Tag Archives: life insurance

WSJ Sounds the Alarm on Premium Financing Plans

WSJ

 

 

In recent years, many of your clients were sold (yes, sold) commercial premium financing plans.  A recent Wall Street Journal article entitled “Rising Rates Make Life Insurance Funded with Debt More Costly” raises significant concerns:

“Even before rates started to rise, consumers were being forced to make big payments when strategies failed to deliver the promised returns.  Many sued their agents and insurers….The lawsuits claim that agents misled them about the strategy’s risks.  The policies are supposed to generate enough income to repay the loans, which can also be repaid through the death benefit….Since rates started to rise, a benchmark used in many premium-financed transactions, the 12-month Secured Overnight Financing Rate, has jumped from less that half a percent a year ago to more that 4% now.  Borrowers pay 1.5 percentage points to 3 percentage points above this rate….”

The WSJ article which can be found clickinhere.

In short, many clients who implemented these plans are experiencing the perfect storm of substantially higher borrowing rates, poor policy performance and significantly higher collateral requirements – and with no relief in sight.

I have never promoted or sold a premium financing case.  In fact, in 2001, I co-authored an article with Steve Leimberg in Estate Planning magazine which raised many of the issues that are even more relevant 20 years later.  As we wrote in our article,

“For decades, one of the most common expressions among life insurance professionals has been, ‘Clients do not object to owning life insurance; they simply object to paying for it.’  In a never-ending quest to satisfy clients’ wishes, a growing number of life insurance agents have been working overtime to devise new strategies to propose to clients and their advisors in the sophisticated, high-income, high net worth marketplace….”  There is no such thing as free insurance!

Exiting these plans can be a thankless, time consuming and costly exercise.  My goal is simply this:  to inform you about this important issue.

View Post

What You Know and What You Might Not Know – Increases in Lifetime Exemptions

Many ultra-high net worth clients used all of their available gift/estate and GST exemptions in 2020 or 2021.  For an individual, the exemption increased by $120,000 in 2021, $360,000 in 2022 and is estimated to increase by $860,000 in in 2023.  We can make assumptions for the increases in 2024 and 2025.  What would it look like if we used the increases to fund additional life insurance.
Click here to find out.

 

View Post

Finseca (AALU) – ” Rising Rates and Falling Markets – A Focus on Life Insurance Third-Party Premium Financing and Loan Regime Split Dollar Arrangements”

“Life insurance continues to play a vital role in legacy planning because of its unique value proposition – a source of income tax efficient liquidity, efficient wealth transfer on a multi-generational basis, a mortality hedge, a non-correlated asset class, and strong internal rates of return relative to the current stock market. Nonetheless, advisors should evaluate how higher rates and a volatile market may impact the performance of both new and existing life insurance funding approaches.”

Click here to read the full report.

View Post

Finseca (AALU): “Lessons from Smaldino v. Commissioner: The consequences of rushed planning”

Finseca_logo

 

 

 

“The “step transaction” doctrine is alive and well. In the foot-race to beat potential tax law changes, families often miss the forest from the trees. The economic realities and entity formalities must be respected in the execution of a gift transaction….On November 10, 2021, the Tax Court rendered its decision in the case of Smaldino v. Commissioner, which involved a purported gift of LLC interests by Mr. Smaldino to his wife, followed by a purported gift of the same LLC interests, the very next day, from Mrs. Smaldino to a dynasty trust for the sole benefit of Mr. Smaldino’s children from a prior marriage. The Court found a series of ignored formalities, and that as a practical matter there was never a time when Mrs. Smaldino would have been able to effectively exercise any ownership rights with respect to the LLC interests “given” to her. The Court held that Mr. Smaldino never effectively transferred any LLC interest to Mrs. Smaldino, and consequently the dynasty trust received its entire LLC interest from Mr. Smaldino, creating a taxable event.”

To read the full report, click here.

View Post

Finseca: “How Can Blended Families Use Life Insurance to Simplify Legacy Planning and Minimize Conflicts”


“While conventional estate plans focus on a “traditional” family notion of one husband, one wife, and their children, families today often involve far more complex relationships. Thus, modern-day families often present unique planning issues, such as the need to satisfy obligations under marital agreements, the goal to provide simultaneously for both the surviving spouse and children from prior relationships, and the desire to ensure “fair” treatment of children from prior relationships, all while minimizing potential conflicts between the spouse and those same children. The acquisition of life insurance, as well as other “tweaks” to the conventional core plan, can address these objectives.”

To see the full report, click here.

 

View Post

Finseca (AALU) – “Life Insurance Mistakes that Keep Attorneys Up at Night”

2021 was a strange and challenging year in the estate and tax planning field, particularly life insurance….In the rush to address and mitigate potential consequences before they came into existence, practitioners, advisors, and clients all made decisions and took actions which, in retrospect, may not have been most advisable, were just plain mistakes, or failed to plan for the problems that these actions had potential to cause in the future, regardless of whether any of the concerning factors came to fruition. This article describes many of these “mistakes” which occurred due to rushed planning and may serve as a warning if we are (and we will be) faced with similar situations in the future.

To see the full report, click here. 

View Post

Finseca: What comes around goes around – Charitable Remainder Trusts and Wealth Replacement Life Ins Return to Spotlight

“As part of their comprehensive legacy plan, clients who are charitably inclined, hold significant highly appreciated assets, and wish to create a lifestyle “annuity” should consider a CRT, especially if they can benefit from an income tax charitable deduction. Selling an appreciated asset inside a CRT may provide an economically superior result compared to selling the same asset in a client’s own hands, especially when done in conjunction with purchasing additional life insurance through an irrevocable life insurance trust (“ILIT”).”

To read the full article, click here.

View Post

The Estate Tax May Change Under Biden Affecting Far More People

NYTimes

 

An interesting article in today’s NY Times authored by Paul Sullivan.  He writes, “So the question for taxpayers now is:  What happens once Mr. Biden can begin enacting changes in tax policy?  The biggest long-term change involves the estate tax.”  Sullivan goes on to discuss the possible loss of step-up in basis, “A Biden administration may move to change this for logical and revenue reasons.  Imagine trying to determine the capital gains from AT&T stock that your grandmother bought in 1943 when record-keeping was done with a pencil and paper.  Today, cost-basis information can be retrieved in seconds.”  He goes on to discuss some of the inherent problems in this approach.

A different approach could be adjustment to current estate tax exemptions and rates.  “With Democrats controlling the legislative and executive branches, there is concern that the exemption level could drop to $5 million or even $3.5 million…For the wealthiest in the country, the bigger concern is the rate itself.  It’s now at 40%, but it was as high as 55% in 2001.”

To read the full article, click here.

View Post

Planning Ahead of the 2020 Election and Possible Changes to the Estate Tax and Valuation Discounts

Paul Sullivan (Wealth Matters) writes today in the New York Times, “What needs to be analyzed for affluent individuals are the potential changes no candidate is talking about: lowering exemptions and raising rates for the estate and gift taxes and ending the valuation discount for closely held family businesses, a tax break that allows families to transfer a valuable asset for less than it is worth.”

To read the full article, click here.

View Post

AALU: Post-Mortem Liquidity Planning: A Fiduciary’s (Limited) Toolbox

“In the absence of life insurance, options for fiduciaries to generate needed liquidity for estate taxes and expenses may be limited, creating additional hurdles for estate administration and post-mortem planning.” 

To read the full report, click here.

View Post