Using Life Insurance as a Wealth Transfer Vehicle

May 12, 2021

Does your estate plan include transferring your wealth onto your family? Have you looked over potential tax implications? It's important to understand that your beneficiaries may be in for sticker shock when they receive a tax bill along with your generous gift. If you're looking for ways to keep your financial legacy away from Uncle Sam, you might consider life insurance. 

  • Tax Efficiency. The proceeds from life insurance are free of income tax. For example, if your death benefit is $5 million, your heirs will receive the total $5 million. The only situation in which tax may be due on life insurance proceeds is when you remain exposed to the estate tax. The problem can be solved if you properly use a life insurance trust. 
  • Market Guarantees. Sure, investing is exciting, but it's loaded with risk. Life insurance removes most of the risk by offering fixed returns. If you're craving more significant upside potential, talk to your financial professional about insurance products, such as indexed universal life, that provide a fixed return plus the possibility of additional credits through exposure to a linked market index.
  • Leverage. No one can precisely calculate the return on a life insurance policy until the insured dies; however, you can know exactly what your heirs will receive. Even for those who live past life expectancy, the return — especially when factoring in the tax-free nature of it — is most likely going to beat the alternatives.
  • Business Succession. If you own a business, it can be tricky to leave money to your heirs since much of it is tied up in business expenses. Plus, it's natural to want your beneficiaries to receive equal amounts even if not everyone takes over the family business. To jump through these hurdles, you can use life insurance to create liquidity and partially fund the inheritance for any child not taking on a business role.

When it comes to wealth accumulation and succession, the decisions you make will determine how much everyone receives. Call us today, and let's set up your investments the best way possible.


This document is for educational purposes only and should not be construed as legal or tax advice. One should consult a legal or tax professional regarding their own personal situation. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products offered by an insurance company. They do not refer in any way to securities or investment advisory products Insurance policy applications are vetted through an underwriting process set forth by the issuing insurance company. Some applications may not be accepted based upon adverse underwriting results.  Death benefit payouts are based upon the claims paying ability of the issuing insurance company. The firm providing this document is not affiliated with the Social Security Administration or any other government entity.

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