Advisor Strategies in 2013

Managing client expectations amid swirling change

by Edward J. Mazur, CLU, ChFC

Mr. Mazur is President of Professional Investors Life & Annuity, LLC. He can be contacted directly at 860-678-7806 or by e-mail at [email protected].  

Last month, as we enjoyed unusually warm early December weather, it struck me that the calm before the storm was here. Soon the cold Arctic blasts will blow and we will all be shivering.

The same could be said about the fiscal cliff. It’s the calm before the storm. With the November elections over, President Obama was reelected, along with a Democratic majority in the Senate. Just this morning we heard Timothy Geithner say the Democrats were willing to take the country over the cliff! Madness!

On January 1, 2013, unless Congress and the President act, changes will take place. These changes will put the financial future of our clients in jeopardy.  These changes are all so sweeping and devastating, that most of the population won’t pay attention to them, thinking this won’t affect me, it will affect someone else.


There are three key areas I want to touch base on, and then end with some common sense advice for all of you.

  • Federal Estate Taxes
  • Rising Income and Capital Gains Taxes
  • Go back to your roots


1.  Federal Estate Tax – As it stands today, the $5,120,000 federal estate tax exemption will change to $1,000,000 on January 1, 2013 and the top marginal rate will rise from 35% to 55%.

So today your valued client, age 73 has an estate worth $3,000,000 comprised of the following holdings:


Life Insurance

$   250,000.00

Home & Furnishings

                      $ 500,0000.00

Investment Portfolio


Total Estate


Taxable Estate in 2012 =

                      $              0.00

Taxable Estate on January 1, 2013



And if your client is one of the many small business owners out there, their business will also be included in the Taxable Estate, and if the don’t have an IRS acceptable valuation number, the IRS will be happy to calculate a value to the business.  And we all know that their valuation will be fair and accurate.

So, planning opportunities abound in 2013:


  • Talking to clients and prospects about how to legally minimize their Federal Estate Tax problem.
  • Talking to business owners about their need for a property drafted and valued Buy Sell agreement that sets a business valuation that Mr. IRS will accept as accurate and valid.


2.  Rising Income & Capital Gains Taxes – What an opportunity to talk some common sense with your clients. It would seem obvious to me, that everyone understands that if income taxes and capital gains are going up, it might be a good idea to invest in tax deferred vehicles. Especially if the alternate is a CD paying 1%! We know that $1,000 of earnings is taxable at those increased tax rates! For the CD investor, perhaps a fixed equity annuity is an appropriate alternative choice?

The Variable Annuities out there are also possible alternatives for your clients to consider, that provide deferred taxation. Add in the optional living benefits riders that are still available with some carriers and you’ve got a very compelling option, for client consideration.

3.  Go Back To Your Roots – I can’t tell you how many advisors I talk to, that rave about an old friend, Whole Life Insurance. Most started in the business, selling Whole Life Insurance, but eventually succumbed to the siren call of Universal and Variable Life.

And if your client is one of the many small business owners out there, their business will also be included in the Taxable Estate, and if the don’t have an IRS acceptable valuation number, the IRS will be happy to calculate a value to the business. And we all know that their valuation will be fair and accurate

The numbers of policyholders that hold Variable Life policies that are not performing to expectations are numerous. Their policies are heading toward certain lapse and most of these clients are barely aware that the contracts they hold are in trouble.

Investment performance on Variable Life has not matched expectations, and the declared rates on those old Universal Life policies bear little resemblance to the original sales illustrations.  This is compounded by the aging of this baby boomer segment of society. They are now 50 plus and getting older. With this aging process come medical impairments!

So we’re looking at prospects that have existing policies, that don’t know the policies could lapse, and all the while they are getting older and sicker. Anyone see the problem here? Simply put, “they can not qualify for new Life Insurance”! Someone needs to counsel these folks, before it is just too late, and that someone needs to be you!

Let me close with some thoughts that might help some of you struggling in this economy.

4.  Marginal GDC Producers –Does it really make sense to be paying very high fees to a broker dealer to maintain a securities license? Some of you out there are hitting your GDC requirement, by supplementing true GDC production with life and fixed equity annuity production.

Is this intelligent? You’re probably at a low GDC payout rate, a low Life commission schedule, a low annuity commission schedule, and you pay very high fees to hold yourself out as a registered representative.

I contend it might be better, to be who you really are! If it’s a Life & Annuity Salesperson, who’s getting properly compensated by his BGA, so be it.

At a minimum get yourself to a broker dealer with fair GDC payouts, lower fees, low minimum production requirements and competitive payouts on Life & Annuity production.


Scheduled Tax Increase for January 1, 2013*

Health Care Taxes

Income Taxes

Transfer Taxes

·   3.8% Medicare Tax on Net Investment Income.  3.8% tax on the lesser of (1) net investment income (e.g., dividends, interest, rents, capital gains, passive activity income) or (2) the excess of modified AGI over applicable thresholds (e.g., $250,000 – joint filers; $200,000 – single filers).·   0.9% Increase in Hospital Insurance Tax on Wages.  0.9% increase (1.45% to 2.35%) in the employee portion of the Hospital Insurance Tax on total wages in excess of set thresholds (e.g., $250,000 – joint filers, $200,000 – single filers).·  Higher Top Ordinary Income Rates.  Increase in the top two individual income tax rates, (33% to 36% and 35% to 39.6%).·  Increased Capital Gains Rate.  From 15% to 20%.·  Higher Dividend Tax.  Qualified dividends taxed as ordinary income rather than capital gains, at rates up to 39.6%.·  Deduction Limitations.  Re-instatement of personal exemption phase-outs and limits on itemized deductions for high income tax-payers (effective tax rate increase of 1.2%).·   Higher Rates.  Reinstatement of a 55% top marginal federal estate and gift tax rate and a flat generation skipping transfer (GST) tax rate (up from 35%).·   Lower Exemptions.  Reduction in estate, gift, and GST tax exemptions to $1 million (down from $5.12 million).*·   Loss of Portability.  Loss of estate and gift tax exemption portability between spouses.*For the GST tax, the 55% applies at a flat rate, and the GST tax exemption would be approx. $1.43 million, as inflation-indexed from 1998.
*Information obtained from AALU-Washington Report Bulletin 12-50 dated 11-15-12