FAQ : Financial Consultant CA | Council Financial and Insurance Services


Frequently Asked Questions


  1. What is retirement planning and why is it important to understand all components of retirement planning?

Retirement planning refers to financial strategies of saving, investment, and ultimately the distribution of money meant to sustain oneself during retirement. As the retirement landscape changes, and as one nears closer to retirement, adjustments should be made to compensate to your specific needs. 


As employers have shifted from defined benefit plans (pensions) to defined contribution plans (401ks), which were created in 1978, the onus is on employees to plan for their retirement. Since the creation of the 401k, statistics indicate Americans have not fared well during retirement as most citizens are not financial experts. A significant % of Americans rely on Social Security Income, but when is the best time to begin taking Social Security Income?


Advances in medical technology have expanded life expectancy; and the foremost retirement research indicates planning for longevity risk is vital. Increased healthcare expenses and market risks add to the equation to what a balanced retirement strategy should consider. Neglecting any individual component of prudent retirement planning can have significant detriment to your retirement lifestyle and estate goals.


  • What Is Estate Planning? 

Regardless of your level of wealth, the failure to establish an estate plan can be detrimental to your family. A properly structured estate plan helps ensure that your family and financial goals are addressed during your life, if incapacitated, and after your death. Essential Documents include ​​ Last Will and Testament, Durable General Power of Attorney, Health Care Power of Attorney, Living Will/Advance Directive 


  • Do I need a Revocable Living Trust?

Establishing an RLT may provide the following benefits: 

i. Avoidance of Probate. Probate is the legal process for transferring property upon death. Assets owned in an RLT do not pass through the probate process, potentially enabling a faster and less costly method for transferring assets upon death than by a will, which would require probate and sometimes court supervision. An RLT also can be especially useful in avoiding multiple probate proceedings when an individual owns real estate or other property in multiple states. 

ii. Privacy Preservation. At an individual’s death, when assets are passed to the heirs through probate under a will, probate may expose details of an estate to the public through public probate court filings. In contrast, trusts allow the transfer of assets to remain private within the constraints of the trust document. 

iii. Segregation of Assets. An RLT may be useful for married couples with substantial separate property acquired prior to the marriage. In community property states, the trust can help segregate those assets from their community property assets. 

iv. Estate Tax Minimization. An RLT does nothing to save estate or income taxes during life, but provisions can be included in the trust, as with estate tax-efficient wills, to take advantage of estate tax exemption amounts at death. 

  • What is a Step-Up In Basis?

The step-up in basis provision adjusts the value, or “cost basis,” of an inherited asset (stocks, bonds, real estate, etc.) when it is passed on, after death. This often reduces the capital gains tax owed by the recipient. The cost basis receives a “step-up” to its fair market value, or the price at which the good would be sold or purchased in a fair market. This eliminates the capital gain that occurred between the original purchase of the asset and the heir’s acquisition, reducing the heir’s tax liability.


  • What is the Estate Tax?

An estate tax is a levy on estates whose value exceeds an exclusion limit set by law. Only the amount that exceeds that minimum threshold is subject to tax. Assessed by the federal government and about a dozen state governments, these levies are calculated based on the estate's fair market value (FMV) rather than what the deceased originally paid for its assets. The tax is levied by the state in which the deceased person was living at the time of their death. 


  • Why consider rolling over assets from a former employer’s retirement plan to an IRA?

A rollover IRA is an account that allows you to move funds from your old employer-sponsored retirement plan, such as a 401k into an IRA. With an IRA rollover, you can preserve the tax-deferred status of your retirement assets, without paying current taxes or early withdrawal penalties at the time of transfer. A rollover IRA can provide a wider range of investment choices that may meet your goals and risk tolerance. It is often beneficial because employer sponsored retirement plans have limited flexibility and options.  Additional drawbacks of an employer plan can include more complex distribution processing, fewer distribution options, limited power of tax deferral for spousal beneficiaries and subsequent beneficiaries, mandatory tax withholding on most distributions, fewer investments choices, no aggregation for RMD calculations, potential blackout periods, and little or no services of a financial professional. Rolling over assets into an IRA also allows for a ROTH IRA conversion.

When considering rolling over the proceeds of your retirement plan to another tax-qualified option,such as an IRA,please not that you may have the option of leaving the funds in your existing plan or transferring them into a new employer's plan.You may wish to consult with your new employer,if any,to learn about the options available to you under your plan and any applicable fees and expenses.Please consult a tax advisor before withdrawing funds.

  • What is a ROTH IRA?

A Roth IRA is an individual retirement account (IRA) that allows qualified withdrawals on a tax-free basis provided certain conditions are satisfied. It was established in 1997 and named after William Roth, a former Delaware Senator. Roth IRAs are funded with after-tax dollars; the contributions are not tax-deductible. But once you start withdrawing funds, the money is tax-free. Conversely, traditional IRA deposits are generally made with pretax dollars; you usually get a tax deduction on your contribution and pay income tax when you withdraw the money from the account during retirement. Due to the passing of the Secure Act and it’s elimination of the Stretch IRA, the ROTH can also be a more favorable asset to bequeath than a traditional IRA.


  • What is a 529 plan? 

