load life insurance policy is a cash value building life insurance policy life whole life, except the premiums are lower and your cash value grows faster. This is because the parts of the traditional whole life insurance policy premium that pay for advertising, agent commissions, and corporate overhead are cut out--hence, it is "no-load".

No-load life insurance policies are almost always sold by life insurance brokers. Because these agents are licensed to dozens of companies, they don't depend on making a killer commission with every sale just to put bread in their mouth. What's more, the insurance companies who offer the no-load life policies can still find it profitable to sell these policies through brokers because the companies don't have to pay for the broker's advertising, telephone bill, training, any base pay, office supplies, benefits, or utility bills.

Insurance brokers are usually compensated on no-load life insurance sales by receiving a flat, one-time fee from the company. Their fee is part of the one-time set up fee that you will pay should you buy such a policy.

These no-load (sometimes referred to as "low-load") life insurance policies aren't sold in every state, so if you consider buying one you'll first have to check to see if you can even get one in your state. And, don't think that any of the usual other stipulations are waived. There are still medical questions to be answered and, if the face amount is high enough, a medical exam.

No-load life insurance policies are variations on the theme of traditional whole life insurance the one great appeal of which has always been its ability to grow cash value totally tax-sheltered, meaning you pay no income tax and no capital gains taxes unless and until you withdraw some of the cash value. With the rise of more sophisticated life insurance consumers thanks to increased knowledge spread by modern financial advisors and the Internet, the faultiness of whole life has been revealed.

Whole life takes many years before the cash value inside it even equals the premiums you've paid in, and then many more years before the cash value is anything to get remotely excited about. And the returns are only like those of a good corporate bond--very stable, yes, but today's financial consumer knows about the power of Variable Universal Life Insurance which is a tax-sheltered and payment-bundled way of "buying term and investing the difference", which has always been the countervailing answer of whole life skeptics and critics to whole life lovers. These VUL policies have premiums as cheap as those for term of the same face value but the rest of the premium, which is flexible, gets invested in general vehicles of your choice--and they can make substantially more money for you than the best corporate bond.

Therefore, people looking for stable cash value returns that amass more quickly while they also seek the lowest quality life insurance premiums might find no-load life insurance appealing. However, they should keep in mind that these policies have next to zero customer service attached to them.

While there are many critics of this, financial advisors and planners generally agree that the right kind of life insurance policy is a magnificent part of a good investment portfolio. You should consult with such a professional on such matters as tax bracket, your needed face amount, amount of premiums you can afford, and so on to determine if you should try to take advantage of the tax-sheltered growth that life insurance can offer you.

The author lives with her husband in Maryland, with their two dogs and cat. She put together the website http://www.affordable-life-insurance-guru.com in order to help the everyday person navigate the often confusing world of life insurance

Article Source: http://EzineArticles.com/?expert=Julie_Shields

Insurance - Beware of Universal Life Insurance II
By Jeffery Voudrie

In my last article, I explained the basic differences between term and permanent insurance. Permanent insurance such as Whole Life, Universal Life, Equity-Indexed Universal Life and Variable Universal Life is regularly promoted as the perfect retirement vehicle or the new way to build wealth. This week I will expose the fallacies of those arguments.

First of all, I believe that the need for life insurance should be met in the most economical way possible. With universal insurance, where life insurance is combined with investing, you end up paying too much for the insurance while earning too little on the investment. It's the worst of both worlds. Term insurance allows you to purchase the life insurance you need at a lower cost, while giving you the flexibility and control over your investments.

Universal policies unnecessarily lock you in. You're committed to paying a high annual premium. For instance, the annual premium on one million dollars of universal life for a healthy, 45-year old non-smoking male is around $8,000. That's $8,000 each year---for the rest of his life.

On the other hand, the annual premium for one million dollars of 20-year term insurance is about $1400. That's a difference of $6,600 each year. With universal insurance, most of that additional premium builds the cash value of the policy. But because of administrative and other fees, the amount added to your cash value each year is reduced. By the way, has your agent mentioned there is a way to buy no-load universal life insurance?

Insurance agents tout universal policies as a wonderful investment vehicle. They're not. Better returns can certainly be found elsewhere. Many of these policies are pitched to people in their prime earning years, most of whom are raising their families.

These investors will earn a far better return by first paying down their debt. That's a guaranteed return, of up to 20% on credit card debt. For those without debt, any extra money they have is better used for 401Ks, IRAs, etc.

The tax benefits heavily promoted as a major benefit of universal insurance are suspect as well. It's true that money drawn out of these policies for retirement spending isn't taxed, but that's because this money is actually a loan. In essence, you're borrowing your own money. And since it's a loan, it has to be paid back.

