Question: Say that some clients have accumulated a sum of money to pass to heirs or to charity, but they’re not sure what to do with it right now. How can they ensure the money will grow, maximizing their gift with no tax consequences?
Answer: Single premium life insurance.
SPL provides a simple and effective way for advisors to help clients pass a legacy on to heirs. The client makes a single premium payment; this locks in a tax-free death benefit that instantly increases the amount of their estate. Additionally, since many SPLs have living benefits features, the client can gain access to their money if they need it, say, for chronic care expenses or in event of terminal illness.
The role of SPL is becoming increasingly important because within the next 20 years, the United States will experience the greatest wealth transfer in its history. Today’s 76 million-plus estates having values under $1 million are prime target areas for the SPL solution.
With its tax-deferred growth and tax-free distribution to heirs, SPL offers significant advantages over other savings vehicles. Consider:
Other fixed investments, such as annuities or bank certificates of deposit, require time to grow and, after taxes, they provide less money to heirs. With SPL, policyowners immediately increase the amount they will leave to beneficiaries; they will also have access to their money if they need it, as noted above (see Table 1).
In addition, clients can have the peace of mind of knowing that their death benefit is guaranteed (as long as no loans are taken). Depending upon the interest rate credited to the policy, the face amount may actually increase in later years and provide an even larger payout to heirs.
Consider a 64-year-old woman, rated standard nontobacco. If she puts $50,000 into an SPL, the money instantly creates a $99,602 death benefit that her beneficiaries will receive tax-free. Had she put that into a taxable investment, she would only pass on $83,953 after 20 years, and that amount would be taxable to heirs (see Chart 1).