InsuranceNewsNet Magazine February 2012 : 21
BEWARE THE TAx MOnsTER | FEATuRE The Monster is Fear The tax monster is not some ghastly green blob that stalks people from clos-ets or under beds. Rather, it is fear— i.e., fear that tax increases are coming, and that they will rob people of finan-cial security in insidious, if not devas-tating, ways. Clients are now openly talking about this, says Dean Vagnozzi, principal of abetterfinancialplan.com . The com-ments come right along with anger over stock market losses that clients have suffered and worry that they may suffer such losses yet again. Virtually all of his clients believe that income taxes will go up. Some worry about capital gains tax increases, too. (Note: in 2012, capi-tal gains will be taxed at a maximum rate of 15 percent for assets held longer than one year. After 2012, the top rate is scheduled to go to 20 percent, but Con-gress could always change that.) The roots of the tax increase fear include not only the $14.9 trillion national debt, Vagnozzi notes, but also the impact of health care reform, the instability in the global economy, and many other economic shifts and trends. The non-stop dickering in Congress is stirring the pot, too. Whether it’s debate about income tax increases, or reduc-tions in the federal estate tax exemption amount, or the 3.8 percent investment income surtax in the health care bill, or the continuation of the Bush payroll tax cuts, “people are losing confidence,” says David Foster, an advanced sales attorney at Ash Brokerage. The California Society of CPAs says 67 different tax benefits were set to expire by year-end 2011. That’s an “extraordi-nary” number, says the group, which puts the cumulative lost tax benefits to consumers from those expirations at roughly $30 billion. But since some of the tax benefit expirations were still under the Con-gressional microscope in late Decem-ber, uncertainty ruled the day as 2011 came to a close. In Foster’s view, “Every-thing is coming and going, and no one has any confidence about where it’s going to go.” Seize the Opportunity Vagnozzi takes that uncertainty as a rea-son to be optimistic. “The opportunity for insurance advisors to assist people with tax planning using life insurance is now,” he says. “If you don’t seize it, you will miss out.” He is convinced of this because he says clients are now open to discussing life insurance and tax planning in ways that they were not only a few years ago. Before the last recession, he recalls, people routinely rejected the idea of using life insurance, which he had been recommend-ing for tax-planning and asset-management strate-gies. “They would complain about the fees and cost of insurance charges or the Source: A 12-minute online survey of nearly 200 financial limited upside potential. professionals, November 2011. The survey was commissioned by Insured Retirement Institute and conducted by Cogent Research. They would tell me they could do better in the stock market.” But now, clients are calling him back. drawals, if structured properly), and “They say things like, ‘I didn’t put as the guarantee that they won’t lose much money into life insurance as I money all look very attractive. “I don’t wanted to but now I want to.’ Or, ‘I didn’t have to convince them” to talk about buy that life insurance we discussed life insurance, he says. They want what before but, well, when can we discuss it?” life insurance offers. Massive losses in the stock market triggered some of these calls, Vagnozzi allows. “They are noticing that the fees and COI charges in life poli-cies pale in comparison to what they lost in the market.” But tax fears have been another trigger. “If peo-ple do make gains in the market, they are seeing that they have to pay taxes on those gains, and if taxes go up, they will have to pay even more in taxes on the gain.” By comparison, he says, the income tax-free death benefits in life insur-ance, the tax-deferred accumulation, the tax-free policy loans (and with-TAX FACTOID: Eighty percent of financial professionals think taxes should not be raised, either in general or among the top 2 percent of earners.