Tax Cuts and Jobs Act (TCJA) Strategies

By: Bill Jackson J.D., CLU®, Director of Advanced Markets at Partners Advantage Insurance Services, LLC

Tax Cut and Jobs Act (TCJA); short for “An act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.” What a mouthful! I think we will stick with TCJA. One of the major areas of complexity in this new law, which is effective for 2018, is its application to pass through entities. 

As you may be aware, the top corporate tax rate has been reduced from 35% to 21%. However, with sole proprietors, partnerships, “S” corporations, and pass through LLC’s there is a 20% deduction on adjusted gross income.

The complexity arises in how and when the 20% deduction is applied. If the client has an “S” Corporation, only the distributive share is eligible for the 20% deduction. W-2 wages paid to principals are not eligible nor are guaranteed payments to the shareholders. 

To add to the complexity of this act, congress chose to limit the benefits of the 20% deduction for “service” organizations. If the business derives its income from personal service, the deduction is phased out at certain levels of adjusted gross income; so doctors, accountants, attorneys, financial professionals, real estate agents, and consultants must deal with the phase-out of the 20% deduction.   

For service organizations where the taxpayer is filing singly, the deduction is available up to $157,500 of adjusted gross income. There is a pro rata reduction up to $207,000 of Adjusted Gross Income (AGI) and over that amount the deduction is completely gone. If the taxpayer is married filing jointly, the threshold is $315,000 and the deduction is gone at $415,000 of AGI. If filing jointly, the spouse’s income is also included in determining the phase-out. 

Obviously affluent service business owners need help. Keeping income below the $315,000 threshold could provide a $63,000 deduction and save $17,640 in taxes for a pass through service business owner with and AGI of $315,000.

How can a service business owner reduce taxable income below the threshold? Most have fewer than five employees or may work alone. The ability to reduce income by buying a substantial depreciable asset is often limited. The only alternatives for reducing income are a qualified retirement plan or deductible interest payments on a loan based split dollar plan.

In the qualified retirement plan space, two options stand out. The most flexible option for a business that may have fluctuating profits is the SOLO K plan, which can allow deductions of up to $61,000 for owners over age 50. For businesses with stable profits, the defined benefit plan is a top choice. Deductions for this type of plan can easily exceed $170,000 each year for an owner participant. Several carriers like Lafayette Life, National Life Group, and American National offer plan design, plan administration, and funding media specifically designed for these plans. Options include annuities and life insurance.

With the loan based split dollar or dual loan strategy, the business takes a commercial loan and loans the proceeds to the owner to pay premiums on a personal life insurance policy. The policy is collateral for the loan and the owner pays interest at the applicable federal rate. The owner receives a higher level of protection for family and higher retirement income potential than with a traditionally funded plans. The business interest deduction often amounts to between $30,000 and $60,000.

These strategies can mean the difference between being able to benefit from the 20% deduction and not seeing any tax relief. To learn more about how these strategies work, and how they can benefit your clients, contact the Partners Advantage Advanced Markets Department at 888-251-5525, Ext. 361.

Did you miss the webinar titled, “Opportunities Generated by the Tax Cut and Jobs Act (TCJA)?” You can access the replay here >> Get Webinar On-Demand.

For financial professional use only. Not for public distribution.

Not to be used for consumer solicitation purposes. You should not treat any opinion expressed as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of opinion and experiences. Partners Advantage does not warrant or guarantee the accuracy or completeness of the information contained herein.  

Partners Advantage Insurance Services and their representatives do not give tax or legal advice. Accordingly, any tax information provided is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. Encourage your clients to consult their tax advisor or attorney.

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Webinar On-Demand: Opportunities Generated by the Tax Cut and Jobs Act (TCJA)

On December 22, 2017, President Trump signed the Tax Cut and Jobs Act (TCJA) into
law. The TCJA has made significant changes in personal and business federal tax rules.

Learn how the new tax law can impact the use of Life Insurance and Annuity products for legacy creation and retirement income planning strategies.

