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Vol. 78, No. 6, November 2024

FEATURED ARTICLES

FTC Rule Banning Noncompetes Is Invalidated, Yet Uncertainty Remains
Paul J. Schneider, JD, LLM
In April 2024, the Federal Trade Commission announced a Final Rule that effectively bans all noncompete agreements, as well as provisions that function as noncompetes, between employers and workers as unfair methods of competition. Immediately following the issuance of the Final Rule, lawsuits were filed in Texas and Pennsylvania, challenging the validity of the Final Rule. The Texas court invalidated the Final Rule and issued a nationwide injunction prohibiting its implementation. This article analyzes the substance of the Final Rule and recommends how it can be navigated by employers, particularly in light of the nationwide injunction and the ongoing litigation.

Achieving a Step-up in Basis for Assets Owned by an S Corporation upon the Death of the Sole Shareholder
Terence B. Stanaland, JD, CPA, ChFC
This article provides a "how to” approach to achieve a step-up in basis for assets owned by an S corporation upon the death of the sole shareholder. First, the tax implications of distributions of assets from an S corporation are reviewed. With the basics established, an analysis in which an S corporation sells an appreciated asset after the death of the shareholder is given. The article then determines what result is obtained if the asset is not sold but simply distributed, conclusively demonstrating that the tax implications to the taxpayers are identical whether the asset is sold or simply distributed. A final example is a reminder that this technique works for a sole shareholder of an S corporation but will not address the concerns of surviving shareholders if multiple shareholders are involved. This analysis encourages advisors to strongly consider the liquidation of a decedent’s S corporation to receive a step-up in the basis of the decedent’s S corporation’s assets without increasing the decedent’s tax liability.

The Potential Benefits of a Home Equity Conversion Mortgage
Marc D. Silverman
A home equity conversion mortgage (HECM), commonly known as a reverse mortgage, offers a Federal Housing Administration (FHA)-insured loan for homeowners aged 62 and older. This mortgage does not require monthly payments and proves vital for retirees who have a lot of equity in their home but struggle with inflation and/or cash-flow issues. The line of credit that makes up a portion of this mortgage increases monthly and can be used income tax free to pay for medical expenses, pay off credit card debt, make home renovations, or pay for in-home care, enabling seniors to comfortably age in place.

DEPARTMENTS

Editor’s View
Journal of Financial Service Professionals 2024 Year in Review
Kenn Beam Tacchino, JD, LLM
We have almost completed one year since the merger of NAIFA, the Society of FSP, and Life Happens, and we hope new readers to the Journal of Financial Service Professionals have found the articles and columns that were published to be beneficial to their practice and professional development. For many years now, the Editor’s View column in the November issue of this Journal has highlighted the content we sponsored by providing a year-end review. By examining this column (and those November columns from prior years), we hope our expanded audience can easily locate important information that will enhance their careers and their clients’ well-being.

Economics & Investment Management
Vanguard’s Innovation Goes Mainstream: Bolt-on Exchange-Traded Funds
Kenneth Washer, DBA, CFA, CFP
Randy Jorgensen, PhD, CFA
Mutual funds and exchange-traded funds (ETFs) differ in significant ways. ETFs trade on exchanges whereas mutual funds do not. ETFs generate few, if any, capital gains that are passed through to shareholders which makes them tax efficient. Alternatively, mutual funds often generate capital gains that are passed through to shareholders, and this makes them tax inefficient. To correct this tax inefficiency, Vanguard astutely added an ETF share class to many of its mutual funds back in 2001. They patented this structure and recently the patent expired. Several fund sponsors have applied to the Securities and Exchange Commission (SEC) to create this structure for their own funds. If approved, this would change the operation of affected funds in ways that are important to investors.

Estate Planning
The Supreme Court Turns the Corner on Challenging Tax Regulations
Mark R. Parthemer, JD, AEP, ACTEC Fellow
Estate planning cases show a changing landscape in how courts will impact future estate planning law. Planners should review the three cases that are discussed and prepare for more court interference in the future.

Financial Gerontology
Aging in the 21st Century: How Are We Doing So Far?
John N. Migliaccio, PhD, RFG, FGSA, MEd
With almost one-quarter of the 21st century behind us, it’s a good opportunity to assess how far we personally, the financial industry, and professionals have progressed in coping with and responding to the present, and planning for the future. So far, it certainly has been both a joyride and a roller-coaster ride for most of us. A century ago, our forebears were dealing with world conflict, economic gyrations, cultural upheaval, lifestyle evolution, and technological disruption. Sound familiar? But they also looked forward to the opportunities that a new century offered along with all the challenges noted. Renowned gerontologist Matilda White Riley was uniquely qualified in 1990 to take on the challenge of assessing where the preceding century had been in regard to aging and where the approaching century not only might be but could be if it reached for its full potential if we focus on optimism, opportunities, and change.

In the Client’s Best Interest
Who’s Your Fiduciary?
Richard M. Weber, MBA, CLU, AEP (Distinguished)
We're hearing a lot about fiduciary duties lately. The 2024 version of the Department of Labor's (DOL) rule would classify as a fiduciary anyone selling products and/or advice to retirement plans, including IRAs and Roth IRAs. That was a scary enough concept that three insurance professionals testified before federal court that the fiduciary-only rule would impose irreparable harm on financial professionals and their clients. The U.S. District Court for the Northern District of Texas granted a stay in the lawsuit to prevent the DOL rule from going into effect this year, stating that the plaintiff's complaint was likely to be upheld by the full court. Are fiduciary obligations on the way out? Not at all.

Insurance & Risk Management
Policy Persistency: The Unsung Hero of Life Insurance
Todd L. Laszewski, FSA, CLU, MS, MAAA
There are multiple reasons why policy persistency is important. For example, these include the fact that high policy persistency is generally an indicator of high policyowner satisfaction, which can also be valuable from a marketing standpoint. In addition, high policy persistency can lead to higher policyowner values. We examine the impact that policy persistency can have on the client's financial plan.

Social Security Planning
Immigration and Social Security
Bruce D. Schobel, FSA, MAAA, CLU, CEBS
We look at the effects of immigration on the Social Security program. Many of those effects are not well understood. One widespread belief—that the payment of benefits to illegal immigrants is bankrupting the program—is simply and incontrovertibly false.