Is one of your life goals to maximize the legacy you leave
by transferring wealth tax-efficiently to your family?
If you have tax-deferred assets you don't need
to meet your retirement income needs,
then a strategy incorporating life insurance may be
the answer.
Here's how it could work.
In this scenario, Ben, and Leslie, are both retired
and in their early 70s.
Their retirement income need is $90,000 a year.
Between vacation rental income and a pension,
they feel they have enough income.
They also have investable assets to supplement their income
as needed to help maintain their lifestyle.
Ben is also taking required minimum distributions
from his IRA.
Since he doesn't need the distributions
to meet his income needs, he is reinvesting them.
As part of their legacy planning,
Ben and Leslie could use the required minimum distribution
to purchase a survivorship life insurance policy -
one that pays the benefit at the death of the second spouse -
naming their children, Andrew, and April,
as beneficiaries of the policy.
After Ben and Leslie are both deceased,
they plan to leave the remaining IRA to their grandson, Tom,
who is in a lower tax bracket than his mother April.
By doing this, their children will receive the proceeds
from the life insurance policy income-tax free,
and Tom will inherit the IRA as a non-spousal beneficiary.
This strategy could help Ben
and Leslie utilize generation skipping
and immediately leave a legacy to two generations.
Incorporating life insurance can potentially serve as a hedge
against volatility or dying too soon.
A similar strategy may be implemented with annuities
that aren't needed for retirement income.
Additionally, If Ben and Leslie are charitably inclined,
they could leave the remaining IRA balance to a charity,
or a donor advised fund and make both their children
and grandchild beneficiaries of the life insurance.
Finally, if they have a taxable estate, they may want
to establish an Irrevocable Life Insurance Trust
to own the life insurance,
so the death benefit is estate tax-free
as well as income tax-free.
For help finding a legacy maximization strategy
that is right for you, talk to your financial advisor.