Affluent Families

Life insurance and other tax-advantaged vehicles play vital roles in sustaining the legacies created by today’s affluent families.  Whether the goal is to ensure that future generations will be secure or to provide for a charity that is near-and-dear to the family, the process of designing and implementing a plan can be complicated, full of traps, and daunting, to say the least.

BEJS can recommend practical solutions that will provide clarity and certainty into the estate planning process.  These solutions often involve reducing taxes, providing liquidity, and ensuring the proper timing and the amount of distributions to chosen beneficiaries.

Below are some examples:

Multi-Generational Estate Planning

An affluent matriarch of a successful family wanted to protect the value of the family business enterprise she and her husband had built.

BEJS worked with her accounting and legal advisors to create a strategy that included placing a diversified portfolio of institutionally-priced exclusive insurance products in a generation skipping trust to avoid possible future estate transfer costs, and paying premiums via a split-dollar life insurance financing arrangement.

As a result the client was able to minimize transfer tax costs, moved wealth from her generation to a third generation free of the transfer tax system, provided for $100 million in tax-free liquidity to cover significant future estate tax liabilities, and gained a partner who would oversee ongoing servicing of her large insurance portfolio to ensure planning objectives were met.

Simplified Legacy Planning

A successful business owner was frustrated by the uncertainty of federal and state estate tax policy and overwhelmed by the complexities of many solutions that had been presented to deal with it.

BEJS presented a simple and certain solution that involved purchasing a $9 million second-to-die insurance policy held by a trust outside of the estate.

As a result, each of his three children is guaranteed* to receive $3 million income and estate tax-free, and the client and his wife were free to utilize their net worth for personal and charitable goals during their lifetime.

*If premiums are paid on time and no withdrawals and/or loans are taken, for this type of product, the insurance carrier will guarantee that the death benefit will be in force for a specified number of years.  Product guarantees, including the death benefit, are subject to the claims-paying ability of the issuing insurance company.

Charitable Planning

Impacted negatively by equity markets suffering from sluggish economic conditions, a successful philanthropist was concerned about his estate being sufficient to meet several charitable bequests he had made.

BEJS collaborated with him to create a charitable replacement trust funded by life insurance.

As a result, $10 million will be provided to fulfill charitable commitments at an after-tax cost of roughly 12.5% of the bequest itself, and the client received an income tax deduction for the capital used in funding the trust.

Individual Policy Reviews

A successful corporate executive had accumulated a significant amount of life insurance in a number of policies purchased over the years from a reputable insurance carrier.

BEJS completed a policy review on the existing policies and recommended a restructuring of the portfolio in order to (1) align coverage with needs, and (2) take advantage of wholesale pricing and design advantages of proprietary products available through M Financial.

As a result, the client’s death benefit coverage was increased from $8.7 million to $20 million, out-of-pocket premium requirements were reduced from $94,000 annually to $16,000, and overall tax efficiency of the portfolio was enhanced.

Life Insurance as an Asset Class

A successful entrepreneur who sold his business, had substantial liquid net worth, and was concerned about income taxes, estate taxes, inflation, and creditor protection.

BEJS collaborated with the client and his advisors to recommend allocating a portion of his liquidity to life insurance placed in an irrevocable life insurance trust with spousal access.

This strategy created an income tax-free source of capital for the spouse, created an increasing death benefit for his family to counter the impact of inflation, avoided estate taxes on $7.5 million of initial insurance proceeds, and created a source of capital outside the reach of potential creditors.

Long Term Care Protection as an Alternative to Self-Insuring

A wealthy client had spent approximately a half a million dollars providing long term care assistance for her husband prior to his death. With a keen awareness of the cost of care she began to evaluate “traditional” long term care insurance to protect her estate and her family. However, she did not like the idea of ongoing premiums with no assurance that she would ever receive benefits and decided that she had adequate liquidity to “self-insure” the risk.

After consultation, BEJS was able to provide her with an alternative “asset repositioning” strategy.

She transferred $250,000 of her low interest-bearing liquid assets to a policy that provided the following benefits: (1) 100% tax-free return of premium should she change her mind and cancel the policy; (2) an immediate tax-free death benefit of roughly two times the lump sum premium; and (3) aggregate long term care benefits in excess of $1 million should she need long term care services.  Pleased at the result, she commented that “this is a much better use of a portion of my non productive, liquid assets.”