A client whose estate will remain non-taxable after 2025 has a policy in an irrevocable life insurance trust (ILIT) that was presumably purchased for estate tax liquidity. The client has a large premium due on that policy and, along with the ILIT’s trustee, wants to know their options for dealing with the situation.
I sense that: (1) there are plenty of clients in this situation; (2) it’s not fair to presume that clients are inclined to drop the coverage altogether because it’s technically no longer needed for liquidity; and (3) it’s fair to presume that they may just want to explore the options for improving the economic and tax implications of the way they’re supporting the policy, all as discussed in the article I referred to in “Helping Clients Plan Their Life Insurance Strategy for Possible Sunset.”
Whether clients support the policies with cash gifts or split-dollar, the discussion of options will necessarily involve a combination of insurance planning, tax planning, income and gift tax-oriented wealth transfer planning and investment planning. And, as some will no doubt remind us, if the remediation of the tax economics of the payment arrangement involves a substantial taxable gift, such as one of discounted income-producing property to the grantor trust ILIT so it can contribute to the premiums and reduce future gifts from the client, it wouldn’t be a bad idea to get that done in 2025 just in case the pending legislation never finds its way into law.
This is an outstanding opportunity to reach out to clients, network with other advisors and bring some real creativity and value to client relationships. It’s also an opportunity with not one but two, built-in time-sensitive calls to action by the client. But these discussions will have to happen soon, as the premium notices may well be on their desks as I write this article.
But Here’s the Rub
A comprehensive discussion along the lines suggested in the article I posted will require a lot of work by the agent, including all the data gathering, consultation with advanced planning attorneys, coordination with other advisors, presentation preparation, etc. Absent the real possibility of a replacement or a life settlement, there may be no opportunity to be compensated for all that work, unless the agent’s willing to charge the client a fee for this service. What’s more, getting those other advisors interested in the project could take some doing. Resourceful agents will figure this out. What’s more, they’ll know that in light of today’s political and economic conditions and circumstances, they’ll have far more success with clients if they position the “explore the options” project in terms of current and projected cash flow savings rather than future estate tax savings or liquidity. I just thought it appropriate to acknowledge the challenge.
#Crunch #Time #Policyholders