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January 21 2021

Navigating through Challenging Times – Part 2

An interview with George “Chip” Van Dusen IV, DBS Principal – President & CEO – Part Two

by Laura Thompson, Director of Marketing – DBS

One of the biggest challenges for leaders in 2020, amidst the incredible uncertainty in the world, was having to make difficult decisions often based on everchanging information. Through it all, DBS and its Executive Leadership Team, was able to successfully lead the company through arguably one of the most unprecedented years in history. I recently had the opportunity to spend a little time with DBS Principal – President & CEO George “Chip” Van Dusen IV to find out what he learned from last year and what guides his decision making during challenging times. What follows is Part 2 of our conversation, where he shares what he predicts for 2021 and how financial professionals can prepare for the upcoming year.

Read Part 1 here for his reflections on how DBS was able to successfully navigate through such a difficult year.

What is the outlook for the year? How much “hangover” from the pandemic do you expect?

I don’t think we’re quite out of the woods yet. I believe we’re going to experience a couple quarters of sluggishness with respect to the economy. As the vaccination continues to roll out, we’re still going to experience a lot of pain and confusion as a country, and there will likely be four or five steps forward and three steps back. We’ve experienced that a lot over the last six months, and I think we’re going to experience that some more.

We’ll see some more economic stimulus from the government, particularly with a Biden-Harris White House along with Democratic leadership in the House and Senate. We’ll see a review of some new tax policy and potential changes in estate taxes, capital gains, and step up in basis. There are things that we’ve enjoyed for a number of years that I think will change as result of a new administration and a House and Senate that are in alignment with the White House, which we haven’t seen since President Trump’s first two years in office. All of this again will bring opportunity.

January 15 2021

Navigating through Challenging Times – Part 1

An interview with George “Chip” Van Dusen IV, DBS Principal – President & CEO – Part One

by Laura Thompson, Director of Marketing – DBS

When 2020 began, no one could have predicted that a pandemic would completely change life as we know it. Virtually every aspect of daily life was affected and we all had to learn how to adapt to very different times. I recently had the opportunity to spend a little time with DBS Principal – President & CEO George “Chip” Van Dusen IV to find out what he learned from last year and what guides his decision making during challenging times. The following interview excerpt is Part 1 of our conversation, where he shares his reflections on how DBS was able to successfully navigate through such a difficult year. Watch for Part 2 next week to find out what he predicts for 2021 and how financial professionals can prepare for the upcoming year.

If you could choose one word to describe 2020 what would it be?

A few come to mind, but the first one that stuck the best was unprecedented: unprecedented in a thousand different ways, whether it’s business here at DBS, everyone’s home lives, some of the civil unrest that we experienced as a country, the market interest rate environment and obviously the pandemic. Never in a million years did I think we would see a year like we did last year! Unprecedented.

What were the lessons learned from this unprecedented year?

One thing that I didn’t necessarily learn in 2020 but got a good dose of practicing was patience. Because of the tumultuous year we experienced, I was really able to hone those skills.

Another big lesson is that when faced with challenge, there’s always opportunity underlying. It’s the responsibility of a leader to seek out and identify the opportunity and then create a path for the team to execute on it. At DBS, our Executive Leadership Team was presented with some challenges, so we identified the opportunity, which was that we still needed to take necessary and appropriate risk from an investment perspective. We created a path, then enabled and empowered our team members to execute. Because of this, we were able to make some significant headway on a number of initiatives that are going to position our firm extremely well for the future.

January 12 2021

Less Now or More Later? Taxes, That is…

In 2021, you can give away more… The amount you can give away (gift exemption) without owing any federal gift tax is the highest it has ever been – $11,700,000. However, President Biden campaigned on raising taxes and has proposed to tax the transfer of property as low as $3,500,000 at a rate of 45%. Even without enacting this proposal, in 2026 the exemption is lowered to $5,000,000 (indexed).

President Biden has also proposed to levy a capital gains tax as high as 39.6% on unrealized appreciation on assets passed at death. Therefore, this may be the last year you can pass on so much to whomever you wish and pay nothing in federal gift taxes. Read More

December 23 2020

Even Santa Needs Life Insurance

In celebration of the holiday season, we like to lighten the mood rather than tackle a highly technical aspect of insurance. As a financial professional, you’re likely aware of the benefits life insurance provides and know how it can provide an income stream in the event of an unexpected death. Santa Claus provides a lighthearted illustration of just how important it is: if anything were to happen to him without a life insurance policy in place, it’s reasonable to assume that it might be difficult for Mrs. Claus to keep the toy manufacturing empire at the North Pole open. So for our final message of the year, we are going to give our readers a little peek behind the scenes of the factors a carrier might consider when underwriting jolly old Saint Nicholas for key person coverage. Read More

December 21 2020

Post-Election Tax Planning Strategies to Consider NOW

With Joe Biden the 46th President-Elect, the Democrats maintaining the majority in the House, and control of the Senate currently deadlocked awaiting a January 5th runoff for the two Senate seats in Georgia, it is wise to consider how a potential blue sweep could impact the planning you do with your clients. Let’s look at three planning opportunities you might want your clients to take advantage of before they are gone.

