Lee R. Phillips, JD

The decimation of many physicians'retirementfunds over the past several years hasunderscored the need for steady growthand protection from market fluctuations.

However, steady growth isn't enough. The marketgives you hope of bigger growth, and if it wereto move upward, you would certainlywant to take advantage of it. But, youcan't afford to continue a free-fall in themarket or suffer through stagnation predictedfor the market by many "experts."

Actually, the bleeding can be stoppedand you can be given a guarantee of atleast a 6% annual return on your funds.Yes, you can still have your funds "in themarket,"and if the market goes up morethan 6%, you can cash in on the upsidemarket, but there is no longer a need torisk the floor dropping out from underyour retirement funds.

An innovative group of attorneys andaccountants, Golder Melick (888-468-4015), has brought together principalsof the annuities industry and the 401(k) industry tocreate a new choice. You may have been told to rollyour 401(k) into an IRA, so that you could use anannuity product with a guarantee, but you havenever been offered the option of using the guaranteewithin your 401(k) itself.

As an asset protection note, you don't want toroll your 401(k) into an IRA, because the 401(k)enjoys asset protection under federal law, and theIRA has only moderate protection under state laws.Additionally, your employer's 401(k) administratorhas told you that you cannot move your 401(k)funds unless you leave the employer. Therefore, thechallenge conquered by Golder Melick was toallow you to keep participating in your 401(k) plan,get the lawsuit and creditor protection of the401(k), and get the guaranteed returns and theother "goodies"offered by the annuities industry.

You may have a negative feeling toward annuities,and I share the same feeling,because I have been sold annuities thatwere dogs. But, there are a few (literallyonly 1 or 2) new annuities that are "nobrainers."I have just cashed in my dogannuities (what is left of them) andmoved them to the new annuities.

I took a hit, but the rule of thumb is:Knowing what you know today, wouldyou make the investment today? If theanswer is no, you need to look seriouslyat cutting your losses. There are obviouslyexceptions, but in my case theannuities I had weren't even doing wellwhen the stock market was soaring.

Combining your 401(k) with theproper annuity establishes a "floor"foryour 401(k) funds at the value of thefunds when they are combined with theannuity. A large highly rated insurance companywill guarantee that the value of those retirementfunds will not drop below the floor value. Ofcourse, the guarantee is only as good as the insurancecompany's claims-paying ability, but some ofthe companies are pretty secure.

Additionally, the floor will be evaluated eachyear on the annuity's anniversary date, and if themarket value of your funds has risen, a new higherfloor will be set at the market value of your fundson the anniversary date. Thereafter, the value ofyour funds cannot drop below the new higher floor.You can enjoy growth in the market and not beexposed to the risk of down markets.

While the annuity is in effect, your retirementfunds in it are guaranteed to grow at 6% per yearuntil you withdraw the funds from the plan. Thefunds can be invested in a wide choice of mutualfund families and individual funds, and if the marketgrowth is greater than the steady 6% growth,you can choose to recognize the market gainsinstead of receiving the 6% growth.

Basically, you are given 3 options, and you canmake your choice before your 81st birthday. Thatmeans you don't have to make the decision untilafter you have seen what the market does. If it doeswell, you can choose the higher of the current floorvalue of your funds, based on the latest annualevaluation, or the actual value of your funds in themarket on the day your decision is made. If themarket doesn't do well, you can choose the steadygrowth of 6% over the years. Therefore, youroptions are as follows:

You can accept the value of the latest floor set as the market value of your funds; or

You can accept the actual market value of your funds on the day your decision is made.

When funds are transferred into the annuitythere isn't any cost. In fact, a couple of the annuitycompanies will give you a bonus of about 4% of thetransferred funds. The bonus will apply anytimeyou add money to the account. Ongoing feesrequired to maintain the account are just a littlemore than the average fund is currently charging.

At no additional cost, you can retain the managementservices of Morningstar. They will placeyour funds in the highest rated funds, which fityour investment strategies. 

Articles

Mend the Wound in Your Retirement

With interest rates at rock bottom,many people are refinancingtheir real estate.Refinancing is usually a wise thing todo. However, assuming you have doneyour estate planning and established aliving trust, refinancing may presentsome significant problems.

