Do You Have Elderly Parents? You Need to Know About Filial Law

In this day and time, people are living much longer lifespans than previous generations. It is not unusual to see the elderly require some type of nursing home care, assisted living arrangement, or home health care. This long-term care arrangement can last for years and be extremely costly.  Unfortunately, it is not unusual for the individual in a long-term care situation to eventually run out of money.  Traditionally, when this happens, the service provider, along with the individual’s family, have turned to Medicaid to cover the costs.  However, with the Medicaid system becoming more overburdened, service providers could begin to seek payment directly from the elderly’s children.  This is where Filial Law comes into play.

Filial Law places a financial responsibility upon adult children for the support of their elderly parents or relatives who cannot pay for their own care. These laws obligate adult children to pay for their indigent parents/relatives basic needs such as food, clothing, shelter, and medical care. Should the children fail to provide adequately, Filial Law allows nursing homes and other long-term care facilities to bring legal action to seek reimbursement for unpaid bills. Adult children can even go to jail in some states if they fail to provide filial support.

Currently, thirty states have laws that can require adult children to be financially responsible for their parents' necessities when the parents no longer have the ability to pay them.  These states are Alaska, Arkansas, California, Connecticut, Delaware, Georgia, Indiana, Iowa, Kentucky, Louisiana, Massachusetts, Mississippi, Montana, Nevada, New Hampshire, New Jersey, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Virginia, West Virginia.

Currently, very few people know about Filial Law, but there has been little enforcement of this law.  However, according to Charlie Douglas, board member of the National Association of Estate Planner and Councils, filial laws “could be a sleeping giant” when it comes to recovering the cost of caring for the elderly. Douglas points to the findings of a recent court case in Pennsylvania. In Health Care & Retirement Corp. of America v. Pittas, the defendant was ordered to pay $93,000 to cover his mother's outstanding debt to a nursing home.  Douglas adds, with the current cost of nursing home care in the United States running between $7,000 and $8,200/month, it is possible that filial law will be used more.  

Given the current costs associated with long-term care, increasing life-spans, and possible legal ramifications, every retirement plan should include a provision for funding long-term care. An advisor working in cooperation with an elder care attorney can put together a plan to fund nursing home costs through a mixture of savings, investments, long-term care insurance, and family support.

  

Matt Dressel is the Owner of the Independent Financial Solutions Group, a Registered Investment Advisor. He is an Investment Advisor, Life & Disability Insurance Agent and does Financial Planning.  He can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com. Securities are offered through Trade PMR, Member FINRA/SIPC.  This article is not to be construed as legal advice. 

Mutual Funds and ETFs

Today’s investors have many different types of investments from which to choose.  The most commonly used vehicles are ETFs (Exchange Traded Funds) and Mutual Funds. According to the independent research firm, ETFGI, $4.6 trillion worldwide is invested in ETFs. At the same time, mutual fund investments amount to $17.4 billion globally according to the research site, mutualfunds.com.  Combined, mutual funds and ETFs account for 70-75% of all investment holdings. They are found in Investment Accounts, Retirement Accounts, and Educational Savings Accounts. Still, in spite of their popularity and widespread use, most individuals know little about these investments beyond the advertisements they see. Providers such as iShares ETFs, Spiders ETFs, Oppenheimer Mutual Funds, Franklin Templeton Mutual Funds and others are widely advertised.


Mutual Funds are a professionally managed portfolio of stocks and/or bonds. Each fund has a specific strategy or focuses such as growth, growth, and income, etc. The goal of the fund is to outperform an index like the S&P 500 or Russell 2000. In order to achieve this goal, the fund manager is constantly buying and selling stocks and/or bonds to increase performance.  This is called active management. Mutual Funds are purchased through a mutual fund company by an investment company or brokerage house and a minimum investment amount is required. Fund prices are set by the fund managers at the end of each business day. Many investors purchase mutual fund shares as part of a periodic investment plan. Investors purchase mutual funds to gain access to stocks or bonds without having to purchase these securities individually. In addition, mutual funds are purchased to provide diversification, build wealth, plus generate income through dividends and capital gain distributions.


