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Accounting and Tax Preparation
As an Accountant Tax Consultant, Ceil Oberlander is licensed to represent taxpayers before the Internal Revenue Service. She has been a member of the National Association of Enrolled Agents since 1981. Her success in building and growing her own tax practice was developed by helping many insurance agents and brokers to think like entrepreneurs. She has advised many individuals on how to make intelligent business and tax planning decisions, ultimately leading to their success. Her services include record-keeping, income tax filings, financial statements and tax compliance.

As Chief Financial Officer at Oberlander Dorfman Inc., she is able to apply a dual role of individual and corporate tax consulting. Her main focus is on insurance and financially-related business owners, which serve as a vehicle to make her clients successful.

Annuities

The annuity is basically the exact opposite of life insurance. While proceeds of life insurance are paid at the time of death of the insured, the proceeds of an annuity are paid while the annuitant is alive. Generally, the annuitant can never outlive the income from the annuity. However, you can also purchase an annuity, certain which will provide income only for a specified period of time. Annuities are primarily intended to provide a source of retirement income. Payments can made to the annuitant monthly, quarterly, semiannually or annually. While there are many types of annuity products available, they can be classified into three general categories: single premium immediate payment annuities, deferred annuities and variable annuities. Both the deferred and variable types are available on a single premium or flexible premium basis.

Single Premium Immediate Annuities With this type of annuity, you pay a single premium, and immediately receive payments, usually in monthly installments, as long as you live. Since payments cease upon your death you might consider the purchase of a life annuity with a guaranteed payment period, known as a life annuity with period certain. If your guaranteed payment period is ten years, and you die before collecting for ten years, your beneficiary would continue to receive the annuity payments until the end of the period.

Another variation is the cash refund life annuity which provides that if you have not received installment benefits equal to the original premium payment before your death, the balance would be payable to your beneficiary in a lump sum payment. The installment life refund option would continue until the total to both you and the beneficiary equals the original premium payment.

Another common version is the joint and survivor life annuity, which provides for installment payments as long as one of the joint annuitants remains alive. For example, a married couple would receive an income as long as both spouses are alive. Thereafter, payments would continue as long as the surviving spouse is alive, usually for a smaller amount. This type of policy is well suited for a husband and wife in that it guarantees the surviving spouse an income for life.

A Joint Life Annuity is one in which income payments continue until the death of the first of two or more annuitants. This type of annuity is not appropriate for a husband and wife since at the death of the first spouse income payments cease. The monthly benefit is greater than with other annuities since income payments cease at the first death.

Deferred Annuities (Single Premium and Flexible Premium) Under a deferred annuity, premiums paid accumulate, earning interest, and installment payments are deferred until some future date. When annuity benefits commence, the accumulated value is used to purchase the annuity benefits you selected. Most deferred annuities provide the same annuity payment options as are available with single premium immediate annuities. Deferred annuities are available on a single premium or flexible premium basis. Interest is credited to the accumulation value from the date that the premium payment is received until the earliest of the retirement date, the annuitant’s death or the date that funds are withdrawn.

If the annuitant dies on or before the retirement date and no annuity payments have been made, the company will pay the accumulated value as of the date of death. The contract also gives the option to withdraw the cash value before commencement of annuity payments. Cash withdrawals are usually subject to a surrender charge in order to recover expense costs. Most contracts provide a free annual withdrawal of 10% of the cash value without a surrender charge. In addition, some contracts, especially single premium deferred annuities, will waive all surrender charges if the credited interest rate falls below a particular rate commonly known as the bail-out rate.

Variable Annuities Variable annuity premiums are invested in stocks, bonds, money market instruments, mutual funds and real estate. The cash value is not guaranteed and it will increase or decrease in direct proportion with investment results. You can choose your own investment strategy and you bear the entire investment risk. Some contracts provide an additional guaranteed cash value investment option similar to deferred annuities.

Variable contracts are available on either a single premium or flexible premium basis. You may elect an annuity payout option with guaranteed payments similar to options offered with deferred annuities. You may select a payout option where the amount of your income will increase or decrease based on investment experience.

Cash or Deferred Retirement Plan: 401(k).
The IRC Sec. 401(k) Plan, a.k.a. a cash or deferred plan, is a stock bonus plan or profit sharing plan which meets certain participation requirements of IRC Section 401(k). With this plan, an employee can agree to a salary reduction or to defer a bonus that is forthcoming.

Below are some specifications and benefits of the plan for employers:

401(k) Plans are available to any size company, whether or not the company has another plan.
Employer contributions are optional, except for Top Heavy Plans.
Employer can make matching and/or profit sharing contributions.
Contributions are tax deductible.
Employers are permitted to use Vesting Schedule.

Charitable Bequests
Gifts to charities may be either a current gift of cash or assets, or a deferred gift through the use of a trust. Either may be structured to benefit multiple parties - a charitable/non-profit organization and the donor, the donor's heirs or estate, or others of the donors choosing. Because of the tax favored status of gifts to charity, potential tax savings, when added to the economic benefit of a strategy, can create a total concept benefit derived from a non-charitable alternative. This is best for people with estates large enough to be able to gift assets without jeopardizing their future standard of living, or for those whose income may support a portion being diverted to the use of one of these strategies.

College Planning

Section 529 savings plans and Education Savings Accounts offer federal tax-free education investing as long as the money is spent on qualified education expenses such as tuition, fees, books, and sometimes room and board. Section 529 plans can be used for post-secondary education (college and graduate or professional school), while ESA's can also be used for primary and secondary education expenses.

