CornerStone Financial

IMPORTANT DISCLOSURES

The information presented here is not specific to any individual's personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Insurance Issues That Concern Married Couples

Insurance Issues That Concern Married Couples

What is it?

If you are married or planning to marry, you should determine how marriage impacts your insurance needs. The lack of proper insurance protection can lead a married couple into financial ruin. If you already have disability or life insurance policies, determine whether your existing coverage is adequate and update your list of beneficiaries. If you do not have either a disability or life insurance policy, consider whether or not your marital status changes your need for insurance. You should also review any existing policies held by you and your spouse (or spouse-to-be) and consider pooling them with one company or having multiple policies with one company in order to receive discounts and lower policy rates.

Tip: If your employer does not offer a particular type of insurance or if the amount of insurance offered is not adequate, consider purchasing an individual or private policy.

Health insurance

Because of the high cost of medical treatment, a poorly timed sickness or accident could be financially devastating to your family. To avoid a financial disaster during a medical crisis, you and your family should have health insurance.

Life insurance

In general

While you might not have felt the need for life insurance protection when you were single, it becomes important when you marry. Once married, you may find yourself with a spouse and/or children who are financially dependent on you. If you do not have life insurance, you will want to have a policy in place in order to make sure that your family's financial needs will be taken care of when you die. If you already have a life insurance policy, you should reevaluate the adequacy of your existing coverage.

How much life insurance do you need?

You should have enough life insurance to enable your family to continue the lifestyle they were accustomed to before your death. If you have children, you may want to make sure that your children's college education bills will be paid. At the very least, you will want to ensure that your family will be able to pay for burial expenses and pay off any of your debts. You can purchase the amount of protection that you need from either a term or cash-value policy. While both policies provide your beneficiaries with benefits at your death, they contain important differences. Term insurance provides you with pure death-benefit protection. In other words, if you die while the policy is in effect, the insurance company pays your beneficiary, and the policy does not build any cash value. Since term insurance is low cost, based on age, it is an attractive form of life insurance when you are younger and have minimal cash flow.

Although low-cost term insurance may have provided you with sufficient life insurance protection in the past, it does not provide you with the same type of benefits that come with the more costly cash value insurance. Cash value insurance provides you with protection besides serving as a savings vehicle. Although it is more expensive than term insurance, cash value insurance can be a useful financial tool for a married couple since it builds up cash value over time. The cash value can then help you fund long-term goals, such as buying a house, funding a child's college education, or providing you with savings for retirement.

Tip: When you reevaluate the adequacy of your existing coverage, you should keep in mind whether or not you and your spouse intend to start a family in the near future.

Tip: In addition to making sure you have adequate life insurance protection, you should examine the beneficiary designations on your current policies, and make sure that they are up to date.

Disability insurance

In general

While life insurance ensures that your family is financially provided for at your death, disability insurance provides your family with income if you are unable to work as a result of a serious illness or injury. Disability insurance is a necessity if you have a family that depends on you for financial support. Although disability coverage can be expensive, depending on your age and the type of work that you do, it allows you to insure your most valuable asset: the ability to earn an income.

Tip: You should consider disability insurance even if your household has two wage earners since most dual-income families have expenses that rely on both incomes.

How much disability insurance do you need?

Generally, you should have enough disability coverage to ensure that you could continue to maintain your current lifestyle if you became sick or injured and could not work for a lengthy period of time. While most insurance companies won't insure you for your entire salary amount, you should look for a policy that provides benefits that replace at least 60 percent of your income. Benefits are received free of income tax for a policy that is paid for by the insured with after tax dollars.

Other types of insurance

Automobile insurance

Chances are that both you and your spouse own separate cars. If you each also have separate auto insurance carriers, you may want to pool your auto insurance with one company. Many insurance companies will give you a discount if you insure more than one car with them.

