Their taxable income is now $30,000. So, Generation 1 can set up a trust that uses $11.4 million to skip a generation, landing the wealth in the hands of Generation 3, transfer tax-free. Tax-deferred accumulation, asset protection, and penalty and tax-free distributions to name a few. My 40-year background working with retirement planning issues has given me insight into both the opportunities and risks associated with retiring. Assume the policy’s death benefit is $25 million and it resides in a dynasty trust. If you have already maxed out your other tax-advantaged retirement savings plans, LIRPs can be a good alternative to obtain a tax-free income stream in retirement. Opinions expressed by Forbes Contributors are their own. John was a successful business owner, and Jane was a doctor. 6 Key Themes To Watch, Late Surge In Wealth Management M&A Powers A Record Year For Industry Deals, Petition Launched To Extend Comment Period On Cryptocurrency/Bitcoin Self-Custody Regulations. Retirement — it’s that glorious time in your life where the only worry you should have is why your grandchildren haven’t called yet this week. So, back to answering my inquisitor at the meeting. Safety is key when planning for retirement. Most policies provide accelerated death benefits that are available if you are terminally ill, which can help protect you and your family. An added consideration is that the federal exemption is slated to return to a lower amount starting in 2026. With any cash value life insurance policy, as the account grows, you can borrow against it or potentially withdraw money. For most people, purchasing whole life and other types of permanent life insurance isn’t a good way to invest. The investment portion of permanent life insurance … But it is hard to disagree with the tax advantages possible with life insurance as an investment. John and Jane are high-net-worth individuals. The challenge for these family dynasties are the three federal transfer taxes that charge a flat 40% rate on transfers: the gift, estate and generation skipping transfer taxes (GST). A term life insurance policy covers a specific period, generally, 10, 20, or more years, whereas the whole life insurance policy is for the entire life of the policyholder. Whole life insurance policies cost an average of five to 15 times more than comparable term life policies, which means that they’re expensive to maintain over the long term. As I mentioned last time, retirement income planning has emerged as a distinct field in the financial services profession.But because it is still relatively new, the best approach for building a retirement income plan remains elusive. The market plunged. Though it is a life-changing occasion and naturally stressful, it should be an easy transition from work life to retirement life, as you have been planning for this moment for what should be the past 40 years. The question is what investment to use to maximize the efficiency of the $11.4 million exemption in moving money through the generations. Using Life Insurance As An Investment, Good Idea? Checklist 2020 Planning Follow Through: You Have More Work To Do, Experts Say: A Successful Retirement Will Take More Than Knowledge And Strategies, Spirit Of Holiday Giving Can Infuse Your Estate Plan. The best life insurance that is just simple life insurance is called term life insurance. So, while the policy is in force, a death benefit is always in play. I write about retirement income planning – and risk. The $25 million principal in the trust will eventually go to the grandchildren, Gen 3, after Gen 2’s death. This may all sound like a witches’ brew and more trouble than it’s worth. Life insurance is often marketed to high-earning professionals and business owners as a means to put away additional funds for retirement over and above any type of retirement plan … But life insurance, largely because of its tax benefits, can also be used as an investment. If this strategy is a good fit for you, there are other benefits beyond using this out of necessity due to maxing out your traditional options. That said, a popular life insurance retirement planning strategy involves directing as much premium as possible into cash value with the least amount allocated to the death benefit. There are plenty of benefits to including a LIRP in your retirement planning. Life insurance plans provide income for your dependents if you die sooner than expected. Life insurance can be a valuable tool for retirement planning if your situation allows for it. The heavy fees involved with cash-value life insurance can really drag down your returns. 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