ETFs are a professionally managed portfolio of stocks and/or bonds. Each ETF has a specific strategy or focus such as growth, growth, and income, etc. However, the goal of an ETF is to replicate, not outperform, the performance of an index. Since the goal is to replicate an index, there is not as much buying and selling of stocks and/or bonds by the manager. This is called passive management.  ETFs are purchased on the stock exchange through an investment company or brokerage house and no minimum investment amount is required. Investors purchase to gain access to stocks or bonds without having to purchase these securities individually. ETFs are also purchased to provide diversification plus build wealth and generate income through dividends.

Mutual Funds and ETFs have much in common. Both are managed portfolios, offer diversification, and have some type of focus.  There are also key differences with regard to how each is purchased and the goal of each regarding an index. However, the biggest difference is the expenses and management plus capital gains taxes. Mutual Funds have higher internal expenses due to the active management required to “beat the index”; ETFs generally have low internal expenses fund due to the passive management required to “track the index”.  Mutual Funds generally declare capital gains each year which are passed on to the fund investors as taxable gains. ETFs rarely declare a capital gain which can be tax savings.

So, which investment should you use, Mutual Funds or ETFs?  There is no clear answer. Investing money in securities exposes investors to risks including loss of principal; past performance is NOT an indicator of future returns. You should carefully consider investment risks, objectives, charges, and expenses. An advisor and tax specialist can assist with the decision on whether a mutual fund or ETF would be better for your situation.

Matt Dressel is the Owner of the Independent Financial Solutions Group, a Registered Investment Advisor.  He is an Investment Advisor, Life Insurance Agent and does Financial Planning.  If you have any questions about this article, he can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com. 

Role of Dividends

Dividends should be an important part of any investment plan.  Unfortunately, many investors don’t consider dividends and even overlook them.  Dividends are overlooked because their effect on an individual portfolio is not readily apparent unlike a change in the price of an investment. So, what role do dividends play in an investment plan?

The first is income. Many companies have a long history of paying their stockholders dividends. For many individuals, but especially retirees, they are a source of income. When creating a dividend income stream, it important to devise a portfolio consisting of stocks of profitable companies with a history of paying, as well as, increasing dividends. It is also essential to choose stocks that pay dividends during different months so there is monthly income. For example, you could build an income stream using Philip Morris (PM), General Dynamics (GD), and Exxon Mobil (XOM).  

Stock	Month Dividend is Paid
Philip Morris (PM)	January, April, July, October
General Dynamics (GD)	February, May, August, November
Exxon Mobil (XOM)	March, June, September, December

(This chart is for illustrative purposes and does not constitute a recommendation.)

Notice how the stocks work together to provide a steady stream of dividend income.  They pay in different months throughout the year and there are no gaps. Keep in mind a sufficient amount of money is required for individual stocks to create a desired income. A portfolio of mutual funds and exchange-traded funds invested in these companies can also provide dividends. Funds with terms like high-dividend, growth and income, and equity-income in their names are examples. Make sure you read the funds information sheet and prospectus for guidance.

Dividends are a useful tool to build wealth.  Just about every investment company allow clients to reinvest dividends back into the stocks, mutual funds, and exchange-traded funds inside their accounts. When these dividends are reinvested, more shares are purchased.  This is called a Dividend Reinvestment Plan (DRIP).  For example, a company, ABC Inc’s, stock is valued at $10 per share. ABC Inc declares a dividend of one dollar per share. A DRIP participant holding 100 shares will receive 10 shares of company stock (100 shares/$10 per share = 10 shares).  These reinvested shares have increased the value of this holding.  Before the dividend was paid out, ABC Inc’s holding was worth $1000 (100 shares x $10 per share).  After the dividend was reinvested, ABC, Inc’s holding is now worth $1100. (110 shares x $10 per share). By reinvesting the dividend, ABC, Inc’s value increased by $100.*    

* This example is for illustrative purposes only.  Results may vary. Reinvesting dividends do not guarantee an increase in value.