If you hold the policy until you die, a portion of the death benefit is used to pay back the loan. If you surrender that policy, the cash value is used for that purpose. Suddenly that money isn't tax-free. Just like you may have to pay capital gains taxes when you sell your home, you will have to pay taxes on the amount of the cash value that is greater than the amount you paid in premiums.

Last of all, you need to be aware of the tremendous financial incentive agents have in selling universal life insurance policies. Commissions on universal insurance are 70% or more of the first year's premium, then 5% of the premium each year after.

One of the most egregious sales tactic used to promote universal policies as an investment is that you should take the equity out of your home and 'invest' it in a universal life insurance policy. The argument is that your home equity is an asset that should be used, not left dormant. The tax benefits are also touted-the transfer is tax-free, the growth is tax-free and the distribution is tax-free! That's triple compounding, they say.

Do not fall for this trap. Frankly, those recommending it should lose their licenses. The arguments used to support this scheme are all smoke and mirrors. The tax benefits are bogus, you lose control of your money and the agent earns a big fat pay day.

Nor will the earnings be what you expect. Most of the time you will end up paying more in interest on your home equity loan than you will make in the policy. The distribution is tax-free, but all death benefits paid on life insurance policies are tax-free. So you can leave the equity in your home, buy a term life policy and have the same tax-free distribution benefit.

Have a financial question? Send me an email and I'll personally respond, free of charge. Go to www.guardingyourwealth.com and click on 'Ask Jeff'.

In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.

Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He'll answer your financial question - FREE at http://www.guardingyourwealth.com

Article Source: http://EzineArticles.com/?expert=Jeffery_Voudrie

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All About Life Insurance Information For Investment Gains By Insurance Experts

2009-08-03T08:20:00.000-07:00

Charitable remainder trusts can increase your income, avoid capital gains taxes, lower or eliminate estate taxes, serve as another type of retirement plan, serve humanity and put a warm feeling in your heart. Here is an example that applies to anyone contemplating selling a highly appreciated asset.

In the Path of Progress

Clarence and Mildred had a farm that has been in the family since 1930. They raised corn and had a few cattle. However, the farm has been inactive since Clarence died 10 years ago.

The farm used to be out in the country. Over the years, the neighboring city has expanded to the point that its boundaries have almost reached the farm.

A real estate development firm with an offer she finds difficult to believe has recently contacted Mildred. They want to build a giant shopping mall on her property. Moreover, they are willing to pay 14 million dollars for her 80 acres.

As much as Mildred is tied to her home of 40 years and the lifestyle, this is an easy decision. The farm was originally homesteaded and has no basis. How can she minimize the capital gain tax?

The procedure would call for her to gift the farm to a charitable remainder trust. The trust would then sell the property to the real estate developer. She should employ an estate planning attorney to assure that the gift to the trust and the subsequent sale to the real estate developer are not construed as a pre-arranged series of transactions.

Using a charitable remainder trust gives Mildred the following benefits:

1. She does more than minimize the capital gain tax; she avoids it altogether. If the capital gain rate is 15%, this saves $2,100,000 in capital gains taxes. Mary is frugal. She has saved every button that has ever come off a shirt, blouse or shirt. She is also leery. She figures she can put that $2,100,000 to better use than the people in Washington D.C.

2. A charitable remainder trust mandates an annual payout of at least 5%. That’s $700,000 a year. She is set for life and can take all the grandchildren to Disneyland every year.

3. She will get a huge tax deduction based on her charitable contribution to the trust. It will be so big that the IRS will let her carry the unused portion forward for a total of six years. It's a good bet she will pay no income tax for the next six years.

4. She can name any number of charities to receive the 14 million in the trust when she dies. Ultimately, she could have a new church building, a wing on the hospital or scholarships named after her and Clarence for her generosity. The number of people who would benefit in the future is too many to count.

5. If she is concerned about disinheriting her heirs, she can use some of the income to buy a life insurance policy and name her children and grandchildren beneficiaries. She could also gift up to (currently) $12,000 per year to as many people as she wants without any gift tax implications.

6. No estate tax will be due at her death.

7. The 14 million will be professionally managed inside the charitable remainder trust. She has no investment worries and can set the trust up so she has a guaranteed income. Downturns in the economy, weather catastrophes or world events will have no effect on her income.

It's true that Mildred could simply sell the farm and pay the capital gains tax. Aside from the capital gains tax, coming into this large sum of money could create more problems.

She would have to invest it while fending off suggestions from well-meaning relatives. She would have some estate planning to do to avoid half of her estate going to the government in taxes when she dies.

When you put the charitable remainder trust on the table as an option, most of these problems vanish and many additional benefits appear.

