Why is This Topic Important to Wealth Managers? This blogticle discusses the effect of legislation on the health insurance market. Since the PPA health insurance oversight has become a federal issue. Thus, we discuss a recent report by the GAO which discusses measures states are taking to become “compliant” with the new laws and regulations.

With premiums increasing for private health insurance, questions have been raised about the extent to which increases are justified.

Traditionally, oversight of the private health insurance industry is primarily the responsibility of states under the 10^th Amendment of the Constitution. Nevertheless, in 2010 the Patient Protection and Affordable Care Act provided for the Department of Health and Human Services (HHS) to award grants to assist states in their oversight of premium rates.

A recent study by the Government Accountability Office examined the state insurance premium oversight procedures. The GAO’s report describes (1) states’ practices for overseeing health insurance premium rates in 2010, including the outcomes of premium rate reviews; and (2) changes that states that received HHS rate review grants have begun making to enhance their oversight of premium rates.

The Report (not interestingly enough) found that oversight of health insurance premium rates–primarily reviewing and approving or disapproving rate filings submitted by carriers–varied across most states in 2010.

While nearly all–48 out of 50–of the state officials who responded to GAO’s survey reported that they reviewed rate filings in 2010, the practices reported by state insurance officials varied in terms of the timing of rate filing reviews, the information considered in reviews, and opportunities for consumer involvement in rate reviews.

Specifically, the report found, respondents from 38 states noted all rate filings reviewed were reviewed before the rates took effect, while other respondents reported reviewing at least some rate filings after they went into effect. Survey respondents also varied in the types of information they reported reviewing. While nearly all survey respondents reported reviewing information such as trends in medical costs and services, fewer than half of respondents reported reviewing carrier capital levels compared with state minimums.

Moreover, some survey respondents also reported conducting comprehensive reviews of rate filings, while others reported reviewing little information or conducting cursory reviews. In addition, while 14 survey respondents reported providing consumers with opportunities to be involved in premium rate oversight, such as participation in rate review hearings or public comment periods, most did not.

Finally, the outcomes of states’ reviews of rate filings varied across states in 2010. Specifically, survey respondents from 5 states reported that over 50 percent of the rate filings they reviewed in 2010 were disapproved, withdrawn, or resulted in rates lower than originally proposed, while survey respondents from 19 states reported that these outcomes occurred from their rate reviews less than 10 percent of the time.

Tomorrow’s blog will discuss planning ideas related to advanced markets.

We invite your opinions and comments by posting them below, or by calling the Panel of Experts.

Want some free marketing material for your annuities business? Look no further than the U.S. Government Accountability Office (GAO), which recently released a report touting annuities for their ability to provide retirement income sufficiency in an increasingly uncertain environment.

The GAO recommends that retirees delay their receipt of Social Security Benefits and either draw down savings and purchase an annuity or select annuity options from their defined benefit (DB) plan instead of electing to receive their benefits in a lump sum.

According to the GAO, the shift from defined benefit pension plans to defined contribution (DC) plans like 401(k)s necessitates a heightened focus on annuities and other options for guaranteeing income during retirement . And even if workers are saving more for retirement through their DC plans, they are still at greater risk than employees with DB pensions.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of annuities in Advisor’s Journal, see How Much to Allocate to Annuities: A Critical Analysis (CC 11-109) & Drama Over the “Drawbacks” of Annuities (CC 11-62).

For in-depth analysis of the taxation of annuities, see Advisor’s Main Library: A—Amounts Received As An Annuity & B—Amounts NOT Received As Annuities.

Why is This Topic Important to Wealth Managers? Today we discuss one issue that is a concern to most taxpayers. The Tax Gap—The difference between the amount of taxes due and those actually paid. The blogticle provides information and facts which makes for interesting discussion among wealth managers and clients.

The Government Accountability Office (GAO) recently released a report on the tax gap and taxpayer compliance and complexity. The report summarizes that the tax code compliance issues caused by complexity resulted in an increase to the overall tax gap.

