College Funding – Paying for Your Child’s Education

The potential to earn a decent living is greatly enhanced by earning a bachelors degree or higher. Those who have it will most likely flourish and those who don’t…

To attend an in-state public college for the 2012-13 academic year, the average overall cost (or “sticker price”) for students who don’t receive any financial aid rose 3.8% to a record $22,261, according to a October 2012 college board report. Tuition accounted for about half of that increase. Public university tuition and fees alone rose 4.8% to $8,655. In addition, higher dorm, cafeteria, books and other expenses added significantly to the overall increase.

Over the years college tuition costs have grown to new heights.

While about two-thirds of full-time students receive grants or federal tax breaks, many are likely to have to foot more of the bill themselves.

What parent wouldn’t want to see “PAID IN FULL” stamped across their child’s college tuition bill? An insurance professional can help you plan for your child’s education expenses.

College costs are on the rise and are expected to continue climbing. For instance, for a baby born today, the costs will be more than three times current rates when they enroll in college.1

Life Insurance Can be Key
Life insurance can be vital in helping fund your child’s education – whether you’re there or not. Life insurance offers certain tax advantages. In the event of your death, your family can choose to use the income tax-free death benefit to pay education costs. And with some types of life insurance, you can take loans against your policy without tax penalties.2

Be sure to take into account these additional features that may be available with certain types of life insurance:

• Guaranteed cash value, so you know a certain amount of money is available
• Access to your money, so you can use it for tuition and other educational expenses
• Premium waivers due to disability 3

Does Insurance Count as an Asset on Financial Aid?
Cash-value life insurance does not affect federal financial aid eligibility.
Financial aid is available for students who demonstrate financial need in the form of federal Pell grants. Qualifications for financial aid depend not only on household income, but financial assets as well. The U.S. Department of Education considers most cash, savings and investments as assets, but insurance policies typically have no influence on financial aid eligibility.

Insurance policies do not count as assets for federal financial aid purposes even if they carry cash value. While term life insurance, health insurance and other insurance policies usually have no cash value, many whole life insurance policies gain value over time. Policy-owners gain cash value in these types of insurance policies, but regardless of the ‘cash-in’ value of a permanent life insurance plan, insurance policies are not countable assets with regard to federal financial aid.

Considering Term vs. Permanent Insurance
If you simply need to pay for your child’s college expenses in the event of your unexpected death, consider term life insurance. Choose the length of time you need coverage and the amount of death benefit you need.

Talk with your AIPS financial representative about how you may be able to use permanent life insurance to help with college expenses. You may be able to take withdrawals or loans against the policy’s cash value, which can continue to grow tax-deferred.

1 U.S. Bureau of Labor Statistics and FinAid.org

2 Assumes the contract qualifies as life insurance under section 7702 of the Internal Revenue Code (IRC) and is not a modified endowment contract (MEC) under section 7702A. Most distributions are taxed on a first-in/first-out basis as long as the contract meets non-MEC definitions under section 7702A. Loans and partial withdrawals from a MEC will generally be taxable and, if taken prior to age 59½, may be subject to a 10% tax penalty.

3 Disability waiver of premium qualification is not guaranteed and is subject to availability by carrier. The waiver of premium rider may be included in any life insurance policy you choose to purchase. It simply states that in the event you become disabled while you own your policy…as long as you are disabled for a minimum of 6 months…the life insurance company will waive your premiums for as long as your disability continues or in some cases to age 65.

Feel welcome to contact us for a complimentary review of your personal situation. AIPS does not provide legal or tax advice, please consult your tax and legal advisors regarding your individual situation.

Posted by Troy Barrow, LUTCF – Troy is an independent Agent practicing professionally for six years and is the owner of Arlington Insurance Planning Services, licensed in the States of New York and New Jersey. You may contact Troy at 646 580-5189 or tbarrow@aipsny.com.

