Real Life Examples
The following examples show real-life solutions to problems that our clients have brought to us. Many of these solutions represent a fraction of what we are able to do for our clients; especially the creation of Systems for maximizing tax-free income.
Some of the examples are composites of issues brought to us by several clients. These problems are of general concern to many such as:
- Outliving income
- Proving for children and grandchildren
- Lifelong independence
- Business succession planning
- Rolling 401ks and other qualified plans into intergenerational IRAs
- Providing for and handling the finances of older adults, such as parents and grandparents
You will notice that none of these examples give investment advice. On the contrary, our purpose and approach is to create a system for your wealth accumulation and protection which combines growth, tax income, legacy and overall tax savings.
I hope these examples will bring relief to your concerns and anxieties that you will not accomplish your financial goals. At Ronald Gelok & Associates we take our slogan Trust and Know-How very seriously. These examples are meant to reveal to you how know-how can elevate your financial future, and how trust in you advisor can make decision making stress-free for a lasting difference in your future.
Example #1 – Substantial Legacy for a Beloved Grand Daughter
Problem: 81 year old Mrs. Jones wants to leave a substantial legacy for her beloved grand daughter, Mika, and stay financially independent if she needs long term care…
Unfortunately, term insurance which she had bought years earlier had expired, and at age 81 she was no longer eligible for low-cost term coverage. In any case, with her good health she wanted permanent insurance that would not expire and not increase in cost through the years.
Mrs. Jones also was concerned that one day she might need long-term care and worried about the tug-of-war between wanting to leave a legacy for Mika and not wanting to be dependent on her or her father, Brad.
Solution: We designed a program for Mrs. Jones that used a type of insurance policy called “survivorship life insurance” which is issued on the lives of both Mrs. Jones and her 54 year old son Brad. The beneficiary is Mika.
The premium fits into Mrs. Jones budget. Premiums are lower on survivorship Life policies, because the policy does not pay the legacy until both Mrs. Jones and Brad pass on.
Further, our system includes cash value accumulation in the policy against which Mrs. Jones can borrow tax-free. She has access to these funds at any time, in case of a long-term care need.
Mrs. Jones was worried that if she borrowed too much against her policy there would not be a death benefit left for her grand daughter. We made sure that she had the right provisions that would yield a death benefit, even if the surrender value of the policy became insufficient to cover charges.
That is not all we did for Mrs. Jones.
We also helped to explain to her son Brad and her beloved grand daughter, Mika, the details of the program that she was entering and how it would affect their financial future.
Of course, Brad needed to be part of the process. As he is a busy executive, we made sure that his mother’s planning did not unduly take up too much of his time. For example, we helped Mrs. Jones her get a free report from www.BenefitsCheckup.org, a service of the National Council on Aging, which directed her to senior benefits from her community and her State. And we connected the whole family with geriatric professionals in the community to support her life engagement and community involvement.
Example #2 – Parlay a Sudden Nest Egg Into Lifelong Income
Problem: Ted and Alice want to parlay a sudden nest egg into lifelong income and make sure their money lasts as long as they do.
Ted and Alice were fortunate enough to have purchased a small apartment in a New York suburb which had grown mightily in value as the area became a bedroom community for Wall Streeters. They sold the apartment to a gentleman who wanted it for his newlywed daughter. After taxes, they had a sudden nest egg of $300,000. They were delighted, but very aware of what taxes can do to eat away profits, and also nervous about holding on to their new nest egg in such a volatile stock market environment.
For a while they kept the money in a short term CD earning very little. Soon they realized that this was a recipe for loss of buying power and would never protect their future. At that point they came to our firm.
Solution: We created a system for them that not only guaranteed they would not lose their principal, but allowed them to participate in stock market gains because their return was linked to a stock index. Our system also provided a legacy for their children.
What was most important to the couple was that they want to buy a retirement home in the next five years and were concerned about having a down payment. At first, they wanted to hold back some of the nest egg earning low bank rates. But, they had no idea what type of home they would buy or how much that down payment might be.
Our system solved their problems using an indexed life insurance product that permitted them to borrow from the policy tax-free and pay themselves back at little or no interest. If they chose to never pay back the loan, it would be deducted from the death benefit. In this way, they were free to let their money grow, had peace of mind when the market dipped, had access to tax-free income for a home down payment and provided a legacy for their children.
This was such a win-win that they are now looking at their tax deferred IRA to see whether it might benefit them to make a withdrawal and commit some of their funds as additional premiums.
Example #3 – Retired at Age 60 to Fulfill the Dream of Opening a Business
Problem: James and Helen are 65 years old and still working. They’ve been contributing to a 401(k) for many years, but retired at age 60 to fulfill the dream of opening their own business. At that time they rolled over the 401(k) into an IRA.
They have been doing well making their own financial decisions and choosing among the mutual funds available through their IRA custodian. But something has changed. They began to foresee a full retirement, perhaps at age 70 or 72. The need for lifelong income without working has become very real to them. They no longer want to take any risks with their money. When the market goes up they are less not happy as they are terrified when the market goes down. Little by little they are losing peace of mind in managing their own IRA.
When they came to us they were clearly motivated by fear and worry.
