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In an effort to help you grow your business, we've created a library of items we feel will be valuable to you. No late fees. Stay and explore as long as you like.
Principal Life has created a useful platform of tools for use when speaking to a client about their potential estate tax liability. Many clients today feel that the estate tax issue will not be a problem for them as they are well within the current exemptions. This is dangerous thinking which creates an opportunity for an estate review. For a simple example, assume a client and their spouse are both 60 years old with a current net worth of $10 million. Also assume that one of the two clients will live for at least the next 20 years. Finally, assume that the growth rate on the estate is a modest 6% compounded annually. At age 80, this estate would be worth in excess of $32 million. Based on the current tax laws, they could have an estate tax liability reaching over $10 million. To put that into context, in just 20 short years, the client's estate tax liability could be as much as their current net worth.
When was the last time you completed a comprehensive review of a client's life insurance policy? Do you have clients who may or may not have life insurance policies that you are not familiar with? Do you work with attorneys or trust officers who are in charge of client's life insurance trusts?
In this day and age of lawsuits based on inaction rather that infliction, it is imperative to serve your client's best interests. Life insurance reviews can provide documentation showing that you were doing what was best for your clients. It also provides a great prospecting opportunity.
Take a look at the attachments from John Hancock. They include a pre-approach letter, an easy to understand flier and a very simple review checklist. Together with the latest statement from the life policy, we can do an analysis to determine if the existing policy is still meeting the clients needs. It is also the prefect time to see if there is a need for additional insurance providing more protection or additional benefits that the client has need of.
We have also included a white paper perfect for attorneys and accountants showing their need to fulfill their fiduciary duties. The perfect door opener into that office that you have been shut out of in the past.
Several years ago, the industry found a pricing anomaly on most survivorship policies. What this allowed the client to do was to front load two to three times the target premium and, depending on their ages and health, skip paying premiums for the next 19 or so years. In essence, they paid a small lump sum in the first year and then had the next 19 years or so to decide if they wanted to continue paying premiums, let the policy go or find another way to dispose of the policy. As you can imagine, once the insurance companies caught wind of their pricing mistake, most took radical pricing changes to stop this practice.
Well, Prudential still allows for this. In the attached example, I have used two 50 year old clients both in preferred health. With an assumed face amount of $10 million, the first year premium of $180,000 was dumped into the policy. This guaranteed no lapse would occur for 21 years. That resulted in an annualized premium of $8,571. Compare that to a standard funded policy with a guarantee at $57,000 per year and the difference is substantial. This, in essence, buys the client 20 years of a wait and see approach. At that time, they have choices. They can 1) start paying premium again (at $180,000 per year, the policy will be guaranteed to at least age 90), 2) let the policy go knowing that they had 20 years of a lot of insurance coverage for a very cheap price, or 3) dispose of the policy as part of a life settlement.
This is a great way to knock clients off of the fence when it comes to estate planning. Buy now to lock in good health and cheap prices and then wait to see what happens. Talk to your CPA, attorney and trust administrators about this idea. It is a great door opener!!!
IRA Max - the idea has been around for a long time and, still today, it works wonderfully. The concept is simple, take the RMD's that a client receives and use them to purchase a life insurance policy. You are swapping taxable money to your heirs for tax free money. Nice and easy.......except for one thing - the taxes that are due at the time the RMD is payable. The simple solution has always been to pay the taxes due from the proceeds of the RMD first and then use the leftover money to purchase the insurance. That plans works great......but here is a twist. The new rules for RMD's that were made permanent last year allow for RMD's to be paid directly to a charity. That is correct, you can give your RMD away. Here is the important part of this rule - there will be NO tax reporting done at all for that RMD amount. That means that you will not be bounced into a higher tax bracket and your social security will not be adversely affected by the distribution. How does this relate to IRA Max? Simple, take the tax savings and use that to purchase a life insurance policy. This essentially replaces the money back into the client's estate tax free. Now the IRA does not become a tax burden for the heirs, the owner of the IRA can direct the money to be paid to a charity and all of this completely avoids the IRS. Obviously, there are some key factors - namely the client must healthy enough to qualify for a life insurance policy and there could be tax consequences depending on the client's individual situation (estate taxes for example) but this is a great way to talk to clients about potentially replacing taxable dollars in an estate with tax free dollars while avoiding some tax reporting and giving money to a charity of their choice during their lifetime.
Here is a quick example. 72 year old male with $400,000 in an IRA. The RMD would be approximately $15,600 fully taxable if he received it. He gives it away directly to a charity and saves $5,400 in taxes based on a 35% tax bracket. He can then use that $5,400 tax savings to purchase a $150,000 guaranteed UL to replace that money back into his estate. Please see the attached supporting documents.