Robert D. Cavanaugh, CLU is a 36-year financial and estate planning veteran and author of the free newsletter, "The Estate Preservation Advisor". For cutting-edge, easy-to-understand financial planning resources and techniques to increase your income, reduce taxes and preserve your estate and to claim the free video, "How to Sell Your Life Insurance Policy for More than the Cash Value", go to http://theestatepreservationadvisor.com/rd/subscribe.htm

Article Source: http://EzineArticles.com/?expert=Robert_Cavanaugh

Will I Lose The Capital Gains Exclusion If I Gift My Home Through An LLC
By Michael Pancheri

Question: Dear Mr. Pancheri, I read your great article “Gifting Real Estate Under the Annual Gift Tax Exclusion.” In this article you explain that an LLC can be used to accomplish this. I am considering an LLC as a method to gift my house to my son. I have two questions:

- Is there any change in the basis when membership units are transferred (that is, can I take advantage of the Capital Gains exclusion)?
Question: Dear Mr. Pancheri, I read your great article “Gifting Real Estate Under the Annual Gift Tax E
-Can property taxes continue to be used as an income tax deduction when property is in an LLC?

I appreciate your help. Thanks. E.R.

Answer: Dear E.R. - You ask some very good questions that need to be addressed before you start giving away your home, whether through an LLC or otherwise.

First, let’s step back a bit and consider the consequences of selling your home outright to a third party rather than gifting it to your son. Under §121 of the Internal Revenue Code, you can exclude up to $250,000 of gain realized from the sale or exchange of your personal residence if you owned and used the property as your personal residence for at least two years during the five-year period ending on the date of the sale or exchange. This can be an important tax benefit if you meet the requirements and your personal residence has appreciated considerably in value. For example, if you purchased your home for $300,000 and then sold it for $550,000, your gain of $250,000 would normally be subject to a tax of around $37,500. However, under I.R.C. §121, this tax is avoided on the sale of a personal residence.

If you give your house to your son instead of selling it to a third party, the tax consequences are different. By gifting it to your son, you will avoid the capital gains tax. That’s because a gift is not a sale or exchange of the property. In that case, your son would step into your shoes and assume your tax basis (i.e., $300,000 from our hypothetical above). If he later sells your home, he would pay a capital gains tax on the difference between the sales price and his $300,000 basis. Of course, if he meets the requirements of I.R.C. §121, he would be able to avoid the capital gains tax on the first $250,000 ($500,000 if he's married) of appreciated value as well.

Now let's consider the estate-tax benefits of gifting your home to your son rather than selling it. Let's assume that your overall estate is currently valued at more than $2 million ($4 million if you’re married). In that case, if you simply deeded your home over to your son, you would pay no income taxes or gift taxes on the transfer. However, to eliminate the gift tax, you would have to use a portion of your unified credit against the gift and estate tax.

So, what's the benefit of gifting your home to your son now instead of giving it to him upon your death? By giving it to him now, you avoid the estate tax on the value of the appreciation of your home from the time of the gift to the date of your death. That could be significant in view of rapidly increasing property values. For example, if your home increases in value from $550,000 to $1 million from now until you die, then you will have avoided the estate tax on $450,000 - a tax of approximately $207,000 under current estate tax laws.

But, wouldn't it be better if you could eliminate the estate tax on the entire value of your home - not just the future appreciation? In my article, entitled "Gifting Real Estate Under the Annual Gift Tax Exclusion," I discussed the use of an LLC to do just that, by bringing the entire gift under the annual gift tax exclusion (currently $12,000 per year per recipient). That would not only avoid the estate tax on the appreciation in value, it would also exempt the current value from the estate tax simply because you wouldn't have to use any of your unified credit in the process. In our hypothetical, the net estate tax savings wouldn't be just $207,000 (the tax on the appreciated value), it would be roughly $460,000 (the tax on the $1 million date-of-death value.

The technique is quite simple. In order to give your home away in increments that are valued at less than the annual gift tax exclusion (currently $12,000 per year), you would transfer your home to an LLC in exchange for 100% of the membership units. It’s important that you create enough membership units in the LLC so that the value of each unit is somewhat less than the amount of the annual gift tax exclusion. Then you can give your son one membership unit each year without having to pay a gift tax or use any of your unified credit against gift or estate taxes. Over a period of time, your house will be transferred entirely to your son without any gift or estate taxes. Of course, the article also discussed ways to accelerate this whole process by having your spouse elect to join in on the gift, and by making gifts to your son’s spouse and/or children.

Now that we’ve put all this into perspective, let’s tackle your specific questions. You asked, first, whether there is any change in the basis when membership units in the LLC are transferred to your son and/or others? Under current income tax laws, if you transfer your home to an LLC in exchange for 100% of the membership units, no gain or loss is recognized. The value of your membership units is assumed to be equal to the value of the property transferred (i.e., your home, in this case), and your tax basis in the membership units is deemed to be equal to your tax basis in your home immediately prior to the transfer. In our hypothetical, the value of your home was assumed to be $550,000 and your tax basis was assumed to be $300,000. Following the transfer, the value of your membership interests in the LLC is assumed to be $550,000 and your tax basis in the membership units is assumed to be $300,000. If you received more than one membership unit in the LLC at the time of the transfer (which you should in order to bring the value of each unit to less than $12,000), then your tax basis in each membership unit would be equal to your basis in the property transferred divided by the number of membership units you received. Assuming you received 47 membership units following the transfer, your tax basis in each unit would be $6,383.

