Failure To Plan Today Is A Plan To Fail Tomorrow

The federal tax legislation recently signed by President Bush means sweeping changes for income, gift, estate, capital gains and generation-skipping taxes for millions of Americans.

Many of these tax changes are being enacted over a period of years and, in the case of the federal estate tax, will be repealed for a year and then re-enacted. This has created a great deal of uncertainty about the ultimate effect of these changes on anyone planning his or her personal finances. Of course, uncertainty often leads to procrastination and delays by your clients in implementing their wealth accumulation, preservation and distribution strategies–delays that can be extremely hazardous to their financial health.

The new tax package, taken together, affects the three phases of everyones economic life: asset accumulation, asset preservation and asset distribution. Yet you can insulate your clients from adverse effects of these changes and potentially others in the future through thoughtful planning and the use of permanent life insurance.

Asset Depletion vs. Asset Accumulation

Despite the new tax cut, the payment of federal income taxes (10% to 35%) and state income taxes (up to 15%), or in some cases, state and federal capital gains taxes (up to 27%), can shrink your clients assets significantly. These same income tax consequences even apply to the death-time transfers of such assets as annuities, IRAs, pension plans, deferred compensation benefits, vested stock options and installment sales receipts (IRC Section 691). Also, heirs and beneficiaries who inherit appreciated assets may one day face capital gains taxation should the new law repealing estate taxes in 2010 remain on the books.

Effective asset accumulation planning today can preclude these potential lifetime and death-time losses tomorrow. One of the most effective financial tools to accomplish the dual financial goals of wealth preservation and asset accumulation is variable life insurance.

VL insurance can provide the ultimate in income protection and planning flexibility to compensate for the uncertainty of change, such as the shifting and uncertain tax environment we find ourselves in today. Life insurance is truly an asset planning technique for all seasons, a technique that can insulate a financial plan from tax law, regardless of the form that such law may take.

And, lest we forget, change has always been an inherent characteristic of tax law. The estate tax, for example, has been enacted four times since 1797, repealed three times, and undergone major reform at least nine times.

Asset Confiscation vs. Asset Preservation/Replacement

Regardless of tax changes, financial assets can be lost or depleted through other life events such as litigation, divorce, creditor attachments, nursing home expenses, and bankruptcies. Consider these statistics:

–Over 13 million civil lawsuits are filed each year in the U.S., according to the Wall Street Journal.

–One out of every two marriages ends in divorce.