What You Don’t Know Can And Does Cost You And Your Family Money

Henry Montag

Henry Montag

When it comes to finances, ignorance is not bliss. What you aren’t aware of and don’t take advantage of often leaves you as the one being taken advantage of. You have a choice: you can either believe  that what you planned for, purchased  and put in place for your financial future years ago, is still in your  financial best interest today, or you can  acknowledge and explore to see if  there might be a better way to arrange or own those same financial assets in such a way that there is a savings in cost that can be used to either reward yourself immediately, by perhaps taking that vacation, or  to redirect those savings to help them build additional assets for your future. 

But just like an iceberg the largest threat lies beneath the surface. It’s the things you don’t know enough about to even ask the right questions, that could make the largest difference. If you were to do an expense audit on Items you spend more than $5,000 on annually, you would undoubtedly find that there are other options available to you, and each one of those 5-10% annual expenditures could perhaps be improved upon. 

But let’s take a look at some other financial situations you may not yet have considered that are capable of producing, or costing you an even larger lump sum of money for you and your family .One of the most common mistakes for a retiree over age 71 is not taking the correct amount of Required Minimum Distributions, RMD’s, from their respective retirement plans. Or if you’re still working it may be having made an excess contribution of more than you should have been allowed to make into your retirement plan. Did you know that the average penalty for such a transaction is as high as 50%, and can go as far back as to when the original error was made, in other words there’s no time limit for the penalty. 

Another common example is failing to take advantage of an” insurable Interest”, personally at home or in a business situation with a business partner. Let’s use a personal example here. If you have a good relationship with your child or children, or if you as a child have a good relationship with your parents, have you considered entering into a life insurance arrangement that will not only create a lasting legacy and memory of a parent or grandparent .But would also produce a significantly larger lump sum of tax free dollars at death than would have been there had the money just been spent or even saved. Keep in mind that there are only three situations that allow an individual to exercise their insurable interest to purchase a life Insurance contract on another individual .A parent/child, spouse to spouse, and business partners are examples of two of those times. 

In other words if you as a family unit can overcome the emotional hurdle of profiting from the loss of a parent, then a child can exercise their  right of “insurable Interest”  and create new wealth by simply shifting a percentage of their net after tax income, into a life Insurance contract they would own on a parent’s life. The child could have the annual premium deducted on an automatic monthly basis from their paycheck or checking account and could systematically divert a small portion of their income into a meaningful lump sum of tax-free dollars down the road. That’s one sure way to build wealth. 

Arbitrage often used by hedge funds is a bet against something from happening, that’s designed to protect and maximize income and an asset. Have you ever considered creating your own arbitrage situation? You can do so by simply purchasing an immediate annuity, a bet you’re going to live a long life, and a life insurance contract, a bet you are going to die sooner rather than later, and have the insurance companies bet against each other while you profit from the combination? Try it you’ll be amazed at the ability to significantly increase your current net after tax income, while guaranteeing your current principal. 

Recently a 78-year-old male client in relatively good health used the sale of the proceeds of a $600,000 investment rental property that he no longer wanted to manage, and turned it into an alternate financial arrangement that allowed him to double his net after tax income by merely dividing the proceeds of the sale into an Immediate annuity and a life Insurance contract, rather than placing the proceeds into a taxable CD or Money Market. 

Not knowing how long your current life Insurance contract will last can potentially cost you 100% of the value of your life Insurance portfolio if it expires prematurely, as so many of the  current universal life contracts issued over the last 25 years have. This situation occurred because of the continued low interest rate environment, combined with the fact that the first generation of universal life insurance contracts were not issued with guarantees, and many consumers were unaware of this fact when they originally purchased those contract. Not having one’s life Insurance protection available to a family at the time of death, because it expired prematurely can create significant shortfalls in legacy planning as well as cash flow hardships for many families.

A consumer needs to be made aware of the existence of several of these new forms of financial products and strategies that simply weren’t available several years ago. Many of these new products and strategies have come into place because of the recently enacted “Pension Protection Act.” Other benefits such as now offering guarantees on new universal life contracts came about because of the insurance industry having learned of a better way to offer a product or combination of products to the public. Still others allow all gains on a tax-deferred annuity to escape Income taxes when used to make certain transfers between various financial instruments. 

One of the most significant financial tools I use combines the power of leverage, the protection of a meaningful guarantee and provides the most favorable tax benefits to Individuals or Trusts whose main objectives are to maximize assets earmarked for the next generation. But the problem is that a great many advisors and consumers aren’t yet aware of its existence. For instance did you know that a 73-year-old young lady in relatively good health can turn $1.00 into $3.40 payable upon death and have the transaction guaranteed as in my example to age 98. In other words if she were to deposit $100,000 with an A++ rated Insurer she can turn $100,000 into $340,000 or $1,000,000 into $3,400,000 of after tax dollars for her beneficiaries. This arrangement should have a place in every family’s portfolio where   assets are earmarked for the next generation as this is a very efficient way to grow, protect, and deliver a maximum lump sum of assets to your loved ones. 

One of the major drawbacks of not knowing your options is that you lose the ability to protect yourself against some very common risks. For instance you know that you can protect yourself against an auto accident or a fire at your home or business by utilizing the appropriate Insurance contracts, But did you know that a far greater risk that merits your attention is protecting yourself against the high cost of requiring any type of long term care assistance be it in your home, an assisted living or nursing facility. 

Currently a very small percentage of people have this type of long-term care Insurance protection , yet  65% of the population over age 85 will need some help getting around for an average of 3 years, and as long as on average 7-9 years for Alzheimer’s . Point is that if you don’t know that a new generation of combo or linked financial products have recently been created, then you can’t take advantage of their benefits. . One such benefit now allows you to use the death benefit of your Life Insurance contract to pay for the unexpected cost of your long-term care expenses up to $113,000 annually adjusted for inflation. The best part is that if  you don’t ever need the long term care portion, then the total life insurance proceeds  will be passed on to your beneficiaries. Long-term care insurance is now no longer a “use it or lose it” situation. The new “pot of tax free money” that’s created by this strategy allows you to take advantage of either situation, at the time, rather than having to choose between obtaining a benefit for yourself or your family. If you never need the long-term care benefit you never pay for it. 

These are just a few examples of what you don’t know that can financially hurt you; unfortunately there are many others. Feel free to request a personal analysis or evaluation on any of the above mentioned items. .There are currently several public educational forums scheduled to address the above mentioned strategies for the consumer as well as for the professional. Please see events section of web site for info. 

Henry MontagCFP,CLTC
Financial Forums Inc.
516 640-1315
to learn more about Henry Montag: http://www.youtube.com/watch?v=yTpACuc33fg




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