Critical Illness IInsurance: Critical Illness Insurance provides a 100% lump sum benefit in the event that you suffer a serious and usually life threatening illness. The benefit is payable on the diagnosis of certain major medical conditions such as a heart attack, cancer, stroke, organ transplantation, and a whole host of other conditions.

Have you considered how you would cope if you were struck down by a heart attack, stroke or life-threatening cancer? Some individuals will be fortunate enough to receive sick pay from their employer for a while, but what happens when that runs out? Not only will you have a serious illness, but you will also have the additional worry of working out how to pay the mortgage and other bills.

The advantage of critical illness coverage is that you will be paid a lump sum on diagnosis - when it may be most needed - rather than after death.

The lump sum can be used to pay off debts, provide special care, or wheelchair access if required, giving you peace of mind and time to concentrate on recovery.

Critical illness policies are used in both individual and corporate situations. Members of the ODI staff would be happy to look your circumstances and answer any questions that might come up.

While it is new to the United States, consumers in other countries have embraced the idea wholeheartedly. Global studies of Critical Illness Insurance provide proof that is it a major seller in Canada, England, South Africa, Australia and other countries. Over 40 individual, worksite and group insurers are already selling it in the United States. Two compelling reasons are driving the trend to buy CI in the United States: health care and financial liquidity.

People are living longer, usually into their eighties. Baby Boomers have become very concerned with the financial aspects of living longer. Consumers are often fending for themselves in areas like managed health care, retirement and financial planning. Because of higher costs, employers are often shifting the burden of health insurance to their employees.

This is how it works...

Critical Illness coverage pays the face amount when the diagnosis occurs, regardless of whether or not the insured has died due to the critical illness diagnosed. This means that if your client purchased a $250,000 policy, and then has a heart attack or stroke, or is diagnosed with cancer, he or she will receive a check for $250,000. At that point, the policy terminates.

This coverage will provide income replacement need at death, while providing a back-up disability alternative income plan.

The payment of a Critical Diagnosis benefit will go a long way to cover expenses!

"Defined Benefit 412(i) Plan" is a special type of defined benefit pension plan, with three significant characteristics:

Fully Guaranteed Retirement Benefit
Must be funded with Insurance Contracts
Typically generates largest possible tax deduction
Defined Benefit 412(i) Plans allow deductible contributions in excess of 25% of compensation.

412(i) Plans are ideally suited for the small business employer (6 or less employees) who was unable to save in the early years and now, with stable future business profits, desires to put away a very large, tax deductible contribution. In addition to providing funding for future retirement income, tax deductible 412(i) contributions reduce current taxable income and increases tax deductions. Self employed individuals, with expectations of stable future income, may find the features of the 412(i) attractive.

Dental Insurance
A group Health Insurance contract that provides payment for certain enumerated dental services.

Disability Income Insurance
A form of health insurance that provides periodic payments to replace a person’s income, when the he or she is unable to work as a result of sickness or injury.

Disability Statistics
Disability insurance is an extremely important coverage to own. Having good medical insurance allows you to avoid bankruptcy if you have a large medical claim. However, paying the medical bills may not be enough! If your accident or illness leaves you disabled, your income will probably stop. Yet, you still must pay for food, utilities, the mortgage and other living expenses. Maybe your income is also necessary to help raise children. Unless you are wealthy enough that you do not need to work, disability insurance is essential! Here are a few important statistics on disability:

Between ages 35 and 65, seven out of ten people will become disabled for three months or longer.*

1 out of 7 employees will be disabled for 5 years or more before retirement.*

At age 32, a disability of three months or longer is six times more likely than death.*

In recent years, 7 out of 10 claims for Social Security disability benefits were initially refused.**

*Commissioner's Disability Table
**Senate Finance Committee

Group Disability Insurance
Coverage provided for a group of individuals for loss of compensation due to accident or sickness.

Long-Term Disability Insurance
A group or individual policy that provides coverage for longer than a short term, often until the insured reaches age 65 in the case of illness, and for the remainder of his lifetime in the case of an injury.

Employee Benefits
Like most businesses, you want to provide security for your employees. This means making sure your work force has the benefit coverage it needs. As am employer, you need a comprehensive benefit package to attract and keep the kind of employees that make your company successful. Since you need to keep costs in check, you must find a high-quality, cost effective benefit package. Simple day-to-day benefit plan administrative is also critical.

ODI can help you put together a quality plan to meet your needs. Our group health-related products include HMO, POS and PPO plans, dental and vision programs Income-related benefits can include 401(k) savings plans, Executive Tax-deferred plans, IRA's, Group Term Life, Optional Term Life, Short and Long-term Disability insurance, and Flexible Benefits (Section 125/129 plans) accounts. For further details of these products, click on the links of our Product page.

Executive Bonus Plans (sometimes referred to as Section 162 Bonus plans) are a common way of providing non-qualified benefits to executives. These plans are simple to setup and administer, and provide tax savings to the corporation along with a valuable retirement benefit for selected executives.

How it works: The employee applies for, owns, and names the beneficiary for a permanent life insurance contract.
The premiums for the policy are provided through a bonus arrangement from the employer. The employer either pays the premium directly to the insurer, or gives the amount necessary to pay the premium to the employee.

The employer is allowed to take a tax deduction for the premium that is bonused to the employee.

The employee pays tax on the amount of the premium "bonus". The employer can also give the employee the money for this tax due - this is called a "gross-up."

The employee can use the policy as he or she desires - for retirement income or simply death benefit protection. At the time that the employee retires or leaves the company, the policy is taken with them, with no strings attached.

