Wealth Transfer

The financial benefits of life insurance are amplified when insuring a group.

 

A bespoke life insurance silo mirroring the asset allocation of a Dynasty Trust and insuring multiple generations can create an evergreen fund that provides a competitive return on trust investments. 

 

Unlike individuals, multi-generational entities do not enjoy step-up in basis of assets.  The income tax free death benefit of life insurance is effectively a step-up in bass and therefore provides a significant long-term benefit when used within dynastic planning

Upon an insured’s death, income tax-free liquidity is provided to the designated beneficiary or beneficiaries. 

 

This infusion of liquidity provides the family flexibility in their planning for a host of issues including estate taxes, estate administration, preservation of assets for future generations, avoidance of “fire sales,” and estate equalization among beneficiaries.

In 2024, the inflation adjusted exclusion is $13.61M ($27.22M per married couple). On January 1, 2026, the exclusion will return to $5M plus the relevant inflation adjustments from 2010 to 2026. 

 

Today is an exceptional wealth transfer opportunity to implement substantial lifetime planning. For those clients who have already utilized their lifetime exemption, the annual inflation adjustment can provide a meaningful opportunity for additional wealth transfer. 

 

Using a portion of the enhanced exemption to incorporate a life insurance strategy provides a source of non-correlated tax-advantaged liquidity.

Most estate planning and investment strategies have one underlying common premise - these techniques need time for proper execution.  Long term planning strategies can be thwarted because of a client’s unanticipated death. 

 

This mortality risk poses significant roadblocks to the best laid plans.  With enough time, by employing a number of estate and investment planning strategies, significant wealth can be moved outside the client’s taxable estate, whether for the benefit of family or philanthropy or both. 

 

The key is assuring that there is sufficient time for these strategies to succeed.  Life insurance with guaranteed performance allows the client to hedge that time horizon.

Many HNW families have a vacation home or property that they would like to keep in the family for the enjoyment of future generations.   In addition to the gift, estate and GST tax concerns surrounding the transfer, the home may create financial burdens and/or cost sharing conflicts for future generations. 

 

A capital fund created outside the taxable estate by life insurance can generate annual cash flow to cover property taxes and maintenance expenses.  In some cases, it is advisable to eliminate transfer planning concerns by simply providing sufficient liquidity to allow the trust to purchase the property from the taxable estate.

It is important for many families to establish a legacy that survives for generations.  Life insurance structured with guarantees provides the certainty of legacy creation and sustainability. 

 

For many clients, this certainty provides an additional benefit.  Knowing that their family will be taken care of, these clients give themselves an “emotional permission slip” to spend their liquid assets more freely during their lifetime while still protecting their family in the future.

This strategy transfers assets to future generations on a tax-efficient basis.

 

The senior generation (G1) utilizes their capital to fund a cash-value insurance policy on the life of the younger generation (G2) for the benefit of future generations (G3, G4).

 

There are alternative structures to be utilized depending on the client.

Successful individuals often feel a desire, even an obligation, to give back to the community that fostered their success.  Life insurance empowers these individuals to make more substantial donations and bequests than they might consider possible. 

 

A variety of strategies exist, but the simplest involves purchasing a policy and gifting it to a charity, either immediately or when it is eligible for a life settlement (See Life Settlement).