Connect with me on LinkedIn

Category: Life Insurance

The Policy Review and Pandora’s Box

[ 0 ] April 30, 2014

Spectrum Financial Solutions, FL, Life insuranceIt all started as a simple question during a round of golf with friends.  I don’t discuss business on the golf course ordinarily… it gets in the way of the jokes, jibes, witnessing good and bad play and my near manic pursuit of par.

On this day, my playing partner asked me a question about his and his wife’s life insurance policies with a major mutual life insurance company (policies I didn’t place for my friends).  I said that I couldn’t answer his question adequately at that time but would be happy to meet with him at a later date.  Because of scheduling issues, we met several months later.

In advance of the meeting, I requested a great deal of material:  pre-sale illustrations, copies of policies, annual statements, trust agreements, if any, and any communication regarding original concept backing up the policies.  This information was critical to the face-to-face with my friend and his wife.

The dialogue at our meeting indicated that the policies were purchased in order to provide interim death benefits for income replacement but more importantly, the substantially overfunded policies were meant to provide tax advantaged post-retirement benefits many years down the road.  The policies on my friend and his wife were owned by irrevocable life insurance trusts, which raised a question in my mind as to proper ownership.

It should be noted that this couple are Non-Resident Aliens (NRA) but intend to gain US citizenship, when possible, in several years time.  It was stated that the trusts were designed to mitigate any estate tax issues that an NRA might experience from ownership of a U.S. life insurance policy at his or her death.

The policies (one on each of couple), when issued, were designed to become Modified Endowment Contracts (MEC), which runs counter to the goal of creating the most efficient post-retirement, tax advantaged income stream for the couple.  Under the current policies, should the client choose to receive payments (if even possible under the trust agreement), they would be taxable as ordinary income until such time as all accumulation in excess of cost basis is consumed.  Add to that the potential for a 10% penalty for distributions prior to age 59½… serious structural issues emerge and the hinges of a Pandora’s Box started to loosen.

Whereas the policy review was intended to determine whether the life insurance policies were the best means of providing for the clients’ long term goals, it uncovered a number of issues that, left unattended to, would impact, if not undermine their primary goals and planning.

Many questions emerged… Were irrevocable life insurance trusts appropriate in light of the stated goal of providing living benefits for my clients?  Were Crummey Letters sent out to beneficiaries as mandated in the trust document?  Did the Trust document(s) apply for and receive Federal Tax ID numbers?  Was the wife’s trust actually signed and witnessed?  The answers were all no or maybe, at best.

As to the life policies that were the focus of my review, they were rather uncomplicated and straight forward.  The current policies were compared to alternatives and shown to be less advantageous than new policy designs.  And correction the MEC issues only complimented the situation.

This note wasn’t meant to be a case study… I could go on for many pages commenting on various aspects of the program.  Rather, it only serves to illustrate that a second or third set of eyes reviewing older life insurance programs, revisiting goals and objectives and the documents supporting them is a prudent exercise that makes a great deal of sense.

What would have been a much larger issue as time went on is being addressed currently. And, Pandora’s Box never opened.

Written by Nunya Bidness.


Life policies offer valuable options

[ 0 ] April 2, 2014

Spectrum Financial Solutions, NJ, Life InsuranceWith the wide array of Life insurance products on the market, how can you be sure that you’re getting the best deal for your premium dollar? Although buying Life coverage is a critical financial decision, all too many people choose coverage without taking advantage of the variety of features that can add significant value to their purchase.

According to industry experts, frequently overlooked policy add-ons include:

  • Guaranteed purchase option. This feature permits you to buy coverage starting at a specific life event (such as retirement) or on a set date without showing proof of good health.
  • Term rider for a spouse or child. You can add coverage for a spouse or dependent child, under the age of 26. In many cases, this option offers significant discounts, compared with the cost of purchasing separate policies.
  • Premium waiver. If disability or serious injury leaves you unable to work, the insurance company will pick up your premium.
  • Accelerated death benefit. Should you face a terminal illness, you can borrow cash advances against the policy’s death benefit. Policyholders often use these advances to pick up the tab for palliative services or hospice care during their final days, relieving the financial pressures on their family or caregivers.
  • Long-Term Care rider. Some policies allow you to use policy benefits for long-term medical care in return for reducing the death benefit.

You might also be eligible to benefit from other Life policy options.

Our insurance professionals would be happy to provide a review of your needs and tailor coverage that offers the best value at an affordable price. Just give me a call.

Content provided by Transformer Marketing.


