Check-Up On Insurance
Insurance coverage is at the heart of a personal risk and return analysis. No investment in an overall family wellness plan is complete without determining what type and how much is appropriate. In these plans, life and long-term care insurance typically need more attention.
It is not surprising that a pandemic would drive interest in life insurance. Modern policies bring more options for coverage, benefits and payment options. However, many older policies may not be yielding the best results for either death benefits or premiums. Consult your insurance professional for a policy review to make sure dollars are well invested for maximum returns. If a policy is held in a professionally managed insurance trust, the trustee likely reviews policy performance regularly, and the pandemic is a good occasion to check in.
Long-term care insurance is also receiving much needed attention. Potential lingering health impacts of the coronavirus may increase the prevalence of chronic conditions and may require extensive and prolonged care. Long-term care insurance can ease the drain on family wealth due to private or nursing care. Modern policies can provide more flexibility: discounts or carryover benefits for spouses, or new hybrid policies that provide a blend of long-term care and life insurance are just a few of the ways to increase the returns on your insurance investment.
Plan For Tax Law Changes
Stimulus to combat the economic effects of COVID-19 has come at a cost: the prospect of increased taxes. Speculation is that a democratic administration may decrease the current estate and gift tax exemption, resulting in potentially higher estate and gift tax on wealth transfers. With the current, generous exemption, gifting now may help lock in the benefits of the today’s higher gift tax exemption.
For those hesitant to commit to gifting in an uncertain environment, the creation of a Spousal Lifetime Access Trust (SLAT) may be a good investment. Under SLATs, best used in long term, stable marriages, one spouse can create and fund a trust for the other, enabling the beneficiary spouse to receive income and principal as determined under the trust document. Trust distributions that support the beneficiary spouse can generally be used to support the lifestyle and pay the expenses of the marriage, but cannot be directly accessed by the grantor spouse.
Secure Your Business
Small businesses have faced unprecedented challenges during the crisis. Even those benefiting from the take-out restaurant business risk financial collapse should an owner become incapacitated or die. The risk is particularly acute in co-owned businesses if one partner can no longer help manage the business.
It is critical that small, co-owned businesses create a governance plan for this situation. A buy-sell agreement that identifies how day-to-day operations of the business will occur is essential. The predictable transfer of ownership also must be detailed, including valuation methodologies, payment terms, and payment sources.
Today’s environment drives other considerations, like decisions to invest capital to keep the business open or responses to government-imposed restrictions on operations. While there are several criteria to consider, working with a trusted advisor can ease the process.
While the pandemic has changed the way we all manage risk, working with your clients to proactively manage risk to improve returns will pay dividends post-crisis.
Joan Bozek is chief fiduciary officer and director of trust services at Clarfeld | Citizens Private Wealth.