Tuesday, May 3, 2016

IUL and Estate Balance with Options

Courtesy of: Mutual of Omaha, Advanced Markets
First let’s look at the concept of estate equalization, or perhaps more properly phrased estate balancing.

Many of your business owner clients want to pass their business along to family members one day. Usually, though, not all of their children want to take over the business. So using a life insurance policy to provide for those children, under the concept of estate equalization, makes a lot of sense.

But what if your client has very young children, and doesn’t know yet if any of the children will want to take over the business. Or maybe the client is a doctor or lawyer, and it isn’t clear yet whether any of the children will get the professional education and licensing necessary to take over the business. Or, maybe your client wants the option to make a living exit by selling the business. A life insurance policy still makes sense to protect against a premature death, but after selling the business, what happens to the policy and all the premiums the client paid over the years? Wouldn’t it be great if you could offer your clients that protection with options for a living exit?

At the same time business owners have a very difficult time building wealth outside of the business, even though that is one of the most important things for them to do as they prepare for their exit from the business.

IUL can provide your clients with a way to prepare for both contingencies. Here’s an example: let's say your client is a 40 year old business owner with three very young children. No one knows yet if any of the kids will be interested in taking over the business one day. Just in case one of them does want the practice, you determine that a good estate equalization face amount is $250,000. Assuming he is Standard Plus Non-Tobacco, and assuming he can move $500 a month into the policy to build assets outside the business, at a non-guaranteed crediting rate of 6.69% he would have over $200,000 in cash surrender value at age 60 and with an increasing face amount he would have a death benefit of over $450,000. At that point he should know if any of his children are interested in taking over the business. If they are, he can keep the policy. If they aren’t, and he will eventually sell the business to a third party, he can surrender the policy and  use the cash value for whatever he wants: savings, retirement supplement, travel, starting a new business…whatever. Tax consequences may result from the surrender, but he is balancing his estate while leaving himself options.
It’s nice to have options. And with our new IUL product you can offer your clients protection and options as well.
Need assistance with your advanced markets cases?

Contact Partners Advantage at 888-251-5525, Ext. 700

This is for informational purposes only.  Recommendations for financial product or financial strategies must be suitable for the individual based on their circumstances. Mutual of Omaha does not give tax advice.

Mutual of Omaha
Advanced Markets

The advice provided in this communication is not intended or written by the practitioner to be used and may not be used by you for the purpose of avoiding penalties that may be imposed by the IRS or any other taxing authority. The advice in this communication was written to support the promotion or marketing of the transaction(s) or matter(s) addressed by the written advice. You should seek advice based on your particular circumstances from an independent tax advisor.