Advantages to the Employer:

Tax deductible
Simple to implement
May be discriminatory
No regulatory approval needed to implement or terminate
No vesting requirement
Amounts of bonus and coverage for employees can differ
No limit on individual benefit (subject to bonus being "reasonable compensation")
Provides incentive to attract and retain executives

Advantages to Employee:

Tax deferred accumulation
No penalties for early withdrawal of funds
Little or no out-of-pocket expense
Tax-free death benefit for family
Total flexibility on distribution of funds
Cash values can be used to supplement a retirement plan or for any savings goal
Cash accumulation is not subject to business creditors

FLiPs, or Family Limited Partnerships, are one of the most talked about but seldom seen wealth transfer strategies. FLiPs are designed to reduce the value of your estate (for estate tax purposes) while allowing you to maintain full control of investments and assets inside the Partnership. In the early 1980's, Limited Partnerships were sold left and right. Less than a decade later, the popularity of Limited Partnerships had plummeted, as investors disappointed by little or no growth of Partnership assets had difficulty getting their money out. The same features that made Limited Partnerships unattractive as investments make Family Limited Partnerships very attractive for estate planning purposes.

FLiPs are setup much like traditional limited partnerships. There are two parties involved: "General Partners" which control the trust, and "Limited Partners" who have a share in the profits (but hold not control).

The General Partners (you and/or a spouse) design the partnership to gift Limited Partner shares to family members. General Partners control the operations of the FLiP and make day-to-day investment decisions. They can also receive a percentage of the FLiP's income in the form of a management fee.

Limited Partners (your heirs) have an ownership interest in the FLiP, but they have very limited control. They share in the income generated by the FLiP, depending on how many shares of the FLiP they own. But, as far as control goes, they have almost no say. When the FLiP is dissolved, a proportionate amount of FLiP property will pass to each Limited Partner.
How it works:
1. The business is converted to Limited Partner and General Partner shares.

2. You maintain control by keeping General Partner shares.

3. Use your annual gift exclusion of $11,000 to gift away Limited Partner shares to your family and heirs.

GREIT Plan (Guaranteed Reduction in Estate and Income Taxes)
Non-qualified deferred compensation is a popular and valuable benefit, but it has some unappealing aspects. Prior to payout, the employer must carry the obligation to pay future compensation to the employee as a liability on the company's books. When paid at retirement the benefits are deductible to the employer, but are taxable as income to the executive. Assets that are informally earmarked to fund the benefits are always subject to the claims of company creditors. The employer must administer the plan as long as payments are made to the executive. When paid, the benefits are subject to attachment by the executive's creditors. Any unpaid payments at the time of the executive's death are usually includible in the taxable estate. The GREIT Plan allows an employer to provide benefits equivalent to those offered in a NQDC plan, but avoid these problems.

Group Health Insurance
Health Insurance coverage most often issued to a group of employees.

Different Types of Health Insurance Coverage

HMO
A health insurer that directly con-tracts with or employs a network of doctors, hospitals and other types of providers.
Managed Care
In general, managed care plans make arrangements with particular doctors, hospitals and other providers to deliver services. These providers make up a plan’s “network.”
POS
Combines an HMO with the flexibility of an out-of-network option. You can use providers in the plan’s net-work or go outside of the network.
PPO
Most similar to traditional fee-for-service coverage except has a net-work. When you use a provider in the network, your costs are lower and more services are covered.

Insurance Buying Services
ODI provides clients with top quality insurance products from the most highly rated carriers. Using the industry’s most advanced Internet-based capabilities, ODI's support staff covers all aspects of processing with multiple insurance companies. Offered are Whole, Universal, Term and Variable Life, Annuities, Long Term Care, Disability products and Group Health.

LIFE INSURANCE

TERM | PERMANENT | VARIABLE | OTHER COVERAGES

For the most part, there are two types of life insurance plans - either term or permanent plans or some combination of the two. Life insurers offer various forms of term plans and traditional life policies as well as "interest sensitive" products which have become more prevalent since the mid-1980’s . In New York State, the Insurance Department must approve any life insurance policy before a company can issue it to consumers. The New York Insurance Law provides for standard provisions that must be included in every policy.

TERM INSURANCE Term insurance provides protection for a specified period of time. This period could be as short as one year or provide coverage for a specific number of years such as 5, 10, 20 years or to a specified age as high as 80. Policies are sold with various premium guarantees. The longer the guarantee, the higher the initial premium. If you die during the term period, the company will pay the face amount of the policy to your beneficiary. If you live beyond the term period you had selected, no benefit is payable. As a rule, term policies offer a death benefit with no savings element or cash value.

Premiums are locked in for the specified period of time under the policy terms. The premiums you pay for term insurance are lower at the earlier ages as compared with the premiums you pay for permanent insurance, but term rates rise as you grow older. Term plans may be "convertible" to a permanent plan of insurance. The coverage can be "level" providing the same benefit until the policy expires or you can have "decreasing" coverage during the term period with the premiums remaining the same. If you do not pay the premium for your term insurance policy, it will generally lapse without cash value, as compared to a permanent type of policy that has a cash value component. Currently term insurance rates are very competitive and among the lowest historically experienced.

It should be noted that it is a widely held belief that term insurance is the least expensive pure life insurance coverage available. One needs to review the policy terms carefully to decide which term life options are suitable to meet your particular circumstances.

Types of Term Insurance:

Renewable Term. Renewable term plans give you the right to renew for another period when a term ends, regardless of the state of your health. With each new term the premium is increased. The right to renew the policy without evidence of insurability is an important advantage to you. Otherwise, the risk you take is that your health may deteriorate and you may be unable to obtain a policy at the same rates or even at all, leaving you and your beneficiaries without coverage.

