SAMPLE CASE

SAMPLE CASE
IN THE KNOW DECEMBER 2011
TOOLS YOU CAN USE
As another year draws to a close, your clients who are 70 years and older
must take their annual Required Minimum Distribution (RMD) from their
IRA or 401k. Many high net worth individuals do not need the distribution
income and prefer to maximize the amount of inheritance they plan to leave
their beneciaries. However, upon your clients death, if the IRA or qualied
plan is large enough, the heirs may face a tax bill of nearly 70%.
By using the RMDs to purchase no-lapse guarantee life insurance, your
clients can leave their heirs a tax-free inheritance.
Required Minimum Distributions
Ben E. Factor is a 70 yr. old male with $1,000,000 in a traditional IRA.
He wants to leave his children the $1,000,000 but understands that this
inheritance will be heavily taxed. Best case scenario, his children will
inherit $600,000 at his passing.
Instead, Mr. Factor takes his annual RMD of $39,623, withholds $15,879
for taxes, and uses the balance, $23,744 to purchase a $1,000,000 univer-
sal life insurance policy guaranteed to age 95. e policy also possesses a
long term care rider that will provide a $5,000 per month living benet
to Mr. Factor in the event he becomes eligible for long term care claim.
His beneciaries will receive the full $1,000,000 federal income tax free.
Any remaining balance in his IRA can be gifted to charity, or either
stretch or lump sum the IRA to the children.
By utilizing this simple strategy, Mr. Factor was able to leave his heirs
a substantially larger inheritance while also decreasing his own taxable
estate.
While performing policy reviews, we are amazed at how many insureds own
high cash value products that no longer best address their current nancial
and life situation. Especially in this economy, many insureds cannot aord to
make the premium payments necessary to keep their policies in force. Until
recently, the marketplace did not oer a product that allows a 1035 exchange
of cash values into a term policy. By transferring the cash value to a term pol-
icy, the client is usually able to reduce if not discontinue paying premium and
have a death benet that protects their income during their working years.
is is a great way to assist a client trying to balance their current liquidity
constraints with their true need for death benet protection.
Converting WhoIe Life
Insurance to Term insurance
John and Mary are the parents of two small children. Both have careers
and they recently purchased their rst home, based on both incomes.
ey recognize they need life insurance to help protect the family should
either of them die prematurely.
Two small whole life policies are among their existing policies. John has
a policy with a death benet of $50,000 that his grandmother bought for
him. It currently has about $17,562 of cash value. Mary owns an policy
for $35,000 with about $13,900 of cash value. John is age 35 and Mary
is 34 and both are in excellent health. eyre interested in 30 years of
coverage. John and Mary recognize that these cash values will only pro-
vide the death benet guarantee for 30 years. eir broker shows them
how to leverage these small policies into coverage that will provide sig-
nicantly higher death benets. Moving the cash value from both poli-
cies to new Term UL 30 policies via a 1035 exchange will provide John
a death benet of $981,641 and Mary a death benet of $962,970. Nei-
ther policy requires any additional premium payments to be made for
the life of the contract.
Terminus 200 3333 Piedmont Rd. Suite 2010
Atlanta, GA 30305 404-991-7075
824 W. Superior Suite 210
Chicago, IL 60642 312-563-1100