Homeowners/renters insurance

Whether you and your spouse own or rent a home, you need insurance to protect yourself against either the loss of your property or claims against you if someone injures him/herself on your property. If you already own a home, you may need to add your spouse's name to the policy. Consider having the same insurance company provide coverage for your home or apartment and your car. Many insurers will give you a discount if you carry more than one type of policy with their company.

CornerStone Financial

Whether your nest-egg is worth millions or thousands,

You and your family deserve it more than the government....

Contact:

Eric Tuttobene

President/CEO

CornerStone Financial

(615) 427-8780

IMPORTANT DISCLOSURES

The information presented here is not specific to any individual's personal circumstances.

Insurance Issues That Concern Unmarried Couples

Insurance Issues That Concern Unmarried Couples

What insurance issues concern unmarried couples?

In general

Although having adequate insurance is important for most couples, unmarried couples should particularly consider how life and health insurance can help them address the unique concerns they face.

Caution: State insurance laws vary--an insurance professional in your state can give you more information about state laws that may affect your insurance coverage.

Life insurance

Because you're not married, you're ineligible for many of the benefits the government, employers, and the tax code confer on married partners. Life insurance can provide a vehicle to address these concerns. It can replace income after the death of your partner, provide cash to pay potential estate taxes, and provide funds that avoid probate.

Health insurance

Health insurance may be an issue if your employer offers coverage under a domestic partner benefits plan. The value of coverage provided to your unmarried partner is taxable to you as income, unless your partner qualifies as a spouse under local law or a dependent under federal tax law.

Life insurance provides a vehicle to address special concerns of unmarried couples

Because you're not married, you're ineligible for many of the benefits the government, employers, and the tax code confer on married partners. For example, Social Security and defined benefit pension plans don't replace income for your partner after your death, as they do for a spouse. Tax laws don't shelter your estate, as they do for a married couple. However, life insurance can provide a vehicle to address these concerns.

Life insurance provides replacement income after a partner's death

As the surviving partner in an unmarried couple, you may face a greater financial burden in maintaining your standard of living after the death of your partner than does a surviving spouse. You may not be eligible to receive income from many sources that a spouse might, or you may receive only limited benefits.

Social Security does not pay survivor's benefits to unmarried partners. While you may be eligible to receive Social Security based on your own earnings, or that of a deceased former spouse or ex-spouse, you can't receive benefits based on your unmarried partner's record. In addition, defined benefit pension plans typically don't automatically offer benefits to a nonspousal beneficiary. A spouse, in contrast, is legally entitled to benefits under certain plans unless he or she waives that right.

Caution: You can receive distributions from qualified retirement plans, such as 401(k)s, 403(b)s, and individual retirement accounts (IRAs), provided your partner has named you as the beneficiary. However, spouses generally have more options when it comes to distributing or rolling over retirement funds--this presents a potential tax disadvantage for nonspouse beneficiaries. Life insurance provides replacement income to your partner. You can structure this by cross-owning life insurance policies or by purchasing an individual policy with your partner as the beneficiary.

• Cross-owning life insurance policies--You each buy a policy on the other's life. At your partner's death, you collect the policy's death benefit and invest the proceeds to produce the income you need. Because your partner did not own the policy, the proceeds will not be included in his or her estate for federal gift and estate tax purposes. However, the value of the policy your partner owns on your life is includable in your partner's estate for federal gift and estate tax purposes.

Example(s): Shawn and Max are an unmarried couple. They each buy a life insurance policy on the other. When Shawn died, Max invested the proceeds and now lives off the interest. Because Max owned the policy, the proceeds paid upon Shawn's death were not included in Shawn's estate and were not subject to federal gift and estate tax when he died. However, the value of the policy Shawn owned on Max's life was included in Shawn's estate for federal gift and estate tax purposes.

You may need to demonstrate an insurable interest to purchase life insurance on each other. Married couples are assumed to have an insurable interest. Couples who own a house or business together are also considered to have an insurable interest, although only up to the value of their shares of the mortgage or business. You can prove insurable interest by providing evidence of jointly owned assets and, possibly, copies of your wills or trust documents.

