Westward Group for Tax and Estate Planning Advisors Tokyo News: Discuss Your Financial Planner

Why You Should Discuss Health With Your Financial Planner

A common reason to visit a REAL financial planner is to make certain you save enough for retirement and to decrease the chance you will run out of money once your paychecks stop. The outcome depends highly on one factor many financial planners are reluctant to discuss – your health status.

Understanding your health is important because it allows us to estimate your longevity. And estimating how long you will live is important because it determines how much you need to save and how long your money is going to last. After years of attending financial planning conferences, I’ve learned that financial planners determine longevity in a number of ways that do not take health history into account. Many are uncomfortable talking about health issues, and I dream of the day all financial planners discuss your health status as easily as they discuss your financial status. So what do financial planners do now to determine your life expectancy?

Age 100 for everyone

A speaker at one prominent conference instructed the attendees to use longevity of age 100 for everyone. EVERYONE. I couldn’t help but question him, “Even if your client is a 50 year old morbidly obese diabetic smoker with a history of heart disease, you would use age 100?” He emphatically stood by his remark. You never know the advances of medical science.

What is the problem with this approach? People with significant health problems may be cajoled into over-saving for their future. Most likely, the client will see this approach as misguided, and move to another planner. It is a disservice to people who have minimal to no chance of reaching three figures in the realm of age.

Standard life expectancy tables

Some financial planners and financial planning software use a standard life expectancy calculator that does not take any factors into account other than your current age. For example, at age 49, there is a 50% chance I will live to age 85.5. Given that I live a very healthy lifestyle, that number makes me a little nervous. As a physician, I clearly know my life expectancy is easily age 100. However, if I have a history of heart disease and diabetes, and refuse to put away the Fritos and beer, I would not believe I could live to age 85. Any planner who tried to convince me otherwise and tried to make me save more has just alienated me. Instead of saving more, I will buy expensive Blue Moon beer instead of Pabst Blue Ribbon. Clearly, a standard life expectancy calculator is inadequate.

So what life expectancy should you use?

If you live a totally healthy lifestyle – normal weight, non-smoker, eat a healthy diet and exercise regularly, age 100 is a good choice. There is no need to get fancy. You and your planner can go from there.

However, if you have any health concerns, I recommend you discuss these with your financial planner and have them incorporate a more refined life expectancy calculator that takes into account lifestyle and family history. One calculator I have used often is livingto100.com. This calculator asks in-depth questions about lifestyle, family history, and various other factors that relate to longevity. Putting in my “real” information, my life expectancy is age 102. Changing my information to make me an overweight, beer guzzling, junk food eater and smoker changed my life expectancy to age 63 – a significant difference.

Livingto100.com is funded by ads, and has the regular mumbo jumbo about privacy, but in reality, it doesn’t know whether the information I provided is real or not. The last thing it knows about me is that I live hard and will die young. I’ll let you know if I receive ads for Fritos or smoking cessation therapy.

Talk to your planner about your health

As you can glean from this short example, financial planners should know your health history. In addition to longevity planning, a health history is important for health care expense planning, long term care discussions, disability insurance, estate planning, and the very important event of preparing you for the curve balls health problems may cause.

A bona-fide financial planner has a fiduciary duty to you – which means they are legally bound to work in your best interest. If your financial planner is a true fiduciary, health care discussions should be expected and welcome in creating your financial plan. As more clients expect health care discussions as an overall component of their financial plan, more financial planners will provide plans that more closely mirror real life and we will all be better for it.

Westward Group for Tax and Estate Planning Advisors Tokyo News: Scope for tighter regulation of investments

Scope seen for tighter regulation of insurance-linked investments

Regulation of the financial sector in Hong Kong does not properly protect retail investors and should be tightened, said a lawmaker who oversaw the drafting of the relevant legislation more than a decade ago.

Sin Chung-kai, who was chairman of the legislative committee responsible for the Securities and Futures Bill, published in late 2000 and enacted in 2003, says the city's two-tier system of regulation has created gaps, leaving the potential for unlicensed products to be sold undetected.

"I do not have any intention to escape my responsibilities. Supervising these selling activities seems to be insufficient," Sin told the South China Morning Post when asked about a clutch of mis-selling scandals that have reverberated through the expatriate-focused wealth management industry in recent years.

Some US$10.3 billion in new money was invested in licensed funds last year, according to data from the Hong Kong Investment Funds Association, which does not track unlicensed funds.

Many unlicensed funds are marketed directly to retail investors by firms that take advantage of a two-tier regulatory structure that gives investors different types of protection depending upon which regulator oversees their adviser and investment account.

Hong Kong's rules assign supervision of certain investment products, known as investment-linked assurance schemes, to self-regulated insurance bodies with limited authority, rather than the Securities and Futures Commission, which has search and seizure powers.