Convertible Term Convertible term policies often permit you to exchange the policy for a permanent plan. You must exercise this option during the conversion period. The length of the conversion period will vary depending on the type of term policy purchased. If you convert within the prescribed period, you are not required to give any information about your health. The premium rate you pay on conversion is usually based on your "current attained age", which is your age on the conversion date. This type of policy often provides the maximum protection with the smallest amount of cash outlay.

Level or Decreasing Term Under a level term policy the face amount of the policy remains the same for the entire period. With decreasing term the face amount reduces over the period. The premium stays the same each year. Often such policies are sold as mortgage protection with the amount of insurance decreasing as the balance of the mortgage decreases. If the insured dies the proceeds of the policy can be used to pay off the mortgage.

Adjustable Premium Traditionally, insurers have not had the right to change premiums after the policy is sold. Since such policies may continue for many years, insurers must use conservative mortality, interest and expense rate estimates in the premium calculation. Adjustable premium insurance, however, allows insurers to offer insurance at lower "current" premiums based upon less conservative assumptions with the right to change these premiums in the future. The premium, however, can never be more than the maximum guaranteed premiums stated in the policy.

PERMANENT INSURANCE (Whole Life or Ordinary Life). While term insurance is designed to provide protection for a specified time period, permanent insurance is designed to provide coverage for your entire lifetime. To keep the premium rate level, the premium at the younger ages exceeds the actual cost of protection. This extra premium builds a reserve (cash value) which helps pay for the policy in later years as the cost of protection rises above the premium. Whole life policies stretch the cost of insurance over a longer period of time in order to level out the otherwise increasing cost of insurance. Under some policies, premiums are required to be paid for a set number of years. Under other policies, premiums are paid throughout the policyholder’s lifetime. The insurance company invests the excess premium dollars

This type of policy, which is sometimes called cash value life insurance, generates a savings element. Cash values are critical to a permanent life insurance policy. The size of the cash value build-up differs from company to company. Sometimes, there is no correlation between the size of the cash value and the premiums paid. It is the cash value of the policy that can be accessed while the policyholder is alive.

The Commissioners 1980 Standard Ordinary Mortality Table (CSO) is the current table used in calculating minimum non forfeiture values and policy reserves for ordinary life insurance policies. This table provides the minimum cash values that must be guaranteed in your policy.

The policy’s essential elements consist of the premium payable each year, the death benefits payable to the beneficiary and the cash surrender value the policyholder would receive if the policy is surrendered prior to death. You may make a loan against the cash value of the policy at a specified rate of interest or a variable rate of interest but such outstanding loans, if not repaid, will reduce the death benefit.

In 1984 a new federal tax law required that for permanent insurance to enjoy preferred tax treatment it must provide coverage up to at least age 95, limit the amount of premium that may be paid in relation to the face amount of coverage and establish a minimum ratio between cash value and face amount of insurance. Many permanent policies will contain provisions, which specify these tax requirements.

There are two basic categories of permanent insurance, traditional and interest-sensitive, each with a number of variations. In addition, each category is generally available in either fixed-dollar or variable form.

Traditional Whole Life Traditional whole life policies are based upon long-term estimates of expense, interest and mortality. The premiums, death benefits and cash values are stated in the policy. There are six basic variations of traditional permanent insurance:

Non-Participating Whole Life A non-participating whole life policy will give you a level premium and face amount during your entire life. The advantages of such a policy are its fixed costs and generally low out-of-pocket premium payments. The disadvantage is that it pays no dividends.

Participating Whole Life A participating whole life policy pays dividends. The dividends represent the favorable experience of the company and result from excess investment earnings, favorable mortality and expense savings. Dividends can be paid in cash, used to reduce premiums, left to accumulate at interest or used to purchase paid-up additional insurance. Dividends are not guaranteed.

Blended Whole Life An economatic whole life policy provides for a basic amount of participating whole life insurance with an additional supplemental coverage provided through the use of dividends. This additional insurance usually is a combination of decreasing term insurance and paid-up dividend additions. Eventually, the dividend additions should equal the original amount of supplemental coverage. However, because dividends may not be sufficient to purchase enough paid up additions at a future date, it is possible that at some future time there could be a substantial decrease in the amount of supplemental insurance coverage.

Single Premium Whole Life Single premium whole life is limited payment life where one large premium payment is made. The policy is fully paid up and no further premiums are required. Many such policies have substantial surrender charges if you want to cash in the policy during the first few years. Since a substantial payment is involved, it should be viewed as an investment-oriented product.

Interest in single premium life insurance is primarily due to the tax-deferred treatment of the build-up of its cash values. Taxes will be incurred on the gain, however, when you surrender the policy. You may borrow on the cash value of the policy, but remember that you may incur a substantial tax bill when you surrender, even if you have borrowed out all the cash value.

Interest Sensitive Whole Life While insurers guarantee stated benefits on traditional contracts far into the future based on long-term and overall company experience, they allocate investment earnings differently on interest sensitive whole life in order to better reflect current fluctuations in interest rates. The advantage is that improvements in interest rates will be reflected more quickly in interest sensitive insurance than in traditional; the disadvantage, of course, is that decreases in interest rates will also be felt more quickly in interest sensitive whole life.

UNIVERSAL LIFE The universal life policy is actually more than interest sensitive as it is designed to reflect the insurer’s current mortality and expense as well as interest earnings rather than historic rates. Universal life works by treating separately the three basic elements of the policy: premium, death benefit and cash value. The company credits your premiums to the cash value account. Periodically the company deducts from the cash value account its expenses and the cost of insurance protection, usually described as the mortality deduction charge. The balance of the cash value account accumulates at the interest credited. The company guarantees a minimum interest rate and a maximum mortality charge. Some universal life policies also specify a maximum basis for the expense charge. These guarantees are usually very conservative. Current assumptions are critical to interest sensitive products such as Universal Life. When interest rates are high, benefit projections (such as cash value) are also high. When interest rates are low, these projections are not as attractive.

