“Relatively small shifts in applicable interest rates can have a disproportionate effect on the performance of rate-sensitive legacy planning. Appreciating the potential economic impact of the rate changes and how other factors, such as payment structure, term selection, and asset valuation, also can complement overall performance, may help clients and advisors to better customize the planning to achieve the intended goals.”
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“Presenters at the 2018 Heckerling Institute on Estate Planning identified several enhanced areas of focus for legacy and life insurance planning post tax-reform, including (1) basis adjustment planning, (2) the potential benefits and pitfalls of portability, especially in light of the doubled federal transfer tax exemptions, and (3) the need to review and refresh existing life insurance planning.”
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“In a world of increasing commoditization, adding value is key. Advising on product selection and identifying common trouble spots in the development of a life insurance plan can offer advisors significant opportunities to provide value to their clients. Collaborating with other allied advisors early on in the client’s planning also can alleviate many of these problems without creating extensive delays to policy issuance.”
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“Acquiring life insurance on a surviving spouse inside a CST addresses multiple tax issues – it limits income tax associated with the CST assets and efficiently uses the estate and GST tax exemptions. This approach also eliminates the need for annual gifts to an ILIT (and corresponding Crummey withdrawal notices) and more complex funding programs, like split dollar arrangements.”
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“Blended families, mobile beneficiaries, and new approaches to trusteeships require a flexible and highly customizable approach to irrevocable life insurance trusts (“ILITs”), one of the most common legacy planning tools.”
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“Americans are starting to fight back against a wave of insurance-price increases on decades-old life policies. Over the past year, several major insurers have notified tens of thousands of people of higher costs to keep their policies in force, with increases ranging from midsingle-digit percentages to more than 200%, according to financial advisers. To justify the increases, they blamed the impact on their investments from the Federal Reserve’s decision to keep interest rates lower for longer.”
For an in-depth explanation of the issue, please see my 12/16/15 email included with the link to the article below. Bottom-Line – all policies 5 years and older should be reviewed to see if they are performing as originally intended.
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“It seems many advisors focus almost exclusively on one generation at a time when providing legacy management services; however, looking across multiple generations may produce far better results for the family. Families will often have life insurance needs spanning generations. For advisors, viewing the entire family as one client can provide clarity as to each generation’s potential tax exposure, liquidity requirements, and even financial management needs.”
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“ILIT trustees have significant fiduciary duties that can result in serious liability if breached. To properly perform their duties and minimize exposure, ILIT fiduciaries should act independently, conduct or obtain regular, independent evaluations of the ILIT and policy performance, document their deliberations and decisions and, as appropriate, disclose and obtain waivers or consents from ILIT grantors and/or beneficiaries. Life insurance producers can add value by offering post-sale services, like policy monitoring and annual reviews of trust-owned life insurance products, as ways to support ILIT trustees in carrying out their duties.”
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“With the trust departments of many banks and retail brokerage firms turning away irrevocable life insurance trusts (“ILITs”), trustee selection becomes a rather challenging issue.”
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“A number of new federal class action lawsuits have been filed against insurers after they announced increases in the cost of insurance (COI) charges for various blocks of universal life business.”
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