You will learn:

• How the new tax act can affect households in different economic situations
• Estate planning changes and how financial professionals should respond
• How businesses can take advantage of the new tax law with concepts

Complete the form to access this On-Demand webinar to learn how to thrive under the new tax law with families, estates, and businesses.





This webinar is intended for educational purposes only. For financial professional use only.  

Not to be used for consumer solicitation purposes. You should not treat any opinion expressed as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of opinion and experiences. Partners Advantage does not warrant or guarantee the accuracy or completeness of the information contained herein.  

Partners Advantage Insurance Services and their representatives do not give tax or legal advice. Accordingly, any tax information provided is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. Encourage your clients to consult their tax advisor or attorney. 


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Key Services Critical To The Success of Your Business — Launch Into 2018 with the Right Partnership

The start of 2018 has come and gone throwing us into the midst of a New Year! Is your agency ready for whatever may come your way?

Partners Advantage has been reflecting on 2017, where we were fortunate to experience a prosperous year, with just over $1 billion in annuity sales and $50 million in life sales. Were you able to reach your goals?

We can help make 2018 YOUR year with a business plan for you and your agency. Partners Advantage has the formula you need to make growing your business easy. We accomplish this with our cutting-edge sales technology, vast experience and dedicated support. We’ll provide you with new sales opportunities and further your development with valuable training and education.

These key services provide a critical link to the success of your business, including:

• Personal Marketing Consultants
• Personal New Business Specialists
• Sales & Marketing Systems
• In-House Underwriting Team
• Compliance and Suitability Team
• Advanced Markets Consultants

Everything we do begins and ends with our agent’s best interest in mind - let us show you how we can make a difference in your life - and your client’s lives.

Partners Advantage is here to help grow your business, provide new sales opportunities and further your development. Contact us to learn how we can turn our 25 years of experience into your success at 888-251-5525, Ext. 700, or complete the form below and a member of our team will contact you.



For financial professional use only. Not for use with consumers.

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Planning for College Costs While Preserving the Retirement Nest Egg

By: Bill Jackson J.D., CLU®, Sr. Advanced Markets Consultant at Partners Advantage Insurance Services, LLC

Currently college costs are substantial enough to have the potential to compromise the parent’s retirement plans or produce burdensome debt for the college student. The costs can range from $100,000 for some local state supported universities to $280,000 for many prestigious private schools. Most parents with pre college age students range in age from 40 to 60 years old. They are concerned with how much college will cost. They are unsure of how much government aid they will receive. Some have set money aside in a 529 plan, State tax free college bonds, or a prepaid tuition plan. Many have done little planning.

Determining college costs is easier than in the past. There a number on online calculators which are even college specific and that can pin down the cost for the student’s intended school. These calculators also have the ability to consider the effect of inflation on costs for students with a number of years before they reach college age.

Families that need help with college planning typically fall into two categories. Families that have five or ten years to plan and families whose children are on the doorstep of entering college. Each of these situations requires a different financial approach.

For younger families there are few assets that have the flexibility and tax advantages of cash value life insurance. All of the alternatives mentioned before have limitations on when and for what purpose the money can be used. The cash value of life insurance can be used at any time for any purpose even if the student does not decide to go to a university.

This is a typical example and summary of college costs and timing for a younger family. State: CA, Husband age 53,Spouse age 49, Son age 12, Daughter age 10.The family’s desire is to send both to a four year college in CA (public) They would like to have the cash to do this and a protective element in case one or both spouses die early. Projected yearly costs:

Wife	Husband	Son	Daughter	Pomona	Long Beach	Yearly Total
49	53	12	10
50	54	13	11
51	55	14	12
52	56	15	13
53	57	16	14
54	58	17	15
55	59	18	16	31725		31725
56	60	19	17	32677		32677
57	61	20	18	33658	28840	62498
58	62	21	19	34667	29705	64372
59	63	22	20		30596	30596
60	64	23	21		31514	31514
61	65	24	22
62	66	25	23

http://www.finaid.org/calculators/scripts/costprojector.cgi, http://money.cnn.com/tools/collegecost/collegecost.html

This sample illustration shows how a well-designed Indexed Universal Life policy can in just six years develop enough tax free income to complete both students higher education. Most importantly the solution is self-completing, meaning that even if the insured breadwinner dies early the tax free funds are available to complete the plan.