It is no surprise that the federal tax system contains complex rules. These rules may be necessary, for example, to ensure proper measurement of income, target benefits to specific taxpayers, and address areas of noncompliance. However, these complex rules also impose a wide range of recordkeeping, planning, computational, and filing requirements upon businesses and individuals.

It has been shown in the past and is also no secret that complying with these requirements costs taxpayers time and money. In 2005 GAO reported that even using the lowest available compliance cost estimates for the personal and corporate income tax, combined compliance costs would total $107 billion (roughly 1 percent of gross domestic product) per year; other studies estimate costs 1.5 times as large. In addition, economic efficiency costs, which are reductions in economic well-being caused by changes in behavior due to taxes, are estimated to be even larger.

Although many taxpayers have simple forms of income, others do not—especially those who receive income from capital gains, rents, self-employment, international and other sources—and they may be required to do complicated calculations and keep detailed records.

Tax expenditures add to tax code complexity in part because they require taxpayers to learn about, determine their eligibility for, and choose between tax expenditures that have similar purposes. Tax expenditures also complicate tax planning because taxpayers must “predict” their own future circumstances as well as future tax rules to make the best choice among provisions.

Taxpayer errors also contribute to the tax gap. For example, in 2001 taxpayers underreported $6.3 billion in net income due to misreported Individual Retirement Arrangement (IRA) distributions. In addition, taxpayers may underclaim benefits to which they are entitled. According to GAO’s past  analysis, of tax filers who appeared to be eligible for a higher-education tax  credit or tuition deduction in tax year 2005, about 19 percent, representing  about 412,000 returns, failed to claim any of them.

The Internal Revenue Service (IRS) has estimated that the gross tax gap—the difference between taxes owed and taxes paid on time—was $345 billion in 2001.

The gross tax gap is an estimate of the difference between the taxes—including individual income, corporate income, employment, estate, and excise taxes—that should have been paid voluntarily and on time and what was actually paid for a specific year.

Of the estimated $345 billion tax gap for tax year 2001, IRS estimated that it would eventually recover about $55 billion of that through late payments and enforcement actions, for a net tax gap of $290 billion.

The estimate is an aggregate of estimates for the three primary types of noncompliance: (1) underreporting of tax liabilities on tax returns; (2) underpayment of taxes due from filed returns; and (3) nonfiling, which refers to the failure to file a required tax return altogether or on time.

Tomorrow’s blogticle will discuss issues related to life insurance.

We invite your opinions and comments by posting them below, or by calling the Panel of Experts.

Why is this Topic Important to Wealth Managers? This topic discusses a relatively new form of retirement investment offered by companies to their employees. The topic presents information about target date funds, what they are, who may use them and how they work. The defined contribution retirement market is a prime location for wealth managers to earn fees and commissions. Thus, staying informed about new market updates is provided to give managers an edge when exploring retirement benefits. 

The Government Accountability Office recently published a report stating that financial security of millions of Americans in their retirement years will substantially depend on their savings in 401(k) and other defined contribution (DC) plans. [1] The GAO notes, to help ensure adequate financial resources for retirement, participants in DC plans should make adequate contributions during their working years and invest contributions in a way that will facilitate adequate investment returns over time.

To that end, the Pension Protection Act of 2006 (PPA) included various provisions designed to encourage greater retirement savings among workers eligible to participate in 401(k) plans, such as provisions that facilitate plan sponsors’ adoption of automatic enrollment policies. [2]

Under such policies, eligible workers are automatically enrolled unless they explicitly decide to opt out of participation. Because an automatic enrollment program must also include a default investment—a vehicle in which contributions will be invested absent a specific choice by the plan participant—the act also directed the Department of Labor to assist employers in selecting default investments that best serve the retirement needs of workers who do not direct their own investments. Since that time, target date funds (TDF)—that is, investment funds that invest in a mix of assets, and shift from higher-risk to lower-risk investments as a participant approaches their “target” retirement date—have emerged as by far the most popular default investment.

