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Financial and retirement planning guidance from Certified Financial Planner John Teixeira and Nick McDevitt of PFG Private Wealth Management in the Tampa Bay, FL area. On this show, you’ll learn about how the financial and retirement world has evolved over the past several decades, how to properly plan for your own future, and some of the important pitfalls to avoid.
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When it comes to retirement planning, many people focus on filling in an income gap, or making sure they will have enough money to get them through retirement. While this is fundamental to the plan, it’s important to make sure your assets are protected. John and Nick will explain what investment vehicles have some sort of protection and will also give a hypothetical example.
PFG Website: https://www.pfgprivatewealth.com/
For a transcript of today’s show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/
Transcript of Today’s Show:
Speaker 1: Hey, everybody. Welcome in to Retirement Planning – Redefined with John and Nick of PFG Private Wealth, serving the Tampa Bay area. Thanks for tuning into the podcast. As we talk investing, finance and retirement, and we’re going to jump in and get started with the conversation. Guys, I hope you’re doing well. We were kind of laughing right before we started the session recording here that John’s been doing some swim lessons with his kids and it’s been going really well. And I wanted to make the joke that Nick, you finally learned how to swim.
Nick: Yeah, no, all joking aside, I can swim and swim well, but besides that-
John: You’re welcome, Nick. We’ve been doing some Zoom swim lessons [crosstalk 00:00:41].
Speaker 1: Zoom tutorials on swimming.
Nick: Yeah. I get in the bathtub with goggles and see what happens. But no, I’ve been doing well. Things are starting to slowly get back to normal from the standpoint of, I want to say last week I went out to dinner for the first time at a restaurant outside in a few months, so that was pretty cool. So things are slowly starting to get back to normal, although it’s going to be interesting is some of the numbers seem to spike here, how things will adapt over time, but no complaints, no complaints here.
Speaker 1: Yeah, it will be interesting to see as this cluster bang of a year continues to wobble on. So we’re about halfway through 2020 at this point. So we’ve still got a lot to go, so we’ll see how it shakes out. But that’s good. Glad to hear that there’s some good positive spots here and there. So let’s jump into our topic. So let’s review the importance of risk management and asset protection. Let’s just start with a basic overview, Nick.
Nick: Yeah. So for those that are listening that have been through our class that we hold at the local colleges, this will sound a little bit familiar, but we’ve had a couple of things pop up with clients and questions from friends and things like that. So we thought it would be a good topic to re-review where oftentimes people get focused on the fun or more exciting aspects of planning, which may be investments or talking about retirement and those sorts of things, but really risk management is a super important part of overall planning because really the objective is to increase your probability for success by reducing your risk. And then ultimately, overall the goal by doing that is to do it while keeping your costs down. So when we go through the planning process with clients, we do review their property and casualty insurance. We’re looking for how their accounts are titled. We’re looking and analyzing things from the standpoint of, “Are we making sure that things are protected?”
Nick: So we always like to make sure that people do realize, because it isn’t necessarily something that is top of mind and oftentimes, when you talk to people, the reality is that when they’re shopping out their homeowners insurance, their car insurance, they end up having been with the company for a long period of time. Usually it’s price dependent. So we’ve seen where people made a change to cut costs, six, seven, eight, nine, 10 years ago and now they’re in a completely different financial situation and they haven’t made adjustments to correlate to that from a risk management standpoint. So we just kind of want to walk some people through that.
Nick: So one of the first things that we review and talk about and help people to understand are that, there are certain assets that are creditor or protected in the state of Florida. This is something, again, we’re not attorneys, we’re not property and casualty agents, but these are topics that we review. And this is one of the perfect examples of something there where we can provide feedback, give you help, provide you with questions to ask and then help connect you with or you connect with an existing relationship that you have with a property and casualty agent, with an attorney if there are legal documents that need to be involved, that sort of thing. But in the state of Florida, it’s important and many people know that you can declare your primary residence as your homestead.
Nick: And there are a lot of protections built into declaring your home a homestead. So many people just focus on the tax benefits and that’s one thing, but really it provides a creditor protection and asset protection for your home. So that’s a big deal. If you own non-qualified annuities and/or have life insurance that has a cash value component to it, those are protected in the state of Florida. Qualified accounts, so in other words, 401k, IRA accounts, those accounts are protected in the state of Florida. One kind of caveat to that where we’ll have some people say, “Well, hey, I’m 60, 70 years old and I’ve got these accounts and my home, why do I need any sort of additional protection?” And one of the things that we like to remind people are that those qualified accounts, you do have to start taking money out at a certain point. And at the time that they go from qualified to non-qualified that becomes something that could be available.
