Yesterday's planning advice included portfolio preservation and at best, basic life insurance policies for wealth transfer. For many that was the best advice available. As all things change, so does the preferred strategies to transfer wealth. Today's tumultuous landscape has given rise to some of the most clever planning strategies to date.
Wealth Transfer Strategies for Today
Previous planning techniques would support the importance of permanent life insurance for estate planning. With unmatched tax benefits and guaranteed wealth transfer to beneficiaries, life insurance has always been at the top of the list.
Today, although still viable, there may be even better options to build wealth for future generations. As you will see in the following examples, yesterdays model cannot compete with the strategies of today:
DISCLAIMER: For simplicities sake, illustrations are compiled from the same insurance company using identical assumed interest rates of 7.2%. The historical lowest 40 year interest crediting rate is 7.8%.
The Doctor Who Created an $8 Million Estate
A 69 year old doctor wants to leave $2,000,000 to split between his two sons. One son is 36, the other is age 39. The good doctor is recommended to buy life insurance by his CPA and advisor. Because the doctor had taken care of his health he could purchase a two million dollar life insurance policy by paying about $600,000. At his age he sees a tremendous value of being able to guarantee his money more than triples and passes tax free to his boys.
Soon the doctor learns about another option, something that could increase his money by almost 17 TIMES! Instead of purchasing a policy for himself, he is recommended to purchase a specialized life insurance policy on each of his boys. In this scenario he pays only $100,000 per year for 5 years. He never pays again, and saves himself over $130,000. What happens next is incredible. Each of the boys are assumed to retire in their sixties. They each draw more than $135,000 a year of tax-free income from the policies that they never pay back. If each of them live until they are 90, combined, they would have withdrawn almost 6.5 Million dollars. In addition, there is a remaining death benefit totaling an additional almost $2,000,000 that passes to his grand children tax free. With todays strategy, the good doctor could create a whopping multi-generational estate of over 8 Million Dollars!
The Dad Who Multiplied his Investment by 62
Or consider the dad with a 3 year old daughter.
Of course the father would like to leave some money to his daughter later in life. If he does it the old fashion way he can turn $125,000 into over $500,000 of tax free inheritance. With today's strategy he can ultimately spend $62,000 to create a retirement fund for his young daughter. When his daughter reaches age 66 she begins to withdraw over 120,000, tax-free, dollars per year. By age 90 she has received over 3 Million dollars! And, again, there is an additional benefit to his future grandchildren of almost $900,000. In this case the father created a multigenerational estate worth over 62 times his original investment.
These new strategies are potentially more powerful than any other financial tool available today. Although laden with numbers, it is important to review these two situations multiple times to fully understand the importance of planning correctly for your own children and grand-children. These strategies work for almost all age groups and income levels. It may be just the right time to look at wealth planning differently.
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