TDFs are designed to provide an age appropriate asset allocation for plan participants over time.    However, target date funds vary considerably in asset structures and in other ways, largely as a result of the different objectives and investment philosophies of fund managers. In the years approaching the retirement date, for example, some TDFs have a relatively low equity allocation—35 percent or less—so that plan participants will be insulated from excessive losses near retirement. Other TDFs have an equity allocation of 60 percent or more in the belief that relatively high equity returns will help ensure that retirees do not deplete savings in old age. 

TDFs also vary considerably in other respects, such as in the use of alternative assets and complex investment techniques. In addition, allocations are based in part on assumptions about plan participant actions—such as contribution rates and how plan participants will manage 401(k) assets upon retirement—which may differ from the actions of many participants. These investment differences and differences between assumed and actual participant behavior may have significant implications for the retirement security of plan participants invested in TDFs.   

Moreover, recent TDF performance has varied considerably, and while studies show that many investors will obtain significantly positive returns over the long term, a small percentage of investors may have poor or negative returns. [3]  Between 2005 and 2009 annualized TDF returns for the largest funds with 5 years of returns ranged from +28 percent to -31 percent. Although TDFs do not have a long history, studies modeling the potential long-term performance of TDFs show that TDFs investment returns may vary greatly.  For example, while one study found that the mean rate of return for all individual participants was +4.3 percent, some participant groups could experience significantly lower returns. These studies also found that different ratios of investments affect the range of TDF investment returns and offer various trade-offs.

TDFs offer investors a number of potential advantages. First, they relieve DC plan participants of the burden of deciding how to allocate their retirement savings among equities, fixed income, and other investments. Thus, TDFs offer participants a professionally developed asset allocation based on their planned retirement date. TDFs thereby can help plan participants and other investors avoid common investment mistakes, such as a lack of diversification and a failure to periodically rebalance their assets.

Second, TDFs are designed to strike a balance between an age-appropriate level of risk and potential investment return. In general, a TDF provider will include a series of funds designed for participants expecting to retire in different years, such as 2010, 2015, 2020, 2025, and so on. A plan participant who is 30 years old in 2011, for example, might be defaulted into a 2045 TDF, while a 55-year-old participant would likely be defaulted into a 2020 TDF. Typically, a TDF will shift from primarily equities to fixed income investments as a participant approaches his or her retirement date, in the belief that fixed income investments generally pose lower risk. This shift can be represented graphically as a line commonly referred to as the glide path.

TDFs are often established as mutual funds in a fund-of-funds structure. That is, the TDF is a composite of multiple underlying mutual funds in different asset classes. Generally, TDFs consist of an equity component and a fixed income component.

The major asset classes, in turn, may be composed of funds representing different sectors of the major asset classes. For example, the equity component may consist of some funds focused on equities of large U.S. corporations, international equities, or equities of smaller companies. Similarly, the fixed income component may consist of various bond funds, such as funds consisting of government and corporate bonds.

Tomorrow’s blogticle will continue to discuss new and exciting planning aspects of 2011. 

We invite your opinions and comments by posting them below, or by calling the Panel of Experts.

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[1] Government Accountability Office.  “Defined Contribution Plans–Key Information on Target Date Funds as Default Investments Should Be Provided to Plan Sponsors and Participants”. January 2011. GAO-11-118.  http://www.gao.gov/new.items/d11118.pdf.  Last Accessed 2/28/2011. 

[2] Pub. L. No. 109-280 (2006) Section 902 of PPA added Internal Revenue Code sections 401(k)(13), 401(m)(12) and 414(w); Automatic Contribution Arrangements, 74 Fed. Reg. 8,200 (February 24, 2009) (to be codified at 26 C.F.R. pts. 1 and 54). 

[3] See GAO-11-118 at 121 “GAO representation of Morningstar data”.

Why is this Topic Important to Wealth Managers? Presents discussion on the national debt and national future financial outlook.  A client wants to know what YOU think about Treasury Notes versus other types of government debt, even foreign government debt.  An understanding of the annual federal national deficit, and its impact on the federal national debt, will provide you a helpful starting point to educate your client, without providing investment advice.