Nick: From the aspect of different types of trusts, there are certain types of trusts that can be set up to provide protection for assets that’s absolutely 100% in the realm of working with an attorney. John’s going to talk about one of the misconceptions that a lot of people have when it comes to trusts. And just a basic thing that is important for people to consider, let’s say you own a business and you are not structured as an LLC, you could be putting yourself a little bit of risk from that standpoint.
Speaker 1: Yeah. Certainly there’s a lot of pieces in there. So again, homestead, annuities, qualified accounts, LLC, certain trusts, some of these things are the protected assets or at least in Florida. John, what are some of the non protected?
John: Yeah. So some of the non-protected assets would be cash accounts or your bank accounts, things like that, CDs, non-qualified investment accounts. Someone might have a brokerage account that they’re just putting money into monthly, or just maybe just put a lump sum in there. Just understand that just because your retirement accounts are invested and you have investments there and they’re [inaudible 00:06:27] protected. If it’s in a nonqualified account with investments, it’s not protected.
John: One other thing with the qualified accounts is to understand that there are limits to what is actually protected. So actually an ERISA plan, which is a 401k, 403(b) type plan, it’s typically fully protected, no matter what the amount is and IRA, and this does go up, it used to be a million, and I believe right now it’s about 1.3 million if an IRA is actually credit protected.
John: And then a recent rule change in the past few years, inherited IRAs are no longer credit are protected. So it’s important to understand that if you inherit an IRA from somebody, it is not credit protected at all. Something that will come up, Nick mentioned with the homestead where your primary home is credit protected, any secondary home you have is not. So that’s a misconception we see sometimes if you have a rental property, or let’s say your, like a second vacation home, it’s not credit protected. And then with the businesses, if you’re a sole proprietor and you never develop any type of LLC, so example I have a [inaudible 00:07:32], but I’m not LLC, that is not creditor protected. So that’s why it’s important to, if you’re working with an attorney, you want to ask these questions, “Hey, should I create an LLC with the business?” And you definitely want to have them help you draft the documents so they’re done correctly.
John: One of the biggest questions we get when we’re doing planning and part of the planning is we look at the estate side of it. We don’t draft any documents, but we are knowledgeable enough to have people ask the right questions and point them in the right direction. But it’s with trusts. A lot of people feel like, “Hey, if I set up a trust, does that protect my assets?” And if it’s a revocable trust, the answer’s no. So a revocable trust basically just get to the meat of it. You still have control of that trust. So you either are owner of it, or you make decisions of it. And basically with that, it’s still considered part of your estate [crosstalk 00:08:22] and for that reason it’s not credit protected.
Nick: Yeah. And just for further emphasis on those protections kind of tend to kick in after you pass and the trust stays, but while you’re alive, it’s includable in your estate and it doesn’t provide those protections. And one other caveat or thing to consider think about are for those non-qualified accounts, non-qualified investment accounts or non IRA, if you hold them jointly in the state of Florida using Tenancy by the entirety for those types of accounts, if you hold it with a spouse, so it has to be with a spouse to use that, that does provide some additional level of protection. Although it’s not the same as like a retirement account per se.
John: Definitely, as you can tell, it gets confusing. So you definitely want to ask the right questions if you’re wanting to know what is and what isn’t and just asks the right people and adviser will know enough, and attorney would definitely be the best resource.
Speaker 1: Yeah. I’m definitely say if you’re working with an advisor, obviously bring the conversation up with them, have them bring the attorney in and so on and so forth. And of course, John and Nick can help you in that arena as well. Now you mentioned property and casualty, so let’s do a quick review of that as well. What are some things to consider?
Nick: Sure. So the main types of property and casualty policies that people are going to have are going to be their car insurance, homeowners insurance, and maybe an umbrella policy. So one of the examples that we tend to give from the perspective of a car insurance policy is, really just walking you through a scenario. So when you look at your car insurance policy, you’re going to see that there are limits that are provided, that are referred to liability, and then you will see a designation for what’s called uninsured motorist or UIM.
Nick: So the example that we usually use is, let’s say John and I are both driving down the highway and we get into an accident. So we’re both in our late 30s, business owners, our incomes continue to go up. John has a family, I don’t, but if something happens to me, I do have assets going to parents and brother and that sort of thing. So let’s say we’re driving and we get into an accident and because John likes to multitask a lot, he was texting and it’s his fault. So we’re going to blame him. So I have the-
John: Wait, wait, wait, full disclosure, I never text and drive. I do multitask, but I do not do that.
Speaker 1: Good [inaudible 00:10:57].
