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wealth transfer hacks is this the time to use universal life

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  • wealth transfer hacks is this the time to use universal life

    We are working on estate planning round 2. Primarily centered around estate taxation reduction hacks since we will have an estate problem from tax standpoint. (First round was many years ago setting up wills/revocable trust, etc....at that point just avoiding probate and making it easy for heirs to navigate).

    Round 2 is a different. And expensive.
    So these are some options that we have been working on with various discussions with CPA, independent financial planner, estate attorney, etc.

    1) Using 529 as a wealth transfer tool. It's cheap (set up on own, cheap investment options). downside each state has a limit how much can be contributed (roughly most states are around 500,000) and the other downside is it generally earmarked for education. But the pro is it can be passed along via transfer outside of the estate calculation is my understanding for tax purposes.
    2) SLAT trust. Spousal lifetime access trust. Expensive to set up (quoted 20K). Has some limits for uses but basically puts pots of money into irrevocable pots which then are outside of the estate for tax purposes.
    3) Universal life. We would be the owner of the policy but the policy is taken out on our heir. The one thing i'm confused if paying into it is considered gifting or not since i own the account (does it work like 529 in that sense as an irrevocable gift?) The heir is in college now so from that aspect cheap to insure. I HATE the concept of permanent insurance but it's not for our retirement, or our insurance. The sole purpose is to make a pot of money outside of the taxation of the estate. Obviously comes with sunk costs (commissions) but it's cheaper than #2 or other irrevocable trusts.
    4) anyone with other hacks to bring up? we have another meeting in a month.

  • #2
    Good job in the $11M+ club .

    Let us know how all this goes down. Where are the assets distributed? Sounds like lots of stock/equities.

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    • #3
      I was quoted $15k by Jim Lange to do an estate plan at WCIcon22

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      • #4
        I do not see a universal life policy on your heir accomplishing anything.

        The premiums would not be gifts to your heir since you would own the policy. The cash value build up would increase your assets and add to your taxable estate. When you die, the value of the policy that you would leave to your heir would be part of the amount that would be subject to estate taxes.

        Your total assets would be less than if you had not taken out the policy because with the policy, some of your money will have disappeared into commissions and costs of insurance

        In the other hand, SLATs, while expensive, would let you use up your lifetime exclusion before they reduce it in a few years, or maybe earlier if tax laws change.

        Expensive as it is to set up, and someone has to to the annual tax returns, you can get the full lifetime exclusion out of your estate, along with any future growth.

        Under 2022 law, the two of you can put a bit over $24M into the SLATs and get it out of your estates.

        If you are not going to put in a large amount, then it may not be worth it. Paying $20,000, I assume for both, to protect $2M may not be worth the cost.

        If you were to set up an irrevocable trust you could have it pay the estate taxes. Depending on your ages and wealth MAYBE this would help. But the trust gets its money from you and the estate will still be taxed.

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        • #5
          Originally posted by Hatton View Post
          I was quoted $15k by Jim Lange to do an estate plan at WCIcon22
          I like Lange but that's really expensive for an estate plan it seems. $5-$8k seems more reasonable. I understand why he'd upcharge-he can

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          • #6
            Originally posted by bean1970 View Post
            We are working on estate planning round 2. Primarily centered around estate taxation reduction hacks since we will have an estate problem from tax standpoint. (First round was many years ago setting up wills/revocable trust, etc....at that point just avoiding probate and making it easy for heirs to navigate).

            Round 2 is a different. And expensive.
            So these are some options that we have been working on with various discussions with CPA, independent financial planner, estate attorney, etc.

            1) Using 529 as a wealth transfer tool. It's cheap (set up on own, cheap investment options). downside each state has a limit how much can be contributed (roughly most states are around 500,000) and the other downside is it generally earmarked for education. But the pro is it can be passed along via transfer outside of the estate calculation is my understanding for tax purposes.
            2) SLAT trust. Spousal lifetime access trust. Expensive to set up (quoted 20K). Has some limits for uses but basically puts pots of money into irrevocable pots which then are outside of the estate for tax purposes.
            3) Universal life. We would be the owner of the policy but the policy is taken out on our heir. The one thing i'm confused if paying into it is considered gifting or not since i own the account (does it work like 529 in that sense as an irrevocable gift?) The heir is in college now so from that aspect cheap to insure. I HATE the concept of permanent insurance but it's not for our retirement, or our insurance. The sole purpose is to make a pot of money outside of the taxation of the estate. Obviously comes with sunk costs (commissions) but it's cheaper than #2 or other irrevocable trusts.
            4) anyone with other hacks to bring up? we have another meeting in a month.
            I'd do an irrevocable trust before I do universal life. Are you gifting $16k to people now? Also, you can gift up to $80k in a 529 now but if you put $500k in all at once that's going to count against your lifetime estate tax exemption. $80k won't

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            • #7
              Could be an interesting math problem to compare the initial and recurring expenses vs. tax savings and stretch with universal life, CRAT or CRUT, or irrevocable trust. Quite frankly, it's a complex enough problem that it would be difficult to model it well, never mind the uncertainty of future tax treatment (and asset protection) and the self interest of those who would get a commission payment upfront for selling insurance, expenses to establish a trust, and expenses to administer these things.

              Sure, first world problems, but it would be nice to pencil this out with folks who won't profit from selling you something.

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