Solution: Our first job was to give them a feeling of stress-free decision-making. We knew that decisions made through fear are seldom right. We analyzed what they were doing, showed them the tax consequences of distributing their IRA as required by the IRS once they were 70 1/2. We explained with real numbers that they would be okay doing exactly what they were doing, provided there was no serious recession. They did feel better; but they were not satisfied that they would have the lifelong income they desired if they made no changes.
In a calmer and more deliberative frame of mind they were ready to exercise good judgment.
We presented them with a system that would give them a lifelong stream of income and never quit on them, regardless of the fate of the stock market. We used one of the many flexible indexed life insurance products with which we work. In their case, we chose a system appropriate for couples that want to make consistent lifelong withdrawals of tax-free dollars on which they can rely. We gave them specifics on what they could withdraw every year depending on how they funded their policy.
Yes, there will be a death benefit; but this couple has no children and so we also did some charitable planning.
The couple already had a long-term care insurance policy for both of them. However, they were underinsured in the event that one had a long-term care needs, like Parkinson’s or Alzheimer’s. The couple was absolutely adamant that if this happened the afflicted spouse would stay at home as long as possible. Unfortunately, an additional policy was very expensive. They were grateful that the system allows the death benefit to be accelerated during their lifetime to pay for long-term care.
This was one of our most gratifying cases, because our clients left our office calmer people and more secure people than when they first came in.
Example #4 – A Elderly Parent Growing Frail
Problem: Roger is a high-powered, high paid executive with a big problem, his mother. She lives on her own in another State and she’s becoming forgetful. He is helplessly watching while an independent, feisty woman is growing frail.
She’s forgetting to pay bills, displacing checkbooks, and relying heavily on strangers who are caring for her lawn, helping her with shopping. These may be very good people, but Roger can’t be sure. Meanwhile, his sister Eileen has been relocated by her corporation to London. Eileen lived closer to Mom and was able to look in on her and handle some of her day-to-day financial affairs. Now Roger, who is gallantly trying to climb the corporate ladder is in charge.
Solution: Fortunately, Roger heard of our specialized caregiver financial services and came in for a complimentary consultation. We were able to help him in a variety of ways. We set up his mother with a simple touch screen Skype system through one of our resources so that she, Eileen, and Roger can meet with us virtually. We helped Roger be sure that Mom understands everything we are saying and is truly on board.
We suggested a geriatric care assessment for Mom by a local agency who explained the type of services she would need at home. Happily, Roger’s mom was doing very well physically and after seeing the geriatrician received some medication that relieved her anxiety and a good deal of her forgetfulness. But, it was clear that she could no longer take care of her own finances. The family had a complimentary consultation with one of our legal resources who later created the right power of attorney and trust documents. He made sure that Mom was legally competent to sign these papers.
We then created a system for the management of Mom’s money, understanding that eventually she might need Medicaid eligibility to pay for at home care or nursing home care. We got the family together with a local elder law attorney so they knew their rights. To create an income stream for Mom during her lifetime we used a combination of fixed annuities, but with a twist. We worked with the attorneys and family to place annuities in an irrevocable trust with Mom as income beneficiary until she might need to be transferred to a nursing home or have full-time at-home care. This gave the family the potential for applying for Medicaid after 60 months.
We are in the rare position of having the know-how to integrate a financial system with a good legal plan. Our President Ronald Gelok is a non-practicing attorney with great skill in legal communication.
Example #5 – Exorbitant Minimums that Many Wealth Managers Require Today
Problem: At our firm we serve clients at every level of wealth. We do money management on a fee only basis, but do not have the exorbitant minimums that many wealth managers require today. But, in Sam’s case our client was nearly a billionaire, although you would never know it from the way he lived.
Sam was a self-made business mogul who was ready to have his daughter and son-in-law take over his wholly-owned business so he could devote himself to charitable efforts. He wanted to do his succession planning in the right way, by which he meant tax savings, keeping control, and making the right charitable decisions.
Solution: We connected Sam to the right resources to help him start his own family foundation and we created a system for managing the endowment through the various wealth managers with which we work.
It was important to Sam that we were creating a total system for him and his family. The solution to Sam’s control demands was complex. It included his personal attorney working with the firm’s attorneys to create a consulting contract and compensation for him. It also included integrating his charitable foundation’s mission with the mission of the company, so that his efforts would be carried forth after his passing. The attorney review revealed that Sam needed a business power of attorney so that he could resume activities if he temporarily had a physical or mental issue which put him out of commission for short periods of time. In his words, “I don’t want to be pushed out before my time.”
We used a combination of wealth management for the foundation, personal wealth management for Sam, and tax-advantaged life insurance programs for a substantial part of his wealth.
That left Sam with one problem, estate taxes. We worked closely with Sam’s legal estate planning team who had created a variety of charitable trusts and also made some strategic lifetime transfers. What Sam liked best was our system for using after-tax dollars to purchase significant tax-free death benefits for his children, grandchildren and even employees who he wanted to reward.
In transferring ownership of the policies to the beneficiaries Sam was able to deliver a tax-free legacy to each and every one of them. Because he was already in control of his lifetime income, his business succession and his tax planning, he felt free to bestow these legacies. Sam was a man who prized his privacy and was appreciative of how we worked with his legal and trust professionals to make sure that the family had the utmost in financial records without Sam having to reveal details before that was necessary.