A plan operated by a state or educational institution, with tax advantages and potentially other incentives to make it easier to save for college and other post-secondary training, or for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school for a designated beneficiary, such as a child or grandchild. 


  • What is Income Annuity and how can one benefit from it?

An income annuity is a financial product designed to swap a sum of money for a guaranteed periodic cash flow (e.g., monthly or annual payments). An income annuity, can provide income immediately and is called an immediate income annuity, or at a later time, which increases the income amount, which is called a deferred income annuity. Income annuities can be useful tools in hedging against longevity risk, also known as the risk of outliving your assets. It can also be used to decrease stock market risk of your portfolio and replace a portion of your assets allocated to fixed income. Income annuities can also be used as part of various estate planning strategies.


  • What is Disability Insurance? What are the different kinds of disability insurance policies? 

Disability Insurance is a type of insurance product that provides income in the event that a policyholder is prevented from working and earning an income due to a disability. The basic types of disability insurance policies include Individual Disability Policies, Group Disability Policies, Short-Term Disability Policies, Long-Term Disability Policies and Business Overhead Expense Policies. 


  • Why opt for Long Term Disability Insurance?

A disability could potentially destroy a way of life. It can take away many things you've achieved through your profession. Long-term disability insurance can ensure you and your family against such loss. Since your income is the basis of your lifestyle, protect it with this coverage. Long-term disability insurance is an insurance policy that provides income replacement for workers if they become unable to work due to an illness or injury so they can continue paying bills and meeting financial goals and obligations.


  • What is Term Insurance?

Term Insurance, also known as pure life insurance, is a type of life insurance that guarantees payment of a stated death benefit if the covered person dies during a specified term. Once the term expires, the policyholder can either renew it for another term, convert the policy to permanent coverage, or allow the term life insurance policy to terminate.


  • How can Mortgage Protection Life Insurance policy be beneficial?

Mortgage life insurance, or mortgage protection insurance, refers to a set of life insurance products that are designed to pay your outstanding mortgage balance if you die. This coverage is often offered by your bank or mortgage lender, but you can also purchase it through unaffiliated insurers. Since so many parties offer mortgage life insurance, the structure and benefits can vary significantly. It helps you cover your mortgage payments, provides budget-friendly protection and secures portable coverage. We provide short to mid-term protection when your debt is the highest and long term protection to cover the entire length of your mortgage. With two-layered protection, your family will be protected through the length of your mortgage and beyond.


  • What is Whole Life Insurance?

Whole life insurance is a type of permanent life insurance that provides lifelong coverage while simultaneously containing a stable cash value savings component that can be accessed during one’s lifetime. These contracts contain strong guarantees and are appealing to those wanting to take out the guesswork after purchasing life insurance.  


Whole Life contracts are contain three major guarantees: 

Premiums will never increase regardless of any factors.

The death benefit that will not decrease, and may increase

A guaranteed minimum rate of return on the cash value.


Whole Life contracts are best used to:

  1. Create a guaranteed instant legacy for heirs or charity.

  2. Provide estate liquidity for estate taxes or estate equalization.

  3. Plan for future generations’ estate needs.

  4. Serve as a burial policy.

  5. Obtain tax advantage and stable growth of cash assets.

  6. Provide access to cash values during one’s lifetime while also providing life insurance protection.

  7. Diversify a retirement income strategy.

*Mutual life insurance companies are not publicly listed on stock market exchanges and offer contract holders additional growth through dividends, which are designated payouts from profits and cash reserves.


  • What is Premium Financing of life insurance and what are the benefits?

Premium Financing Life Insurance involves taking out a third-party loan to pay for a policy’s premiums. As with other loans, the lender charges interest, and the borrower (the insured, in this case) repays the loan in regular installments until the debt is satisfied or the insured passes away, in which case the balance is typically paid off with insurance proceeds. Keeping in mind the risk and concerns with premium financing arrangement, the financing of life insurance premium by a third party on attractive terms can offer several advantages such as obtaining the benefits of life insurance that help in protection and tax-free build-up of cash values, minimal upfront cash flow required to place the coverage, and ability to obtain Life Insurance benefits during times when cash flow is limited and opportunity with interest rates at historic lows to obtain permanent or bridge financing.

The personal planning strategy leverages smaller interest payments with larger loan premium amounts to provide growth, potential tax advantages and estate planning benefits. Premium financing provides the clients with an option to avoid liquidating assets and an alternative to using their cash reserves to pay the policy premium.


  • What is an Irrevocable Life Insurance Trust or ILIT? What role does it play in Asset Protection?

An irrevocable life insurance trust (ILIT) is created to own and control a term or permanent life insurance policy or policies while the insured is alive, as well as to manage and distribute the proceeds that are paid out upon the insured’s death. An ILIT can own both individual and second to die life insurance policies. Second to die policies insure two lives and pay a death benefit only upon the second death. Typically an ILIT is drafted and executed prior to life insurance being placed within the policy. The grantor enters into a trust agreement, names the beneficiaries, names the trustee, specifies trustee powers, stipulates the deposit provisions of the trust, and establishes rules for the administration of the trust. An ILIT can protect assets from creditors of the grantor and beneficiaries. This may have particular value for persons in litigation-prone occupations.