Estate planning

Long-Term Care Premium Hikes on the Way

By admin  |  2010/02/05 11:14 Posted in Estate planning, Insurance/risk mitigation  |  Comments (0)

If you made the decision to buy a long-term care insurance policy about a decade ago, you may be getting a big rate increase in premium this year.

Prudential insurance company anticipates increases in premiums between 18 and 25% for those policies issued between 1999 and 2003. MetLife anticipates increases of 18% on those policies with the series LTC 97 and VIP1.

Perhaps the increase that will affect the most people is from John Hancock which will impact approximately 140,000 federal employees with long-term care contracts. The company announced their premiums for this group will be going up by as much as 25%.

There is a lag time between when an insurance company announces a premium increase and when the effective date of that increase starts as a result of the regulatory approvals necessary by each state. Many companies have recently made the announcement so expect the increases in the next year.

The size of the upcoming increases will vary according to the claims experience for the group of policies, the investment return of the company, as well as the type of coverage provided by the plan. Those policies issued to groups may be hard hit since companies were very aggressive in pricing a few years back.

Those policies that have richer benefits such as lifetime benefits could face higher increases since these policyholders are less likely to drop their coverage. Policyholders perceive them as having greater protection and wouldn’t want to lose the coverage. Therefore even with rate increases they tend to hold on to the policy.

At the time the policies are sold, agents often told clients that that rate is stable and not to expect a rate increases like that for standard health insurance. Evidently this is not the case when even companies such as Genworth have instituted rate hikes.

The question is what do you do if you receive a premium increase. The answer will primarily be determined by your financial situation. If you can afford the increase in premium, that might be your best option.

If the increase is more than you can handle, most companies allow you the opportunity to either decrease the amount per day of coverage or the length of the term of coverage and in some cases to change the deductible period.

There are however, some individuals who should consider dropping the coverage altogether. These are the individuals who were sold policies when they may not have needed them in the first place. One guideline is that you should not spend more than 7% of your annual income in long-term care premiums. A new increase in policy cost may put you over this recommended limit.

One option that is not likely is changing your coverage to a new policy or another company. Premiums are based on your age and health. If you took a policy 10 years ago, a new policy would be much more costly than one taken at a younger age. This is the reason why keeping your current coverage might be the best option.

One of the best types of long-term care policies is referred to as the California Partnership Policy. Only a handful of companies offer this type and it provides additional safeguards that non-partnership policies do not have.

You should talk to someone knowledgeable about your financial situation as well as your policy to decide what it best for you. The one downside to talking to the agent who sold you the plan is that he or she continues to get paid when you keep the policy. Talking to a financial planner who is not compensated by the insurance company may give you more objective advice. Unfortunately, some planners are not well versed in this area. HICAP is another option but their counselors vary in quality as well.

Should you get a rate increase, talk to your family, review your finances and get an objective second opinion.

Michael Chamberlain CFP®
CA Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340
This article is for informational purposes and should not be taken as legal, tax or investment advice.

Issues to Consider Before You Get Married

By admin  |  2010/01/08 12:24 Posted in Estate planning  |  Comments (0)

A fair number of us over the age of 55 are single, and if we are lucky, there is a chance that we may fall in love. The question is: “Does getting married make sense at this point in our lives?”

Years ago, I was working with a couple, and the husband had a terminal disease. Several years after he passed away, I made the comment to “Mary” that should she ever meet a special someone, there are some issues to consider before getting married.

Six years later, Mary called all excited that “Ed”, a long-time friend, had proposed to her the night before. She went on to tell me that she told Ed she couldn’t give him an answer until she talked with me. We scheduled an appointment to discuss the issues that should be considered prior to saying yes.

Here are some financial issues you may wish to consider prior to getting married:

• There needs to be full disclosure by both parties about their assets, liabilities, current or potential lawsuits and income and outgo. Having $30,000 worth of undisclosed credit card debt is a great way to destroy trust in a relationship.

• How will the monthly bills the paid? Is there a joint checking account from which bills will be paid? Does one person take care of certain bills, and the other the rest? What happens when one party runs short of cash?

• Where will you live … his house or her house, a new house or apartment? Who pays for the upkeep, taxes, utilities? What happens if the owner dies prematurely? Will the remaining spouse continue to live there rent-free, with rent or have to move out?

• Social Security benefits and pensions potentially could be affected with a marriage, and checking with the Social Security office and pension administrator would be prudent.

• Some individuals have health care benefits provided by a previous employer. Getting married might provide additional health care benefits for the new spouse. Check with the past employer about these options.

