Life Insurance Planning for the High and Ultra High Net Worth Segments

Life Insurance Planning for the High and Ultra High Net Worth Segments

Estate less than $10M 2016: $5.45M Single; $10.9M Married Couple Client still employed (<65) Life Insurance as an Asset Class (uncorrelated, bond-like returns) (evaluate Client s cash flow and benefits of permanent vs. term) Consider trust owned policies as follows: - Consider net worth close to exemption and how close Client is to retirement Notes: Is estate likely to exceed estate tax exemption? Estate exemption is a political football and can be expected to change in the future If the exemption is lowered, insurance could be needed to pay estate taxes - Separate policies for husband and wife in order to provide income to the surviving spouse - To protect against Threats-to-Wealth other than taxes A. Divorce/Creditors B. Re-marriage/2nd Marriages C. Beneficiaries (spendthrift, avoid spoiling with too much too soon, you want your children to be able to do anything, but not do nothing, special needs) Note: Dynasty Trust planning not typical at this level Client retired (>65) Wealth Creation (ensure children get a minimum amount via life insurance) Life Insurance Retirement Plan (LIRP) Tax-free growth of cash values Favorable access to cash values via partial surrenders and loans Special Needs Child Provide funds to care for special needs child Survivorship life as long as either spouse is alive, someone is there to care for the child Life Insurance to diversify a Concentrated Stock Position Note: Utilize dividends or consider use of margin account Stretch IRA Multi-generational IRA Annual gifts that do not jeopardize Client s financial security PAGE 2 LI PLANNING FOR H/UHNW SEGMENTS continues >

Estate in $11-$25M Range $5.5M - $12.5M Single Client Trust-Owned Life Insurance (TOLI) funded with annual exclusion gifts Note: Dynasty Trust optional depending upon Client goals and objectives Consider gifting as follows: Older client Clients where living expenses are well provided for and discretionary assets/income are available Important to project savings and estate growth to determine advisability of gifting Discounted gifting (FLP interests or LLC non-managing membership interests) Gift/Sell assets to Defective Grantor Trust that is also a Dynasty Trust. Consider Grantor and Spouse each creating a Spousal Access Trust Intra-Family Loans (Private Financing) Commercial Premium Financing Split-Dollar Funding Client still employed Client retired Wealth Creation Life insurance in a Qualified Plan Annual gifts that do not jeopardize Client financial security Benefits of lifetime contributions (income tax deduction) PAGE 3 LI PLANNING FOR H/UHNW SEGMENTS continues >

Estate in $25M+ Range $12.5M+ Single Client Consider the following Trust-Owned Life Insurance (TOLI) funded with annual exclusion gifts Gift/Sell assets to Defective Grantor Trust that is also a Dynasty Trust Note: Toward lower range, consider Grantor and Spouse each creating a Spousal Access Trust in order to retain access and control Discounted gifting (FLP interests or LLC non-managing membership interests) Gift/Sell assets to Defective Grantor Trust that is also a Dynasty Trust. Consider Grantor and Spouse each creating a Spousal Access Trust Intra-Family Loans (Private Financing) Commercial Premium Financing Split-Dollar Funding Client still employed Client retired Wealth Creation Life insurance in a Qualified Plan Benefits of lifetime giving (income tax deduction) - Direct bequests - Testamentary Charitable Remainder Unitrusts - Direct bequests - Testamentary Charitable Lead Annuity Trusts - Testamentary Charitable Remainder Unitrusts PAGE 4 LI PLANNING FOR H/UHNW SEGMENTS continues >

Closely Held Business For clients who own a closely held business, it is extremely important to consider the following: Buy-Sell Planning - Agreement may be with unrelated partners, family members - Retain flexibility for children entering the business Estate Equalization - Typically all children not involved in the business. How to treat all children fairly (not necessarily equally) Key Person - Consider insuring the lives of key owners and non-owner executives Non-Qualified Executive Benefit Plans - Attract, reward and retain top executives, especially non-owner executives IMPORTANT NOTES Each case needs to be custom designed Maintaining the Client financial security is the number one priority The following factors need to be considered: 1. Age and Health 2. Marital Status 3. Client s Net Worth (are there expected inheritances?) Assets (Home, Real Estate, Businesses, Investments, Insurance & Annuities, Retirement Accounts & IRAs, etc.) Liabilities (Debts, Mortgages, Loans) 4. Classify (with Client) net worth into three buckets Consumption assets to support lifestyle Contingency assets needed for emergencies Custodial (Discretionary) assets available for legacy planning In arriving at Custodial assets, consider the following: Income needed to support lifestyle including extraordinary expenses such as children s college education, weddings, etc. Income available - Salaries and bonuses - Approximate retirement date - IRAs, pensions and profit sharing plans - Income generated from Investment portfolio - Annuities and personally owned life insurance - Income generated from closely held business - Other sources of income In arriving at Contingency assets, consider the following: Needs that can be covered by insurance, for example: - Health Insurance - Disability - Long Term Care Emergency income needs if investments don t perform as expected Just In Case funds The comments herein are for financial professional use only. They are not for presentation to a Client, and do not constitute a legal or tax opinion. Revised 2/23/16 HCB00404