INCOME TAX MITIGATION
Reduce the Impact of Income Taxes
The impact of income taxes is significant and will drastically reduce wealth accumulation during the life of the client as well as the amount of wealth that can be transferred to subsequent generations of family members or charitable endeavors.
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Growth as a Non-Taxable Event
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Private Placement
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Qualified Plan Strategies
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E-CLAT
Growth as a Non-Taxable Event
In a properly designed life insurance investment vehicle, the internal cash value will grow tax deferred, the cash value may be accessed without incurring taxes, and the death benefit will pass to beneficiaries’ income tax-free, thereby converting all growth into a non-taxable event.
The underlying policy investment can be matched with the risk/reward profile for each specific client. As a registered Variable Universal Life (VUL) product, the policy owner has access to a platform of funds, including equities, multi-asset, real estate, fixed income, commodities, currency, etc.
Applicability
Clients who want to minimize their income tax burden. This strategy should be viewed from an investment perspective.
The death benefit component is minimized in order to enhance cash value accumulation. The insurance vehicle is used as a shield against income taxes during life. Upon death, all gains are transformed into an income tax-free benefit.
Private Placement
Ideal for ultra high-net-worth (UHNW) families who want to maximize the total return of their investment strategy by deferring and potentially eliminating the drag of income taxes. The Private Placement structure provides a tax shield for a client’s investments while also acting as a hedge against future tax increases.
As a non-registered Variable Universal Life product, a private placement provides access to alternative investments such as private equity, private credit, hedge funds, etc., in addition to the registered funds available on the insurance company platform.
Applicability
Clients who have investable assets of $20M+. The policy owner can allocate (and reallocate) capital into a variety of registered and non-registered vehicles known as Insurance Dedicated Funds.
Policy owners also have the opportunity to create a customized investment strategy within a Separately Managed Account (SMA) to be managed by an investment advisor selected by the policy owner.
Qualified Plan Strategies
There are several approaches which integrate the acquisition of life insurance with Qualified Plans in order to reduce the after-tax cost of premiums, mitigate income and estate tax impact, or improve cash flow.
The common elements of these approaches include clear IRS regulations and powerful economic results.
Applicability
Qualified Plan Strategies fit a wide variety of situations, including:
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Individuals (either retired or still working) with 401(k) balances in excess of what is necessary to support retirement benefits
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Businesses looking to maximize tax deferral (i.e. Cash Balance plan).
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Individuals with IRA accounts either earmarked as “rainy day funds” or included as part of a bequest to heirs.
E-CLAT
A Charitable Lead Annuity Trust (CLAT) benefits from a low Section 7520 rate. This rate is used to calculate the current income tax deduction based on future payments to charity. From 2010 until the latter half of 2022, the Section 7520 rate had been relatively quite low. Although not as advantageous as prior to 2023, the CLAT remains a valuable planning technique.
One version of the CLAT strategy provides a modest annual charitable payment with significant charitable benefit upon the death of the donor. The payment at death is provided by a trust owned life insurance policy which may also provide a meaningful residual benefit to the heirs. The allocation of the death benefit is determined by the charitable interests, the wealth transfer goals and the value of the income tax deduction.
Applicability
Suitable for clients who are at least in their 50s who possess charitable intent and wish to transfer wealth to their heirs in a tax-effective manner. This should also be considered for clients who have unusually high taxable income in the current year.
Reduce the Impact of Income Taxes.
Transfer Market Risk, Guarantee Outcomes, and Reduce Taxes.
Maximize Funds Transferred to Family or Charity.
Tax Advantaged Structures to Maximize Retirement Income.
Retain and Incentivize Key Employees to Protect the Future.
A Powerful and Tax-efficient strategy to Fund Large Life Insurance Premiums.