While most people assume only the uber wealthy need to worry about asset protection, those with less wealth and fewer assets may be at even greater risk. For example, if you’re a multi-millionaire, a $50,000 judgment against you might not be that big of a burden. But for a family with a modest income, home, and savings, it could be catastrophic.

Asset protection planning isn’t something you can put off until something happens. Like all planning, to be effective, you must have asset protection strategies in place well before you actually need them. Plus, your asset protection plan isn’t a one-and-done deal: It must be regularly updated to accommodate changes to your family structure and asset profile.

There are numerous planning strategies available for asset protection, but three of the most common include the following:

1. Insurance
Purchasing different forms of insurance—health, auto, watercraft, and homeowner’s—should always be the first line of defense to protect your assets. Whether you’re ultimately found at fault or not, if you’re ever sued, defending yourself in court can be extremely costly.

Insurance is designed not only to help you pay damages if a lawsuit against you is successful, but the insurance company is also responsible for hiring you a lawyer and paying his or her attorney’s fees to defend you in court, whether you lose or win. However, insurance policies come with various amounts of coverage, which can be exceeded by large judgments, so you should also seriously consider buying umbrella insurance.

Should your underlying insurance policy max out, an “umbrella” policy will help cover any remaining damages and legal expenses. We can help evaluate your current policies and ensure you have the right types and amounts of insurance for maximum asset protection.

2. Business entities
Owning a business can be an incredible wealth-generating asset for your family, but it can also be a serious liability. Indeed, without the proper protection, your personal assets are extremely vulnerable if your company ever runs into trouble. For example, if your business is currently a sole proprietorship or general partnership, you are personally liable for any debts or lawsuits incurred by your business.

Structuring your business as a limited liability company (LLC) or S corporation is typically the best way to go for many small businesses. When properly set up and maintained, both entities create an impenetrable barrier between your personal assets and your business activities. Creditors, clients, and other potentially litigious individuals can go after assets owned by your company, but not your personal assets.

If you own any kind of business, even just a side gig to earn extra income, you should seriously consider creating a protective entity to ensure any liabilities incurred by your company won’t affect your personal assets. We can help you select, put in place, and maintain the proper entity structure for your business operation.

3. Estate Planning
While each of the asset-protection scenarios shared above are “maybes,” there is one certainty in life—death. It’s going to happen to all of us. And your death, or an incapacity before it, is the biggest risk to your family’s assets. Planning in advance for what is certain to come is a gift to the people you love the most.

So, if you’ve been putting it off, now is the time to get it handled, and we’ve made it easy for you to do that.

You work way too hard to leave your assets at risk. Call us to schedule a Family Estate Planning Session, and let’s get this taken care of now. During your Session, you’ll become educated, informed, and empowered.

We don’t just draft documents; we ensure you make the very best legal decisions about life and death, for yourself and the people you love.

Dedicated to empowering your family, building your wealth and defining your legacy,

In the first part of this series, we discussed the first three of six questions you should ask yourself when selecting a life insurance beneficiary. Here we cover the final half.

Selecting a beneficiary for your life insurance policy sounds pretty straightforward. But given all of the options available and the potential for unforeseen problems, it can be a more complicated decision than you might imagine.

For instance, when purchasing a life insurance policy, your primary goal is most likely to make the named beneficiary’s life better or easier in some way in the aftermath of your death. However, unless you consider all the unique circumstances involved with your choice, you might actually end up creating additional problems for your loved ones.

4. Are any of your beneficiaries minors?
While you’re technically allowed to name a minor as the beneficiary of your life insurance policy, it’s a bad idea to do so. Insurance carriers will not allow a minor child to receive the insurance benefits directly until they reach the age of majority.

If you have a minor named as your beneficiary when you die, then the proceeds would be distributed to a court-appointed custodian tasked with managing the funds, often at a financial cost to your beneficiary. And this is true even if the minor has a living parent. This means that even the child’s other living birth parent would have to go to court to be appointed as custodian if he or she wanted to manage the funds. And, in some cases, that parent would not be able to be appointed (for example, if they have poor credit), and the court would appoint a paid fiduciary to hold the funds.

Rather than naming a minor child as beneficiary, it’s better to set up a trust for your child to receive the insurance proceeds. That way, you get to choose who would manage your child’s inheritance, and how and when the insurance proceeds would be used and distributed.

5. Would the money negatively affect a beneficiary?

When considering how your insurance funds might help a beneficiary in your absence, you also need to consider how it might potentially cause harm. This is particularly true in the case of young adults.

