1. ©Copyright Wealthcare Capital Management, a division of Financeware, Inc. 2003 All rights reserved P r o v i d i n g W E A L T H C A R E Incorporating A Survivor Needs Analysis in Our Advice George K. Chamberlin, JD Vice President – Financial Strategies Wealthcare Capital Management Powered by Financeware

2. ©Copyright Wealthcare Capital Management, a division of Financeware, Inc. 2003 All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 2 Why Perform a Survivor Needs Analysis? Using Wealthcare, we advise clients on how to achieve their lifetime goals. This assumes living to a normal life expectancy. What happens if the client or spouse does NOT fit the norm? And what happens to the survivors? The analysis will - - Get the client to think about the “unthinkable” - Move the client to action to protect loved ones - Ensure that central client goals are preserved

3. ©Copyright Wealthcare Capital Management, a division of Financeware, Inc. 2003 All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 3 Who Is a Good Subject for the Analysis? There are many good subjects for creating a survivor needs analysis, including - Clients with dependents - Married clients with great disparity in income - Married clients with great disparity in assets - Unmarried partners - Clients with a desire to leave a legacy

4. ©Copyright Wealthcare Capital Management, a division of Financeware, Inc. 2003 All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 4 When Should a Survivor Needs Analysis Be Performed? First, we discuss client goals and aspirations. Then we build our advice for lifetime goals – the basic Wealthcare plan. Next, we look to perform a survivor needs analysis in an appropriate case. Don’t let the client procrastinate!

5. ©Copyright Wealthcare Capital Management, a division of Financeware, Inc. 2003 All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 5 How Do You Raise the Issue with Clients? Raising the question may prove uncomfortable – for you or the clients. Some approaches - - Bring up a case from general or personal experience, - Relate the issue to the client’s specific goals, or - Ask the question straight out – “what would happen to your family if you were to die today?”

6. ©Copyright Wealthcare Capital Management, a division of Financeware, Inc. 2003 All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 6 What goes into a Survivor Needs Analysis? What information is required for the analysis? Several areas and concepts, including: - Assets - Earned Income and Savings - Cash Inflows from other sources - Goals - Liabilities - Taxes - Timing of Death

7. ©Copyright Wealthcare Capital Management, a division of Financeware, Inc. 2003 All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 7 Will the same assets remain available to the survivor? - Note any changes and implement in data for the scenarios. Should we consider assets belonging to children? - Such as UTMA or UGMA Assets

8. ©Copyright Wealthcare Capital Management, a division of Financeware, Inc. 2003 All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 8 Earned Income and Savings Client income stops at death What portion is to be replaced? - This should be an after-tax number - Consider the appropriate level of inflation - Flow from now until retirement Savings by decedent stop at death - Will the survivor save more?

9. ©Copyright Wealthcare Capital Management, a division of Financeware, Inc. 2003 All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 9 Cash Inflows from Other Sources Define sources of income other than earned income. Are these sources continuing? Social Security will terminate (or never commence). A trust income benefit normally terminates with the death of a beneficiary. Rental income would continue if the property was retained by the survivor. If so, is the amount or timing of the flow altered? A pension might change to a fifty percent survivor benefit. What about existing life insurance?

10. ©Copyright Wealthcare Capital Management, a division of Financeware, Inc. 2003 All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 10 Goals Start with the goals already in the original analysis Are these goals affected by the death of either client or spouse. For each goal: - Will the goal continue to exist? - Will the timing of the goal remain the same? - Will the amount of the goal remain the same? Are there are any NEW goals upon the death of either client or spouse. - Specific timing and amount. - For either or both survivors?

11. ©Copyright Wealthcare Capital Management, a division of Financeware, Inc. 2003 All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 11 Liabilities Begin with existing liabilities noted in the original advice Should each item be paid in full or scheduled payments maintained? Continued payments require inclusion of the amount in the replacement income discussed earlier. To pay off a liability requires inclusion of the total debt in the calculation of need at death – entered as a specific goal. This may vary from client to spouse death.

12. ©Copyright Wealthcare Capital Management, a division of Financeware, Inc. 2003 All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 12 Taxes Tax assumptions in initial plan are unlikely to remain constant. What is the appropriate tax status to apply for each survivor? How does this choice affect tax brackets and deductions? What about other changes that affect taxes? How about potential asset allocation issues – and their relation to taxes? - Risk tolerance - Investment choices - Turnover rate - Capital gains treatment

13. ©Copyright Wealthcare Capital Management, a division of Financeware, Inc. 2003 All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 13 Timing of Death Current death is the worst case analysis and common starting point. The analysis should be performed for each of client and spouse, separately. Other potential dates of death may be modeled in additional scenarios.

14. ©Copyright Wealthcare Capital Management, a division of Financeware, Inc. 2003 All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 14 Once we have entered the relevant parameters, what are the results? Usually, they are not good, reflecting insufficient confidence in achieving goals. Why? Briefly, we reduced our resources while increasing our outflows. What can we do? Performing the Needs Analysis

15. ©Copyright Wealthcare Capital Management, a division of Financeware, Inc. 2003 All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 15 Solving the Need Solutions? Change the parameters: - reducing expenses - removing goals - more savings Plug in additional resources: - insurance coverage - a second job - funds from family or friends Recalculate until we reach a level of confidence

16. ©Copyright Wealthcare Capital Management, a division of Financeware, Inc. 2003 All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 16 Summary Survivor needs analysis is important in many cases. A chance to add value. Using the analysis helps the client to stop and think about the issues. It goes beyond merely examining survivor issues. There are many possible solutions – consider life insurance first. Financeware makes it simple to model and deliver complex, custom solutions.

17. ©Copyright Wealthcare Capital Management, a division of Financeware, Inc. 2003 All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 17 Are there any questions? Thank you, George Chamberlin gchamberlin@financeware.com (804) 644-4711 ext. 138