This means the SFC's safeguards governing the sale of unlicensed funds to ordinary retail investors do not apply to savers using an investment-linked assurance schemes account, known as a portfolio bond.

Some HK$7.4 billion was invested in single premiums, including portfolio bonds, in 2012, according to the Insurance Commissioner. Many investors were unknowingly exposed to the risk of near total loss without any regulatory defence to help them get back their cash.

One such example is the collapse last year of Australian fund house LM Investment Management, which had a reported A$3 billion (HK$21.7 billion) in assets before its implosion. Its flagship Managed Performance Fund is now valued at 5 Australian cents on the dollar. The firm is under investigation as Australian authorities work out what happened.

LM products were sold in Hong Kong via investment-linked vehicles, exempting them from the regulatory scrutiny they would have received if they were marketed to ordinary investors.

SFC rules require Hong Kong resident investors to sign a form and prove they have HK$8 million in liquid assets before buying such a fund. These rules do not apply to portfolio bonds.

ILAS products combine insurance, investment, and estate planning structures and are especially targeted at expatriate investors.

"ILAS are expressly captured as insurance contracts under the Insurance Companies Ordinance," SFC senior director Stephen Tisdall said.

"The regulatory design is clear and deliberate, with the Securities and Futures Commission neither having the power to license intermediaries conducting ILAS business, nor having the powers to inspect, investigate or discipline them in connection with the manner in which they conduct that business."

Since the financial crisis, more than 80 unlicensed funds marketed via ILAS products have been suspended. Affected are fund houses including LM, Glanmore, Frontier Investments, Castlestone and Capricorn, as well as student accommodation funds from Brandeaux and Mansion.

In several cases, investors said they were not told the funds were unlicensed before sale, a breach of insurance regulations.

While a fund's suspension does not always denote problematic behaviour by fund managers, it can result in investors waiting years to get their money back.

LM's collapse is especially pertinent, as its funds were marketed as low-risk and sold to savers approaching retirement. The Managed Performance Fund paid 9 per cent commission to advisers and started delaying payouts to clients from 2009 - four years before its collapse - advisers and LM founder Peter Drake said.

The firm's generous commissions, roughly three times the industry average for similar products, encouraged financial planners to promote the fund, advisers said.

Investors were never told about the redemption problems, said Graham Smith, founder of the LM Investor Victim Centre, which helps represent LM investors in Hong Kong and overseas, many of whom had large holdings in the fund house, with little or no diversification.

In many cases, the advisers disappeared the moment LM failed, Smith said.

Hong Kong's rules put the responsibility for completing due diligence checks on such products squarely on the advisory firm. This assumes each firm has the capabilities to do the legwork needed to review an unlicensed fund.

"You have to go in and kick the tyres," said Mark Konyn, the chief executive of Hong Kong-based institutional investment firm Cathay Conning Asset Management.

"If it's a company you have not really heard of and it's a long way away, the onus is to do extra due diligence at the outset to make sure you are not buying a lemon."

A beefed-up Insurance Authority is set to take over regulation of the insurance sales sector by next year.

Sin welcomes the move but encourages the government to look again at the regulation of investment advice in the insurance sector. "After 13 years, it is time the government should review," Sin said.

HK's two-tier regulation puts some investors at risk, especially with insurance-linked funds, says lawmaker who helped set up framework.

Westward Group for Tax and Estate Planning Advisors Tokyo News: The 5 biggest blunders

The 5 biggest estate-planning blunders

You've worked hard for what you have. You funded your retirement plan, paid off your home and amassed enough savings to cover future expenses, plus leave a financial legacy to your loved ones. Too bad your ex-spouse—and his or her kids—will inherit it all.

Indeed, estate-planning blunders are costly and common, even among the fiscally prudent. Any number of oversights can leave you vulnerable in the event you become incapacitated. Others can seriously compromise the amount your heirs will inherit when you die.

"I could tell you horror story after horror story," said estate-planning attorney Sandra Clapp, of Sandra L. Clapp & Associates in Eagle, Idaho. One of her clients, she said, made the critical mistake of giving his girlfriend partial control of his assets during his lifetime.

Unbeknownst to him, she had promptly transferred ownership of a significant portion of his estate to herself. The man's will named his children as beneficiaries, but there was little left to distribute when he died. "Once it's discovered, it's usually too late if the assets are already spent or transferred out of jurisdiction," Clapp said.

If you wish to ensure that your estate does not fall prey to predators, creditors or taxes, keep reading to be sure you're not committing the five cardinal sins of estate planning.

1. Picking poorly

Many people forget that estate planning is a two-part process. Half of the documents you draft provide instruction for divvying up your estate after you die, but the other, and potentially more important, half outlines directives for handling your finances and medical care if you become disabled.

