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May/June 2011

Commentary - Hans H. Mathisen

I'm sorry, but until further notice, my usual commentary will not be available. However, I can still provide you the valuable benefits and financial insight of LIFE LETTER and LIFE LETTER MATURE:

Using a trust to avoid probate- LIFE LETTER for May discusses several factors that have to be taken into account when organizing your estate. What can you do with your assets that can reduce the amount of income tax that may be owed?

What is insurance? - Most of us don't relaize the very important function that all types of insurance provide. LIFE LETTER for June suggests that the role of insurance is so important that it is the focal point of a wise financial strategy.

LIFE LETTER MATURE - May's entry discusses the pros and cons of annuities. LLMature for June looks at the risks associated with investing in our retirement years.

Hans Mathisen





Using a trust to avoid probate

Estate planning is a complex topic, and there are many different facets that have to be considered. One overriding concern many people have is doing something with their assets so they reduce the amount of income tax that may be owed. This is an obvious area for expert advice. However, it is important to realize there are several other factors which have to be taken into account when organizing your estate. Sometimes an unexpected event can reveal an inherent weakness in a specific type of estate planning strategy.

Concerned about his wealth and the expected complications and delays in settling his estate, Simon sought legal expertise to include his assets in a revocable “living trust”. This form of trust is frequently used to enable inheritance of family assets without the complicated process of probate. Simon thought he had protected his family’s inheritance as well as he could – he had read about a living trust in a magazine article, and his lawyer agreed that it would make probate much easier.

Unfortunately, Simon was not the first to die. The tenant in a duplex, owned by Simon, was fatally injured when the wooden deck collapsed. His liability insurance only covered part of the settlement, so when he was sued by the family, he lost most of his assets.

He had mistakenly thought that a trust would provide enough protection, but found out the hard way that a "revocable" living trust is weak in this respect. Because it was setup as a "revocable trust", it meant that he was able to dissolve it at any time, and therefore the court could force him to dissolve it to satisfy a judgment. In today’s litigious society, therecereal are ways to title assets so that you are not subject to surrender in a lawsuit. Asset protection is an evolving art that basically involves separating control of the assets from your personal wishes. That which you cannot give, the law does not require you to give, and this is the principle behind many of these strategies, often involving offshore companies and irrevocable trusts.

The disposition of the assets of a trust is dependent on a trustee, and if worded correctly, you cannot personally be forced to hand over those assets to the court. Similarly, you may be deemed not to have overriding control over the operation of a suitably established company, so cannot be required to deliver those assets in response to a court’s judgment.

Depending on the amount of wealth at risk, there are increasing levels of complexity and strategies with interconnected trusts, companies and partnerships. Financial advisors who specialize in these issues keep up with current case law, as each year new judgments result in new interpretations of the law.

Dealing with these issues requires special knowledge. If someone is looking for the optimal solution, this isn’t a situation that can be properly handled without expert advice. Every case is different. People who try to sell a packaged way of organizing an estate, particularly at informational seminars, will frequently do a disservice as generic solutions cannot fully accommodate individual circumstances.

Hiring professionals to organize your estate from all angles will more than pay for itself.

Estate Planning – because it’s the right thing to do.

Call Hans Mathisen today at (306)242-7042.
or email -

Copyright © 2010 Life Letter. All rights reserved

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What is insurance?

Insurance surrounds each of us every day: When you get in your car, when you come home to your residence, and while you work. Insurance is always in the background discreetly doing its job. Most of us, however, do not think about it much or realize the very important function that all types of insurance provide. In fact, the role of insurance is so important that it is the focal point of a wise financial strategy.

Risk Transfer

So what is insurance? Technically, it is the process of “risk transfer”. When someone wants to be protected from a certain risk, they buy an insurance policy to reimburse them in the event the risk occurs.

On the insurer’s side, they calculate a fee (the premium) to coincide with the likelihood of the event occurring. Auto accidents are more likely than earthquakes and so the premiums are much greater. Work accidents with short term loss are more likely than total disability so those premiums are higher for employers. Life insurance transfers the risk of a guaranteed event (death) and is priced based on the probability of you passing away at a given age and health risk. Therefore, premiums may vary greatly from person to person.

Insurance and Financial Planning

How is insurance used in financial planning? Financial planning is the process of formalizing your goals over time and creating a path to accomplish them. of the biggest setbacks to achieving these goalsis an unforeseen event which cripples your plans. Insurance is one way of protecting your goals in case such an event does occur.

For example, let’s say you plan on living in your home for many years to come. How do you account for an unexpected death while you still have a mortgage? You might transfer the risk of a premature death to an insurance company with a policy that could pay off the remaining mortgage if one of the household earners dies prematurely. The insurance company then absorbs the risk, not the family.

Not only does insurance do its job of assuming risk, it also defines its costs. We can obtain quotes for insurance by either picking up the phone or surfing the Internet. This is valuable information when setting up financial plans. For example, if you pass away, and one of your goals is to insure your spouse can travel while still residing in your house, you might purchase life insurance to replace your pension income.

Work with your financial team to obtain the right type of insurance for whatever goals you have. In the end, insurance provides you with two important functions:

1. Insurance allows you to accurately price each of your financial goals.

2. Insurance allows you to transfer the “risks of failure” to an insurer to protect your financial plan against disruptions from unexpected events.

Insurance - because it's the right thing to do.

Call Hans Mathisen today at (306)242-7042.
or email -

Copyright 2011 Life Letter. All rights reserved

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