Universal life is also the most flexible of all the various kinds of policies. Because it treats the elements of the policy separately, universal life allows you to change or skip premium payments or change the death benefit more easily than with any other policy.

The policy usually gives you an option to select one or two types of death benefits. Under one option your beneficiaries received only the face amount of the policy, under the other they receive both the face amount and the cash value account. If you want the maximum amount of death benefit now, the second option should be selected.

You generally pay a planned premium designed to keep the policy in force for life, and accumulate cash value, based upon the interest and expense and mortality charges you assume. It is important that these assumptions be realistic because if they are not, you may have to pay more to keep the policy from decreasing or lapsing. On the other hand, if your experience is better then the assumptions, than you may be able in the future to skip a premium, to pay less, or to have the plan paid up at an early date.

You do not have to pay the planned premium, but if you pay less, the benefit may be more like term insurance, which is only in force for a limited time and builds no cash value. On the other hand, if you pay more, and your assumptions are realistic, it is possible to pay up the policy at an early date.

If you surrender a universal life policy you may receive less than the cash value account because of surrender charges which can be of two types. A front-end type policy will deduct a percentage of the premium paid, while a back-end type policy will deduct a more substantial charge but only if the policy is surrendered before a specified period, generally 10 years but which could be as long as 20 years. A back-end type policy would be preferable if you intend to maintain coverage, and the charge decreases with each year you continue the policy. Remember that the interest rate and expense and mortality charges payables initially are not guaranteed for the life of the policy.

Although this type of policy gives you maximum flexibility, you will need to actively manage the policy to maintain sufficient funding, especially because the insurance company can increase mortality and expense charges. You should remember that the mortality charges increase, as you become older.

VARIABLE LIFE– Most types of both traditional and interest sensitive life policies can be purchased on either a fixed-dollar or variable basis. On a fixed-dollar basis, premium, face amount and cash values are specified in dollar amounts.

On the variable basis, face amount and cash value are specified in units, and the value of the units may increase or decrease depending upon the investment results. You can allocate your premiums among various investment pools (like stock, bond, money market, mutual funds and real estate pools) depending on the amount of risk you are willing to assume in the hope of a higher return.

Traditional variable life provides a minimum guaranteed death benefit, but many universal variable life products do not, and should investment experience be bad, coverage will terminate if substantially higher premium payments are not made. Variable life is also made available on a single premium basis but if investment experience is poor additional premiums will be required.

OTHER COVERAGES – Variations on the Basic Plans

Joint Life and Survivor Insurance Joint Life and Survivor Insurance provides coverage for two or more persons with the death benefit payable at the death of the last of the insureds. Premiums are significantly lower under joint life and survivor insurance than for policies that insure only one person, since the probability of having to pay a death claim is lower.

Senior Life Plans Senior life insurance, sometimes referred to as graded death benefit plans, provides eligible older applicants with minimal whole life coverage without a medical examination. Since such policies are issued with little or no underwriting they will provide only for a return of premium or minimum graded benefits if death occurs during a specified period which is generally the first two or three policy years. The permissible issue ages for this type of coverage range from ages 50 – 75. The maximum issue amount of coverage is $25,000. These policies are usually more expensive than a fully underwritten policy if the person qualifies as a standard risk.

Premium Financing
Now that your policy has been bound and your coverage is in place, ODI's service doesn’t stop there. How do you pay for your policy?

ODI can provide you with a variety of premium financing programs all designed to meet the financial needs and resources of your firm. We use major premium finance companies to offer you superior rates and flexible terms.

A Life Settlement is the sale of an existing life insurance policy. The funds generated are greater than the policy's cash surrender value. Often the original planning needs have changed so that the policy is no longer needed. Premiums may have become a burden, and the original policy owner may want to eliminate the life insurance policy by letting it lapse. Now there is an alternative. The policy owner may sell his policy just as they would sell a stock or bond, or even their home.

This secondary market gives the policy owner a market that did not exist in the past. In prior years, the policy owner was left with only one entity to deal with, their own carrier. This alternative allows the policy owner to obtain institutional, and real market pricing for this valued asset.

As an institutional funder, an offer generated through this process results in more money for you.

This new service offers you an opportunity to benefit from a wasting or wasted asset. Many life settlement transactions generate substantial capital, thus creating the need for additional financial products or services. In some situations, a new and improved insurance policy may even be issued, benefiting both nd you and your heirs. The Life Settlement solution is typically the Win-Win scenario.

A Salary Continuation Plan can be defined as any arrangement for providing income to a disabled employee. Should your firm be interested in a salary continuation plan? It's difficult not to be interested when you're familiar with the statistics:

Chances are one in three that an employee aged 40 or younger will suffer a long-term disability before retirement…*

And almost half of those disabled for six months will still be disabled after five years.*

Furthermore - according to recent statistics, a whopping 48% of small businesses in America fail due to a disability in the business.**
*1985 Commissioners Disability Table A
**Source: LIMRA

Of course employees who are disabled still need income from some source. And many companies do feel some moral obligation to continue to come up with at least part of the employee's salary. Without a salary continuation plan, then, either the firm keeps paying out of pocket at tremendous loss, obviously, since the employee isn't working, or the employee is forced to deplete personal savings.

