Broker Check

Boca Raton Office

1001 W. Yamato Rd

Suite 306
Boca Raton, FL 33431


Winter 2007

The focus of this client newsletter is on the most significant product, tax and legislative developments that took place within the financial services industry over the past year.  We believe these developments will have implications in your business planning as well as your personal income tax and estate planning.

“Hybrid” Life Insurance

During this past year, life insurance companies that market variable life insurance introduced lifetime insurance (i.e. death benefit) guarantees to better compete with guaranteed universal life insurance.  This is an unprecedented development within variable life insurance.  The new no-lapse death benefit guarantee feature of variable life now places all of the insurance risk on the company, regardless of investment performance.

As a result, you may want to compare the cash value accumulation feature of these new “hybrid” life policies to no-lapse universal life insurance depending on your estate or business needs.  In the past, you had to choose between high potential cash value and a guaranteed insurance benefit.  The new hybrid variable life policy may now let you “have your cake and eat it too”.

Life Settlements

Another development that occurred in the life insurance market over the past year was the accelerated growth of Life Settlements.  A Life Settlement allows individuals who qualify to sell their life insurance policies for a lump sum cash payment.  This may be a useful option for individuals who are considering lapsing, canceling, surrendering, or exchanging their current life insurance coverage, including term life.  In some cases, it is possible for you to obtain an offer that is greater than if you had just surrendered your policy for its cash value.

The Life Settlement industry has received a great deal of publicity recently, as certain business practices of brokers and providers alike have been called into question.  Our broker-dealer, ValMark Securities, treats all life settlement transactions as security transactions.  Therefore we are obligated to not only comply with all state insurance regulations, but must also adhere to all NASD regulations.  This higher standard obligates us to provide a “client focused” process in regards to the execution of this business.  Through our partnership with ValMark Securities, we are able to offer The Life Settlement Advocacy Program, where we will serve as your advocate through the life settlement process.  This program is designed to provide you with the highest offer possible from our providers for the sale of your life insurance policy.  We look forward to answering any of your questions about life settlements.

Expansion of Long Term Care (LTC) Partnerships 
The long term care insurance (LTCI) partnership program was developed in the 1980s to encourage people who might otherwise turn to Medicaid to finance their long-term care with LTCI.  The way the program works is if people who purchase qualifying policies deplete their insurance benefits, they may then retain a specified amount of assets and still qualify for Medicaid provided they meet all other Medicaid eligibility criteria.  Currently, these programs operate in only four states: California, Connecticut, Indiana and New York. 

As a result of The Deficit Reduction Act of 2005 that passed earlier this year (February 8th), all states are now authorized to adopt “qualified State long-term care insurance” (QSLTCI) partnerships by amending their Medicaid plans.   Numerous states have either passed legislative initiatives or started the administrative process that will allow them to establish a Qualified LTCI Partnership Program.  Florida has already filed its State Partnership Expansion initiative and the tentative effective date for its program is January 1, 2007.  At the moment, Arizona is not actively considering a plan.

The implications of this new legislation are potentially far-reaching.  In our view, more people, especially in the middle-income range, will seek private LTCI knowing that they may be able to protect a specified amount of their assets and still qualify for Medicaid. 

Another Medicaid development that emerged from the Deficit Reduction Act relates to transfer of asset provisions.  While there were actually six major changes to the Medicaid law, the most noteworthy is the provision that increases from 36 months to five years the period of time states must “look back” when determining whether individuals applying for Medicaid long -term care have transferred assets solely to qualify for Medicaid.

Repeal of the Estate Tax is Dead (for now)

The effort to repeal the estate tax faltered yet again this past summer in the Senate.  The tax amounts to 46 percent of everything above $2 million for an individual and $4 million for a couple.

Bill Gates has $43 billion. If he can leave just half of that behind, his family could continue to be quite rich for endless generations. The people who get hurt most by the tax are those of far less wealth, sometimes people who worked very, very hard to earn incomes not that much above average, scrimped and invested and, thanks to the miracle of compound interest, were able to accumulate substantial savings by the end of their lives.

While in the past, those of us in the financial and legal community expected Congress to pass reform legislation in the form of higher exemptions, new budget deficit worries stemming from the war in Iraq and a troubled Social Security system may give reason for our newly-elected Democratic-controlled Congress to thwart such reform efforts.

Pension Protection Act

The Pension Protection Act of 2006 (the “PPA”) contains over 900 pages of changes in the law governing employee benefit plans and education plans.  While many changes will be phased in over the next several years, this section focuses on a few of the key provisions that are already in effect or will go into effect January 1, 2007 and require immediate planning.

  • Changes Affecting Retirement Plans and IRC Sec. 529 College Savings Plans
    • Expansion of Combination Plans
      • In general, the overall deduction limit for employers sponsoring both a Defined Benefit and Profit Sharing Plans has increased by 6% of pay
      • It’s important to note that elective deferrals under a 401(k) plan continue to be disregarded from the deduction limits
    • Permanency of the EGTRRA changes
      • Certain provisions relating to increased contribution limits and higher compensation amounts were set to expire in 2010
      • Now they have been made permanent
      • The federal income tax exclusion of qualified 529 Plan withdrawals due to expire in 2010 has been made permanent
    • Simplified Filings for Small Plans
      • Beginning in 2007, plans with 25 or fewer participants will be able to file a simplified Form 5500 in 2008.  In addition, one participant plans with assets not in excess of $250,000 are exempt from filing Form 5500 (previously the threshold was $100,000)
  • Changes Affecting Non-Qualified Retirement Plans
    • While the changes in the realm of non-qualified plans runs beyond the scope of this newsletter, one important point to mention is that the PPA prohibits funding of non-qualified deferred compensation for senior executives of companies with underfunded Defined Benefit Plans

As we begin another year together, we want to say thank you for being a loyal client.  We count our relationship with you as one of our greatest blessings and look forward to building on a partnership that we hope will contribute toward making 2007 your best year ever.

Any tax advice contained herein is of a general nature and is not intended for public dissemination. Further, you should seek specific tax advice from your tax professional before pursuing any idea contemplated herein. This advice being solely provided as an incidental service to our business as insurance/investment professionals.