Estate Tax Planning Opportunities 2021: Why Finance Life Insurance Premiums?

Estate Tax Planning Opportunities in 2021

While the actual timing and extent of any income tax and estate tax legislation is still uncertain, there still may be time to take advantage of planning opportunities before changes are enacted.

The current gift, estate and generating skipping tax (GST) exemption amount is $11,700,000 million per individual (up from $11,580,000 per individual in 2020) and $23,400,000 million per married couple. This exemption amount is required to be cut by 50% in 2026, to about $6,000,000 per individual, depending on inflation adjustments. As such, this opportunity has created use-it or lose-it opportunities for high-net-worth individuals.

With President Biden in office and the democrats taking over the senate, the proposals are much more dramatic. The following are examples of possible changes that may occur in this year or next:

  1. Reduce the estate and GST exemption to $3,500,000 per individual.
  2. Increase the estate tax rates significantly from 40% to unknown percentages.
  3. Include grantor trusts in the grantor’s estate and eliminate use of short-term grantor retained annuity trusts (GRATS).

Amongst many others.

Due to the above proposals, addressing your estate is better sooner rather than later.

The question at hand is, how do you secure your hard-earned legacy before it’s too late?

The solution: Financing Life Insurance Premiums.

Financing life insurance premiums is a powerful, flexible and tax-efficient option for life insurance premium payouts. In short, premium financing can be an efficient way to meet a myriad of objectives.

Premium financing is a strategy that allows a qualified borrower (owner of the life insurance policy) access to a third-party (a bank) to pay or large life insurance premiums. The majority of loans used in premium financing transactions are interest-only loans. Everyone loves life insurance, but no one loves paying the premiums.

Every premium finance strategy is tailor-made for each client, however, each strategy follows a similar path:

  1. Determining insurance coverage needs and financial stability.
  2. A preliminary case design is developed and discussed.
  3. Illustrations of the design until the optimal plan is picked by the client.
  4. Formal bank and insurance carrier writing is initiated.
  5. The policy is then issued by the insurance carrier.
  6. The client provides the collateral of the insurance loan provided by a large bank or institution.
  7. Annual reviews and analysis should be performed to evaluate insurance policy performance.

At Tax Efficient Solutions, we can ensure a smooth and efficient process as we custom tailor a plan that best fits the client and their family. With the proper due diligence and structure, we can create an effective and comprehensive strategy that will ensure that the client’s legacy is not only preserved, but transforms in growth.