We’re told in Proverbs (13:22) that a good man leaves an inheritance for his children’s children, but with today’s tax laws, is it possible to leave a legacy to your children or grandchildren that will not be shared with the government? Yes, there is! Many people know that Life Insurance proceeds are tax-free to their beneficiary, and annuity payments are only taxed when withdrawn, so how does one plan to leave a tax-free legacy to his/her children and/or grandchildren?
Known by various names depending on the company, a Single Premium Whole Life product provides the tax-free benefits of a life insurance policy combined with the convenience of an annuity payment. Basically, what this means is if Ms. X, a 65-yr. old, non-tobacco using female in the 25% tax bracket were to deposit $50,000 into one of these accounts, she would be covered for $87,000 of life insurance which is tax free to the beneficiary upon her death. The $50,000 would be utilized over a 10-year period to fund the insurance premiums, which means Ms. X’s tax liability for these funds would be spread out over those 10 years, thereby reducing them from a lump sum taxable amount should she simply cash in a 401K or some other type of retirement account. Should Ms. X die within the 10-yr. premium funding period, her beneficiary would receive the life insurance proceeds (again, tax free) and he or she will also receive any unused premiums from the initial investment. These (and only these) funds would be taxable to the beneficiary and can be received on an annual basis for whatever time is left on the 10-yr. period – again spreading out the overall tax liability. Clear as mud? Think about it like this: Ms. X bequeaths the $50,000 in her retirement account to her grandchild. When Ms. X dies, the grandchild is responsible for taxes on that $50,000 if he/she receives this in a lump sum. Ms. X invests $50,000 into a SPWL which gives her $87,000 of life insurance. The insurance costs $5,000 per year for 10 years. Ms. X dies in year 3, leaving $35,000 of her initial investment untouched. Ms. X’s beneficiary receives $87,000 from the life insurance policy (tax free) and then will receive the remaining $35,000 in sums of $5000 per year for the next 7 years. He or she may pay taxes on the $5000 each year, which would equal (roughly) $1250 per year in lieu of receiving a lump sum of $50,000 which would result in a (roughly) $12, 500 tax liability which would come out of the $50,000 leaving an inheritance of only $37,500 (not counting the life insurance benefit). Therefore, Ms. X’s beneficiary receives a total inheritance of (approximately) $113,250 in lieu of $37,500! Much nicer inheritance don’t you think? So do I. If you’d like more information on this type of plan, please give our Licensed Life Insurance Specialist a call and set an appointment to discuss your options. Until next time take care and remember…. A wise man (or woman) leaves a larger inheritance to his/her children’s children than an uninformed one. Tommy Curtis and Staff Disclaimer: This material has been provided for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. Life and Medicare Products marketed through Curtis & Associates Financial Services, Inc. {A Life and Health Agency} Comments are closed.
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Tommy Curtis
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