• If you get married, who should be the agents named in your powers-of-attorney, (individuals to make health care decisions and take care of our finances if incapacitated). It could make sense that your new spouse serve as power-of-attorney, or it may be better to have your children do the job. Always discuss this with your estate-planning attorney.

• Would you wish to change your will or living trust and leave something to the new spouse, everything to the new spouse or nothing to the new spouse? Everyone should have at least a will and many times a living trust to make sure their wishes are carried out. Talk to your estate-planning attorney if you do not have the proper documents, and certainly do so if you are considering getting married.

• For your retirement plans, do you want the new spouse to receive what’s in your retirement plan when you die, or do you prefer it goes to your children or other heirs? If you name your new spouse as the beneficiary and you die, the retirement plan becomes that of your spouse. If then the spouse dies, your retirement funds could go to your new spouse’s heirs. Be very careful when listing retirement plan beneficiaries. Consult with your financial advisor or estate-planning attorney before making such changes.

• Long-term care is perhaps the biggest issue when considering getting married. If you are married, your income and assets could be at risk if your new spouse required long-term care. The rules for Medi-Cal eligibility continue to change, and it would be a shame that your assets go to pay for your new spouse’s long-term care costs.

• Consult your tax preparer on potential income tax changes by getting married.

• Should you decide to get married, consult with your car and home insurance agent to make sure that your spouse is adequately protected should a claim occur.

• In many cases, a prenuptial agreement is a good idea to make sure everybody understands the intentions and desires of both parties should the marriage not workout as well as the intentions when spouses die. While these agreements are said to create stress in the relationship, I think the opposite is true. It provides peace of mind and decreases stress between the new spouses and provides clarity for both families.

As it turned out, Mary and Ed decided that they didn’t need to be married in order to have a loving, happy and fulfilled life together. However, if you find yourself in that situation, a trip down the aisle might be the best option for you. Just be sure you know how you are impacted in all these areas before you make that trip.

Send your questions to mike@chamberlainfp.com or call (800) 347-1340.

Michael Chamberlain is a Calif. Registered Investment Advisor. Send your questions to him at mike@chamberlainfp.com or call (800) 347-1340.

Consider Target Date Retirement Funds Carefully

By admin  |  2009/12/14 12:40 Posted in Estate planning, Financial planning, Investing, Retirement planning  |  Comments (0)

In the last several years, numerous mutual fund companies have developed Target Date Retirement Funds (TDR) that are based on when people plan to retire. The longer away the retirement date, the more aggressive the allocation (more stocks) and it gets more conservative (more cash and bonds) as the retirement date nears.

The idea is that with one fund you get exposure to domestic and international stocks as well as corporate and government bonds and the allocation automatically adjusts over time.

These companies realize investors often do not pay attention to their asset allocation of their investments. People tend to put money into mutual funds but do not monitor them over time.

These funds are designed to fix that but there are some issues that you should be aware of if you are considering this type of an investment:

1. The proper mix of asset types within your portfolio should be based upon your tolerance for risk (your mental ability to deal with volatility), your capacity for risk (your financial situation) as well as your goals including your time frame. The problem with these retirement date funds is they look only at a point in time to determine the allocation and totally disregard your risk tolerance and capacity. The result could be an allocation that is not appropriate to your situation, which could be greater volatility or under performance of your investment.

2. Each investment company has a different philosophy as to the allocation for a given retirement date. How is a person to know which of the 100’s of funds is best suited to their situation? Note the difference in allocation amongst these funds:

Fund Name

Stock %

Fixed income %

Fidelity adviser freedom 2015 A

53%

47%

J.P. Morgan Smart retirement 2015 A

52%

48%

T. Rowe Price retirement 2015

65%

35%

Vanguard target retirement 2015

61%

39%

Schwab retirement 2015

55%

45%

Putnam retirement ready 2015 A

42%

62%

There can be as much as a 50% difference, which has a huge impact on risk and expected return.

3. The target date funds often do not provide great enough diversification across different asset classes. Value style funds, small-cap funds, emerging market and REITs are usually underrepresented. This lack of diversification may increase volatility and provide smaller returns than a more properly allocated portfolio.

4. A recent study has revealed there are many misconceptions amongst those who have invested in these funds.

a. 40% think that the fund has a guaranteed return- NOT TRUE

b. 40% think they get higher returns than the stock market in general- NOT TRUE

c. 60% think that they will be able to afford to retire on that date of the fund-NOT TRUE.