Think long and hard, said Clapp, about whom you select as your durable power of attorney and medical power of attorney. Your life is literally in their hands.

"One of the biggest mistakes that can occur is picking someone not trustworthy or qualified to act on your behalf," she said. "You can put the best estate plan into place, but if you pick the wrong person to help execute it, it doesn't matter."

It's a mistake, for example, to pick your eldest child out of a sense of duty, when your youngest child may be more responsible or likely to make better decisions.

You should also consider proximity and be prepared to amend your powers of attorney as needed.

"Maybe you picked the child you live closest to now, but they later move halfway across the country," Clapp said. "It's no longer reasonable to ask them to be your medical power of attorney. Too many people create these documents one time and forget about them."

Remember, too, to ask permission before naming someone your power of attorney. The person you selected may not want the job or feel up to the task, and he or she certainly doesn't want to be surprised by the designation after you pass.

One final tip: Make sure you sign a Health Insurance Portability and Accountability Act release, which allows medical professionals to discuss your health with your designated representative.

2. Leaving your IRA to your estate

Do not—repeat, do not—name your estate as your individual retirement account beneficiary or it will be subject to claims and creditors during probate, the legal process for settling your estate.

When you die, your individual retirement account would be used to pay off any debts in your name. Whatever money remains, if any, gets distributed to your heirs—and not in a timely fashion. Probate is costly and can take years to complete.

"If the deceased had bad credit card debt or is upside down on a loan, the entire IRA could be used up," said certified financial planner and estate lawyer Austin Frye, founder and president of Frye Financial Center.

However, naming a live person—or all of your children equally—instead as the IRA beneficiary allows those assets to pass outside of probate free and clear, away from hungry creditors, Frye said.

Another reason not to leave your IRA to your estate is that it denies your heirs the ability to let those assets grow.

How so? Non-spouse heirs can normally either liquidate an inherited IRA and pay taxes within five years of the owner's death, or "stretch" their required minimum distributions—and tax bite—out over their lifetime.

The stretch option is far more valuable, since it enables the account to continue earning compounded interest for decades to come.

By failing to name a person as your beneficiary, your heirs lose that ability to stretch and must distribute the IRA assets within five years, Frye said.

3. Forgetting to update beneficiaries

Another financial folly? Failing to update your beneficiary forms after a divorce or death in the family.

This is particularly critical where IRA beneficiaries are concerned.

For example, if you update your will but forget to change the designated beneficiary to your IRA, the person named to your IRA is legally entitled to that asset when you die. That could be your estranged ex, who can then leave that money to his or her own children from another marriage.

Thus, it's important to review your designated beneficiaries on all documents (including retirement accounts and life insurance) after every life event and be sure they all reflect what's written in your will, said Bill Dendy, an estate attorney, certified financial planner and president of Elite Financial Management.

"People circumvent their own will all the time," he said. "They'll indicate in their will that they want their assets divided equally among their three children, but then they go and name one child as the beneficiary to their IRA account and another to their house or a joint bank account.

One client, he recalled, left jumbo certificates of deposit to each of his four sons but then forgot and spent down one of the CDs, leaving that beneficiary out in the cold.

If you plan to divide your estate equally among your kids, said Dendy, each beneficiary form for each of your accounts should indicate that the assets are to be divided equally among your children.

4. Failing to sign a health-care directive

Equally egregious, where estate planning is concerned, is failing to create an advance health-care directive, also known as a living will. This document lets your family, physicians and friends know what your end-of-life preferences are, as far as procedures such as surgery, organ donation and cardiopulmonary resuscitation are concerned. In short, it's the piece of paper that tells them whether to pull the plug or not.

Such guidance spares your family the emotional angst of having to guess at your wishes when they are already under stress.

"We are an aging society and with that comes the potential for loss of capacity and ability," Clapp said. "Without these documents, it's a much more complicated process and it opens the possibility that your family will disagree over what they believe your wishes are and who should be in charge."

That's doubly true if you remarried and your spouse and children are at odds, she said.

Keep a copy of your signed and completed health-care directive safe and accessible to ensure that your wishes will be known and carried out at the critical moment. Give a copy to your attorney or family members as well.

Frye agreed, explaining that this should be done with all estate-planning documents. Many people, he said, park their paperwork in a safe deposit box, forgetting that the bank is not allowed to release the contents of that box to beneficiaries until probate is complete. By then, the funeral is over and assets divided according to state law.

5. Leaving a living trust unfunded

A living trust, which allows you to pass assets to heirs outside of probate, can be a valuable estate-planning tool. But it won't do you a bit of good if you fail to put assets into the trust.

Once you set up a living trust, you must retitle your assets under the name of the trust, Clapp said.

"There's a lot of misunderstanding with individuals when it comes to trusts," she said. "Many people think that the schedules attached to the trust, which asks them to list the assets they will transfer, means they've actually transferred those assets. That's not the case. The schedule merely indicates which assets you intend to transfer."