For most companies, the best solution to this problem is prevention, in the form of an effective salary continuation plan funded by disability income insurance. For a reasonable cost each year such a plan can provide protection for your company from the economic consequences of employee disability - along with meaningful tax advantages and an attractive "perk" for both employees and recruits.

Tax (and other) advantages

If a plan is established according to a few basic requirements, the government allows these tax advantages:

Premiums paid by the employer for disability insurance to fund a salary continuation plan are generally deductible as a necessary business expense in the year they are paid to the insurer.***

Contributions by the company to pay premiums are not considered as income to the employee and are therefore generally not taxable to him or her. †
***IRC 162
†IRC 106

A formal plan has other advantages as well. First, since your company has the option of selecting a particular group of employees to include in the plan exclusively, the salary continuation plan can function as a reward for particularly valued employees. And second, since the amount of income to be replaced, the duration of the waiting period before benefits begin, and the length of time benefits will be paid are all predetermined, conflicts between your company and disabled employees are minimized.

With a salary continuation plan in place, you can predetermine the costs of coverage and can then establish the proper funding. Likewise, any covered employee is assured a definite income for a specific period of disability.

Employer-sponsored Split Dollar Plans are a very popular way of providing an executive compensation. These arrangements "split" a life insurance policy's (fixed interest or variable) costs and benefits between 2 individuals or parties - typically the employer and an employee.

Typically, the split dollar agreement is scheduled to terminate at the employee's retirement date. At the time of termination, the policy is "rolled out" and the employer is reimbursed for all the premiums they paid in. The reimbursement can be handled several ways, but it is usually withdrawn from the insurance policy cash values. Should the employee die while the agreement is still in effect, the death benefit is used to reimburse the employer, with the balance of the proceeds going to the employee's beneficiary

Advantages to Split Dollar:

Because split dollar plans are non-qualified, discrimination in favor of key employees or shareholders is permissible.

Employer can provide a valuable benefit with minimal charge to corporate earnings and with predictable tax cost to the employee.

The employer's share of the policy is secured at all times by its assigned portion of the policy.

The corporation can also use the plan to fund a buy-sell agreement.

The Advantage Trust (419 Plan)

Plan Summary: Tax-deductible contributions by the employer. Provides benefits that are offered only to select employees. Provides flexible funding with large contributions in peak earning years, and minimal or no funding in later years. Not subject to ERISA. Provides survivor benefits that may be received income tax-free and estate tax-free (with proper planning). Reduces current income taxes.
Niche: Employer may be a C corporation, S corporation, a limited liability corporation or a general partnership, or a profit or non-profit corporation. The Employee must provide bona fide services to the employer and must be employed on the last day of the calendar year. The employer may provide benefits to a select group or classification of employees. Participation may be available to employee shareholders of companies with greater than 50% interest in the company in certain circumstances.
Employee's Cost: The employee's only cost is the employee's tax on the economic benefit of the life insurance known as the PS 58 or PS 38 cost. This cost is equivalent to the lesser of a published government table rate or the lowest term rate available from the selected insurance company.
The Advantage Trust provides employees with life insurance protection up to 15 times salary or a flat death benefit for all participants. Contribution is deducted in a manner to conform with tax code regulations, tax court case la, and legal opinions. A trust is created under the authority of section 419 (e) of the Internal Revenue Code. The 419A (f) (6) exemption contained in 419 and 419A is used to exempt the plan from the general limits of the IRC 419.
Requirements: A trust must have 10 or more employers. No one employer may contribute more than 10% of the assets to the trust.

The Advantage DBO Plan (The Advantage Trust 419 Death Benefit Only) is an employee welfare benefit plan that complies with 419(A)(f)(6). The Plan receives the current death benefit by paying the insurance company the actuarially cost for the current benefit under the Plan. 1. A life insurance policy is issued on the insured. 2. The policy death benefit is split between the Advantage Trust and the owner of the policy. 3. The Advantage Trust receives a portion of the death benefit as a group term life benefit sufficient to satisfy its obligation under the Advantage Trust 419 Plan design. 4. The balance of the death benefit goes to the owner of the policy. At no time does the Advantage Trust portion accumulate any cash value. The Plan provides a method for business owners to fund Buy-sell agreements, Golden Handcuff Plans, and other executive benefits on a largely tax-deductible basis. While the 419 Advantage Plan requires the yearly payment of a fixed term premium, the owner has a tremendous amount of flexibility, and the policy can be adapted to many uses.

Gifting Strategies: There is a corollary section to the estate tax code that taxes lifetime gifts to non-charitable and non-spouse beneficiaries. In any given year, each individual can gift up to $10,000 (the "annual exclusion" amount, indexed to rise to $11,000 soon) to as many individuals as he or she wishes without any gift tax consequences. Any gift to an individual of greater than the annual exclusion must be reported to the IRS on Form 709. The amount in excess of the annual exclusion will be first applied toward your exemption equivalent (currently $675,00), meaning that no tax will actually be due until and unless your exemption equivalent has been exhausted.

ARE THERE ANY EXCEPTIONS…ANY TYPES OF GIFTS THAT DO NOT COUNT TOWARD THE ANNUAL EXCLUSION?

Yes! Gifts for qualified educational and medical expenses do not count toward the annual exclusion. You must be sure, however, to the make the check out directly to the educational institution or medical provider to qualify for this exception. Qualified educational expenses include only tuition, and not room and board and other expenses.

WHAT GIFT-GIVING VEHICLES ARE THERE OTHER THAN SIMPLY CASH?

