Trust restructures life insurance policy for guarantees

Estate & wealth transfer planning


Transferred to a trust



As part of an estate asset allocation strategy, the estate acquired life insurance in 1994 to deliver tax-efficient wealth accumulation while providing investment flexibility to allocate among various investment accounts. The policy insures the patriarch and matriarch.

The separate account (variable) life insurance policy acquired in 1994 was experiencing significant volatility in light of the market downturn that started in 2000 and accelerated in 2002. The impact was significant, and although the market recovered by the mid 2000s, the Trust was interested in reducing risk and avoiding future volatility with respect to the life insurance policy.


Upon completion of Private Underwriting, we were able to obtain a compelling underwriting offer allowing the Trust to execute a tax-free exchange from the current separate account (variable) policy into a new indexed policy with death benefit guarantees.

  • IRC Section 1035 allowed for the tax-free exchange of the policy cash surrender value

  • Indexed policy chassis provided for a 0% floor while providing enhanced earnings, subject to a cap, based on the performance of the S&P Index

  • Policy provided a guarantee on the death benefit through the younger insureds age 108 which gave the Trust desired guaranteed returns from the insurance company

Guaranteed Death Benefit to Age 108

Executed a tax-free 1035 exchange with no future premiums to acquire a new survivorship life insurance (Patriarch at age 72 and Matriarch at age 70).

Death proceeds are paid to a trust for the benefit of generation II and III upon the second death (or last to die).

$20,000,000 of guaranteed life insurance to pay the death benefit at the second death (guaranteed to younger age 108).

Underlying cash value growth is tied to an Index rate subject to guaranteed floor of 0% floor.

Guaranteed internal rate of return (IRR) as follows based on younger age death age:

  • Age 75 = 32.36%

  • Age 85 = 9.80%

  • Age 95 = 5.77%

Guaranteed death benefit, subject to carrier solvency, to the younger insured's age 108.

The above client case study is based on the economic results for one of TRC Financial's clients. The economics associated with each individual client are unique and impacted by the insurance product acquired, the performance of the life insurance policy, timing of premium payments, medical underwriting for the insured(s), and the actual life expectancy of the insured(s). The client case study is not intended to be opinion or advice on legal, tax, accounting or investment matters. Private counsel should be consulted prior to application of this general information to specific situations.

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