You must still take steps to physically change the title of those assets under the name of the trust. For real property, Clapp said, that involves changing the deed. For assets such as stocks and bank accounts, the accounts must be retitled by the financial institutions where they are held.

And, of course, don't delay

This one's just a bonus, but certainly worth a mention.

Many people delay estate planning, partly because it's unpleasant to contemplate our own mortality, partly due to the expense, and partly because younger adults believe such paperwork isn't necessary until they reach old age.

Big mistake, especially if you have small children.

"If you don't create an estate plan, you're letting the courts decide how to divide your assets, which may not reflect your wishes, particularly if you have children or specific distribution desires," Clapp said. "If you wish to donate to charity, for example, the courts aren't going to grant that unless it is specified in your will. Without a road map, it just makes it much more difficult for everyone."

Postponing the process may also limit your ability to maximize the amount you leave to your heirs.

"If you wait too long, some of the best planning opportunities may be gone," said Clapp. "For taxable estates, you could have gifted money or restructured assets."

The biggest estate-planning mistakes can be easily avoided with a few signed documents and some vigilance. Because of the complexity involved, however, Dendy of Elite Financial Management says it's vital that legal counseling be used.

"This is one of those areas where it's even more expensive if you don't take care of it correctly," he said. "Just know what you're asking for and what it is that you want."

Westward Group for Tax and Estate Planning Advisors Tokyo News: Japan Sales Tax Rise

Japan Trade Deficit Surges before Sales Tax Rise

Slight Rise in Exports Overpowered by 18.1% Import Jump

TOKYO—Japan's trade deficit increased sharply in March, suggesting that an early turnaround in the trade balance may be further away than had been hoped for.

While some of the increase was due to a temporary factor—higher spending ahead of the April 1 sales tax increase—exports were also weaker, especially to Asia, presenting a new challenge to Prime Minister Shinzo Abe's efforts to revive the economy.

Finance Ministry data showed Monday that exports grew only 1.8% from the year before, despite a 9% fall in the yen against the dollar. A weaker yen lifts the nominal value of exports when expressed in yen terms. Exports fell 12.5% to Thailand, 7.2% to Indonesia and 6.2% to South Korea.

Stripping out the effects of the weaker yen, exports fell 2.5% in volume terms, the biggest drop in nine months. Export volumes fell to all regions except the U.S.

With imports being pushed up by spending ahead of the April 1 sales tax rise, the trade gap ballooned to ¥1.45 trillion ($14 billion) in March. The figure was the largest ever for the month and marked a record 21 straight months of shortfalls.

The massive deficit, which compares with a gap of ¥356.9 billion a year ago, was much worse than the median forecast of a ¥1.07 trillion deficit in a survey of economists by The Wall Street Journal and the Nikkei.

Imports jumped 18.1% from the previous year, outpacing the 1.8% rise in exports. The economic slowdown in China and Thailand has depressed demand for Japanese machinery and auto parts. The continued move to offshore production in countries like Mexico also apparently dented overseas demand for Japanese-produced autos and electronics.

The weaker exports are in line with downbeat views from the International Monetary Fund, which earlier in April trimmed its global growth estimate to 3.6% from 3.7% for 2014, citing a more modest pickup in growth in emerging economies.

Japan's trade balance has been deteriorating steadily over the past three years, in part due to a surge in fossil-fuel imports following the March 2011 nuclear accident in northern Japan. The deficits started to swell under the Abe administration, as his policy of weakening the yen lifted the import bill without similarly raising exports.

The import growth suggests domestic demand will stay strong, even after the sales tax goes up, as most of the items imported in March were to stock shop shelves for April or later, government officials said.

Other economic data point to an early rebound in consumption. Year-over-year declines in appliance sales narrowed to 2% in the second week of April, from 19% in the first week. Those in sales of food and beverages narrowed to 10% from 17%, according to the Cabinet Office.

If imports remain strong, it is even more critical that exports recover for Japan to fix its trade balance. But with China's economy slowing, Thailand in political turmoil, and the rest of Southeast Asia still grappling with tighter credit following the U.S. move to reduce its monetary stimulus, a quick recovery in exports looks difficult.

"Japan will make every effort to increase trade with emerging economies, including through the Trans-Pacific Partnership," said Yoshihisa Furukawa, senior vice finance minister, on Monday, referring to U.S.-led free trade talks now being negotiated. The U.S. and Japan, the two biggest participants in the initiative, have been negotiating intensively in the past month to reach a broad agreement on the pact.

Some economists now warn of prolonged trade deficits.

"It remains difficult for exports to recover even if overseas economies improve. There is a risk of increasing imports and ballooning trade deficits," said Junko Nishioka, chief economist at RBS Securities Japan.