When you established the trust, or ifyou have purchased property since youestablished the trust, you should havehad your properties titled in the name ofthe trust, which is required to avoid probate.Probably the first thing the refinancing folks will make you do is takethe property out of the trust by havingyou make out a deed as trustee transferringthe property to you as an individual.That isn't necessary, but they usuallymake you do it anyway. If you fight longenough with the attorney for the loancompany, they will sometimes backdown. They don't always understandthat you are still just as liable on theloan, and the house is still securewhether it is in the trust or not, but it'sprobably not worth the fight; just letthem retitle the property.

For asset protection purposes, mywife's trust has owned our house for 20years. When we refinanced the house,they insisted that they not only transferthe house out of her trust, but also transferit into our names as joint tenants. Atthat point, I drew the line. It's her house,not mine. If we go to court in a lawsuit, Idon't want the plaintiff to be able to say,"Look, they move the house back andforth at will." I pointed out to the mortgagecompany they couldn't make her put1 of our names on the title. I finally won,and simply signed as guarantor.

When the refinancing company getsall through with the loan, they should beable to reissue the deed at the title companydirectly in the trust's name, but notunderstanding the issues at hand, theywill retitle the deed in your name again.(In the case of my wife, it was refitted inher name.) You will then need to haveanother deed made out, in order totransfer the ownership of the propertyinto your trust again. The final transfer isdone to avoid probate. The trust has toown the property.

Yes, this is all totally unnecessary, and Ihave restrained myself from resorting toname-calling. The mortgage folks are setin their ways, and there isn't anything youcan do about it, but be firm in guardingyour interests when you refinance.

 an attorney ofthe US Supreme Court, has taughtmore than 5000 classes to insurance,accounting, legal, medical,dental, and other professionals,and has written hundreds of articles.He welcomes questions or comments at 800-806-1997 or lee@legalees.com.

Research the Facts Before You Refinance

Married couples, where both spouses are professionalswith high liability exposures, likephysicians, have a hard time taking advantageof many of the traditional asset protectiontechniques. Most asset protection techniquesplay off of family relationships. Assets are moved fromthe high-liability-exposure spouse to the other spouseand/or children. Dual professional couples lose about75% of the standard asset protection options. So howdoes a couple protect their assets?

First, try to evaluate the relative liability exposure forboth spouses. One spouse will usually have a lower liabilityexposure than the other. Or, the couple can adjusttheir practices so that 1 spouse will have a reduced liabilityexposure. A larger proportion of assets should besheltered behind the spouse with the lowest liability.

Passive assets that do not carry an inherent liabilityshould be sheltered behind the spouse with the smallestprofessional liability exposure. Passive assets include thehouse, bank accounts, brokerage accounts, and otherassets that you will not get sued over.

Cars, stock in the medical practice, the rental unitwith lead paint, and other high exposure assets shouldbe shifted to ownership behind the spouse with thehighest professional liability. Hopefully, the value ofthe passive assets will be substantially higher than theother assets and the couple can shelter a high percentageof their wealth.

However, it should be noted that stacking ownershipof all of the assets with 1 spouse could be disastrousfor estate tax planning. Assume the wife is theOB/GYN doctor with a high liability exposure andthe husband is a dermatologist with a low liabilityexposure. Asset protection theories dictate that thehusband owns all the passive assets. If the husbandowns all the assets and the wife dies, there will not beenough assets in her name or joint ownership to fundher estate tax exemption equivalent ($1 million). Thefamily could end up paying a lot more estate taxesupon the husband's death, because little or nothingwas sheltered at the wife's death.

Whenever assets are divided between the spouses,ownership should actually be held in a living revocabletrust. Each spouse should have their own trust. Theremay be 2 actual trust documents or simply 1 documentthat establishes the 2 trusts, but the trusts must be separate.In theory, the trusts will not provide any asset protectionbeyond just dividing the property, but you mustuse the trusts to prevent a probate mess when 1 spousedies. The surviving spouse doesn't want to have to probatethe house they live in.

If the husband and wife actually work together orrun a corporation together, don't appoint both as officersand directors. Having 1 spouse be the president and theother the secretary/treasurer of the corporation is a hugemistake. Have the spouse who already has the highestliability be the officer and director. That spouse shouldnot be holding the passive assets, so if the corporationgoes down, the passive assets should be protected.

Don't sign loans together. Being a professional, eachspouse should be able to qualify without the other.Never list his and her assets together on the same sheet.You have to treat them that way if you want the courtsto keep them separate. Even in community propertystates, spouses can own separate assets.

