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September 07, 2007 at 08:00 PM
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Almost 20 years ago, one of my wealthy clients welcomed his first grandchild. My client’s son, the father of the grandchild, was age 34. The grandfather, age 59, wanted to make regular gifts to the grandchild and asked me, “Where do we invest the money?”
The entire family was in the maximum income and estate tax brackets, so I suggested that we explore alternative investments. Here are some of the choices we looked at:
— Taxable investments earning 9% gross or 5.67% net after paying income tax at 37%.
– Certificates of deposit earning 5% gross or 3.15% net.
– Treasury notes earning 7% gross or 4.83% net.
– Zero-coupon municipal bonds earning 5.50% net (not subject to current income tax).
– A special interest-sensitive, investment-grade life insurance contract, which at that time had a current interest assumption of 8%, tax-deferred.
