Increase to Lifetime Gift-Tax Exemption Creates Opportunity

In light of the recent changes to the tax plan, there has been a slew of opportunity in both the investment and life insurance space. This opportunity stems from the recent increase to the lifetime gift-tax exemption. We now have an additional $11,000,000 per couple, sunsetting in 2025 when it will revert back to the previous $5,490,000 per individual. We have had a number of clients take advantage of this new rule, and are gifting a portion of that $11,000,000 to an Irrevocable Life Insurance trust.

For this example, let’s assume the couple gifts $5,000,000 to be managed by their advisors. We assume they generate a 5% return on an annual basis ($250,000 for this example), which they use annually to fund a new life insurance policy over 20 years. This leaves a fully guaranteed death benefit, paid up policy, and preservers most, if not all of the principal.

Please note: the numbers in the chart below reflect quotes at Preferred Non-Smoker rates.

As you can see from the chart, which chose the top carriers in each cell, the Pre-Tax Equivalent IRR at age 93 is spectacular – obviously, any death prior to that would only increase the return. Also of note on the chart: the “Carrier A” contract which offers an interesting twist. Should the insured wish to terminate the policy for any reason in the 15th year, it guarantees a 100% refund of all premium paid in.

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