IUL for Estate Planning
Life insurance for estate planning has long been the preferred means of providing liquidity at death that is outside of one's estate. This liquidity can help pay estate taxes, without incurring a lot of current gift taxes or substantially reducing one's federal estate tax exemption. Such policies are owned by a trust, which makes the necessary premium payments. This is likely to be an irrevocable grantor trust, such as an irrevocable life insurance trust (ILIT) or dynasty trust.
The types of life insurance placed in these estate liquidity trusts may be whole life, limited pay life, or various types of universal life, including traditional UL, variable universal life (VUL), guaranteed universal life (GUL), and of course indexed universal life (IUL). Term life insurance won't work, as it eventually expires, or the future renewal premiums grow to be enormous.
Indexed Universal Life Insurance (IUL) can be structured in such a way to help lower the total estate planning contributions to an insurance trust. Care needs to be given to make sure the policy remains sufficiently funded and is not in danger of lapsing due to ongoing policy expenses and loan interest (which is usually allowed to accrue and be added to the loan balance). We recommend modeling policy performance with the help of our affiliated company, Plan Trackers, Inc. Another consideration when choosing the insured for such a policy is who may be the most insurable and at what cost. There are certain products that can allow for a patriarch or matriarch to be an insured on a policy even if they are uninsurable. This can be critical given the estate liquidity need at the second passing of the two most senior members of the family.
One last planning concept attractive to many affluent families is the ability to pay a one and done premium payment to attain lifelong coverage needed for an estate liquidity. This can be accomplished using a particular policy structure not typically utilized, but perfect for pure death benefit need in these large estate cases. Reach out for more information.
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