Finally, dividends can offset declines in the value of a portfolio during market declines. Whether a dividend is reinvested or taken as income, it first passes through an investor’s portfolio and counts towards the value of the account. In the example below, a hypothetical client statement for the month has this information on the first page.

Opening Value	$1000.00
Cash Deposited	$0.00
Investment Value Change	-$100.00
Dividends Paid	$200.00
Closing Value	$1100.00

(This example is for illustrative purposes only.  Results may vary.)

The dividends in this example proved to be significant. Notice the value of the combined investments declined $100.  Yet, the closing value was $1100.00.  The $200 worth of dividends offset the investment drop and created a gain in the value of the account for the month.  Unfortunately, this example is not always the case.  However, even if the investments had dropped $300, the $200 dividend payment would have resulted in a $900 closing value. Think what would have happened without the dividends?

Dividends serve many roles for an investor whether it be income, wealth building, or providing a cushion for a portfolio during market declines.  There is one detail to keep in mind about dividends.  They are taxed as income unless paid inside a retirement or other tax-exempt account.  It important to discuss the potential tax implications of any dividend strategy with an investment advisor and tax professional.

Matt Dressel is the Owner of the Independent Financial Solutions Group, a Registered Investment Advisor. He is an Investment Advisor, Life Insurance Agent and does Financial Planning.  If you have any questions about this article, he can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com.

What to Consider About Life Insurance By Matt Dressel

The decision to purchase life insurance is very important.  It is a key part of your financial plan.  It pays your final expenses, provides funds to replace your lost income as well as to settle debts such as a mortgage, medical expenses, credit cards, or student loans. However, many individuals buy life insurance based solely on the cost of the premium without considering the features and benefits of the policy as well as how it meets their overall life situation. So what things should you consider when looking to obtain a life insurance policy?

Let’s start with the base policy.  The death benefit is the major feature of any life insurance policy. Ask yourself is the benefit payment going to be enough?  Will it keep pace with inflation?  These two questions are crucial if you have debts such as a mortgage or future plans for sending a child to college. Another thing to consider is what else is offered as part of the base policy at no charge.  For example, many insurers offer an Accelerated Death Benefit.  This rider allows the insured to access a certain percent of the death benefit in the event of a terminal illness.  If you have a family history of terminal illness this benefit could cover a large portion of the medical bills. Some insurers offer this benefit as a rider for an additional cost but why pay an added charge if you don’t have to?  Finally, if you are looking at a Whole Life or Universal Life Policy, the Cash Value will need to be considered. Will the interest rates build the cash value you need to help meet any goals or challenges, especially during your retirement or if you are in a high-income tax bracket?  Also, does the insurer have a past history of paying yearly dividends?  When looking at the base policy make sure it is aligned with your individual needs and financial goals in a cost effective manner.

The next thing to consider in obtaining a life insurance policy is the choice of riders that can be added to it.  Riders allow you to further design a policy to meet your needs and goals. Most riders come with an added charge, but some policies have free riders such as the Accelerated Death Benefit Rider described earlier. The following is a summary of the most common riders.

• The Waiver of Premium waives the premium payment if you become disabled as defined in the life insurance policy. If you work with machinery, chemicals, or any area that requires heavy exertion or heat exposure, this rider would be appropriate.

• The Accidental Death Benefit pays an additional benefit if your death is accidental. If you drive long distances regularly to work or school, work as a professional driver or delivery person, or work in construction or a construction related field, you should consider this rider.  

• The Option to Purchase Additional Insurance allows you to purchase additional coverage at specified dates in the future regardless of health or occupation. This rider is a great planning tool to protect your growing assets, your family, and your income as well as protects against inflation. If you are anticipating a salary increase, having children/more children, or assuming the care of an aging parent/relative, this rider would be valuable.

• A Term Rider allows you to buy temporary additional coverage on yourself without the expense of getting another policy.  This is a great way to help protect your assets from temporary or short-term debts associated with accessing a line of credit or a home equity line.

• The Child/Family Rider allows you to buy temporary additional coverage on a child or other family member without the expense of getting another policy. This is useful for final expense coverage or as starter coverage for a child.

