If you are a person with a need for large amounts of life insurance, whether for tax planning (income or estate), liquidity planning, estate balance or income, here are 5 questions you should investigate before entering into a transaction.
- Do you have sufficient net worth to face a transaction that if not stress tested is most likely to develop serious cash flow, collateral or other issues? Many agree that at less than $5 million net worth, it may not be a suitable transaction.
- Has your provider/consultant stress tested the proposed program in a well justified way, not simply based on rates grabbed out of the air? You need an experienced provider team that can look at historic rates and project forward on a logical, long term historic basis that is likely to avoid a potential financial disaster or a call on collateral in addition to the policy cash surrender value.
- Does your provider/consultant have sustainability and back-up to monitor the program for the 20 years or more it might be in place? Self-explanatory – ask how the long term policy and program service will take place.
- Can you afford the possibility that you may need to pay more premium down the road? While a sound program generally has the insured or policy owner pay a portion of the policy premium, if the policy yield is lower than anticipated and/or the loan interest rate is higher than anticipated, additional cash and/or collateral may be required.
- Are you thinking that the Federal Estate Tax might be repealed? Even if it is, it is likely to be replaced by a potentially more onerous capital gains or other tax when the property is sold. If not needed for taxes, the proceeds could provide income to the beneficiaries in order to avoid or spread the new tax scheme. Not only that, but the estate tax has been repealed several times since it was first adopted and each time it survived and recast its net.
A thorough analysis by an experienced provider team can help plan a significant life insurance program that, through leverage, can substantially increase the yield for both the cash surrender value and the death benefit for a high net worth person or family. For further information, contact Barry Koslow, JD, at 781-939-6050 or bkoslow@mkaplanners.com.
Securities offered through Advisory Group Equity Services, Ltd., Member FINRA/SIPC. 444 Washington Street, Suite 407, Woburn, MA 01801 (781)933-6100. Advisory services offered by Trust Advisory Group, Ltd., a Registered Investment Advisor.
This article should not be considered as providing accounting, business, financial, investment, legal, tax, or other professional advice or services. It is not a substitute for such professional advice or services, nor should it be used as the basis for any decisions or actions that may affect your business or you personally. This should only be one part of your research. You should seek authoritative guidance from a qualified accountant or attorney before taking any action.
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