LI/other options

[ValeRosso]

Guessing he is not talking about federal estate tax, is talking about a State inheritance tax like Oregon, Washington, Illinois, Maine, etc. Plus, Illinois inheritance tax doesn't apply to life insurance paid directly to beneficiaries

Correct, state Estate tax in Oregon, not worried about Federal.

Not sure if you know this answer...if he cashes his annuities to purchase WL or even another annuity...only the earnings would be taxed as income, not the principle (because its non-qualified)?

 

[ValeRosso]

ILIT

He doesn't want an irrevocable trust for whatever reason(s). He only wants a revocable. I think because he changes his mind like he changes underwear. He's already paid attorneys 30k for multiple trust redo's and modifications.

 

[DHK]

Correct, state Estate tax in Oregon, not worried about Federal.

Not sure if you know this answer...if he cashes his annuities to purchase WL or even another annuity...only the earnings would be taxed as income, not the principle (because its non-qualified)?

That's correct. Taxed LIFO as interest comes out first and fully taxable at ordinary income tax rates. Principal is simply returned and non-taxable.

 

[Allen Trent]

Correct, state Estate tax in Oregon, not worried about Federal.

Not sure if you know this answer...if he cashes his annuities to purchase WL or even another annuity...only the earnings would be taxed as income, not the principle (because its non-qualified)?

Correct. The carrier should be able to tell him how much is gain & how much is cost basis. Be careful not to assume what he paid the current company is his cost basis as some people have 1035 one or more times over the decades from past carriers that may or may not have reported his cost basis to the new company. Seen a few cases where the current company is reporting 100% as taxable to the client or their beneficiaries because the original cost basis was never sent from past carrier.

Make sure CPA signs off on them paying income taxes to surrender the annuity. Between fed & state taxes & them having to pay more for their Medicare premiums, this client could be worse off than paying 10% Oregon inheritance tax

 

[Allen Trent]

Taxable gain is roughly $85k, non-qualified. Does not need the money to live on, nor for care. Wants to leave money for his family, that's all.

He should pass UW, nothing bad in his medical history. On 3 medications, BP, Cholesterol, thyroid.

Thats what I was worried about, not getting anything near the annuity death benefit to make any sense. Good point about the gifting. Thanks for the input.

Ask CPA how much he will owe in state, federal taxes & increased Medicare by dropping $85k taxable gain on his tax return. It is likely the same or more than the inheritance tax.

Lastly, does he have adequate other resources to pay for nursing home if needed? Taking a liquid annuity & turning it into less liquid life contract may put him in a predicament if he needs the cash for care in the future.

If he was 65 or 70 you would have a lot more options I think

 

[LostDollar]

If he was 65 or 70 you would have a lot more options I think

(Not an agent)

At least in my experience, Even in one's 70's, life insurance agents start talking about the minimal increase in death benefit over premiums paid for life insurance.

 

[Allen Trent]

(Not an agent)

At least in my experience, Even in one's 70's, life insurance agents start talking about the minimal increase in death benefit over premiums paid for life insurance.

Depends on product if single premium or premium paying. Plus, different for WL that legally id required to build cash value to equal face amount compared to a no lapse UL/IUL that can have no cash value & still stay in force forever like a forever term policy.

Still some very good leverage at 65 or 70 & decent leverage even at 80 compared to a CD that has no leverage

 

[scagnt83]

Depends on product if single premium or premium paying. Plus, different for WL that legally id required to build cash value to equal face amount compared to a no lapse UL/IUL that can have no cash value & still stay in force forever like a forever term policy.

Still some very good leverage at 65 or 70 & decent leverage even at 80 compared to a CD that has no leverage

50% leverage is nothing to look down on at that age

 

[LostDollar]

Depends on product if single premium or premium paying. Plus, different for WL that legally id required to build cash value to equal face amount compared to a no lapse UL/IUL that can have no cash value & still stay in force forever like a forever term policy.

Still some very good leverage at 65 or 70 & decent leverage even at 80 compared to a CD that has no leverage

I must not be looking at large enough policies then. At an age 80 $10K policy level the numbers must be very bad because my agent does not want to discuss them with me.

If leverage means the difference between premium and death benefit, I did not see anything like 50% when looking in my 70's and I don't remember seeing any options at 50% when helping someone in late 50's-early 60's looking for coverage.

 

[Allen Trent]

I must not be looking at large enough policies then. At an age 80 $10K policy level the numbers must be very bad because my agent does not want to discuss them with me.

If leverage means the difference between premium and death benefit, I did not see anything like 50% when looking in my 70's and I don't remember seeing any options at 50% when helping someone in late 50's-early 60's looking for coverage.

Here is an 80 year old female that an agent wrote recently (fully undewritten captive Michigan only carrier). It guaranteed 40% more than the premium for a person already past life expectancy.

If a CD was paying 4% before taxes on $18K, it would take 10 years for CD to grow to $25k assuming only 15% tax rate. The single pay life guaranteed the $25k day 1. and most CDs dont pay 4% at renewal as most banks drop renewal rates massively if you dont shop them around

Biggest issue after Covid pandemic & Covid vaccine is that way fewer 70 & 80 year olds can get appoved because of all their added health issues these last 4 years from either the infection, vaccine or not getting care during the shutdowns. Have seen huge jump in declines in last 2 years

I honestly dont know how a carrier can give an 80 year old 40% more in leverage because they dont get to invest the entire premium. They had to pay all costs to underwrite, exams, agent compensation, reserves required by law that cant be invested & investment costs. Someone giving the insurance company $18,100 likely only gives the insurance company $15k-$16k to invest, so not sure how they can break even when guaranteeing $25k. They are only investing & making 5-7% at most, so any 80 year old that dies in first 9 years or so will be a loss.




Here is a no lapse to age 100 option. age 79 with carriers minimum face of $150k, costs $76k & guaranteed not to lapse (if no money taken out). So, this is 100% leverage. But again, most 79 year olds today are not getting approved like they were 5-10 years ago.