For example, think about what could go wrong if an 18-year-old suddenly receives a huge windfall of cash. At best, the 18-year-old might blow through the money in a short period of time. At worst, getting all that money at once could lead to actual physical harm (even death), as could be the case for someone with substance-abuse issues.

If you set up a trust to receive the insurance payment, you would have total control over the conditions that must be met for proceeds to be used or distributed. For example, you could build the trust so that the insurance proceeds would be kept in trust for beneficiary’s use inside the trust, yet still keep the funds totally protected from future creditors, lawsuits, and/or divorce.

6. Is the beneficiary eligible for government benefits?
Considering how your life insurance money might negatively affect a beneficiary is critical when it comes to those with special needs. If you leave the money directly to someone with special needs, an insurance payout could disqualify your beneficiary from receiving government benefits.Under federal law, if someone with special needs receives a gift or inheritance of more than $2,000, they can be disqualified for Supplemental Security Income and Medicaid. Since life insurance proceeds are considered inheritance under the law, an individual with special needs SHOULD NEVER be named as beneficiary.

To avoid disqualifying an individual with special needs from receiving government benefits, you would create a “special needs” trust to receive the proceeds. In this way, the money will not go directly to the beneficiary upon your death, but be managed by the trustee you name and dispersed per the trust’s terms without affecting benefit eligibility.

Make sure you’ve considered all potential circumstances
These are just a few of the questions you should consider when choosing a life insurance beneficiary. Consult with us a trusted advisor to be certain you’ve thought through all possible circumstances and named your beneficiaries in the best way possible.


Dedicated to empowering your family, building your wealth and defining your legacy,

Selecting a beneficiary for your life insurance policy sounds pretty straightforward. You’re just deciding who will receive the policy’s proceeds when you die, right?

But as with most things in life, it’s a bit more complicated than that. Keep in mind that naming someone as your life insurance beneficiary really has nothing to do with you: It should be based on how the funds will affect the beneficiary’s life once you’re no longer here.

It’s very likely that if you’ve purchased life insurance, you did so to make someone’s life better or easier in some way after your death. But unless you consider all the unique circumstances involved with your choice, you might actually end up creating additional problems for the people you love.

Given the potential complexities involved, here are a few important questions you should ask yourself when choosing your life insurance beneficiary:

1. What are you intending to accomplish?

The first thing to consider is the “real” reason you’re buying life insurance. On the surface, the reason may simply be because it’s the responsible thing for adults to do. But I recommend you dig deeper to discover what you ultimately intend to accomplish with your life insurance.

Are you married and looking to replace your income for your spouse and kids after death? Are you single without kids and just trying to cover the costs of your funeral? Are you leaving behind money for your grandkids’ college funds? Are you intending to make sure your business continues after you’re gone? Or perhaps your life insurance is in place to cover a future estate-tax burden?

The real reason you’re investing in life insurance is something only you can answer. The answer is critical, because it is what determines how much and what kind of life insurance you should have in the first place. And by first clearly understanding what you’re actually intending to accomplish with the policy, you’ll be in a much better position to make your ultimate decision—who to select as beneficiary.

2. What are your beneficiary options?

Your insurance company will ask you to name a primary beneficiary—your top choice to get the insurance money at the time of your death. If you fail to name a beneficiary, the insurance company will distribute the proceeds to your estate upon your death. If your estate is the beneficiary of your life insurance, that means a probate court judge will direct where your insurance money goes at the completion of the probate process.

And this process can tie your life insurance proceeds up in court for months or even years. To keep this from happening to your loved ones, be sure to name—at the very least—one primary beneficiary.

In case your primary beneficiary dies before you, you should also name at least one contingent (alternate) beneficiary. For maximum protection, you should probably name more than one contingent beneficiary in case both your primary and secondary choices have died before you. Yet, even these seemingly straightforward choices are often more complicated than they appear due to the options available.

For example, you can name multiple primary beneficiaries, like your children, and have the proceeds divided among them in whatever way you wish. What’s more, the beneficiary doesn’t necessarily have to be a person. You can name a charity, nonprofit, or business as the primary (or contingent) beneficiary.

It’s important to note that if you name a minor child as a primary or contingent beneficiary (and he or she ends up receiving the policy proceeds), a legal guardian must be appointed to manage the funds until the child comes of age. This can lead to numerous complications, so you should definitely consult with an experienced Family Law attorney like us if you’re considering this option.

3. Does your state have community-property laws?

If you’re married, you’ll likely choose your spouse as the primary beneficiary anyway. But what if you want to choose a close friend, your favorite charity, or simply the person you think needs the money most.