Privately Financed Graded Premium Universal Life

[ 0 ] February 5, 2014

Spectrum Financial Solutions, NJ, Life InsuranceCurrently, an arbitrage opportunity presents itself to sophisticated investors whereby interest bearing loans (interest paid currently and loans retired in less than ten years) made to a trust for the benefit of family members can create guaranteed Internal Rates of Return (IRR) that far exceed those available from most portfolio assets.  As the accompanying study illustrates, if trust assets grow at a modest 6% annual rate, the underlying trust will have grown terminal value to in excess of $16,145,000 in year 27 (the joint life expectancy of the hypothetical couple used in the study).

That equates to a 12.5% tax-free IRR for the trust assets (19.3% pre-tax).

This program is not a risk-less arbitrage.  Risk may be associated only with the trust’s ability to achieve annual growth of 6% during the loan period and longevity of the investors.  To the degree that growth rates fall below 6%, loans may be extended beyond 9 years and, correspondingly, IRR’s will not be as high as illustrated.  Additionally, because the trust matures upon the death of the investors, if the trust outlasts actuarial assumptions, IRR’s may be less than indicated above (see accompanying schedules).

This program is Internal Revenue Code (IRC) compliant.  Rates of interest charged to and paid by trusts using program are based on the Applicable Federal Rate (AFR) for mid-term loans and are published monthly.  Once established, loans will bear that AFR for the term of the loan.

Perhaps a successful individual is not interested in further estate planning. This approach understands that position and posits that the Privately Financed Guaranteed UL Program, aside from offering a superior investment experience, may enable investors’ unique opportunities to expand both charitable and non-charitable goals that previously weren’t possible or were deferred.

To Summarize:

Privately Financed Graded Premium Universal Life may be a solution to issues facing many successful investors and families today.  Through the use of a minimal risk arbitrage technique, estates can be secured, charitable gifts accelerated and a variety of other planning and/or investment goals satisfied very efficiently.

Powered by:  TM



Here we are!

[ 0 ] January 22, 2014

Spectrum Financial has made it more convenient for you to to reach us!  You can find us on our blog  LinkedIn page,  Facebook page, and of course our website.

Check us out!


How to give assets to your grandchildren (but keep control)

[ 0 ] September 18, 2013

Spectrum Financial Solutions, LLC, New Jersey, Florida, Creating assets for grandkidsMany older people would like to make significant gifts to their grandchildren, in order to help them and in order to reduce the size of their own estate for tax purposes. But they also worry that the grandchildren won’t be able to handle large sums of money.

The good news is that you can give each of your grandchildren up to $13,000 a year without incurring any gift tax. If you’re married, your spouse can also give each grandchild up to $13,000 a year.

The bad news is that young people are notoriously immature with money, and simply handing a young adult up to $26,000 a year won’t necessarily result in the wisest and most cautious financial decisions.

However, there are ways that you can “give” money to grandchildren for tax purposes, but retain control over it at the same time.

If your grandchildren are minors, then you can’t transfer assets to them directly. In most cases, you’d need to transfer assets to a custodial account, where an adult custodian manages the account for the child’s benefit.

That’s great – but the problem with a custodial account is that the moment the minor reaches adulthood (usually at age 18 or 21), he or she will own the account completely. The brand-new adult can immediately withdraw all the money and spend it on anything he or she feels like.

A better solution is to put the money into a trust. With a trust, you can specify that your grandchildren won’t have access to the assets until they are old enough to handle them responsibly. For instance, a trust might end when a grandchild turns 28. Or a grandchild might get a third of the assets at age 25, a third at 30, and the rest at 35.

Setting up a trust for a grandchild is a little tricky, though. While you (and your spouse) can directly give an adult grandchild $13,000 a year without paying gift tax, the same rule doesn’t apply if you put the money in a trust. That’s because you’re not really “giving” the grandchild the money; you’re just giving him or her a future interest in the money. The law says that to avoid the gift tax, you have to give a “present interest” in the money.

So here’s the solution: The trust is set up so that whenever you make a contribution, the grandchild has the right to withdraw that contribution for the next 30 days. If the grandchild does nothing, the money stays in the trust and the grandchild can no longer access it directly. But the contribution still counts as a “gift” for tax purposes.

Of course, this creates the risk that the grandchild will withdraw the money during the 30 days. However, you can make it clear to the grandchild that if he or she does so, you won’t make any more contributions – which should be a very strong deterrent.

This type of trust is known as a “Crummey” trust. Despite the funny name, there’s nothing wrong with a Crummey trust. It was named for D. Clifford Crummey, the man who pioneered the idea back in the 1960s.

To make things easier, a single Crummey trust can be created to benefit multiple grandchildren.

