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Actions Wealth Transfer: Leaving a Legacy Give Clients a Wealth Transfer Solution They Don’t Know They Need
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Actions People inherit assets every day. You may know clients who have recently inherited:
- Thousands or even millions of dollars in cash
- IRAs or 401(k) plans
- Real estate
- Jewelry, collectibles, and antiques
With proper preparation, clients can significantly reduce or even eliminate the taxes their beneficiaries may have to pay.
Whether clients are middle income, wealthy, or somewhere in between, wealth transfer should be part of their financial plans. Proper planning can help ensure that they enhance the transfer of wealth to their heirs, while reducing or eliminating:
- Taxes
- Expenses
- Delays
- Probate or legal issues
Common Transfer Techniques
Wealth transfer planning can include:
- A will: A legal document that clearly delineates what assets get passed to whom, but does not solve any potential tax implications of wealth transfer.
- Trust: Legal arrangements in which a trustee manages assets for the benefit of others.
- Gifts: Individuals can gift, without triggering a gift tax liability, up to $15,000 annually (indexed for inflation) to as many individuals as they choose.
- Power of Attorney: A legal document giving the authority to act for another person in specified or all legal or financial matters.
Life Insurance’s Powerful Role in Wealth Transfer Planning
Life insurance is a tax-advantaged and effective tool to help clients fulfill their final wishes for their legacies. They can use a portion of their assets to pay their life insurance premiums. Upon death, the benefit paid to the beneficiaries is generally income tax-free, as provided by Internal Revenue Code Section 101(a). That money can then be used to offset any estate taxes that may be due, along with other expenses.
Life Insurance Can Also Help with These Objectives:
- Maintain heirs’ lifestyles. Life insurance proceeds can help to replace the lost earning power of the deceased.
- Provide immediate liquidity. The death benefit can help pay debts, mortgages, and other final expenses.
- Purchase assets from, or loan funds to, the estate. Under current tax law, an estate above a certain financial threshold can be significantly reduced by federal and state estate taxes. Life insurance can help provide the needed cash to meet these tax liabilities.
- Equalize estate distributions. The death benefit can be used as a means to help balance inheritances among heirs. If one child, for example, inherits the family business, the life insurance death benefits of equal value can go to the other children.
- Increase bequests. Because the premium payments for a life insurance policy are often much less than the death benefit purchased, clients can give a larger gift to favorite charities or family members.
- Preserve a business. Life insurance can provide funds for the business to buy a deceased owner’s share from his or her estate or heirs.
Keep the Conversation Going
A wealth transfer strategy is not something someone does once and then forgets about. Life changes, so do tax laws, and assets can gain and lose value. Be sure to review clients’ strategies with them and their attorneys annually or whenever they experience major life events, such as:
- Death of a spouse or any stated beneficiary.
- Marriage or divorce.
- Birth or adoption of a child.
- Change in the value of assets.
- Change in asset structure, such as shifting from stocks to real estate.
- Beneficiaries marrying, divorcing, or having children.
- Entering into a new business.
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Actions When Federal Estate Taxes Are Triggered
Indexed for inflation, in 2019, if a client’s assets total more than $11.4 million ($22.8 million if married), more advanced estate preparation is generally necessary. (Note: This is scheduled to reduce to $5.7 million ($11.4 million if married) indexed for inflation, after 2025.) Without proper preparation, estate taxes could take up 40% of his or her estate. An effective strategy put into place now can help eliminate surprises.
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Actions Key Thought: An Irrevocable Life Insurance Trust (ILIT) Can Help Preserve an Estate
With an ILIT, a grantor gives up all rights in the assets that are transferred to the trust. The grantor cannot revoke, terminate, or modify the trust in any material way. In turn, the life insurance death benefit will not be included in the grantor's estate and will not be subject to federal estate taxes, preserving more of a client's assets for his or her heirs.
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Actions Advanced Strategies for Enhancing Wealth Transfer
Wealth transfer can include implementing complex strategies, including trusts, that take advantage of the unique benefits that only life insurance can provide. When you work with Prudential, we’ll help you to confidently collaborate with clients’ professional legal and tax advisors to examine the viability of strategies such as:
- Generating income, plus a death benefit for heirs
- Making available the money needed to pay federal or state estate taxes
- Ensuring an equitable distribution to heirs
- Providing lifetime care for a dependent with special needs
- Protecting business interests
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Actions Advisors - Life Insurance
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Actions If you’re already appointed with Prudential, visit PruXpress to learn more about how life insurance can help clients meet their protection needs.
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Actions We do not provide tax, accounting, or legal advice. Clients should consult their own independent advisors as to any tax, accounting, or legal statements made herein.
Created Exclusively for Financial Professionals. Not for Use with Consumers.
For Compliance Use Only: 1016717-00002-00 Ed. 10/2020