Estate Planning

Life insurance used for estate planning solves many estate issues by providing liquidity at death. Highly successful clients can give ownership of their life insurance policy away to keep it out of their  taxable estate. Since giving the policy to children runs the risk of losing the policy to creditors, bankruptcy,  or to a child’s divorce, it behooves the client to create an entity that is there to pay-out the death benefit  according to the client’s wishes. The plan provides a means of providing liquidity at death  without having the assets included in the deceased’s estate. If a client is projected to have a taxable estate,  the plan can have a dramatic impact on the amount that goes to heirs.

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An irrevocable life insurance trust (ILIT) can help you better manage taxes and other implications of passing assets to the next generation. An ILIT is a powerful estate planning vehicle you can use in tandem with a life insurance policy to manage financial issues around life insurance assets and benefits.  Like other trusts, an ILIT is its own legal entity that can hold other assets. It has its own tax ID number. A grantor creates a trust which is managed by a trustee. Beneficiaries are the people, nonprofits or other organizations picked to get the assets after a payout. 

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When setting up an ILIT, the grantor (i.e. you) can place a life insurance policy inside the trust. This means that the trust owns the policy, not the grantor. It can be a new policy or existing policy. Putting the life insurance policy in the trust can remove it from the grantor's personal assets. As an irrevocable trust, once the life insurance is owned by the trust, the grantor can't take it back. But this also means that, if the grantor passes away and the life insurance policy makes a substantial payout, the payout goes to the trust, excluding it from the grantor's estate. This can lead to major tax savings when passing on assets to heirs. If the grantor is picking a new life insurance policy while setting up an ILIT, the grantor is in a great position to pick an ideal policy for the grantor's personal wishes and family's needs. This can be a term life insurance policy but more likely a permanent policy, like universal life insurance.  There is no hard rule about what types of life insurance the grantor should include in the ILIT, so it may be wise to work with a financial advisor, tax professional and trusted legal counsel to ensure reaching the desired result.

 

There are several options that are perfect for Estate Planning purposes. 

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• Guarantee universal life insurance (GUL) with Return Of Premium (ROP) and Accelerated Benefit Rider (ABR). The plan allows full refund of premium paid at the 20th and 25th  policy anniversary if policy holder wants to exit from the policy. 

• Index universal life insurance (IUL)

• Survivorship Index universal life insurance (SIUL)

 

*ABRs stands for Accelerated Benefit Riders which pay death benefits to life insurance policyholders while they are alive. Benefits are paid to policyholders with a chronic illness, terminal​ illness, critical illness and injury. 

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*ROP stands for Return Of Premium rider which provides for a refund of the premiums paid on a term life insurance policy if the policyholder doesn't die during the stated term. This effectively reduces the policyholder's net cost to zero. A policy with a return of premium provision is also referred to as a return of premium life insurance.

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Case study

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Peter has a $17,000,000 estate invested mostly in real estate. He wants to have money to  pay estate taxes so the real estate does not need to be liquidated at his death. However, he currently  has a $2,000,000 loan on the real estate and does not want to leave the debt at his death either.  With various deductions, it appears his federal estate tax will require a policy of approximately  $2,000,000.

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