1. Reduction of Estate and Gift Tax Exemption

At the present time, a taxpayer has the ability to transfer, either during life as a gift or at death, assets valued at $11.58 million without the imposition of a federal gift or estate tax. Any property transferred in excess of the $11.58 million amount is taxed at 40%. The $11.58 million exemption amount is scheduled to be cut in half on transfers after December 31, 2025. Initially, Biden proposed a reduction of the exemption to $3.5 million, but more recently he appears to propose pushing the 2025 reduction forward to 2021. Regardless, whether the exemption is cut in half or to $3.5 million, taxpayers with high net worth should consider making gifts exceeding the potential exemption amount prior to the end of the year. Another reason to consider giving this year is Biden’s proposal to eliminate the stepped-up basis benefit currently enjoyed by appreciated assets held at death. Today, if a taxpayer makes a lifetime gift of appreciated property, the person receiving the property takes over the basis of the taxpayer. So, if the recipient subsequently sells the appreciated property, they would pay income tax on the gain. However, if the recipient of the property inherits the property, they get a basis step-up equal to the fair market value of the property at date of death, avoiding any income tax on the appreciation. Biden’s proposal eliminates the stepped-up basis, leaving lifetime gifts with no income tax detriment for the lifetime transfer tax benefits. Finally, another reason to gift this year is the AFR and 7520 rates used in some of the more advanced gifting strategies such as grantor retain annuity trusts (GRAT) and intentionally defective grantor trusts (IDGT). These trusts are at historic lows, which makes these techniques very attractive. A Biden administration is likely to modify the requirements to these techniques, making them less viable as wealth transfer strategies.

2. Increase to Capital Gains and Ordinary Income Tax Rates

While we are on the topic of changes proposed by Biden on appreciated capital gains property held at death, it’s also important to consider his proposal to increase both ordinary income and long-term capital gains rates for high-income taxpayers. One of Biden’s most discussed proposals is to raise the ordinary income bracket from 37% to 39.6% for individuals with annual incomes over $400,000. Although, it is not clear whether this threshold applies to individuals or joint filers. While this proposal appears to be modest, it would also lower the income threshold at which the top rate would apply. Specifically, in 2020, a single filer with $400,000 of income would be in a 35% bracket. Alternatively, a joint filer with the same income would be in just the 32%, effectively eliminating the 35% tax bracket for married couples. Thus, the rate increase is likely to be more impactful for taxpayers at the lower end of the income threshold. Furthermore, tax bracket increases only partially contribute to tax increases. Consequently, for income earners who would be impacted by the rate increase, this might be a good year to accelerate income. Another feature of Biden’s tax plan is the proposal to increase capital gains rate for taxpayers with over $1 million of income. Biden’s plan calls for certain high income taxpayers to pay ordinary income rates on realized gain. Specifically, for taxpayers with income over $1 million, the long-term capital gains rate would increase from 20% (23.8% if net investment income is added) to a proposed 39.6% (43.4%), or almost double. If it appears that the capital gains proposal is likely to become law, there are a variety of strategies to mitigate the impact. First, one easy solution is to harvest gains in 2020. The decision to accelerate a sale in such a manner may be especially appropriate for older, wealthy clients if Biden’s plan to eliminate the step-up in basis at death also comes to pass. Going forward, high-income taxpayers might want to consider repositioning their portfolio to include more tax-deferred or tax-free assets, as they may provide a better tax-equivalent yield compared to other taxable assets.

3. Cap on Numerous Deductions

Biden’s tax proposal also includes a cap on deductions, further increasing the effective tax rates of high-income earners. Specifically, Biden would cap itemized deductions to 28% and reinstitute the Pease limitation thereby reducing the value of itemized deductions by 3% of the amount that exceeds $400,000 up to an 80% overall reduction. Usually, the value of deductions is correlated to the income tax rate. A higher tax rate normally makes a deduction more valuable, while a lower tax rate makes a deduction less valuable. When tax rates are increasing, the usual strategy is to delay deductions. However, Biden’s proposal to cap deductions reduces the value of deductions for anyone above the 28% cap. Consequently, instead of delaying deductions to 2021 when tax rates are higher, anyone above the 28% tax bracket might want to accelerate or bunch deductions into 2020.