If you then starting gifting membership units to your son, each membership unit that your son received would carry a tax basis equal to your tax basis in that unit (i.e., $6,383 in our hypothetical). If your son later sold one or more of his membership units, then he would incur a capital gains tax on the difference between the sale price and his tax basis of $6,383.

You also asked whether you could take advantage of the Capital Gains exclusion under I.R.C. §121 if you transferred your home to an LLC. The IRS has generally treated single member LLCs as disregarded entities, which means that if you transfer your home to an LLC and take back all the membership units, you’ll still be eligible for the capital gains exclusion if the LLC then sells the home.

However, if you transfer one or more membership units to another person (i.e., your son) while the LLC still owns the home, then the LLC will be converted from a disregarded entity to a partnership for tax purposes. In that case, it appears that you will lose the capital gains exclusion if the LLC then sells the home while you still own some of the membership units. In that case, the LLC would have to file a partnership tax return, and the net profits would then be taxed to you and your son in proportion to your membership interests.

Incidentally, any real estate taxes paid by the LLC would be fully deductible for tax purposes. If you’re the sole member, then the tax deduction would be claimed on Schedule A of your Form 1040. If you’re not the sole member, then the taxes paid would reduce the net profits on the LLC’s partnership return, and the resulting taxable gain reportable by you would be reduced accordingly.

While the loss of the Capital Gains exclusion may seem to be a deal breaker, it really shouldn’t be. If your estate is large enough to be subject to a federal estate tax, then the estate tax savings will far out weigh any loss of the capital gains tax exclusion. Moreover, if your son owns the house and lives in it for two years, he will be able to use the exclusion himself. In that case, you won't have lost the exclusion, you'll just have shifted it to your son.

Attorney Michael Pancheri is a practicing attorney and the founder and CEO of the Living Trust Network. You may contact him by email at info@livingtrustnetwork.com. You may also contact him at the Living Trust Network's web site. Its URL is http://www.livingtrustnetwork.com

Article Source: http://EzineArticles.com/?expert=Michael_Pancheri

Life Insurance Vs a Retirement Policy
By Graham McKenzie

Many people find out at retirement that they have not enough money to live the lifestyle they are used to. There are too many people in this country that have no retirement benefits and will be living on social security benefits alone. For someone living on social security benefits their lifestyle will change dramatically and they will find that they may not have enough money to keep their home and retirement becomes a burden rather than a joy.

A life insurance policy means to most people a way to pay out to loved ones after death. A life insurance policy can be much more than death benefits, its can offer a retirement package that is tax free payments after you retire. You can fund these policies with stocks and bonds, certificates of deposit, mutual funds as well as cash you have saved in your bank account.

Death benefits are important but having a proper retirement package that offers peace of mind after you stop working is a top priority for most people. The policies can be customized to pay out specific amounts for a specific period of time after retirement or to pay out from the cash reserves over a period of a lifetime. The payments are not counted as income from the government and this will act as a huge advantage for most people.

You can use the benefits packages in many ways. You can borrow cash amounts from the policies or have annual payments made, each will have pros and cons to their methods.

Money that is accumulated in the policy that offers retirement benefits is available for you or withdraw without suffering any penalties or taxes. A standard retirement package such as IRA benefits allows you to withdraw the money to but you suffer penalties for early withdraw as well as income tax on all finds you receive from the account. The insurance policy making payments to you that are tax free after you retire is a huge advantage it has over the standard retirement benefit package.

You have to be careful if you are borrowing cash from a retirement policy such as an IRA to avoid the taxes on the money. If the policy terminates you will have to pay huge capital gains tax on any amount you paid over the premium cost for the life of the policy. For someone who has been paying on a policy for 40 years or more and adding extra income this taxable amount could be astounding. Having the policy terminate at age 80 and finding out you have to pay this money in taxes can put you in the poor house.

Just because your agent showed you a great retirement policy at the rate you had when you bought it does not mean that it will remain the same, rates do change will also cause your benefit amount to change. Retirements from your employment may be more stable but the insurance policies offering the tax free income and a way to create more wealth by taking a few risks far outweigh the standard retirement policy.

Graham McKenzie is the content syndication coordinator a leading South African Life Insurance and Life Cover portal.

Article Source: http://EzineArticles.com/?expert=Graham_McKenzie

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