• Individual policy--You own your own policy, naming your partner as beneficiary.

Caution: Because you own the policy, it is includable in your estate when you die for federal gift and estate tax purposes. Any amount over the applicable exclusion amount may be subject to the tax.

Example(s): Shawn owned a policy, naming Max as the beneficiary. When Shawn died in 2014, the proceeds of the policy were includable in his estate. If Shawn's taxable estate exceeded the applicable exclusion amount (in this case, $5,340,000), the excess would be subject to gift and estate tax beginning at a rate of 18 percent up to 35 percent. The potential tax liability on Shawn's estate (which includes the value of life insurance he owned at his death, could have significantly cut into the amount available to Max.

Life insurance provides cash to replace wealth lost due to transfer taxes

Federal tax laws permit every individual to leave an estate worth up to the amount of the applicable exclusion amount. Any amount over that limit is taxed at rates that range from 18 percent to 35 percent. Some states also impose their own transfer taxes.

Married couples, however, enjoy a special tax break called the unlimited marital deduction. This allows them to transfer as much as they want to each other free of federal gift and estate tax (though any amount so transferred may be taxed on the death of the second spouse). Because you are not entitled to the unlimited marital deduction, anything you leave your partner above the applicable exclusion amount may be subject to federal gift and estate tax. Some states also impose their own transfer taxes. Life insurance provides a way to replace the wealth lost due to transfer taxes. You can structure this through an irrevocable trust, or you can cross-own life insurance policies.

• Create an irrevocable trust--You set up a trust, managed by a trustee, that buys and owns a life insurance policy on your life. You provide funds to the trust to pay the premiums.

Tip: Because the trust owns the policy, the proceeds are kept out of your gross estate for federal gift and estate tax purposes.

Caution: You can transfer an existing policy to the trust, but if you die within three years of the transfer, the value of the policy will be includable in your gross estate for federal gift and estate tax purposes. An irrevocable trust must be set up carefully to avoid adverse tax consequences. It can be costly to set up, and, as its name implies, it cannot be revoked once it's been established.

• Cross-own life insurance policies--You each buy a policy on the other's life to cover potential transfer taxes. Because your partner does not own the policy, the cash value at the date of death is not includable in his or her estate for federal gift and estate tax purposes. However, the value of the policy your partner owns on your life is includable in your partner's estate for tax purposes.

Example(s): Sydney and Rudy are an unmarried couple and the beneficiaries of each other's estate. They each buy a life insurance policy on the other. When Rudy dies, the policy Sydney owned on Rudy's life pays death proceeds to Rudy, the policy's beneficiary. Rudy can use the life insurance proceeds to replace estate wealth lost due to transfer taxes.

Life insurance proceeds avoid probate

If a beneficiary other than your executor or estate is named, life insurance proceeds don't go through probate. Because of this, life insurance offers a way to provide for your unmarried partner without the complications of a will. Some of the advantages of avoiding probate are: (1) the funds are immediately available at death and (2) the distribution is not as likely as a will to be contested by relatives who may disapprove of your relationship.

Health insurance issues

Domestic partner benefits are taxable

Health insurance may be an issue if you're eligible for coverage under your partner's domestic partner benefits plan. A growing number of employers now offer benefits to the unmarried partners of employees. Often, the most important benefit is health insurance. However, on the federal level (but not in all states), the value of coverage provided to your unmarried partner often is taxable to you as income.

Caution: Because domestic partner benefits raise your taxable income, they may also increase your Social Security, Medicare, and state taxes.

Weighing costs versus benefits of domestic partner health coverage

If your employer offers health insurance to your unmarried partner, you may want to do a cost/benefit analysis before signing up. First, estimate the annual cost by adding the out-of-pocket cost to the additional taxes. Second, weigh this against the benefits of the policy to determine if this is a good deal for you and your partner.

