Profile:
- Has a large non-qualified tax-deferred asset, qualified plan or traditional IRA balance
- Generally age 60+
- Does not need to use this asset during their lifetime
- Potential estate tax liability
- Does not want beneficiary to pay income taxes on asset balance
- Wants to reduce the burden of income and/or estate taxes for beneficiaries
Asset Maximization is the concept of repositioning assets during your lifetime to help protect them from taxes and other transfer costs at death. This strategy may be employed for any type of asset, but is most often used with tax-deferred assets, such as qualified plan balances, IRAs and non-qualified, tax-deferred annuities that are not going to be utilized in life.
Often, it makes sense to reposition these assets because they could possibly be subject to both estate-taxes at death and income tax upon withdrawal. The combined effect of these taxes can reduce the value by approximately 65%.
Life insurance is often the ideal financial instrument in which to reposition assets because the death benefits are generally received federal income-tax free. The policy may be held by a properly structured ILIT so that the proceeds may be received estate tax-free, too.