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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Serving Clients with Estate Planning Needs

As we head toward the end of 2016 and prepare for 2017, we wonder how the estate planning environment might change. There is even some pressure to abolish the Federal Estate Tax.  Regardless of where we stand on this issue, one thing remains and that is the federal deficit. The issues are complex, however, the chances of adopting any measure that significantly cuts tax revenue is slim. So, let's assume the current $10,900,000 portable unified gift and estate tax exemption will stand unchanged.¹

How do we effectively help clients with estate planning needs? If we are to be the catalyst sharing ideas and bringing them to fruition, the process is still paramount. As we approach the end of 2016 it is more important than ever. In my work in this space I see cases sometimes fail because the correct process is ignored. You might get lucky and stumble upon an already developed case and make a product sale.  This is neither a sure or consistent entry into the market. 

Start with Fact Finding
The successful process begins with in depth fact finding. There are many great estate planning fact finders from carriers and other sources. They all have one thing in common. They guide you in asking the disturbing questions about estate reduction. They uncover client goals and dreams, for example do they want their children treated fairly or equally. Most importantly, they contribute to developing rapport with the client. Then, when you request all those private financial documents from your client or ask for a meeting with one of their other advisors, the client's answer is yes. I see more cases fail for lack of this step than for any other reason.

Learn how detailed fact finding, teamwork, and new alternatives available to insurance professionals can make a significant difference to affluent families during the largest wealth transfer period in history.  

Fill out my online form.

¹Source: https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax  

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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