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Planning for Special Needs Dependents…How to continue your Love & Care

A Special Needs Trust

Parenting is a tough job. But if you’re a parent of one of the six million school-age disabled children in the U.S. today,[1] you know that job can be even more challenging, especially financially. Costs often include special residential homes, employment assistance, and more. And these are typically ongoing expenses for you and your family.

Help from the Fed

If you’re a parent or caregiver for a disabled loved one, you can help meet expenses and ensure quality care through two primary government programs designed to meet your unique needs: Supplement Security Income (SSI) and Medicaid. SSI provides cash benefits to help you pay for a loved one’s food, shelter and clothing. SSI also automatically makes your loved one eligible (and, in some states, qualified) for Medicaid. Through SSI your disabled loved one may be eligible for other benefits as well, depending on what state you live in. Medicaid provides comprehensive coverage for medical care, physical therapists, social programs, and rehabilitative and custodial services.

However, the government puts conditions on any benefits you receive: efforts may not be duplicated. Government money is provided on an “as-needed” basis. If your disabled loved one receives outside funding for covered services, government support is reduced. Therefore, you may be limited in what you can “spend” on – or leave to – your loved one.

Supplementing Federal Support

That’s why you may want to consider creating a Special Needs Trust. Trusts can offer you a way to help meet ongoing needs and supplement basics without affecting a loved one’s eligibility for government funding. A Special Needs Trust can also help provide continued care if you pass away.

Federal programs provide “health, shelter, and support” and, as mentioned, cannot be duplicated. However, a Special Needs Trust is designed to supplement care, not replace already provided services, and can help pay for additional medical therapies, education, transportation, and other extras that can add to the quality of life your loved one enjoys.

If you’re a parent creating a trust, you can also use these savings to supplement the needs of non-disabled, minor children.

Securing Your Trust

You should consult an attorney to find out how a Special Needs Trust works and questions you may need to address. You may want to evaluate some of these basic parameters to help create a trust that will work for you:

• Is your main consideration estate exclusion (no control over trust assets) or current income needs (maintaining control of the assets)?
• What is the average cost of supplemental needs?
• What level of support must you provide for other family members?
• Who should be your trustee(s)?
• What limits should be placed on a trustee’s ability to withdraw funds?
• Should funds be withdrawn on an “as-needed” basis or distributed on a schedule?
• What funding vehicles should be used?

Funding a Trust

The funding vehicle you select for your Special Needs Trust is critical. Investments or other financial resources may multiply the value of your trust fund. However, fluctuating markets and tax laws may impact the value of your savings and, by extension, the funds available for your loved one.

If you’re concerned about such funding vehicle, life insurance may be an option for you. Both permanent whole life and universal life, which offers a flexible face amount and adjustable premiums, can be used to fund your trust. Life insurance can provide a guaranteed death benefit as well as other advantages, dincluding cash value accumulation opportunities, and the ability to access cash value through loans to help meet expenses.[2] Also, the face amount of your policy is often greater than the premium cost, so the amount your loved one, as beneficiary, receives could be multiplied.

Life Insurance and a Trust: How it Works

To fund a trust with life insurance, funds need to be gifted to the trust. Gifting money to the trust allows it to purchase a life insurance policy and name itself as beneficiary. If you have an existing permanent policy, this can be used as well, by transferring ownership of the policy to the trust. This ownership arrangement prevents your special needs loved one from having direct control over the funds, eliminating the risk of losing government benefits while premium payments help create cash value for the trust, and for your loved one’s benefit.

Two Types of Trusts

Depending on your age and financial situation, or that of the person establishing the trust, there are two types of Special Needs Trusts: testamentary and inter-vivos.

• Testamentary Trust: For older parents or long-term caregivers, or for anyone looking to create a bequest to a special needs beneficiary upon his/her death, a testamentary Special Needs Trust, established through a will, may be suitable. At the grantor’s death, a trust is created based on terms specified in the will. The trust receives proceeds from any life insurance policies and all other indicated assets and offers a secure way to lock in a lump-sum for your disabled loved one’s continued care.
• Inter-vivos (Living) Trust: If you and the disabled individual are both fairly young, an inter-vivos trust may be appropriate. You can access funds in an inter-vivos trust to help supplement expenses while you’re still living—and at the same time, create savings for the future.

