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JEFF REED'S WEEKLY RANT! 
nothing left to give 
 

Late last year we talked about a design using a single payment into a Survivorship Guaranteed UL that allowed the premium payer to leave the money to season and then take it all back, resulting in a paid-up contract with a reduced face amount. That little conversation opened up a small flood of discussion and planning ideas using a loan to an ILIT as the mechanism for moving money into the trust.

 

One of the more unique cases that have opened up involves a family that owns an astounding amount of S-Corp stock. When I say astounding, I'm not talking about the number of shares, but the value. Each member of the family owns millions upon millions of dollars' worth of stock, and despite aggressive gifting strategies using both lifetime and annual exclusion gifts, there is a tax bill looming.

 

The real challenge is that the family is virtually unwilling to entertain any diversification strategies, and without any gifting capacity left, their planning had stalled. The potential estate tax bill was climbing ever higher. So how does this relate to the original idea? Well, if we wanted the reduced paid-up policy to be outside the estate, we could not exactly gift the money to the ILIT and then take it back, could we? Of course not, so the original case called for us to loan a lump sum to the trust, use it to fund the life contract, and then pay off the loan in year ten.

 

The advisor in question quickly grasped the concept and saw how he could use it to solve the problem that his other clients faced - how to fund ILIT's when they no longer had any gifting capacity. To make it even sweeter, the recent guidance from the IRS regarding the ability of the grantor to switch out the assets that had been gifted to a trust may have even opened the door to the grantor being able to preserve the stock position even while it resided in the trust. While I am not sure as of this writing if this substitution provision applies to loaned assets, you can bet we are going to explore it straight away.

 

The bottom line from combining all of these strategies? Well, for the client we are actively working on in this family, it allows them to loan some assets to the trust (the S-Corp stock), let the income from the shares fund a life contract, then use the shares of stock to pay off the loan. Clearly, there are still a few details to work out, but the first test case is underway. The icing on this cake is that a huge number of family members use the same CPA and advisory firm. By the time this works its way up and down the generations of this family, we are going to have a significant amount of target premium written, and have solved a major hurdle in their efforts to pass wealth down to the next generations.

 

None of this happens without the advisor putting two and two together, and then reaching out to chat about it. If you have seen an idea in The Rant that piqued your interest, what are you waiting for? Give me a call!

 

Mr Jeff Reed_sig

JEFF REED
  
President
Reed Insurance Consultancy
Marketing Consultant
Cavalier Associates
858/427.1643
jeff@cavalierassociates.com
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Since its inception, Cavalier Associates has catered to the upscale insurance professional, and strives to be an exceptional resource to the brokerage community who seek the best product, sales support, and underwriting process. Our Staff is responsible for identifying and capitalizing on market trends and product opportunities. We specialize in large case management, advance sales support, sub-standard or hard to place cases, underwriting niches, and lifetime settlements.