“When troubles come, they come not in single spies but in battalions.” Shakespeares line aptly describes the situation with variable universal life sales this year.
The business has been hit by a triple-whammy: uncertainty about split-dollar plans, the phase-out of the estate tax, and a volatile stock market.
But these challenges arent insurmountable. Insurers and financial professionals who work in partnership can help clients look past the short-term noise, allay anxiety, and find solutions to long-term needs using VUL. Here are some ideas on how.
In January 2001, the Internal Revenue Service issued a notice providing interim guidance on taxation of split-dollar plans. The notice allows two tax alternatives for individuals and businesses with such arrangements. Neither method will spell the end of the plans; the tax benefits would be reconfigured, but not eliminated.
Split-dollar plans are still a good solution for executives who want to boost their retirement benefits and for companies that want to offer a benefit that helps retain top talent. Since VUL can be a good funding vehicle for split-dollar, knowledgeable professionals have a great opportunity to guide their clients past the confusion.
Where Teaming Helps: Given the complexities involved, brokers need technical assistance from company experts who provide tax-planning scenarios and help in closing sales.
Demise Of Estate Tax?
The confusing new estate-tax law gradually phases out the estate tax, ultimately abolishing it in 2010. In 2011, the new law sunsets, and the 2001 law, which exempts the first $675,000 of assets from estate taxes, becomes effective again.
With the nations new need to fund the fight against terrorism and beef up the military, its hardly a lock that the law wont be changed. Even if the law does stand as written, that does not lessen the estate planning need. If anything, it increases it. Large estates will still generate big estate taxesunless the owner knows he/she will die in 2010.
For most people, income tax is the biggest death tax, because income taxes deferred during a persons lifetime often come due at death. IRD, or income in respect of a decedent, can be substantial for people who have saved a lot of money in 401(k)s, IRAs and similar plans. Life insurance can provide liquidity to pay these taxes.
Where Teaming Helps: Insurers and financial advisors should continue educating the public about the continuing need for estate planning and the value of insurance.
While its easier to sell VUL in a bull market, the policy shines in volatile markets because its so flexible.