Here are a few things to consider if you’re contemplating a Crummey trust:

  • You can be the trustee if you want. But if you (or your spouse) is the trustee, you’ll need to be careful in the way the trust is set up and administered, because if it’s not done properly, the assets in the trust may be included in your taxable estate if you pass away.
  • You’ll want to decide who should pay the tax on the trust’s income. You can set up the trust such that the income will be taxable to the trust, to the grandchild, or to you.
  • The trust’s assets will typically be considered as assets of the grandchild for purposes of calculating college financial aid awards.
  • Any time you make gifts to grandchildren, you need to plan around something called the “generation-skipping transfer tax.” This is a special tax designed to prevent people from avoiding gift and estate taxes by making gifts that skip generations. You may be able to plan around it and avoid it – depending on your circumstances – but you’ll need to take it into account.

Spectrum Financial Solutions, LLC, New Jersey, Florida, Assets for Grandchildren

Spectrum Financial Solutions, LLC located in New Jersey and Spectrum Financial Solutions, LLC located in FL have been assisting individuals and businesses with their financial challenges for over 30 years.  With an emphasis on partnering with the right professional, we offer technical help and specializations to meet your every need. Retirement Planning in FL, Tax Planning in NJ and Estate Planning in NJ are our successful hallmarks.

Need to know about Privately Financed Universal Life Insurance in FL? Call us today. Family Legacy Unitrust Edge in NJ has been created to help families establish lifetime legacies in a unique manner that simultaneously addresses social and family needs. We’d like to make sure you know more. Applicable Federal Rates in FL affect many of your planning tools.

George Klahre

10110 SE Osprey Pointe Dr.

Hobe Sound, FL 33455


Facebook | LinkedIn | Blog |  Email

Information provided by:


A Very Sad Day

[ 0 ] August 28, 2013

Spectrum Financial SolutionsEvery so often, life experiences provide perspective on what is truly important.  In our everyday lives, we sometimes forget the basics and focus on creativity, the next great opportunity, retirement and tax planning at the expense of the “here and now”.  Below is an email that I sent to a number of good friends after attending the funeral of a bright, vibrant young man…the son of very good friends.

Maybe we should all take a few minutes from time-to-time to assess the “what ifs” of life.  It’s not painful…it’s not costly…it’s back to basics.

A Very Sad Day


Yesterday, Cathy and I attended the funeral of the son of very close friends.  He was 37, married and had two small children.  He fought an incredibly courageous 18 month battle with colon cancer.  Everyone who knew this young man learned painfully what real strength and character is about.  We, along with his family and friends, are devastated by his passing.


His wife now has the responsibility of being both parents to her children.  I learned yesterday that, beyond savings and equity in their home, there are modest assets to move forward.


When I was younger, I used to speak to clients about the need for life insurance in the same way as I would talk about homeowners insurance or auto insurance…the likelihood of a catastrophic event is small but very real.  With time, business models changed as did priorities and I haven’t mentioned the place of life insurance in securing a young family’s future in years…perhaps I should.


What I want to say to you is speak to your kids about it.  The cost is miniscule but the potential benefit is great.


When I think of our friends and their family, there is no way to make their grief go away…that’s something that, on some level, will stay with them.  I wish that someone had sat down with this young family to discuss the “what ifs” of life…perhaps the future wouldn’t seem quite so onerous and daunting.


Speak to your kids, tell them how much you love them and urge them to secure their financial houses for the future.  I did.





Only 46% of Americans have researched how much Life Insurance is needed

[ 0 ] June 16, 2013

Spectrum Financial SolutionsSource: Employee Benefit Research Institute, 2013

How much retirement income will you need? Should you refinance your mortgage? How much life insurance is enough? What type of IRA is right for you?

Spectrum Financial Solutions, LLC is a leader in helping people nearing retirement. There are tons of new regulations that you need to navigate through. Call us when you are ready to get some advice.


Spectrum Financial LLC, Florida

Spectrum Financial Solutions, LLC located in New Jersey and Spectrum Financial Solutions, LLC located in FL have been assisting individuals and businesses with their financial challenges for over 30 years.  With an emphasis on partnering with the right professional, we offer technical help and  specializations to meet your every need. Retirement Planning in FL, Tax Planning in NJ and Estate Planning in NJ are our successful hallmarks.

Need to know about Privately Financed Universal Life Insurance in FL? Call us today. Family Legacy Unitrust Edge in NJ has been created to help families establish lifetime legacies in a unique manner that simultaneously addresses social and family needs. We’d like to make sure you know more. Applicable Federal Rates in FL affect many of your planning tools.


George Klahre

Facebook | LinkedIn | Blog | Email