Permanent life insurance is often seen as complex or unnecessary, and sometimes even expensive. Typically, life insurance is purchased to protect families from unexpected and worst-case scenario events. However, when used strategically, it can serve as a powerful financial and tax planning tool for high-net-worth individuals.
Below is an overview of a couple of innovative ways to use permanent life insurance for wealth protection and efficient transfer to the next generation, as discussed in our recent Crain’s article.
1. Estate Tax Efficiency for High-Net-Worth Individuals & Families
Snapshot: With the expected sunset of the Tax Cuts and Jobs Act (TCJA), the lifetime exemption is scheduled to be cut in half. Because of that, it’s essential to consider tax-efficient wealth transfer strategies for high-net- worth families. By placing a life insurance policy within an Irrevocable Life Insurance Trust (ILIT), high-net-worth individuals can create a tax-free liquidity infusion to the next generation that could help pay for estate taxes due at death but remains outside the taxable estate.
“Permanent life insurance can also be a powerful tool to help reach financial planning goals efficiently.”
2. Reducing Tax Burdens on Retirement Savings
Snapshot: The SECURE Act mandates that heirs withdraw inherited retirement accounts within 10 years, creating a potential tax burden to them. Permanent life insurance can help by providing a tax-free death benefit that covers anticipated taxes on these accounts, allowing for a more efficient transfer of assets and removing the tax burden from the next generation.
3. Mitigating Long-Term Care Costs & Preserving Wealth
Snapshot: Rising healthcare costs and expensive traditional long-term care policies are concerning to most families planning their retirement. Hybrid life insurance policies with long-term care riders offer flexibility, allowing policyholders to access certain percentages of the policy’s death benefit for healthcare expenses as needed.
“Each of these strategies provides a way to use life insurance to hedge against future expenses that could diminish the value of an estate.”
To learn more about how permanent life insurance can enhance and protect your assets, read the full article in Crain’s or contact Ancora to discuss personalized private wealth strategies.