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[1] NEA: National Education Association, Great Public Schools for Every Child, “Special Education and the Individuals with Disabilities Education Act,” see http://www.nea.org.

[2] Loans and withdrawals reduce any available policy cash values. In addition, loans against a policy accrue interest at the current rate and decrease the death benefit by the amount of the outstanding loan and interest.

Data and information is provided for informational purposes only, and is not intended for solicitation or trading purposes. Please consult your tax and legal advisors regarding your individual situation.

Posted by Troy Barrow, LUTCF – Troy is an independent Agent practicing professionally for six years and is the owner of Arlington Insurance Planning Services, licensed in the States of New York and New Jersey. You may contact Troy at 646 580-5189 or tbarrow@aipsny.com.

Small Business Owner/ Risk Officer – One of the Same! Part 2

In Part 1 we spoke about the importance of planning for the loss of a key employee from the business, making certain the employee/s responsible for profitability can be replaced due to unexpected loss due to death or disability.

In Part 2 we are going to look into what happens with a partnership if there’s an unexpected loss of one of the partners, how is he operation going to continue? Enter The Buy Sell Agreement.

A buy–sell agreement, also known as a buyout agreement, is a legally binding agreement between co-owners of a business that governs the situation if a co-owner dies or is otherwise forced to leave the business, or chooses to leave the business.

Business owners operating as a partnership and are concerned about how the death or disability of a co-owner might affect its operation, a funded buy-sell agreement can help by ensuring that you will be able to purchase your partner’s share, eliminating any doubts about the continuation of the business. You can also avoid the dilemma of being in business with your partner’s survivors, whom may not have the same goals for the future of the business or may not be willing or capable to be productive towards profitability, but always happy to access the business acccount. The funds provided as a result of the proactive planning in a buy–sell agreement, between co-owners of a business can provide a benefit for the deceased partner’s family. The benefit from their point of view, is that of course they may be able to be qiuckly compensated with much needed cash to pay off debt, or to ensure the continuation of the family’s standard of living.

There are also costs and possible disadvantages involved in establishing a buy-sell agreement. One such disadvantage is that the agreement typically limits your freedom to sell the business to outside parties. If you think that a buy-sell agreement might benefit you and your business, consult your attorney and financial professional about the pros and cons of setting one up.

Information provided has been prepared from sources and data we believe to be accurate, but we make no representation as to its accuracy or completeness. Data and information is provided for informational purposes only, and is not intended for solicitation or trading purposes. Please consult your tax and legal advisors regarding your individual situation.

Human Capital…What’s Your Plan?

The ‘Bread Winners’ for most families go into the world every day with one particular objective; accomplish your goals to provide for your family. Your income is imperative to the current and future success of your family, short term needs like food & utilities to long term goals such as college funding for your children and retirement.

How often to you think about your true financial value to your household? Or your ‘Human Capital’ value? We consider Human Capital to be the future value of your present income or for example, your income ($100,000) x future need (20 years) or $2,000,000.

Having a plan to make sure your family’s income need can be replaced or provided if you the ‘bread winner’ can’t continue to provide it, due to loss of life or disability is very important to say the least.

As well having an ‘Emergency Fund’ established for short term ‘Human Capital’ needs is vital, and in some cases both short & long term needs can be handled with one solution.
 
Be proactive and establish or review your plan today to make certain your family’s future can be bright & successful regardless of the risks or hazards that life has in store.

– Troy Barrow, LUTCF is an independent Agent practicing professionally for six years and is the owner of Arlington Insurance Planning Services, licensed in the States of New York and New Jersey. You may contact Troy at 646 580-5189 or tbarrow@aipsny.com.