Information provided by Allianz Life Insurance Company of North America. Both loans and withdrawals from a permanent life insurance policy may be subject to penalties and fees and, along with any accrued loan interest, will reduce the policy's account value and death benefit.

The just in time family has very different objectives. They have already accumulated assets. The husband and wife are in their 50’s their daughter is 17.  Their primary concern is securing government support for daughter’s education. They have $750,000 in various banks and assets. Their daughter would like to attend UCLA. They will need some of this cash to be liquid to cover costs over and above grants and scholarships.  

With their current asset positioning the family will not qualify for financial aid. When they complete the FAFSA form to apply for support they will need to declare the $750,000. Assets in life insurance are not included for FAFSA so the family could qualify for aid if the assets were repositioned into a life insurance policy. The following example illustrates the potential for growth, liquidity, and tax efficiency of this solution.

Information provided by North American Company for Life and Health. This is a Modified Endowment Contract, loans and distributions are subject to tax and penalties if the client is under age 59 1/2.

Permanent life insurance is not only a great cash accumulation vehicle for college planning. It is also a great way to reposition assets to provide a competitive return, tax deferred growth, and exclusion FAFSA consideration. These factors taken together can help consumers college planning and retirement outcomes.

Call Bill Jackson J.D. CLU, Senior Advanced Markets Consultant if you have a case you would like to discuss or would like added information on: 888-251-5525, ext. 361.

For financial professional use only. Not for use with consumers.

This material is intended to provide general information only. It is not intended to render legal, accounting, Social Security or tax advice, and the services of those professionals should be sought. Financial professionals who utilize this material may be able to identify potential retirement income gaps and introduce products, such as fixed annuities, as potential solutions. The testimonial may not be representative of the experience of other financial professionals and is no guarantee of future success.

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Meeting the Life Insurance Needs of Affluent Foreign Nationals

By: Bill Jackson J.D., CLU®, Sr. Advanced Markets Consultant at 
Partners Advantage Insurance Services, LLC

With increasing globalization, more and more affluent foreign nationals have a presence in the United States. It is estimated that affluent foreign nationals control more than $70 trillion in assets and number over 14 million individuals*. Furthermore, these affluent families are culturally receptive to the protection offered by life insurance.

Why do many savvy foreign nationals look to the United States to buy life insurance? There are the usual reasons, perhaps to protect a business interest. Two reasons stand out above the rest. Foreign nationals, who own property in the United States, have unusual exposure to Federal Estate Tax. Also, foreign nationals crave the guarantees and stability of U.S. dollar based life insurance policies offered by U.S. carriers.

Resident and Non-resident aliens are treated differently for estate transfer tax purposes. Resident aliens are taxed just like U.S. citizens, and have the $5.4 million unified gift and estate tax exemption as well as the annual $14,000 gift tax exemption. The hurdle they face is that all foreign assets are included. They also do not have access to the unlimited marital deduction. Non-resident aliens don’t include foreign assets, but U.S. assets are subject to the 40% federal estate tax rate and they only have a $60,000 exemption. They can however, exclude annual gifts up to $14,000. In other words, a foreign national with a million dollar California residence would be liable for $376,000 of federal estate tax on that property alone on the death of the first spouse. Life insurance is the go-to option to avoid liquidation, and a secondary benefit is that life insurance is not considered U.S. situs property subject to estate tax. 

Even foreign nationals who hail from Class A or B countries often face volatile currency fluctuations. So, when they are looking to protect their family, they naturally gravitate towards carriers offering products backed by a stable currency. Therefore U.S. currency products and carriers are in demand. 

