Are you considering a wealth-transfer strategy?
The problem:
Mary is 72 years old, widowed, and has three children. She has $100,000 invested at a local bank in various CDs and savings accounts. Mary also has various forms of income that she utilizes for retirement. She is satisfied with her current income and would now like to develop a plan that allows her to transfer her wealth to her children when she dies, and she would like to do so without creating a financial burden for them. Mary is hesitant, however, to structure a wealth-transfer plan at this time because of increasing health care costs. She would like to maintain liquidity in her wealth-transfer plan so that she can access the monies in the event of an emergency. Mary has high blood pressure and adult- onset diabetes, which are both controlled with medication.
The solution:
Given Mary’s needs, a possible solution would be to use an IUL with a waiver of surrender charges rider. She agrees to leverage part of the money she has invested with the bank so she can provide a larger inheritance for her children.
Mary decides to put about $75,000 into an IUL. To avoid the contract becoming a modified endowment (which would diminish the tax advantages), she puts the money into the insurance company’s advance premium deposit account and spreads the payment to approximately $15,000 per year for about five years.
Because of the company’s Table 4 to Standard shave program, Mary receives standard rates despite her high blood pressure and adult-onset diabetes. The illustration shows a little more than $132,000 is immediately available as an income-tax-free death benefit for her children. In the event of an emergency, Mary would have access to the entire cash value because of the waiver of surrender charge option. She can access the cash by withdrawals or by income-tax free, contractually guaranteed loans after the sixth policy year.
Mary has confidence in her wealth-transfer strategy. She can’t lose her principal. In fact, she has very real opportunity for potential gains. She has immediate access to her cash. And the cash has been leveraged to provide a larger inheritance for the children.