Today’s release of the new federal budget has us at Advanced Markets excited.  We thought an introduction to the current economic condition would therefore be appropriate.  As of September 30, 2010, the federal debt managed by Bureau of the Public Debt totaled about $13,551 billion primarily for borrowings to fund the federal government’s operations.  A Government Accountability Office (GAO) Study recently showed the Federal Debt balances consisted of approximately (1) $9,023 billion as of September 30, 2010, of debt held by the public and (2) $4,528 billion as of September 30, 2010 of intragovernmental debt holdings. [1]

Debt held by the public primarily represents the amount the federal government has borrowed to finance cumulative cash deficits.  To finance a cash deficit, the federal government borrows from the public.  When a cash surplus occurs, the annual excess funds can then be used to reduce debt held by the public.  In other words, annual cash deficits or surpluses generally approximate the annual net change in the amount of federal government borrowing from the public.

Intragovernmental debt holdings represent balances of Treasury securities held by federal government accounts, primarily federal trust funds, that typically have an obligation to invest their excess annual receipts (including interest earnings) over disbursements in federal securities.

The federal debt has been audited since fiscal year 1997. Over this period, total federal debt has increased by 151 percent.  During the last 4 fiscal years, managing the federal debt has been a challenge, as evidenced by the growth of total federal debt by $5,058 billion, or 60 percent, from $8,493 billion as of September 30, 2006, to $13,551 billion as of September 30, 2010.

The increase to the federal debt became particularly acute with the onset of the recession in December 2007. Reduced federal revenues and federal government actions in response to both the financial market crisis and the economic downturn added significantly to the federal government’s borrowing needs.  And, due to the persistent effects of the recession, experts believe federal financing needs remain high.  As a result, the increases to total federal debt over the past three fiscal years represent the largest dollar increases over a three year period in history.  The largest annual dollar increase occurred in fiscal year 2009 when total federal debt increased by $1,887 billion.

During fiscal year 2010, total federal debt increased by $1,653 billion.  Of the fiscal year 2010 increase, about $1,471 billion was from the increase in debt held by the public and about $182 billion was from the increase in intragovernmental debt holdings.

During fiscal years 2008, 2009, and 2010, legislation was enacted to raise the statutory debt limit on five different occasions.  During this period, the statutory debt limit went from $9,815 billion to its current level of $14,294 billion, an increase of about 46 percent.

Recovery from the economic downturn is expected to be slow during the next few years and as a result, deficits are expected to remain high.  The Congressional Budget Office (CBO) estimates the annual federal deficit will be just over $1 trillion for fiscal year 2011, down from $1.3 trillion for fiscal year 2010.  Correspondingly, debt held by the public is expected to grow from an estimated 62.5 percent of gross domestic product (GDP) at the end of fiscal year 2010 to over 66 percent of GDP at the end of fiscal year 2011. The real challenge is not this year’s deficit or even next year’s; it is how best to address the nation’s unsustainable long-term fiscal path over the coming decades.

While considerable attention has been understandably given to the near- term fiscal position, the federal government faces even larger fiscal challenges that will persist long after the return to economic growth.  The budget and economic implications of the baby boom generation’s retirement have already become a factor in near-term budget projections and will only intensify as the baby boomers age.  Since fiscal year 2008, the Medicare Hospital Insurance program has paid more in benefits than it receives in cash from payroll taxes.

In addition, for the first time in over 25 years, the Social Security program, which has historically run large cash surpluses that helped reduce the need to borrow to finance other federal government activities, paid more in benefits than it received in tax income in fiscal year 2010 thereby contributing to borrowing needs.

GAO and CBO’s long-range fiscal policy simulations continue to show that, absent significant changes in policy, the federal government’s fiscal condition over the coming decades is on an unsustainable path.  The sooner action is taken to address this long-term fiscal challenge, the less disruptive and destabilizing the changes will be.  As a result, the nation’s leaders face the challenge of dealing with current economic and financial issues in the context of the need to address the long-term fiscal challenges.

Tomorrow’s Advanced Markets Intelligence blogticle will continue with discussion on the national budget in order to provide you intelligence talking points when asked about the national debt beyond the generic that you may glean from news media.

We invite your opinions and comments by posting them below, or by calling the Panel of Experts

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[1] The full study may be obtained by linking to: http://www.gao.gov/new.items/d1152.pdf.  Last Accessed 2/13/2011.

