Advanced Life Concepts

A. Wealth Transfer

1. Annuity Arbitrage - The Annuity Arbitrage strategy enables older clients to redeploy under performing assets, increase discretionary income, and pass additional assets to heirs free of estate taxes. The client purchases a single premium immediate annuity, uses the payments to supply income for life, and fund premiums for a life insurance policy. Annuity Arbitrage is a straightforward concept that allows you to solve both income and estate issues at once.

The Annuity Maximization strategy may allow your clients to leverage existing deferred annuity assets not needed for retirement income into a life insurance policy held outside of their taxable estate. This simple technique can help clients maximize their wealth transfer goals while utilizing existing assets that might otherwise be exposed to both estate and income taxes.

B. Premium Finance - Premium Financing is a potential solution for high net-worth clients who have an established need for life insurance, but do not want to liquidate current assets to pay premiums. It is also a strategy for clients who do not want to incur gift tax consequences as a result of paying premiums.

Traditional Premium Financing - In a traditional premium financing arrangement, the cash surrender value of the life insurance policy is the primary source of collateral. Because in the early years of the policy the cash surrender value is generally less than the premiums paid (i.e., the loan), the borrower generally must pledge additional collateral so that the loan is 100% collateralized.

Non-Traditional Premium Financing - In some premium financing arrangements, the policy may be either the sole source of collateral for the loan or the insured/owner needs to only post a limited amount of collateral (i.e., the loan is not fully collateralized).

C. Life Settlements - Life Settlements One of the most significant markets to emerge in many years, Life Settlements provides your high net-worth clients with a means to tap into unrealized assets within an existing life insurance policy. The proceeds of a life insurance policy may then be used to purchase other financial products, including more cost-effective life insurance, annuities, long-term care insurance, or investments.

Life Settlements are appropriate for clients who are age 70 or older and are considering lapsing or surrendering a life insurance policy for its cash surrender value, or have a life insurance policy that is no longer needed for the reason it was originally purchased, such as:
  1. A buy/sell agreement where one/more of the owners is no longer in the business
  2. A keyman insurance policy on an individual no longer employed by the company
  3. A policy purchased to pay estate taxes on an estate that has significantly reduced in value
  4. A universal life policy purchased in the 1980s, based upon the assumption that interest rates would continue in the double digits. With the current interest rate environment being significantly lower, the client now feels that he has no choice but to surrender the policy as the premiums have become prohibitively expensive.

Additionally, if new coverage is being considered and a Section 1035 exchange is being contemplated, a life settlement should be evaluated, as the after-tax value of the settlement may exceed the economic value of the 1035 exchange.

The insured should have a life expectancy of twelve years or less, the policy should have been issued at least two years ago and generally, the policy should have a minimum $250,000 death benefit. Although a policy minimum of $250,000 face value is standard in the life settlement industry.

There is a potential liability associated with not informing clients, before they let their policies lapse, that their policies may have (more) value via a life settlement.

D. Business Planning

1. Keyperson - These may be the owners of the business, or it may be an employee with critical technical ability, unique client and sales skills, or a specialized practice. If such a person were to die, the business might suffer:
- Disruptions in management,
- Delayed product launches,
- Loss of earnings and customers,
- and Credit issues.

Following an unexpected death, a Key Person protection program offers a death benefit to help keep the business afloat.

E. Buy / Sell Arrangements -For most closely-held business owners, their business represents a significant portion of their personal assets and provides the income upon which their personal/family lifestyle is dependent. With proper planning, the business may continue to provide these benefits even in the event of death, disability or retirement of an owner.

A buy/sell arrangement is an agreement for the disposition of a business interest upon the occurrence of a “triggering event” (death, disability, retirement or withdrawal), whereby an owner (or owner’s estate) agrees to sell his or her business interest for a predetermined price.

Business Continuation
Business Continuation agreements are distinguished by who is obligated to purchase the departing owner’s business interest (i.e. the business, the other owners, a non-owner). A properly designed plan can:
- Assure continuity of management
- Create a “guaranteed market” for business interest
- Provide financial security for the owner and his or her family

Family Succession
Family Succession plans are designed with the goal of keeping the business within the family while providing an income stream to the departing owner. A properly designed plan can:
- Provide smooth transition of ownership of business to active children
- Ensure that inactive children can share in the future appreciation of the business
- Provide financial security for spouse