Because non-resident aliens can hold life insurance policies personally, without the policy being subject to U.S. income or estate tax, the goals of wealth preservation and providing retirement income can easily be accommodated. No life insurance trust would be required.
Which foreign nationals could benefit from U.S. based policies? Most carriers require some U.S. connection. These connections could take the form of a minimum stay of say 15 days per year, real estate ownership, a business interest or immediate family living in the U.S. Some carriers may also require that a percentage of the assets used to justify the coverage be held in the U.S.

Most all carriers will require that solicitation and applications be taken in the U.S., as well as medical exams are usually expected to be completed in the U.S.

At Partners Advantage Insurance Services, we have the experience and resources to help you be successful in this lucrative market segment. Not only do we provide access to the major U.S. carriers who cater to the foreign national market, we also have relationships that can provide international coverage to foreign nationals who do not have a connection with the U.S.

Call Bill Jackson J.D. CLU, Senior Advanced Markets Consultant if you have a case you would like to discuss or would like added information on: 888-251-5525, ext. 361.

For financial professional use only. Not for use with consumers.

*Source: World Wealth Report, 2015, Capgemini and RBC Wealth Management
Capgemini, RBC Wealth Management, and Scorpio Partnership Global HNW Insights Survey 2013.

This material is intended to provide general information only. It is not intended to render legal, accounting, Social Security or tax advice, and the services of those professionals should be sought. Financial professionals who utilize this material may be able to identify potential retirement income gaps and introduce products, such as fixed annuities, as potential solutions. The testimonial may not be representative of the experience of other financial professionals and is no guarantee of future success.

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Taxes for 2017 and Beyond

By: Bill Jackson J.D., CLU®, Sr. Advanced Markets Consultant at Partners Advantage Insurance Services, LLC

With tax reform being a major part of President Trump’s platform and both houses controlled by the Republicans, many are wondering “how the tax environment will change.” All professionals in the financial services industry will be asked about this hot topic because it directly impacts financial plans our clients are implementing.

It is important to understand that tax reform is complex. It has been 31 years since the last major overhaul. With the deficit at 21 trillion dollars, any changes will need to be relatively revenue neutral. Changes will also require that the executive and legislative branches be on the same page. There are many differing views on this subject, even for members of the same party. Nevertheless, there is a better chance that significant changes will be made than at any time in recent history.

An important planning concept in a potentially changing tax landscape is flexibility. It will also be important to keep in close contact with clients to monitor planning solutions in light of changes that are being made. 

Let’s focus on some of the proposals being made. 1The most important change to personal income taxes would be the simplification of rates to 12%, 25%, and 33%. The cutoff points for Joint filers would be at $75,000 and $225,000, and for Single filers, it would be $37,500 and $137,500.

There are several provisions slated for repeal, the Medicare Hospital Insurance of .9%, the 3.8% tax on investment income, and the Alternative Minimum Tax. 

Aside from mortgage interest, charitable contributions, and state and local taxes, itemized deductions would be lost. Even these deductions would be capped at $100,000 for single filers and $200,000 for joint filers.

To compensate for lost deductions, personal exemptions would increase to $30,000 for joint filers and $15,000 for single filers.

The Federal Estate tax would be repealed.  However, gift and generation skipping taxes would remain intact. Revenue would be boosted by eliminating the step up in basis for capital gains to the extent that the value of the estate exceeds $10 million. However, transfer of appreciated property to relatives or a private charity would not be allowed.
From a business standpoint, corporate rates could be reduced from 35% to about 20%. Pass-through income would come down from the current 40% rate to 25%. Revenue loss would be made up by a 20% tax on imports and a 10% tax by repatriating foreign profits of U. S. corporations.

If these changes come into play, there is no guarantee that they will continue in future administrations. It is still prudent to provide financial security in estate planning situations regardless of the current estate tax environment. Fortunately, the retirement planning space has not been changed and is still provided with the incentives we are all familiar with for annuities and life insurance. The major takeaways are to provide clients with flexible solutions and make sure that you are monitoring client accounts frequently. 

Contact William “Bill” Jackson, Sr. Advanced Markets Consultant at 888-251-5525, ext. 361 with any advanced case design questions or concerns.  He’s here to 

HELP YOU present better strategies!