Why is this Topic Important to Wealth Managers? Provides an overview of the cost of compliance in regards to the federal income tax.  Discusses industry positions in relation to complexity and efficiencies.  Presents data and draws astonishing conclusions about total cost of tax compliance.  Read on to find out more.

“The federal tax system imposes a wide range of recordkeeping, computational, and filing requirements upon businesses and individuals.”  As many of us in the industry already know, “[c]omplying with these requirements costs taxpayers’ time and money.” [1] At the other end of the spectrum, the complexity of the tax code presents opportunity for those who understand it, and can explain it, to those who cannot.  “The Tax Code becomes more complex every year – especially this year with so many new tax credits and other rules as the federal government attempts to provide some taxpayers with relief during the economic downturn,” states National Society of Accountants president Robert L. Cross.  [2]

Has it always been this complex?  The short answer is no.  In 1913 the first year of enforcement of the present income tax code as we know it today, the actual law and regulations was comprised in total in a 400 page textbook.  It has been found that “the tax code really didn’t explode in complexity until World War II.” [3] In 1939 the tax code was a mere 504 pages, but by the end of the war it was up to 8,200 pages in 1945.  Since that time, “the number of pages in the U.S. federal tax code has grown at a near-steady exponential rate of 3.28% per year.” [4] Estimates project then that the total volume of the code, regulations and other administrative material this year is approximately 71,684 pages in length. [5]

Even government officials note the “tax code has grown so long that it’s challenging even to figure out its length.” [6] A study of the tax code conducted in 2008 by the National Taxpayer Advocate report “pegged the code at around 3.7 million words.” [7]

Like a sophisticated syntax that has developed over time, when the “tax laws become more complex, so necessarily does the language needed to describe them to the public.” The Tax Foundation gives an example, stating, there are at least 5 different definitions of who qualifies as [a] child for tax purposes, and all these definitions are required by the laws that Congress has passed over the years.” [8] As author reasonably concludes, “Congress cannot craft a 3.7 million word document and expect the results to be ‘clear and concise.’ ” [9]

So what effect does the enforcement of the taxes have on the taxpayers (not including taxes themselves)?

The average cost for the preparation of an itemized Form 1040 and state return is $229 nationally. [10] An “s-corp” is in the neighborhood of $665 whereas filing an Estates Form 706 could cost up to an average of $2,044. [11]

“There are between 900,000 and 1.2 million paid preparers nationwide” [12] Interestingly enough, only 25% of tax professionals are Certified Public Accountants. [13] However, the IRS plans to “create a public database of registered preparers for consumers.”  [14]

The most recent estimates available purport to contend that individuals, businesses and nonprofits “spend an estimated 6 billion hours complying with the federal income tax code.” [15]

The Government Accountability Office (GAO) estimates the total individual and corporate compliance cost (using the lowest available estimates) “yields a total roughly 1 percent of GDP per year.” [16]

The GAO also notes, the tax system “results in economic efficiency costs.”  “These costs occur when tax rules cause individuals to change their work, savings, consumption, and investment behavior in ways that ultimately leave them with a combination of consumption and leisure (now and in the future) that they value less than the combination they would have obtained under a tax system that did not alter their behavior.” [17]

The two most comprehensive studies used by the GAO in regards to efficiency “show costs on the order of magnitude of 2 to 5 percent of GDP each year (as of the mid- 1990s).” [18]

As of the most recent estimates (2008), the United States Gross Domestic Product was $14.591 trillion. [19] This data means that the “compliance” related costs are currently estimated at $145 billion.  The “efficiency” costs are approximately $291 Billion to $729 billion annually.  The high estimates then yield a total of tax cost to society (not including actual taxes paid) of approximately $1.165 trillion dollars 2010, relatively using 2008 GDP data.

Tomorrow’s blogticle will continue to discuss taxation.

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

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[1] “Report to Congressional Requesters- Summary of Estimates of the Costs of the Federal Tax System”. At 3. United States Government Accountability Office.  GAO-05-878. August 2005.  http://www.gao.gov/new.items/d05878.pdf.  Last Accessed 10/17/2010.