There are many. Some of them are detailed on other pages of this site. They include:

Life Insurance Trusts
Personal Residence Trusts
Family Limited Partnership interests
Gift Trusts
Minors Trusts
UTMA (Uniform Transfers to Minors Act) Gifts
GST Trusts

WHAT FACTORS SHOULD I CONSIDER IN DECIDING WHETHER TO GIFT AND WHAT TYPES OF PROPERTY TO GIFT?

Economic position
Age and health
Emotional and family circumstances
Income shifting
Capital gains shifting
Tax basis of property
Kiddie tax

In sum, a gift program should be designed with your overall objectives and strategies in mind. Various types of gifts should be made in a coordinated fashion bearing in mind your goals, the annual exclusion and your exemption equivalent.

Health Savings Account - allows employees in high deductible plans to put aside pre-tax money and also roll over remaining funds each year

Facts about HSA's:

1. Switching to a high deductible plan will cut the cost of your health plan substantially.

2. All contributions to the HSA's are tax-deductible.

3. HSA's are portable.

4. HSA funds can be used to pay COBRA premiums or Long Term Care premiums.

5. Individuals 55 and older can make additional catch-up contributions.

6. The higher your deductible, the more you can deposit into your HSA, up to government limitations.

7. Some Insurance companies allow preventive care services to be covered on a first-dollar basis (copays).

ILITs - A LIFE INSURANCE TRUST is generally used where the insured is concerned that the proceeds of the life insurance will: (1) be poorly managed; or (2) be subject to death tax in his estate or that of the beneficiary.

Most people do not realize that life insurance proceeds, although not subject to income taxes, are subject to estate tax if the policy is owned by the insured, the insured retains "incidents of ownership" in the policy, or the policy proceeds are payable to the insured's estate. By placing the proceeds of life insurance in a properly structured life insurance trust there are no estate taxes on the insured's death. Further, by creating a trust to own or acquire life insurance policies and receive the proceeds upon death, a trustee is able to manage the property, keeping the property out of the beneficiary's hands if necessary, and away from his creditors.

The Life Insurance Trust generally provides that at the death of the insured, the policy proceeds will be held by the trustee for the benefit of the non-insured spouse or children. The cash proceeds may provide a convenient "private bank" for the decedent's estate, to purchase assets from the estate or to lend the estate money to pay estate taxes. Income of the life insurance trust may be paid periodically to the surviving spouse and principal is available for support and maintenance. The trust can purchase assets from the insured's estate or the spouse in order to increase liquidity, pay taxes or cover living expenses. When the surviving spouse dies, the remaining proceeds are generally distributed outright to the children or held in trust until the children reach sufficient age and maturity to responsibly handle their portion of the funds. The absence of death taxes and income taxes on the insurance policy proceeds makes the irrevocable life insurance trust an attractive planning tool.

Intentionally Defective Trusts: Although trust income is usually taxed to the trust or the beneficiary, the Internal Revenue Code provides a string of rules under which the grantor (creator of the trust) will be treated as the owner of a trust and taxed on the income (and claim the deductions), regardless of what actually happens to the income.

Suppose you put $100,000 into a trust to pay income to your lower-bracket parent or child. Perhaps the trust only lasts five years. Perhaps one year. Perhaps you have the power to revoke it and get the principal back. Under these circumstances, you remain the virtual owner of the property.

The rules go far beyond such obvious situations. They extend to circumstances in which the grantor has no power, but the trustee is a "subordinated party" (certain relatives and employees of the grantor). Even trusts with totally independent trustees may be affected if the trustees have certain powers. There are a myriad of rules.

These are sometimes called "grantor trusts" because they are usually taxed to the grantor. However, there are circumstances under which somebody other than the grantor will be treated as owner, so that name's not broad enough. "Substantial owner" rules would probably be most accurate but seems too much of a mouthful for common acceptance.

These are also been called "Defective trusts,"which has a negative connotation. Although a small provision may cause a trust's income to be taxed to the grantor, that may not be a "defect" -- it may be a completely desirable circumstance. So what we are dealing with is intentionally "defective" trusts.

Why would you want to be taxed on the income of a trust which you've set up for someone else?

For one thing, remember that *somebody* has to pay tax. Beyond that, the most important thing to realize is that the income tax and estate tax rules are not quite identical. It is possible for a trust to be "income tax 'defective'" but not "estate tax 'defective'" -- i.e. just because you are taxed on the trust's income does not mean it will be included in your estate.

You (with your spouse joining in) can give $20,000 per year to a donee. Assume:

You use part of your credit to give them $500,000.

They earn a 5% return, or $25,000.

They are in the 28% bracket and you are in the 40% bracket.

If they are taxed on the income, they will pay $7,000 tax and keep $18,000. If you pay the tax, they will keep $25,000. And you can still give them the $20,000 as a separate gift. You've effectively made a $7,000 tax-free gift.

But wait a minute! You'll have to pay $10,000 tax. This is costing the family an extra $3,000 -- or is it?

When we look at the long-term estate planning, we have to consider the cost of getting a dollar to your beneficiary -- including the estate tax. If you don't pay the tax, it will save you $10,000 to put in the bank. But if you're in the 50% bracket, your beneficiaries will only see $5,000 of that -- at your death. This way, they get $7,000 now.

The interplay of income tax and estate tax brackets may require extensive analysis, but it can often lead to extensive savings.

Why -- the Qualitative Difference
This might be called a floating factor. It is an odd occurrence which may mean nothing in most cases -- but be very significant in some.

For tax purposes a "defective trust" and the substantial owner thereof are the same person. You cannot sell something to yourself. If you sell something to a trust of which you are the substantial owner, it may be a perfectly valid sale for purposes of transferring title and removing the asset from your estate without a gift -- but for income tax purposes it is a non-event, with no capital gains tax due. There are also other circumstances in which it may be desirable to effect a sale without the tax consequences of a sale occurring.