• A Long-Term Care Rider allows you to pay for qualified long-term care expenses. This rider is ideal for individuals with a family history of long life spans and/or who want to avoid tapping into their other assets to pay for long-term care expenses.

Life Insurance is a major component of your financial plan.  Choosing a policy based only on the premium could be harmful in the long run. In short, you "get what you pay for".  It is important that you evaluate and design a policy to meet your financial needs and goals.  A financial advisor and/or a life insurance agent will work with you to make sure you have the right coverage.

Matt Dressel is the Owner of the Independent Financial Solutions Group, a Registered Investment Advisor.  He is an Investment Advisor, Life Insurance Agent and does Financial Planning.  If you have any questions about this article, he can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com.  

(Life Insurance Benefits could be subject to the claims paying ability of the Life Insurance Company.)

The Rule of 72

Have you ever wanted to find out how many years it will take to double your money? Or have you ever wanted to find out what interest rate you will need to double your money in a set of years? There is a very simple and effective method to answer your question. It is called the Rule of 72.  Here is out it works.

Let's say you put $1000 into an investment that pays 6% interest every year and you want to find out how many years it will take your investment to double. Using the Rule of 72, you would take the Number 72 and Divided It By the Interest Rate. 

Our calculation would be the Number 72/ the Interest Rate. 

72/6% = 12 Years to Double Your Money

Now let's say 12 years is too long of a time period for you to double your money. Instead, you want to double your money in 8 years.  Using the Rule of 72, you would take the Number 72 and Divided It By the Number Years in Which You Want to Double Your Money. 

Our calculation would be the Number 72/ the Number of Years

72/8 Years = 9% Interest Rate

The Rule of 72 is a great way to determine how long it will take to double your money or what interest rate you will need. I hope this information proves useful.

Disclaimers

1. I.F.S.G. is a fee-based registered independent advisory specializing in investments and life insurance solutions.
2. I.F.S.G. does not give tax advice. You should consult your tax professional before making any financial decisions.
3. Securities provided by Trade PMR. Fixed income products provided to Trade PMR by Advisor Asset Management, Crew & Associates, and JBB Financial.
4. Investing Money in securities exposes investors to risks including loss of principal and past performance is not an indicator of future returns. Investors should carefully consider investment risks, objectives, charges, and expenses.

Matt Dressel is the Owner of the Independent Financial Solutions Group. If you have any questions about this article, he can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com

Investment Categories Explained in Simple Terms

Investments can be difficult to understand due to the huge amounts of jargon that is out there. The simplest way to understand any investment is to consider its purpose. Basically, what does this investment do? Below is a simple way to categorize investments according to what it does.

1.  Growth- These are investments that grow in value over the long term.  Examples include small and mid-sized company stocks as well as mutual funds and exchanges traded funds containing these stocks.

2.  Growth and Income- These are investments that grow in value over the long term and pay dividends as income.  Examples include large company stocks as well as mutual funds and exchange traded funds containing these stocks.

3.  Balanced- These are investments that contain a mixture of stocks and bonds and pay dividends as income.  Balanced investments are mostly Balanced and Equity-Income Mutual Funds.

4.  Income- These are investments that pay income through fixed income securities.  Examples include bonds, bond mutual funds, and bond exchange traded funds.

5.  Cash- These are investments that preserve money.  Examples included money markets and savings accounts.

Hopefully, these categories will help increase your understanding of what the types of investments do. 


Matt Dressel is the Owner of the Independent Financial Solutions Group. If you have any questions about this article, he can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com

Disclosures:

1. I.F.S.G. is a fee-based registered independent advisory specializing in investments and life insurance solutions.
2. I.F.S.G. does not give tax advice. You should consult your tax professional before making any financial decisions. 
3. Securities provided by Trade PMR. Fixed income products provided to Trade PMR by Advisor Asset Management, Crew & Associates, and JBB Financial.
4. Investing Money in securities exposes investors to risks including loss of principal and past performance is not an indicator of future returns. Investors should carefully consider investment risks, objectives, charges, and expenses.