[2] “Survey Finds Tax Prep Fees Average $229.” WebCPA. December 16, 2009.

http://www.webcpa.com/news/-52744-1.html.  Last Accessed 10/17/2010.

[3] “The Growing Complexity of the U.S. Federal Tax Code.”  Politicalcalculations.com.  March 11, 2010. http://politicalcalculations.blogspot.com/2010/03/growing-complexity-of-us-federal-tax.html.  Last Accessed 10/17/2010.  Citing CCH Standard Federal Tax Reporter.

[4] “The Growing Complexity of the U.S. Federal Tax Code”.

[5] Id.

[6] Mark Robyn.  “Who is Really to Blame for Bewildering Tax Rules?”  Tax Foundation.  Tax Policy Blog.  March 12, 2010.  http://www.taxfoundation.org/blog/show/25987.html.  Last Accessed 10/17/2010.  Citing, Nina Olson, the National Taxpayer Advocate at the IRS.

[7] Mark Robyn.  “Who is Really to Blame for Bewildering Tax Rules?”.

[8] Id.

[9] Id.

[10] “Survey Finds Tax Prep Fees Average $229.” WebCPA. December 16, 2009.

http://www.webcpa.com/news/-52744-1.html.  Last Accessed 10/17/2010.

[11] “Survey Finds Tax Prep Fees Average $229.” WebCPA.

[12] Ryan J. Donmoyer.  “H&R Block, Jackson Hewitt Must Register With U.S. IRS (Update3)”.  Bloomberg.  January 4, 2010.  http://www.bloomberg.com/apps/news?pid=newsarchive&sid=amNva7FXtukM.  Last Accessed 10/17/2010. Citing the Internal Revenue Service.

[13] “Survey Finds Tax Prep Fees Average $229.” WebCPA.

[14] Ryan J. Donmoyer.  “H&R Block, Jackson Hewitt Must Register With U.S. IRS (Update3)”.

[15] Mark Robyn.  “Who is Really to Blame for Bewildering Tax Rules?”

[16] “Report to Congressional Requesters- Summary of Estimates of the Costs of the Federal Tax System”.  United States Government Accountability Office.  GAO-05-878. At 3. August 2005.  http://www.gao.gov/new.items/d05878.pdf.  Last Accessed 10/17/2010.

[17] “Report to Congressional Requesters- Summary of Estimates of the Costs of the Federal Tax System”.  United States Government Accountability Office.  At 3.

[18] Id at 4.

[19] Gross Domestic Product.  U.S. Dollars.  Source World Bank, World Development Indicators. Last updated October 1, 2010. http://www.google.com/publicdata?ds=wb-wdi&met=ny_gdp_mktp_cd&idim=country:USA&dl=en&hl=en&q=us+gdp.  Last Accessed 10/17/2010.

Why is this Topic Important to Wealth Managers?  Discusses the general market conditions of life settlements.  Also provides reasons why some policy holders may consider selling their interests.   

As discussed earlier this week, a traditional life-settlement transaction consists of an third party purchasing an unknown individual’s life insurance policy for consideration.  The purchaser continues to pay the premiums until a death benefit is collected, the contract is sold to another individual or business, or is surrendered. 

The Wall Street Journal attributes the creation of the industry “back to the 1980s, when [terminally ill] patients sold their policies to raise cash for medical treatments.”   The Journal also notes, the “market boomed earlier this decade, as hedge funds eager for offbeat alternative investments piled in.”  [1]

Since the decline in overall macroeconomic market conditions, “the total face value of policies purchased in the secondary market fell to $7 billion in 2009 from $13 billion in 2008”.  “Prices for policies, meanwhile, fell to an average of 13% of the death benefit in 2009 from 21% in 2006.” [2]  Nevertheless, industry experts are expecting a rise again in total market figures by the end of 2010.  It is not surprising given the SEC’s new enforcement efforts discussed below. 

