Sales Idea

owR Sales Idea of the Month

Alternative to the $5M Gift Exemption: Use the Leverage but Get Principal Back!

Last month we talked about an alternative to using the $5M gift exemption. Due to the overwhelming interest in this idea, we decided to feature an alternative as our concept of the month. We still believe that gifting is the best option for wealthy clients, and that a financial planner not talking about the shortening window to act on this “perfect storm” is doing a disservice to himself and his client. However, we recognize that a $5M gift is not the appropriate solution for all clients. As we alluded to last month, some clients, particularly younger ones, may not be comfortable giving away $5M from their estate, money that they can never get back. Other clients may not want to gift any more than the State Estate Exemption amount. Whatever the reason, we have an alternative

Take advantage of a low AFR:

By loaning a sum to a grantor trust, your client can utilize the arbitrage between the low current AFR and the interest income that the trust will generate.
The trust’s income will be used in two ways: 1) tax-free payment of interest back to the grantor; and 2) payment of premiums for the trust-owned life insurance policy, leaving a legacy for future generations.
The best part of this strategy is that the grantor will receive his principal back from the trust at the end of the loan term. In a relatively short time (usually a 3 or 9 year loan term is used in order to coincide with the short- and mid-term AFR) these funds are used to pay premiums on a life insurance policy.

Rates have been lowered again for August:

The 3-year AFR is now 0.25% and the 9-year AFR is 0.88%.

owR Presentation:

We have built a proprietary presentation to help you show your client what an incredible opportunity this scenario provides. As the attached sample illustrates, with a 3-year loan of $3M to a grantor trust, the trust can purchase a life insurance policy with a guaranteed death benefit of $1.53M on the life of the grantor and his spouse (65M SNS and 60F SNS). This loan will be repaid in the 4^th year, after it has done all of the work necessary to provide a lasting legacy for their heirs.

Remember, you can diversify with Indexed Life or other cash accumulation products coupled with a Spousal Lifetime Access Trust (SLAT) and provide the grantor’s spouse with access to the policy’s cash value.

Click here to view a sample of owR proprietary Trust Arbitrage Presentation.

We have also put together a 1-page flow chart of the transaction, Click here to view.

Please contact your owR Marketing Representative for more information on a sales strategy or to discuss a specific case!