There are few things worse in our business than a willing premium payer who cannot obtain coverage based on their health history. In fact, I think it may actually be the worst. In one case, however, it was the catalyst for a huge case and a truly exceptional estate plan for the client and their family, all the way to the grandchildren.
So, how did this all come about? The genesis is in the scenario described above: a family worth $70 million planning for the seemingly unavoidable estate tax bill looming in the near future. Gifting, even under today's $5.12 million exemption environment, was not going to be enough.
Life insurance was out, as both the patriarch and matriarch (G1) are currently uninsurable and the current in force coverage is not adequate. That left other planning techniques as the only potential solution, and would normally spell the end of involvement for the life agent as the other advisors stepped in to do what they could. Fortunately for all involved, this life agent was a bit more tenacious.
How tenacious? After exhausting all insurance options, we suggested he consider meeting with a team of advisors that had assembled a planning structure that just might work for this family. The agent met with and engaged the team of outside advisors and introduced them to the family and their CPA. Eventually, a relationship and estate planning
structure evolved that resulted in the following:
- A series of enhancements to the current G1 estate plan
- Significant increase in asset protection
- Freezing the value of G1's estate and pushing the appreciation of the assets to generation two (G2)
- G1 maintains control throughout their lifetime
- Maximum gift tax efficiency ensures the transfer of G1's assets to G2 and subsequently to generation three (G3)
- Positions the estate for significant potential valuation discounts — possibly as deep as 80 percent
- Generated a life sale with a target premium of over $810,000
G1's two sons each have a current net worth of approximately $1 million. Despite this relatively low net worth, the team of advisors was able to communicate the high level of control in the resulting estate plan and the valuation of G2's beneficial interest in G1's estate to the carrier. This intimate knowledge of not only the family's net worth but also their plan allowed the carrier to approve a total of $40 million of survivorship coverage on G2, projected to grow to more than $52 million over the next 30 years.
When combined with a premium finance structure to minimize both the cash outlay and gift taxes, the result is a comprehensive and efficient estate plan that pushes much of the potential estate tax
down to G2, who are not only much younger, but are insurable.
This great story is only useful to you if you are able to apply it to your practice. Remember, this works despite G1 being uninsurable, not because of it.