The Future of Life …
We now know what the congressional policymakers are thinking and how they intend to tax us moving forward. A bill was just introduced reflecting higher income tax rates, lower estate tax exemptions and limits on certain advanced estate tax reduction planning strategies. It has been said the only two things for certain in life are death and taxes – life insurance can help with both.
New Laws allow heavier funding
In 1988, Modified Endowment Contract (MEC) laws were implemented to curb some of the “tax shelter” benefits and potential abuse of life insurance. Back in the day, some would buy a life policy and load it with premiums so that the difference between the cash value and the death benefit were small. This design minimized the insurance costs and maximized the tax advantages. Tax deferral and a tax-free death benefit were quite attractive. The ability to access your cash value without taxation adds tax diversity for those in higher tax brackets.
The 1988 MEC rules curbed the ability to put as much money in a life policy and diminished the living value of life insurance. Recent legislation has swung the pendulum back in favor of life! The new 7702 legislation allows carriers to use today’s lower interest rates to price life insurance which allows a lot more cash to be put into a policy without causing a MEC. Now clients can make the tool more versatile by adding a long-term care rider allowing access to the death benefit tax-free if care is needed.
Tax-Free is better
Life insurance, like a Roth IRA, is funded with after tax dollars and grows tax deferred. You can access it during your life without income taxation. Unlike a Roth IRA, life insurance has no income limits, and the contribution limits are higher than before with the new funding limits. The problem with a Roth for estate tax exposed situations is it too will be subject to estate taxes. A life policy owned outside of the taxable estate can be a totally tax-free asset.
The Future of Life Insurance – Dr. SLAT’s Story
For high income earners and high-net-worth clients in an increasingly higher tax environment, life insurance becomes more valuable. Adding a long-term care rider enhances the policy flexibility. For ‘couple’ situations there is a unique irrevocable trust – a Spousal Lifetime Access Trust – which may be the perfect way to own some life insurance. A SLAT allows a client to have access to their living benefits (cash value and long-term care) while keeping the death benefit from being included in their taxable estate.
Launch the following links to learn more:
Client Chronicles™ – The Future of Life Insurance
SLAT’s Provide Flexible Plans for Many Clients
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