In California, community-property laws dictate that your spouse is entitled to the policy proceeds and will have to sign a form waiving his or her rights to the insurance money if you want to name someone else as beneficiary. Sometimes it makes sense to name your trust as the primary beneficiary instead of your spouse. If you go that route, you’ll definitely want to talk to a trusted estate planning attorney before you sign anything because of the extra complications.

The team at my firm doesn’t just draft documents; we guide you to make informed, educated, and empowered choices to plan for yourself and the ones you love most. Contact us today if you have any questions about life insurance or other estate planning options.

Dedicated to empowering your family, building your wealth and defining your legacy,

It’s no secret that we live in a litigious society. And though our right to a fair trial is one of the hallmarks of American democracy, it has also led to a lawsuit-crazy culture.

In this atmosphere, you’re at near-constant risk for costly lawsuits, many times even when you’ve done nothing wrong. This is especially true if you have substantial wealth, but even those with relatively few assets can find themselves in court.

If you’re sued, your traditional homeowner’s and/or auto insurance will likely offer you some liability coverage, but those policies only protect you up to certain limits before they max out. Given this, you should consider adding an extra layer of protection by investing in personal liability umbrella insurance.

What is umbrella insurance?

Umbrella insurance offers a secondary level of protection against lawsuits above and beyond what’s covered by your homeowners, auto, watercraft, and/or other personal insurance policies. For instance, if someone is injured in your home, they might sue you for their medical bills and lost wages.

Once your homeowners insurance maxes out, the umbrella policy will help pay for the resulting damages and legal expenses if you lose the case. If you win, it can help cover your lawyer’s fees.

Who should purchase it?

Umbrella insurance is particularly important for those with a high net worth. But seeing that everyone has the potential to be sued, it’s a good idea even for those without substantial assets.

Indeed, if you’re sued and lose, the judgment against you may exceed the value of your current assets. In such a case, the court can allow the plaintiff to go after your future earnings, potentially garnishing your wages for years. To this end, umbrella insurance not only protects your current assets, but your future ones as well.

How much coverage do I need?

Most people will be adequately covered with a $1 million umbrella policy. If you earn more than $100,00 a year or have more than $1 million in assets, you may want to invest in additional coverage.

A good rule of thumb is to buy an umbrella policy with coverage limits that are at least equal to your net worth.

How much does umbrella insurance cost?

Umbrella insurance is fairly inexpensive. You can buy a $1 million umbrella liability policy for between $150 and $300 per year. An additional million in coverage will run you about $100, and roughly $50 for every million beyond that.

Umbrella policies are inexpensive because they only go into effect after your underlying homeowners or auto policy is exhausted. In light of this, most insurers require you to have at least $250,000 in liability on your auto policy and $300,000 on your homeowners before they’ll sell you a $1 million umbrella policy.

How can I purchase umbrella insurance?

You can buy an umbrella policy from the same insurance company you use for your other policies. In fact, some companies require you to purchase all of your policies from them in order to obtain umbrella coverage.

If your current insurance agent offers umbrella coverage, you may qualify for a discount for bundling all your policies. Of course, you can also purchase a stand-alone umbrella policy, so shop around for the best rates.

Dedicated to empowering your family, building your wealth and defining your legacy,

InsuranceLife insurance products can be complicated, and because they often come with high commissions for the people selling them, it can be hard to know what to buy and who to trust when you are making that decision. The place to start is to think about whether and why you need life insurance. The most basic reason is if you have an obligation or need to provide income replacement for others who depend on you. That means if you have anyone dependent on you, you probably want some kind of life insurance–as they say, “insurance says I love you.”

The type of life insurance you should buy depends on your family goals and circumstances. The two main types of insurance you’ll hear about are “term” and “whole life.”

Term insurance is in effect for a specific period of time and if you do not die during that period, the insurance doesn’t pay. For example, you may have a 10-year term policy. Each year, you pay your premium and if you don’t die during that year, you’ve lost the premium (but gained your life, which is nice!) Because it’s 10-year term, the rate will remain the same for 10 years, at which point you have to re-apply for the insurance, which means full application and health exam and a rate increase because you are 10 years older.

In contrast, whole life is designed to be in effect until death. That means that no matter when you die, if your policy is paid up, your insurance will pay out. Whole life policies have an investment component that accumulates a cash value while also guaranteeing a death benefit. So each year that you pay your premium and don’t die, part of the premium you paid is gone, but part of it is allocated to the investment part of your policy, which means you are building up an investment.

Here’s the thing about that … sometimes (maybe often) insurance is not the best investment vehicle, primarily because of how much of the premium goes to pay commissions on the policy rather than to your investment account.

But, if your spouse or child or business is going to need insurance when you die, you will want to get a permanent, whole life type policy.

