Depending on your age, health, specific goals and the type of assets you own, the trick is successfully performed – every time – by selecting the right strategy or combination of strategies. Following are the five key strategies we use most often when a client wants new insurance.
You use cash and marketable securities (stocks and/or bonds) as collateral for bank loans. The loans (not your cash) are used to pay your premiums. For example, Joe (age 72) and his wife Mary (69) bought $15 million of second-to-die life insurance. The annual out-of-pocket premiums are only $49,500. Joe simply pledged $900,000 of his existing $3.2 million stock portfolio as collateral with the bank. Normally, the out-of-pocket premiums would be about $189,000 per year. The bank loans do not have to be repaid until both Joe and Mary have gone to heaven.
This financed-insurance strategy is the best tax-advantaged opportunity (legally allowed) that I have ever seen or heard of in my 40 plus years as a tax practitioner.
You actually create tax-free wealth – millions of dollars – with minuscule out-of-pocket costs.
Check it out.
Retirement plan rescue
Note: If you have funds in an IRA (about $400,000 or more) a strategy called “retirement plan rescue” is used.
Family limited partnership (FLIP)
You create your FLIP by transferring income producing property you own (for example stocks, bonds, real estate): a tax-free transfer. A FLIP has many estate planning advantages. For example, if you transfer about $3 million to a FLIP, the assets – for tax purposes – are only worth $2 million; result, you save estate tax on $1 million. The FLIP income is used to pay the insurance premiums. Your heirs will get the life insurance proceeds – typically millions of dollars – free of income and estate tax.
Defective trust (DT)
A DT is defective only for income tax purposes (treated as if it does not even exist.) But the trust is recognized for estate tax purposes, and like a FLIP, has many estate planning advantages. This time the property you own (typically, the stock of a family business or income producing real estate) is sold to the DT: a tax-free sale. The trust income pays the policy premiums. And of course, the life insurance proceeds go to your kids or grandkids free of income tax and estate tax. The result is a double-tax win: (1) the asset is out of your estate and (2) the income from the asset pays premiums to produce more tax-free wealth for your family.
More than one strategy – called a “combination” – may be used for the same client. Combinations allow us to help you – no matter how unique your situation is – guaranteed.
The above does not attempt to cover all of the possibilities for slashing your premiums when purchasing new life insurance policies. Yes, I know; life insurance is a boring subject. But if you want to create tax-free wealth for your family, without getting hit with large premium costs, life insurance (done right) is the best strategy for tax-saving fun.
Thinking of enriching your family, while beating up the IRS (legally)? And would like to see how life insurance would work for your family? Or maybe you have existing policies and want to see how easy it is to increase your death benefit without paying more premiums.