Page 3 Profile
J. Dean Garber
Moving Money
by Carolyn S. Ellis
J. Dean Garber is Second Vice President, Life & Annuity, The Phoenix Companies, Inc. Based in Charlotte, N.C. Garber is responsible for developing life and annuity sales nationally, life and annuity product and market growth initiatives, and other marketing functions including advanced planning sales concepts. Prior to joining Phoenix in 1995, Garber worked as an independent personal producing agent. With 24 years in the business, he talks with us about an updated wealth planning strategy for today's uncertain economy.
L&HA: Our topic today is Legacy Capital Management. Is that a generic term?
JDG: Legacy Capital Management is Phoenix's term for a technique to reposition more volatile assets to give a more diversified and stable portfolio. There are other names for the concept, such as wealth or estate stabilization. Given the almost-unprecedented volatility we have experienced recently, we wanted to highlight the benefits and bring the terminology up to date to help people understand.
L&HA: Is this a new concept?
JDG: I would call it an often-neglected approach to estate planning. Our economy is cyclical, so things come back into vogue that we haven't paid attention to as astutely as we could have. In the booming economy we enjoyed for the last eight to 10 years, it was easy to neglect some more prudent aspects of estate planning.
L&HA: What products are used for Legacy Capital Management?
JDG: Some form of life insurance, typically a cash value policy with guarantees. Insurance product selection will depend on the risk tolerance of the customer, but a common form is universal life with guarantee. It's important to have a trusted advisor who understands the concept and will utilize the correct vehicle for the client. Diversification and life insurance help reduce the impact a volatile market or low interest rate environment can have.
L&HA: Are annuities involved at all?
JDG: Annuities could be one of the assets to be repositioned, depending on what type of annuity the customer has.
L&HA: What does an agent need to sell this?
JDG: Licensed life insurance agents do not need a securities license. They need to be licensed with Phoenix to sell our products and to have access to our materials, but it is a concept any advisor that works with a quality company could use.
At Phoenix we have sales materials that help illustrate Legacy Capital Management graphically and with numbers. Our conceptual software tells the story and then, with the client's information, provides a customized illustration that shows how it works for them.
L&HA: What's the target market?
JDG: Typically people who are doing estate planning. These could be people in their 50s, but more likely they are seniors in their 60s or 70s, in or near retirement. They are taking stock of what they have and what they'll need to live their remaining lives and maintain lifestyle. For Americans who are that "millionaires-next-door," who have done very well but don't lead a lavish lifestyle, when they get to this age they often want to give back to their children, their grandchildren, or an organization that is important to them.
If they were planning to leave a million dollars or more in an equity fund and all of a sudden it's half of what it was, or if they had three rental properties in Arizona and all of a sudden they are worth half of what they were, that's where the legacy capital concept comes into play.
Using life insurance has a zero correlation to anything going on in the equity markets or real estate. Life insurance can immediately, with the stroke of a pen, take someone's estate and get it back to where it was, pre-2008, and it can make sure you don't ever see that drop again.
L&HA: Are there underwriting issues with older clients?
JDG: Financial underwriting will be based on income or net worth. We don't usually find financial underwriting issues around this concept. If the policy is to be joint and survivor, medical underwriting will be done on both spouses. With joint and survivor you always get more for your money.
L&HA: Does the premium stay level?
JDG: Most people choose a level type of premium either for lifetime or for a limited pay, like 10 or 20 years. Looking at life expectancy, you usually get some of the best internal rates of return on a "level pay forever" scenario. If there's an early death, they haven't used that much of the estate. But some people like to be "once-and-done". They don't want to worry about annual premium payments. If it's going to be paid out of the death benefit, you don't have to worry about modified endowment contracts.
L&HA: What are some ways to reposition assets to purchase the life insurance?
JDG: If equities are over-weighted in the portfolio, those are great assets to reposition because they are highly correlated to the financial markets. At the other end of the spectrum, some bonds and certificates of deposit have pretty low rates of return. The internal rate of return offered by life insurance is typically more attractive. With life expectancy, you are looking at internal rates of return of life insurance on a before-tax basis being 10 to 12 percent.
A third area is annuities, IRAs, and qualified plans because those assets can be subject to income and estate taxes at death. Life insurance is a more tax-efficient transfer vehicle. We often see single individuals, widows or widowers, who did A/B trust planning early on and are left with B Trusts. Sometimes selling income-producing assets inside a trust to purchase cash value life insurance can help.
L&HA: Do clients need to worry about outliving their money?
JDG: Let's take a couple at age 65, with a life expectancy in the mid-80s. They sit down with their advisor and find that with their pension plan, Social Security, and IRA resources they have plenty of money to maintain lifestyle with prudent investing to age 85 or 90. They see that they have what we call "never money," money they never expect to need. They designate that money for their grandchildren's college tuition or for a religious institution.
Let's cycle ahead 20 years. They're both age 85 and healthy and have used up quite a bit of their retirement assets. They could live to be 100 or older. The great thing about Legacy Capital Management is if they need money to live for the next 20 to 25 years, they are not going to be taking it away from those individuals and institutions they want to benefit at death.
Life insurance provides the "one percent solution." That is, for approximately one percent of the value of your estate each year, you can assure a nice bequest while keeping 99 percent intact. Over a period of 20 years you may have used 20 to 40 percent of your portfolio set aside for charitable or estate purposes to provide the life insurance, but another 60 percent is liquid. It's there if you live longer than expected.
