Generational Gift Planning
The story
Our advisor approached Ash looking for ideas to bring to one of his assets under management clients. We were provided with the following facts regarding this client: The client felt comfortable in his and his wife’s retirement plan and was looking for his advisor to provide a better idea than just give it to me to manage.
The problem
The advisor shared with us he already had discussions around long-term care and were exploring these options. He made a point to explain his client’s relationship with his children and grandchildren is very strong. He’s looking for creative ways to reallocate his disposable income.
Client profile
- Male age 67, female age 65
- Their net worth was estimated at $7 million, made mostly up of qualified and nonqualified accounts.
- The clients currently have 2 children (30s) and 5 grandchildren (under age 18) they love dearly.
- He estimated they were making at least $20,000 in cash gifts to each child every year and allocated $1,000 for each grandchild into a 529 plan.
How it works
Our first recommendation was to allocate all or a portion of the current cash gifts being made to his children into annual life insurance premiums. In this scenario, we emphasized the impact he could have with helping each of his children’s personal retirement and legacy needs. We suggested allocating $10,000 per child into a life insurance policy to be owned by his children. The policy would be designed to accumulate cash as a potential retirement supplement if needed. Death benefit was a secondary need as each child had term insurance in force.
The core values of life insurance, protection against early death, tax-free death benefit, tax-deferred growth of cash were big reasons this client loved this idea. However, being able to provide his children with something so important for families really hit home with this client.
Our second recommendation was to help secure life insurance for each of his five grandchildren. This would be in addition to, not in replacement of his 529 contributions he was making for them. We explained he could pay the premium and allow his children to own the policies on his grandchildren with the intent to transfer ownership to them in the future. We also shared the idea of targeting policies that offer a guaranteed purchase option rider that would offer an opportunity to increase coverage.
The result
We issued two indexed universal life policies funded at $10,000 annually for 15 years on children. We then issued 5 whole life policies for $50,000 of death benefit for each grandchild.
Life insurance was able to provide:
- Protection Against Early Death
- Tax-Free Death Benefit
- Tax-Deferred Growth of Cash
- Multi-Generational Benefit Planning
Matt Erpedling has been with Ash since 2005, developing a broad-based understanding of life insurance and advanced markets strategies. His primary focus is answering advanced markets questions, working closely to develop strategies that tie in the proper product and design to fulfill client planning needs.
