Paying Bills Even If You Can’t Work

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Paying Bills Even If You Can't Work

Paying Bills Even If You Can’t Work
If you are like most of our other clients with high incomes, the single greatest asset your family has is your earning power. This reality motivates most people to buy life insurance as protection against a premature death. For most people, purchasing life insurance is “common sense.” While most people with whom we speak are underinsured, they do have at least some protection against a premature death. However, most Average American professionals, entrepreneurs, business owners, and executives often overlook a more dangerous threat to their long-term financial stability—their own disability. What is the risk that the average individual will suffer a disability? According to marketing materials of more than one life insurance company:
“Probability of at least one long-term disability (90 days or longer) occurring before age 65 is: 50% for someone age 25; 45% for someone age 35; 38% for someone age 45; and 26% for someone age 55.”
Inadequate disability income insurance coverage can be more costly than death, divorce, or a lawsuit. Responsible financial planning includes planning for the best possible future while protecting against the worst possible events. No one ever plans on becoming disabled—though half of those aged 25 will have a disability of three months or longer at least once. This chapter explains not only why you need disability insurance, but also what to look for in a disability policy.

The Need For Disability Insurance
In our opinion, the disability of the family breadwinner can be more financially devastating to a family than premature death. In both cases, the breadwinner will be unable to provide any income for the family; however, in the case of death, the deceased earner is no longer an expense to the family. Yet, if the breadwinner suddenly becomes disabled, he or she still needs to be fed, clothed, and cared for by medical professionals or family members. In many cases, the medical care alone can cost hundreds of dollars per day. Thus, with a disability, income is reduced or eliminated and expenses increase. This can be a devastating turn of events and can lead to creditor problems and even bankruptcy.
If you are older (near retirement) and have saved a large enough sum of money to immediately fund a comfortable retirement, then you probably don’t need disability income protection. Of course, you may have some long-term care concerns, but that is covered in the next chapter. On the other hand, if you are under 50 years old, or if you are older than 50 and have several pre-college age children, you should consider the right disability insurance a necessity. The challenge is determining what type of disability income policy is “right” for you.

Employer Provided Coverage Often Inadequate
If you are an employee of a university, HMO, or other large corporation, your employer may provide long-term disability coverage. The premiums are probably discounted from what you would pay for a private policy. We advise you take a good look at what the employer-offered policy covers, and buy a private policy if you and the insurance professional on your advisory team decide you need it. For many people, this makes a lot of sense because employer-provided group policies are often inadequate. They may limit either the term of the coverage or the amount of benefits paid. For instance, benefits may last only a few years or benefit payments may represent only a small part of your annual compensation. Since this is most commonly an employer-paid benefit, the money received during your disability will be income taxable to you. For most, this arrangement would result in your taking home less than half of the original amount in your paycheck after taxes are paid!

Give Yourself a Check-Up
Most people with employer-provided disability insurance coverage will find the benefits inadequate. To help you determine where your existing coverage may be lacking, we have provided some questions for you to ask when you are giving yourself an insurance check-up. When you are ultimately working with the insurance professional on your advisory team, you should keep some of these questions in mind as well. They will help you better compare coverage options from different companies so that you can find the best policy for your specific circumstances and goals. Below are a list of some questions you should ask yourself as well as short explanations of the appropriate answers:
· How long does the disability coverage last?
· How much is the benefit? (Some plans may cap the benefits at $5,000 per month)
· What percentage of your income is covered? (Generally, you cannot receive more than 60% of income and the benefit is capped at $7,500 or $10,000, depending on your age). Though most group LTD plans are good for the purpose that they serve, they are only a partial cure. Because of the limitations or ‘cap,’ they have a built—in discrimination against higher income employees—like you!
· Who pays the premiums? (TIP: If you pay the premiums yourself, and not as a deductible expense through your business or practice, your benefits will be tax-free.) You may be seduced by the income tax deduction of the premiums, but the extra tax burden today is much easier to swallow than the tax burden will be if you suffer a disability and have a significantly reduced income and increased expenses. When you and your family need the money the most, you will have more.
· Is the policy portable, or convertible, to an individual policy if you leave the group? If so, do you maintain your reduced group rate?
· If your business distributes all earnings from the corporation at year-end in the way of bonuses to all owners/partners (typical of C-corps as a way to avoid double taxation), you should see whether these amounts are covered by the group policy. If not, and if bonuses or commissions make up a substantial part of your income (which we have seen to be the case with many people), you’ll More

The Specialists Doctors Need

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Specialists Doctors need

Choosing Advisors

Before you can choose your advisors, delegate responsibilities to team members or begin to benefit from the Leverage of advisors, you need to understand the types of advisors you need. In this chapter, we provide a list that covers the team members that 90% of situations require. Some advisors, like mortgage brokers, are not discussed because they typically play a transactional role at different points in the client’s lifetime. The other advisors may review mortgages, but the mortgage broker typically is looking for the lowest price and isn’t changing loan offers based on the other pieces of the comprehensive financial plan. In addition, unique circumstances may call for some teams to require additional advisors with very unique skills.