There is significant data nevertheless that consumers “benefit from a robust secondary market for life policies.”[3]  “Before the life-settlement industry grew, life-insurance companies were the sole buyers of unwanted policies. Now consumers have a choice, and the chance to get more if they cash their policies in.” [4]  “Selling an insurance policy frees up cash for current needs, such as pricey long-term-care insurance, especially if the policyholder doesn’t have other assets that can be easily liquidated to pay the premiums.” [5]

There are a number of “factors that would induce a policyowner” to decide to sell their policy to a third party.  First, a “policyowner might not be able to afford to keep a whole life policy in force before death—especially if his income stream unexpectedly declines or if the premiums increase or both.” [6]  Secondly, a policyholder might own multiple policies and no longer have an insurable need for that amount.  Other reasons may include but are not limited to: [7]

• The beneficiary for whom the policy was originally purchased is now deceased or no longer has a need for the policy.

• A reduction in the value of the policyowner’s estate reduces the tax liability for which the life insurance policy was designed to provide.

• The policyowner wishes to donate highly appreciated assets to charity, but would be faced with liquidity constraints as the result of such a donation.

• The policyowner can no longer afford to pay the premiums on the policy, and it is not feasible for him to keep the policy in force by using any program offered by the insurance carrier (such as borrowing the premium against the death benefit of the policy)

Just last month the Securities and Exchange Commission released a report “recommending that life settlements be clearly defined as securities so that the investors in these transactions are protected under the federal securities laws.” [8]  The new regulation would encourage more investors to consider life settlements as viable investments.

Next week’s blogticles will discuss the taxes Americans pay generally.  After-all Halloween is approaching and the subject is rather scary. 

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

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[1] Anne Tergesen and Leslie Scism.  “Life Insurance: Think Before You Sell Your Policy for Cash”.  Wall Street Journal Weekend Investor. September 18, 2010.  http://online.wsj.com/article/SB10001424052748704190704575490070397807704.html?KEYWORDS=life+settlements.  Last Accessed 10/15/2010. 

[2] Wall Street Journal noting a Recent Report by the U.S. Government Accountability Office. 

[3] Hal J. Singer, Eric Stallard.  “Reply To The Life Settlements Market: An Actuarial Perspective on Consumer Economic Value” at 2.  2005.  https://www.lifesettlementfinancial.com/pdf/Reply_Deloitte_Study.pdf.  Last Accessed 10/15/10. 

[4] “New Lease onLife: The Secondary Market in Life-Insurance Policies is Good for Consumers”.  The Economist.  May 17, 2003.

[5] Rachel Silverman.  “Recognizing Life Insurance’s Value”.  Wall Street Journal.  May 31, 2005. 

[6] Singer at 17. 

[7] Id. 

[8] SEC Releases Report of the Life Settlements Task Force 2010-129.  http://www.sec.gov/news/press/2010/2010-129.htm.  Washington, D.C., July 22, 2010.  Citing, “Staff Report to the United States Securities and Exchange Commission”.  July 22, 2010.  Life Settlements Task Force.  http://www.sec.gov/news/studies/2010/lifesettlements-report.pdf. 

The federal government is taking the first steps toward regulating financial planners. The Financial Planning Association and other industry groups are welcoming the prospect of federal oversight. The federal push toward regulation is motivated by a perceived widespread misuse of �Financial Planner� and other similar designations.

The Wall Street Reform Act requires the Government Accountability Office to study state and federal regulation of persons who hold themselves out as financial planners. The study will consider whether there are regulatory gaps in federal and state law that permit unregistered financial planners and others who provide planning services to escape regulation. The use of �misleading titles, designations and marketing materials� by financial planners will also be scrutinized to determine whether current law adequately protects consumers.

Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the Dodd-Frank Wall Street Reform Act in Advisor�s Journal, see Dodd-Frank Wall Street Reform and Consumer Protection Act (CC 10-35), Hedge Fund Must Now Register with the SEC Under the New Wall Street Reform Act (CC 10-45), & The Federal Insurance Office.

We invite your questions and comments by posting them below or by calling the Panel of Experts.

Related articles

• “Financial Stability Oversight Council Holds Inaugural Meeting” and related posts (treas.gov)