While conducting a policy review, advisors may uncover an older policy that has accumulated considerable cash value from which a significant loan was taken. On many of the older policies, if the loan remains, it may cause the policy to lapse prematurely. Not only will the policy lapse, but in the event the loaned policy has a gain on it, there will be taxes due. In this scenario, there are 3 options:
Even after passage of the 2017 Tax Act, several common estate planning techniques that work well with low interest rates continue to be helpful for ultra-high-net-worth (UHNW) families to transfer legacies to future generations at minimal income, gift, estate and other transfer tax costs. Even more importantly, and despite the estate tax cuts under the new tax act—which are set to expire in 2026– many affluent families, UHNW or not, desire liquidity for needs other than taxes– such as to repay debt, buy-out assets from one another, to equalize an inheritance, take care of a special need or circumstance, transfer a business interest, or even to replace wealth transferred to charity, for example. To these ends, life insurance continues to work swimmingly with these strategies to create family liquidity efficiently. Each of the approaches may have some of the following effects:
- Discounting, if not completely eliminating, the value of the transfer for tax purposes;
- Freezing an asset’s appreciation so it remains outside the taxable estate, creating an opportunity for additional tax-free gifts of the appreciation to be made;
- Leveraging an asset’s income to create estate liquidity;
- Minimizing income taxes by preserving basis, and;
- Addressing non-tax issues, such as equalization, buy-outs, special circumstances and money management.
Lina Storm, CLU®, ChFC®, MBA- Vice President, Field Marketing at Highland Capital Brokerage follows up with additional insights into the new tax law with “The 2017 Tax Act- An Overview: Part 2.”
Over the next year many of the new complex rules of the Tax Act will be tested, after which the actual winners and losers will be revealed. Part 2 of our Tax Reform Spotlight explores these possible winners and losers and offers some context for your clients.
The 2017 Tax Act brought sweeping changes for families and businesses. It will take some time before we see the full impact of tax reform given its complexities and limitations. Except for the corporate tax rate and several other provisions, the new tax rules are set to expire effective 2026 and will revert back to what they were before the 2017 Tax Act went into effect. Part 1 of the Tax Reform Spotlight series will provide a general overview of the new law.
Bob Finnegan, Sr. Vice President, Advanced Planning Attorney with Highland Capital Brokerage spoke to an audience of high end financial advisors at the Elite Financial Advisor Conference on January 11 hosted by Janney Montgomery Scott. Bob addressed how current planning tools that were not adversely affected by the new 2017 tax act are ideally flexible and particularly suited to help clients hedge against all the threats to wealth, not just taxes—regardless of what happens in Washington.
The massive baby boomer generation has been aging and reaching retirement for years now, with the last wave turning 50 this year. Financial planners and advisors should be sure to focus on helping these clients plan for a comfortable future, even if – until now – they had no plan in place whatsoever.
Women have made great strides in the workforce and many have amassed impressive personal wealth over the years. It also demonstrates an opportunity for financial professionals to increase their client base by appealing to women.