Below is the list of the most common advisors:
Choosing Advisors· Asset Protection Attorneys
· Accountants
· Estate Planning Attorneys
· Tax Attorneys
· Insurance Professionals
· Investment Advisors
· Financial Planners

Accountants
The term accountant will be used to generically describe an accountant, Certified Public Accountant (CPA), or Enrolled Agent (EA).
What They Do: Accountants (and CPAs and EAs) are trained and licensed to prepare tax returns for submission to the Internal Revenue Service. Each state has its own licensing and accreditation procedures for accountants and CPAs. California is no exception. The CPA has a multi-part exam that is required to earn the CPA accreditation. Enrolled Agents complete a federal licensing process. In all situations, these advisors primarily prepare tax returns. In the most desirable client-advisor relationship, the accountants also provide clients with advice on tax matters.

Limitations of an Accountant:
1. The U.S. tax law is potentially the most complex set of rules created by human-kind, and significant changes are made to these rules every year. Therefore, it is impossible for any accountant to be well versed in all areas of tax policy. More likely, the accountant may only know one or two areas (of 20 or more potential areas) intimately. Tax planning is like medicine—each area has become so complex that one can’t possibly expect to become an expert in many disciplines. In the medical arena, most patients and physicians realize that one Doctor can’t do everything. They both readily accept being referred to, or referring patients to, other physicians. A gastroenterologist would no sooner make diagnoses for skin conditions than a dermatologist would try and diagnose and treat an intestinal issue. Unfortunately, this is what happens all the time in the tax arena.
2. Some accountants are comfortable acknowledging what they know and don’t know. Some accountants feel responsible for answering all tax questions and resist referring clients to other accountants for specific needs for fear of losing the client altogether. This is more of a limitation of an individual than it is a limitation of the profession as a whole, but it should be recognized.
3. Conflicts of interest may arise. Many accountants are beginning to look for additional revenue opportunities by getting licensed in life insurance and securities. They will then recommend their clients particular investment and insurance products. This can create significant conflicts of interest with clients who are looking for tax advice, but who are getting financial suggestions. Clients should be concerned how accountants who deal with very complex tax issues find time to become experts in insurance and investments. In revisiting our Doctor analogy—how could a practicing dermatologist find the time to learn oncology on the side and offer high-quality consultation to the dermatology clients who develop cancer? Savvy patients would prefer a full-time oncologist in that situation. Despite the conflict and impracticality, many CPAs with years of accounting experience are now trying to increase revenue by advising clients on investments and insurance, despite having little or no practical experience in these areas.

Asset Protection Attorneys
The term asset protection attorney describes an attorney who has a strong working knowledge of and experience in the area of creditor protection. There is no state-specific accreditation for asset protection. All attorneys must be admitted to the Bar Association in the state(s) in which they wish to practice. To see if an attorney is licensed and in good standing in California, you can go to www.calbar.org.
What They Do: Asset protection attorneys specialize in the field of asset protection. They help clients arrange their personal and business affairs in a manner that protects their wealth from potential future lawsuits and other creditor risks. Because many of the tools used in asset protection are the same tools used in estate planning and business planning, it is common for asset protection attorneys to also have a strong working knowledge in those areas as well.

Limitations of Asset Protection Attorneys:
1. Because asset protection is a relatively new field of law and most attorneys are overwhelmed in their primary fields of interest (litigation, business law, estate planning, etc.), few attorneys have found the time or had the interest to study this important field of law. As a result, there are very few attorneys who are experts in this area. Though one of the co-authors (Mr. Mandell) specializes in this area, he is one of fewer than 50 attorneys in the country whose focus is exclusively in this area.
2. Asset protection attorneys are NOT estate planning or tax attorneys—or any other type of attorney, for that matter. Do not expect that you will get estate planning or tax advice from these attorneys unless they also have specific training in these areas. However, your asset protection attorney should be willing to interact with attorneys from the other fields who will be necessary to help you complete your planning.

Estate Planning Attorneys
The term estate planning attorney describes an attorney who has a strong working knowledge of and experience in the area of trusts, probate, and estate planning. There is a state-specific accreditation for estate planning in many states. All attorneys must be admitted to the Bar Association in the state(s) they wish to practice.
What they do: Estate planning attorneys focus on helping families address the financial More