Create limited liability corporations (LLCs) or corporationsto operate your practice, own the buildingand equipment, manage the rental units, and operateany other business activities you have. Move themembership interests in the LLC to your children oranother LLC that is established to hold the interestsand passive assets. The low liability spouse and childrenwill own this LLC. Use an LLC rather than acorporation, because the formal requirements thatmust be followed to maintain an LLC are far fewerthan those required to maintain a corporation.

Use annuities and life insurance policies to holdcash rather than mutual funds. Some states protectannuities from creditors and suits and most states protectlife insurance. Don't use IRAs, because they areonly protected by state laws. Benefit plans and qualified retirement plans (SEPs, 401(k)s, 412(i)s, profitsharing plans, etc) are protected by federal law.

 an attorney of the US SupremeCourt, has taught more than 5000 classes to insurance,accounting, legal, medical, dental, and otherprofessionals, and has written hundreds of articles.He welcomes questions or comments at 800-806-1997 or lee@legalees.com.

Are You Partners in Life & Liability?

Two problems have frustrated my financiallife lately, and I am curious as to whetherthese are isolated events or if they are commonoccurrences. The first deals with problemsencountered when you try to move money from1 institution, such as a mutual fund or annuity company,to another institution's control. The seconddeals with the sudden and drastic rise of the "cost ofinsurance" in a life insurance policy, which drains thecash value you have built up over the years.

Both my mother and I tried to liquidate largeamounts from a mutual fund company and movethem to 1 of the guaranteed annuities. The processwas a nightmare, and in my mother's case, it tookalmost 4 months for the money to actually bedeposited in the new annuity account. In my case, ittook almost 2 months.

In both our cases, the first excuse for a delay wasan admission by the mutual fund company that ithad sent the money to the wrong address. The secondexcuse was the assertion that the money wasmistakenly "deposited" into our bank accountsrather than being transferred to the new company.

This was retirement money, and it needed to betransferred from trustee to trustee. Because they madea mistake, both transferring companies "retrieved"the money from our bank.

Just between the 2 of us, there was a loss ofalmost $10,000 in interest. In some cases, the companylegally has up to 6 months to transfer themoney. The regulatory agencies say they shouldtransfer it within a "reasonable time." I think theseexcuses were intentional.

In the second problem, an insurance companyattacked life insurance cash value. You may havebeen sold a life insurance policy with the idea thatyou would build up cash values that would eitherkick in and pay the premiums over the long haul,making your policy a "paid-up policy," or wouldbuild up with tax-free growth and give you a tax-freeincome stream.

Once the funds are sufficiently built up, they willsupport your borrowing a specific amount eachmonth from the policy to give you a tax-free cashflow, but the process is fraught with traps.

For example, an insurance company looks at itsearnings projections, and if it isn't going to make theprojected earnings necessary to keep its stock growing,then it implements a sneaky plan. Each insurancecontract says that the insurance company can adjustthe cost of insurance. Such adjustments are oftenmade, and as long as they are reasonably necessary tokeep the life insurance coverage in place, there shouldn'tbe a complaint by the policy holder.

However, there are a couple of companies thathave recently sent out letters informing their policyholdersthat the cost of insurance is being raised. Theletters encourage the client to look at the other goodproducts the company has and offer to help replacethe current policy with a better product.

If you dismiss the letter and don't look into exactlywhat is going on, the cash value of your policy willbe quickly drained, and the policy will lapse. If thishas happened to you, you may be in a mess, becauseyou may be uninsurable now.

Legally the insurance company can raise the costof the insurance. (

 This is not the same as theinterest they pay on the cash values.) But, any rise inthe cost of insurance must, according to a recent courtcase, reflect a reasonable response to increased mortalitycosts. What is being done now is not a reflectionof rising mortality costs, it is simply a way for theinsurance company to make more money and forcepolicy holders to move their insurance dollars or losethem. Of course, the agents and even the companymake money if you switch policies. It may be a gooddeal for you to switch policies, but it should be yourchoice, not a forced change. 

, an attorney of the US SupremeCourt, has taught more than 5000 classes to insurance,accounting, legal, medical, dental, and otherprofessionals, and has written hundreds of articles.He welcomes questions or comments at 800-806-1997 or lee@legalees.com.