For Accumulation:
Would your clients be interested in shifting money outside of their estate if they could still have some way to access the policy values?
Who do you know:
- Age 35-55
- Married
- Needs life insurance protection
- Earns an annual income of $125,000+
- Has an estate valued over $1 Million
- Is interested in accumulating wealth on a tax-deferred basis
- Would like to supplement future retirement income in a tax-advantaged manner
- Wants to have any unused retirement income outside his or her estate
An Access Trust is a specifically drafted irrevocable life insurance trust for married clients. It is designed to keep life insurance proceeds outside the estate of the grantor spouse and allow the other spouse indirect access to the policy account value through a trustee. (Death benefit proceeds are paid estate tax-free if ownership is properly structured.) Normally with life insurance, a client maintains ownership of the policy if their priority is to have access to tax-advantaged loans and withdrawals from their policy account value. If the clients’ goal is to remove the life insurance death benefit from their federal estate, they would typically establish an Irrevocable Life Insurance Trust (ILIT) to own the policy. Fortunately, an Access Trust allows clients the ability to preserve both of these benefits.
For Wealth Transfer:
Life insurance is often thought of as the best tool for wealth transfer. Often times, the death benefit may be purchased for only a fraction of the actual amount of the life insurance death proceeds. This allows you to keep the majority of your other assets working for you. Additionally, people look to life insurance to help transfer wealth because of the distinct tax advantages it offers to their beneficiaries.
Why doesn’t everyone have life insurance in their wealth transfer plan?
A primary reason is that many wealthy people wish to maintain their current standard of living and often associate ILITs with a lack of control. Some of these common misperceptions include:
- The cash value of a life insurance policy in an ILIT is untouchable by the insureds.
- Any access to cash value of a life insurance policy in an ILIT results in the inclusion of the entire death benefit in the estate.
- Life Insurance for estate liquidity in an ILIT doesn’t make sense because there’s no access to cash value.
- Contributions to an ILIT can’t be recovered.
The truth is that it is very hard, if not impossible, for single individuals to retain access to the cash values inside an ILIT without causing the death benefit to be included in the estate for tax purposes. However, that may not be the case for married couples.
If there is a way to:
- Create an ILIT for your beneficiaries,
- Fund the ILIT with life insurance,
- Allow one spouse to have access to the policy cash values, and
- Keep the death benefit proceeds free from income and estate tax…
Would you be interested in a plan like that?
At Brookfield Insurance Partners, we work with financial professionals and insurance agents to educate them on ways to shift wealth to the next generation, and still allow a level of control.