1Deloitte, 2017 Essential Tax and Wealth Planning Guide, Post-election tax policy update - Impact of the 2016 elections, Installment Two.

For financial professional use only. Not for use with consumers.

Partners Advantage Insurance Services and their representatives do not give tax or legal advice.  Accordingly, any tax information provided is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. Encourage your clients to consult their tax advisor or attorney.
The tax and estate planning information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. Partners Advantage does not provide legal or tax advice. Partners Advantage cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Partners Advantage does not assume any obligation to inform you of any subsequent changes in the tax law or other factors that could affect the information contained herein. Partners Advantage makes no warranties with regard to such information or results obtained by its use. Partners Advantage disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.

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Generational Split Dollar

By: Bill Jackson J.D., CLU®, Sr. Advanced Markets Consultant at Partners Advantage

Generational split dollar consists of a trust structured for the benefit of Generation C (age 27). This trust would own life insurance on Generation B’s (age 58) life. Generation A (age 88) would enter into a non-equity collateral assignment split dollar agreement with the trust. In searching for methods of discounting the value of a wealthy client’s estate, the concept of generational split dollar should not be overlooked. This is especially the case if the client is very old or perhaps uninsurable and wants to do some later life estate planning. For example, a Generation A client (age 88) makes a personal loan of $3 million to a grantor irrevocable life insurance trust established for the benefit of Generation C (age 27). The trust purchases a life insurance policy on the life of an individual in Generation B (age 58). The client receives a note which becomes an account receivable. This account receivable is worth less than $3 million due to the restrictive right to be paid back only at a future date out of cash values or at the death of Generation B. Because of Generation B’s expected longevity, and other factors, the appraiser values the note at $750,000. The result is dramatic estate tax savings relative to an outright gift of $3 million.

A recent court case, Estate of Clara M. Morrissette - United States Tax Court, the court ruled in favor of the estate. It is important to note that all current split dollar rules were followed meticulously. The trusts involved were likewise established for valid separate purposes. Therefore, if this design is executed correctly it can transfer significant wealth and provide a dramatic estate tax reduction. Care should be taken not to sell or cancel the policy, merge the trust with another trust with the same beneficiaries, or for the donor to have access to the cash values, as this could cause the transaction to be viewed as a step transaction to avoid taxation and therefore fail.

Read the full article: "Serving Clients With Estate Planning Needs" first published in the December 2016 Broker World magazine here.

Fill out my online form.

For financial professional use only. Not for use with consumers.

Policy loans and withdrawals will reduce available cash values and death benefits, and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of un-recovered cost basis will be subject to ordinary income tax. Tax laws are subject to change. 

Partners Advantage Insurance Services and their representatives do not give tax or legal advice.  Accordingly, any tax information provided is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. Encourage your clients to consult their tax advisor or attorney.
Income tax free distributions are achieved by withdrawing to the cost basis (premiums paid), then using policy loans.  Loans and withdrawals may generate an income tax liability, reduce available cash value, and reduce death benefit, or cause the policy to lapse.  This assumes the policy qualifies as life insurance and is not a modified endowment contract.

Both loans and withdrawals from a permanent life insurance policy may be subject to penalties and fees and, along with any accrued loan interest, will reduce the policy's account value and death benefit. Assuming a policy is not a Modified Endowment Contract (MEC), withdrawals are taxed only to the ex that they exceed the policy owner's cost basis in the policy and usually loans are free from current federal taxation. A policy loan could result in tax consequences if the policy lapses or is surrendered while a loan is outstanding. Distributions from MECs are subject to federal income tax to the extent of the gain in the policy and taxable distributions are subject to a 10% additional tax prior to age 59½, with certain exceptions.

The tax and estate planning information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. Partners Advantage does not provide legal or tax advice. Partners Advantage cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Partners Advantage does not assume any obligation to inform you of any subsequent changes in the tax law or other factors that could affect the information contained herein. Partners Advantage makes no warranties with regard to such information or results obtained by its use. Partners Advantage disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.

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