Example(s): Pat and Terry are domestic partners. Pat works, while Terry rears the children. When Pat's employer, BigCo, Inc., begins offering health benefits to domestic partners, Terry considers signing up. Being a savvy couple, Pat and Terry calculate a rough estimate of the total annual cost before making a decision.

(*Pat's tax rate is 28%; yours may differ)

Example(s): Pat and Terry now see that the true cost of Terry's health insurance is $1,026 per year (the out-of-pocket cost plus the taxes), not $690. After examining the plan and feeling satisfied with its coverage, and knowing he can't get a better deal purchasing insurance elsewhere, Terry decides to enroll despite the additional tax. However, if Terry can purchase acceptable insurance on his own for less than $1,026 per year, or if the plan offers only limited or poor coverage, Terry may decline enrollment and search for coverage elsewhere.

Comparing costs of coverage under a domestic partner benefits plan to your own employer's plan

Another situation you may face is that your employer offers health insurance and your partner's employer offers domestic partner benefits. How do you know which is the better deal to take? In this case, compare the annual cost of each plan before selecting coverage. You may find that the additional tax on the domestic partner coverage outweighs the benefits.

Example(s): Terry returns to work at Ace Company, which provides health benefits. Terry compares the annual cost of health benefits at Ace to the yearly cost under Pat's domestic partner benefits plan at BigCo as follows:

Total annual savings under Ace's plan: $1,026 - $890 = $136

Example(s): Even though Terry's annual premiums are higher at Ace Company ($800 compared to $600), the total yearly cost is $136 lower because he and Pat avoid paying the tax on the domestic partner benefits. Since the coverage under both plans is comparable, it's a better deal for Terry to enroll in Ace's plan.

Enrollment and continuation of coverage concerns

Before enrolling for domestic partner health insurance, especially if you also have the option of signing up for coverage through your own employer, ask whether the Consolidated Omnibus Budget Reconciliation Act (COBRA) applies to your coverage. This may vary by insurer.

If you decline coverage now, you may be able to enroll during the next open enrollment period. Check with the employer providing the coverage.

CornerStone Financial

Whether your nest-egg is worth millions or thousands,

You and your family deserve it more than the government....

Contact:

Eric Tuttobene

President/CEO

CornerStone Financial

(615) 427-8780

IMPORTANT DISCLOSURES

The information presented here is not specific to any individual's personal circumstances.

Life Insurance for the Self-Employed

Life Insurance for the Self-Employed

If you're like most people, you bought life insurance to provide for your loved ones in the event of your death. But because you're self-employed, you may have an even greater need for life insurance: You'll want to protect your family after you die, as well as protect the financial needs of your business.

Why life insurance is important

As long as you are alive and healthy, your income-producing capability is relatively secure, and you and your family can enjoy the lifestyle you have established. If you were to die, however, your family could face hard economic times. Your family's financial needs may include:

•Final expenses, such as burial and funeral costs

•Unpaid medical bills

•Income replacement

•Mortgage balance

•Debt repayment (credit cards)

•Education fund for children

•Emergency expenses

Why life insurance may be even more important when you're self-employed

As a sole proprietor, you are personally liable for all of the debts of your business. Legally, there is no difference between personal and business assets. By definition, a sole proprietorship ends when the owner dies. So, any losses or financial obligations at your death become the responsibility of your estate. It is possible that personal assets may have to be sold or transferred to pay off business debts. Business debts may include:

•Business loans

•Mortgage or lease payments on business location

•Payments due to suppliers, vendors, consultants, employees, and so on

•Taxes due to local, state, and federal taxing authorities

•Fees to lawyers, accountants, and other advisors to settle business affairs

Life insurance can be used to cover these debts, as well as to provide for the ongoing needs of your family after your death.

What to do about it

Ask your financial professional or insurance representative to help you assess your need for life insurance and design a program to fit your needs.

CornerStone Financial

Whether your nest-egg is worth millions or thousands,

You and your family deserve it more than the government....

Contact:

Eric Tuttobene

President/CEO

CornerStone Financial

(615) 427-8780