The intentionally "defective" trust provides a valuable potential tool in estate planning. Its applicability depends on knowledgeable analysis of the particular circumstance.

Long Term Care (LTC) Insurance
Long term care can mean many different things but any chronic or disabling condition which requires nursing care or constant supervision can bring on the need for long term care services. Long term care means not only care in a nursing home, it can also mean nursing care in your own home and help with the activities of daily living, such as dressing, eating, bathing and taking medicine. There are many different services that would fall under the definition of long term care. These services include institutional care, i.e., nursing facilities, or non-institutional care such as home health care, personal care, adult day care, long term home health care, respite care and hospice care. Nursing homes in New York State are licensed under the Public Health Law as nursing facilities. There are other long term care services that provide people with an option other than nursing home care. These services are defined below:Home health care consists of services received in your home, and can include skilled nursing care, speech, physical or occupational therapy or home health aide services. Home care (personal care) consists of assistance with personal hygiene, dressing or feeding, nutritional or support functions and health-related tasks. Adult day care is for persons living at home, and provides supervision for elderly persons during the day when family members are not at home. It is a method of delivering a variety and range of services including social and recreational, and in some cases, health services, in a congregate setting. Assisted living facilities provide ongoing care and related services to support those needs resulting from a person's inability to perform activities of daily living or a cognitive impairment.An alternate level of care in a hospital is care received as a hospital inpatient when there is no medical necessity for being in the hospital and is for those persons waiting to be placed in a nursing home or while arrangements are being made for home care. Respite care includes services that can provide family members a rest or vacation from their care giving responsibilities. It can be provided in a variety of settings including an individual's home or a nursing home. Hospice care is a program of care and treatment, either in a hospice care facility or in the home, for persons who are terminally ill and have a life expectancy of six months or less.

The Need for Insurance Coverage of Long Term Care Services. Long term care is very expensive, and most people cannot afford to privately pay for long term care services for very long. In New York State, skilled nursing facilities currently charge over $214 per day on average or $78,000 per year or more. In the New York City Metropolitan Area, which includes the 5 boroughs of New York City, Long Island and Westchester County, the average skilled nursing facility charge is about $255 per day or about $93,000 per year. It is estimated that persons in nursing homes stay for 2½ years on average. Home health care is also expensive. In New York, three home health care visits per week by a registered nurse can cost over $12,950 per year. Even custodial home care at three visits a week can cost over $8,960 per year.

The chance of needing some type of long term care services is fairly high. It is estimated that over 40% of all persons who were 65 years old in 1990 will enter a nursing home during their lifetimes. Long Term Care Benefits Paid by Other Health Insurance Medicare does NOT pay for most long term care services. Individuals should not rely on Medicare to meet their long term care service needs. Medicare does not pay for custodial care when that is the only kind of care needed. Even skilled nursing facility care is covered by Medicare only on a very limited basis.In order to obtain Medicare coverage of a skilled nursing facility stay, the following five conditions must be met:Your condition requires daily skilled care which, as a practical matter, can only be provided in a skilled nursing facility on an inpatient basis.

You must have been in a hospital at least three days in a row (not counting the day of discharge) before you are admitted to a certified skilled nursing facility.

You are admitted to the facility within a short time (generally within 30 days) after you leave the hospital.
The condition for which you are receiving skilled nursing care was treated in the hospital.
A medical professional certifies that you need skilled nursing care or skilled rehabilitation services on a daily basis.

If the skilled nursing facility stay continuously meets all of the above conditions, Medicare will provide benefits for up to 100 days of skilled care in a skilled nursing facility during a benefit period. In 2002, for the first twenty days of care, all covered services are fully paid by Medicare. For the next 80 days of care, Medicare requires a co payment (the amount you must pay) of up to $101.50 per day.If you need skilled health care in your home for the treatment of an illness or injury, Medicare can pay for home health services furnished by a home health agency. You do not need a prior hospital stay to qualify for home health care. Medicare pays for home health visits only if all four of the following conditions are met:The care you need includes intermittent skilled nursing care, physical therapy, or speech language pathology.

You are confined to your home. You are under the care of a physician who determines you need home health care and sets up a plan for you to receive care at home. The home health agency providing services participates in Medicare.

Once all four of these conditions are met, Medicare will pay for covered services as long as they are medically reasonable and necessary. Coverage is provided for the services of skilled nurses, home health aides, medical social workers and different kinds of therapists. The services may be provided either on a part-time or intermittent basis, not full-time. Medicare pays the full cost of medically necessary home health visits by a Medicare-approved home health agency. You do not have to pay a deductible or coinsurance for services, however, if you need durable medical equipment, you are responsible for a 20% coinsurance payment for the equipment. Medicare will NOT pay for full-time nursing care at home, drugs, meals delivered to your home, and homemaker services that are primarily to assist you in meeting personal care or housekeeping needs .Medicare supplement insurance is designed to fill in some of the major gaps in Medicare coverage, but IT DOES NOT COVER MOST LONG TERM CARE SERVICES. Other private health insurance which you might already have covers mainly acute conditions and probably does NOT cover custodial care. Medicaid, a governmental program for low income individuals and families, is currently the major source of funding for long term care services. In order to qualify for Medicaid coverage, persons must meet certain income and asset tests. Because of the high cost of nursing home care, more than half of those who enter nursing homes privately paying for their care reach this level in less than a year. In New York State in 2001, if only one spouse needs nursing home care, the married couple is allowed to keep a home, a car and assets up to $87,000. A single person who requires such care may only keep assets of $3,750.