The bottom line with life insurance is to make sure you realistically assess your needs and then purchase an amount of insurance that meets those needs. I recommend running your insurance decisions by a trusted advisor who is objective, not paid a commission, and shares the same goal as you–keeping your family out of court, out of conflict and well-cared for when you can’t be there.

I believe in developing relationships with families for life. That’s why my firm not only helps identify the best legal strategies for you and your family; we also incorporate insurance, financial, and tax strategies into our holistic approach to estate and legacy planning.

Dedicated to your family’s wealth, health, and happiness,
Marc Garlett 91024

Long-term care 91024This Thanksgiving holiday, as multi generations of my family gather together, I can’t help but reflect on the lifetime of love and support my parents have provided to me and my children. I’m also very aware of their own special issues. Did you know, a person who turns 65 today has a 70% chance of needing some type of long-term care at some time in their remaining years? That’s according to the U.S. Department of Health and Human Services and on average, women will need 3.7 years of long-term care while men will need 2.2 years of care. Only 20%, however, will need care for longer than five years.

If you or your parents don’t have the financial resources to pay for this long-term care – either through a nursing home stay or in-home care – you should consider long-term care insurance to fill the void. And while annual premiums will vary according to your age and health status, they can all be fairly expensive.

Here are some tips to reduce the cost of long-term care insurance:

Buy young. Since premiums rise as you age, purchasing a long-term care policy when you are younger can mean cheaper premiums. Just be sure you are aware that premiums can increase as you age, so be sure to discuss this with your insurer.

Shorten the benefit period. Lifetime policies are the most expensive, and since statistics show that most of us will not need long-term care for more than five years, you can save thousands of dollars in premiums if you buy a short-term policy.

Lengthen the elimination period. Most policies have a 30-90 day waiting period before coverage begins. If you can make this period longer, your premiums will be cheaper.

Reduce daily benefits. If you can pay for some of your long-term care needs yourself, you can reduce the daily benefit amount on your policy, which will result in lower premiums.

Share the care. If you are married and both of you are buying long-term care insurance, a shared care policy could provide you both with more coverage for less money. A shared care policy provides a pool of benefits that are shared between you and your spouse, so if you buy a 5-year shared care policy, the two of you would have 10 years of benefits. If your spouse only uses 3 years, you would have 7 years of benefits to use.

Take the deduction. Your long-term care insurance premiums may be deductible. If they meet the requirements for “qualified” long-term care expenses, they can be deductible, with the amount depending on your age and tax year. For 2014, the long-term care premium deductibility limits are $1,400 for those more than 50 but not more than 60, $3,720 for those more than 60 but not more than 70, and $4,660 for those over 70.

To learn more about long-term financial planning for your – or your parent’s – golden years, give me a call and let’s chat over a cup of coffee.

To you family’s health, wealth, and happiness,
Signature - Marc

InsuranceIf you have been responsible enough to purchase a life insurance policy as added protection for your loved ones, then you will want to carry that responsible action a little further by protecting that important asset from taxation.

If you are married and have named your spouse as the beneficiary of your life insurance policy, those proceeds will pass free of both income taxes and estate taxes. However, if your children are named as beneficiaries, the proceeds are free of income tax, but they do become part of your taxable estate. Estate taxes have ranged from 35% up to 55% in recent years, so that’s a big bite.

An Irrevocable Life Insurance Trust (ILIT) is a great asset protection tool that shields your life insurance from estate taxes, and when drafted properly, can also be used to protect proceeds from creditors, bankruptcy and divorce.

The best way to use an ILIT is to have the Trustee of the life insurance trust purchase the life insurance directly and pay all premiums. If you already own the life insurance, your ILIT Trustee can either buy the policy for you, or you can transfer it in, by following certain rules we can help you with.

So why is this a good idea? The proceeds from the life insurance are not part of your estate if the ILIT owns the life insurance. Therefore, they are not subject to estate tax upon your death.

If you have not yet purchased life insurance, you should create your ILIT first. Have your ILIT purchase the life insurance. This will circumvent the transfer of life insurance from you to
another party, thus avoiding any difficulties if you do unexpectedly pass away since the proceeds of your life insurance policy would revert to your estate if you died within three years of the transfer.

The ILIT is a phenomenal tool for protecting your life insurance from taxation, leaving behind more for your loved ones.

To put the proper legal and financial protections in place for your family, contact our office to schedule a time for us to sit down and talk. We normally charge $750 for an Estate Planning Session, but because this planning is so important, I’ve made space for the next two people who mention this article to have a complete planning session at no charge. Call today and mention this article.