Nick: That’s good. That’s good. So we get into an accident. I have damages, fairly serious damages and I’m going to go ahead and I’m going to sue him. There’s kind of a negative connotation oftentimes with the whole aspect of suing somebody, which the reason that we use this example is because, here we are, we’re friends, we’re colleagues, in many ways business partners, that sort of thing. But the reality is, is that if there’s damages and mistakes happen and mistakes are made, ultimately my responsibility for me and family is to try to become whole again, from a financial standpoint. So I go ahead, I sue him. The first thing that’s going to be reviewed and looked at are going to be his liability limits. So the liability limits protect him from lawsuit, from somebody else when he is at fault, essentially.
Nick: So let’s say he has one of the most common levels of coverage that we see is what’s called like 100/300. So what that means is 100,000 per person in the accident, a total of 300,000 in the vehicle. So in this instance, in this situation, I’m the only person in the vehicle, so the maximum amount of his car insurance company is going to pay out that they’re going to send their lawyers to deal with this lawsuit, the maximum amount that they’re going to pay out is 100,000. If I happen to have other people in the vehicle, that’s where that 300,000 limit would come into play. But let’s say my damages are 250,000 and the most his insurance company is going to pay out as the 100. So, now what? So at that point, what’s going to happen, there’s going to be kind of a different phases. So I’m going to have an attorney. And my attorney is going to look at, “Hey, does John have additional assets that are not protected, like we talked about earlier that are available through suit?”
Nick: So that’s something that he’s going to request, some sort of inventory, financial inventory, asset balance sheet via the lawsuit. The other thing that they’re going to look at is, “Hey, Nick, do you have uninsured motorist coverage?” And luckily because I do this sort of thing I have planned ahead and I have uninsured motorist coverage. So what uninsured motorist coverage does is it protects me in the case of having damages that are above and beyond what the person who inflicted the damage has. So in this case, my limits for uninsured motorist, let’s just say there are 250,000, I can essentially sue my own insurance company to fill in that gap, to get me up to that 250,000, so that coverage has protected me.
Nick: So the liability limits protect the person at fault against the person having damages and not having enough coverage. So, because we do see people oftentimes outright reject uninsured motorist coverage, and knowing that, especially in the state of Florida, people are often underinsured or uninsured, having uninsured motorist coverage is something that we think is important to have a level of protection.
Nick: So the same scenario, I was injured and John had coverage and I had substantially much more significant damages. Let’s say that I was permanently disabled and I wasn’t going to be able to work anymore, so the amount that the amount of protection and coverage that I’m looking for is going to be substantially more than the 100,000 that John has, or even the 250,000 that I have in the uninsured motorists. And that’s where something like an umbrella policy could come into play. So what an umbrella policy will do is, it’s a type of coverage that essentially goes above what you have for the auto coverage.
Nick: So an umbrella policy can be both liability and uninsured. So in this example, what we’ll use for the example is we’ll say, “Hey, Nick has an umbrella policy. And because my damages were a million dollars and John’s insurance company has paid out 100,000, my insurance company has paid out 250,000, there’s still a gap of 650,000. Essentially, I can go ahead and sue my insurance company from the standpoint of the umbrella to try to fill in that additional gap. So if John had had an umbrella policy, they would have tried to use that for protection. But in this scenario, me having an umbrella policy and being the one that had the damages really comes to the point of being able to protect me in my assets.
Speaker 1: Yeah. And certainly it’s important to review your risk management, your asset protection, because something like an accident can certainly derail retirement plans, it can really wreak a lot of havoc and other things that you had going on as well. There’s countless stories out there along situations like that. So if you’ve got some questions or concerns about this week’s topic, and you need some help, reach out to John and Nick, and of course they can help point you in the right directions for some of the things they don’t do as mentioned earlier. It’s always important to review and have these conversations about all these little assets. It’s not just about income, which obviously that’s super important in retirement, but there’s all these other little facets. So this week we focused on some risk management and asset protection when it comes to some of the things that are protected in Florida, not protected and a bit about the property and casualty as well.
Speaker 1: So reach out to them if you’ve got questions on these topics at 813-286-7776, to have a conversation about your own situation, 813-286-7776, or share the information with a friend who might benefit from that well and go to pfgprivatewealth.com to learn more about John and Nick and their practice, pfgprivatewealth.com, a lot of good tools, tips, and resources. You can also click on the podcast page, you’ll see that right at the top. And you can subscribe to us on whatever platform you like to listen to. And we would certainly appreciate it. Guys, thanks so much for your time this week. As always, I appreciate all that you do to help us out here and continue to do a good job with those swimming lessons there John.
Speaker 1: And Nick, maybe one day, you can take the floaties off, you’ll be good.
Speaker 1: All right, guys, have a great week. We’ll talk to you soon. Stay safe, stay sane, and we’ll see you next time here on Retirement Planning – Redefined.