5. The fees associated with these accounts vary dramatically and are a huge revenue stream for some companies. The commissions and operating expenses can be a drag on performance. People may be better served with those funds with no commission and lower operating expenses.

Fund Name

Commission %

Gross expense Ratio

Fidelity adviser freedom 2015 A

5.75%

0.93%

J.P. Morgan Smart retirement 2015 A

4.5%

1.35%

T. Rowe Price retirement 2015

0

0.65%

Vanguard target retirement 2015

0

0.18%

Schwab retirement 2015

0

2.35%

Putnam retirement ready 2015 A

5.75%

1.1%

If you are invested in these types of funds or are considering them, you should find out their allocation and determine if the mix of asset classes in the fund is really suited to you and to be sure that your fund has low fees to help increase your return.

Michael Chamberlain CFP®
Ca Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advice.

NAPFA Presentations are Free and Worthwhile

By admin  |  2009/11/25 12:14 Posted in Estate planning, Financial planning, Investing, Retirement planning  |  Comments (0)

There is a free offer that everyone should know about. The National Association of Personal Financial Advisors is providing free monthly educational presentations about personal finance to the public.

“The Basics of Investments” is the next presentation and will be on December 4th from 10 to 11 am. Most people have read about stocks and bonds or have heard people talk about them but this is the opportunity to get the basics about what they are, how they operate, risks associated with each and what might be appropriate for you.

Future topics include:

  • Advanced investment concepts – January 8, 2010
  • Managing your 401(k) – February 5, 2010
  • Leaving a legacy – March 5, 2010
  • Women and money – April 2, 2010
  • Financial planning and small business owners – May 6, 2010
  • Your retirement- June 4, 2010
  • Financial windfalls – July 1, 2010

The presentations are in the “webinar” form. This involves watching a presentation on the computer while listening to the presentation on the telephone. Each monthly session is one hour in length and contains a formal 40-minute presentation and 20-minute Q&A opportunity. To register for the meeting log on to the NAPFA web site at http://www.napfa.org/ then click on the “Consumer Webinar” logo on the right. It is as easy as that.

The Consumer Webinar Series is designed to help consumers across the country better understand personal financial matters. Each session will be led by a NAPFA-Registered Financial Advisor who commits to the highest of standards in the financial planning industry. Many of the instructors are authors, educators and leaders in the industry. The advisers will bring their knowledge and experience to the seminars.

The Consumer Webinar Series sessions are FREE and held monthly. Each is web-based to make “attending” easy no matter if you live in Boston or Los Angeles. Each session is held live but are also recorded and available in the Archived Sessions section on the NAPFA website. The public is encouraged to register for the live sessions as there is an opportunity to ask any related financial questions you may have.

NAPFA is an organization of 1000 financial planners from around the country that work with clients to improve their financial lives by making better decisions and without selling investments or insurance.

Michael Chamberlain CFP®
Ca Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advice.

Seven Estate Planning Documents Tips

By admin  |  2009/05/20 21:31 Posted in Estate planning, General info  |  Comments (2)

Your state planning documents are designed to safeguard you when incapacitated as well as to efficiently pass on your assets when you’re gone.  Unfortunately, you should not “do them once” and forget about them.  Here are some tips that can help.

1.     Review your powers of attorney and verify those agents listed represent your current ideas on who you want to handle your affairs when you can’t.  Perhaps your children have grown old enough and they would now be appropriate.  Maybe you had listed parents who have since died.

2.     Store your documents in a safe and secure location, protected from fire, theft or flood.  With the new scanning capabilities it is recommended that you keep an electronic copies.  Having photocopies of the original documents stored elsewhere is still a good idea.  Paying your attorney’s office to store your documents is often not really necessary.

3.     During the next year, be aware of changes the estate tax exemption.  With the higher limits expected, it may be appropriate to change the form of your trust. AB trusts will be less common than they used to be.  They can add a layer of complexity that you may not any longer need.  In general its the simpler the better.

4.     If you own real estate, it is probably best that you have a living trust rather than a will.

5.     Many people who had estate planning documents drawn up more than several years ago probably do not have a HIPAA Release form that is now needed to allow your representatives to assist you with medical information issues should you become incapacitated.

6.     Your adult children (over 18) should have an Advanced Health Care Directive, as well as a Durable Power of attorney and a HIPAA release authorization so that if they are injured, you are in a position to make sure their wishes are carried out.

7.     Do not make hand written notes on your documents without consulting your attorney. Fees can be very confusing and may call into question the validity of your wishes in the time of need.

As always, see an attorney who specializes in estate planning for legal advice and documents.