Perhaps the proposal with the most controversy is the suggestion to eliminate the tax deduction for contributions to 401(k)s, IRAs, and other pre-tax retirement accounts and replace it with a flat 26% credit. The stated purpose of this proposal is to equalize the tax benefits provided by retirement plans. Currently, high-income earners receive most of the tax benefits because they receive a tax deduction at their higher tax rate. A 26% credit would have the impact of benefiting individuals in a lower tax bracket while motivating high-income earners to avoid pre-tax retirement accounts. Specifically, with the loss of the deduction, contributions to pre-tax/retirement accounts will be included in income and subject to tax. So, if a high-income earner in the 37% tax bracket contributed $20,000 to a retirement account, they would pay $7,400 taxes while only receiving a $5,200 tax credit. Furthermore, eventually the funds in the retirement account would need to be distributed at which point they will be taxed again. To avoid this tax situation, the solution will be for high-income earners to use Roth accounts and other vehicles such as life insurance that can provide tax-deferred accumulations and tax-free distributions.

4. Life Insurance as a Potential Silver Lining

If Joe Biden ends up enjoying support of both the House and Senate, individuals with substantial net-worth and high incomes could see a significant increase in their taxes. Some of your clients may have already started to seek your advice, and whether the concern is the impact of estate tax on net-worth, the increased impact of income taxes on portfolio returns, or both, life insurance may be worth considering for their situation. Life insurance can be structured to provide liquidity to pay estate or income taxes triggered at death. Furthermore, high-income earning taxpayers who are looking for a tax-efficient asset to supplement retirement accounts may find life insurance as a viable option.

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November 25 2020

LTC vs. Chronic Illness Riders: What’s The Difference?

Situation: Not that long ago, the only way to insure the risk of long-term care was through the purchase of a standalone long-term care insurance policy. While stand-alone long-term care products offered a variety of features allowing customization of a policy, many customers did not like the “use it or lose it” nature of the product.

In response to customer concerns and changes in the tax law, insurers designed the “hybrid” or “linked-benefit” products as alternative solutions. Linked-benefit products
combine the benefits of a life insurance policy with that of a long-term care policy. This design allows the policyholder to accelerate the death benefit to pay for qualifying long-term care expenses of the insured, but the death benefit component of the policy is paid to the beneficiary if the long-term care benefit is not used. Thus, this design overcomes the “use it or lose it” shortfall of the standalone products, as there is always some type of payout. Read More

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November 17 2020

Overcoming Common Client Objections to the Long-Term Care Discussion

Most people think that unpleasant things like serious illness are more likely to happen to others than to themselves. As a matter of fact, most Americans believe they won’t need long-term care, even though the U.S. Department of Health and Human Services estimates that 70% of all individuals turning 65 will need some form of long-term care during their lifetime. While it’s understandable to want to avoid discussion about worrisome topics, planning ahead as a family to help protect wealth from long-term care expenses may help loved ones get the care they deserve in the way they want. Read Full PDF

November 6 2020

AG 49A Deadline Announced for December 14th

AG 49-A, the third phase of Actuarial Guideline 49 originally adopted by the NAIC in 2015, goes into effect for most carriers on December 14, 2020. This phase mandates that illustrations for all Indexed Universal Life policies placed inforce after the deadline cannot include interest enhancement credits or multipliers.

If you have any current cases involving IUL policies that offer enhancements or multipliers it is critical that you meet the deadline or risk having to start over with new illustrations. Not to worry as Diversified Brokerage Services is the place to go for information so the transition is EASY for you!

We have all the information at our fingertips including all the carrier-specific product details and important dates and deadlines.

The deadline varies by carrier, so please contact your DBS Case Design Analyst more details!

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October 28 2020

2021 Tax Estimates

We are pleased to bring you recently released 2021 tax estimates based on tax cost of living adjustments. When the IRS publishes the official numbers, DBS will make the official 2021 Tax Guide available for your use. With the election just a few short weeks away, it’s anyone’s guess as to which candidate will prevail on November 3, 2020. Regardless, whoever wins, there are sure to be changes to the 2021 numbers that appear in the DBS 2021 tax guide because Congress will need to figure out ways to handle the increasing deficit. Consequently, whatever the outcome of the election, advisors should prepare their clients for the changes that are likely to occur in the future. View Guide

October 9 2020

NAILBA Offers Virtual Conference – Open to All Financial Professionals

As you may know, NAILBA (National Association of Independent Life Brokerage Agencies) holds a conference every year that is an opportunity for the brokerage community to come together for 3 days to network, learn new things, and hear from some of the greatest thought leaders in the industry.

This year, the conference is being held as a virtual experience, and is being opened up – free of charge – to financial professionals.

NAILBA 39 will offer eight days of individualized programming spanning from November 2020 to February 2021. This year’s theme is “Engage”—an acknowledgement of the worldwide need to execute in a time of uncertainty. NAILBA 39: ENGAGE will deliver a number of OnDemand sessions for a deeper dive into relevant topics affecting the industry!

Please take a look at the offerings and choose to participate in some or all of the events. You can register for as many of the sessions as you’d like.

NAILBA 39: ENGAGE

November 19, 2020 – Feburary 24, 2021

View Full Agenda and Register Here