Protecting land and cash flow for generation II and III
Oil & gas lease contracts
Transferred to Generation II and III
Survivorship Life Insurance
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A family patriarch had spent most of his life acquiring land and negotiating oil and gas lease contracts with some of the world's largest oil and gas companies. The value of the land and contracts had grow to have a value over fifty million dollars.
The family patriarch had a number of challenges around maintaining cash flow while managing the growing income and estate tax liability which was directly correlated to the valuation of the land. The cash flow and land value was cyclical and dependent on the price of oil. The objective was to implement a strategy to keep cash flow with the patriarch while providing liquidity for generation II and III to ultimately own the land and cash flow from the contracts.
The family patriarch immediately saw the opportunity and benefits to add life insurance to his planning. Life insurance provided unique investment attributes to generate the majority of liquidity, at the right time, to insure the transfer of land ownership and the resulting cash flow to his children and grandchildren.
Acquired life insurance outside of the taxable estate to pay the death benefit upon the second death
Cash flow for life insurance premiums was significantly discounted compared to other options
Protected land value to insure ownership remained in the family and hedged against fluctuating values due to the price of oil
4.4x Leverage Delivered on Premiums
Generation I acquired $5,000,000 of survivorship life insurance (Patriarch at age 75 and Matriarch at age 65).
Death proceeds were paid to generation II and III upon the second death (or last to die).
Patriarch passed away at age 85 and the Matriarch passed away 9 years later at age 83.
$5,000,000 was paid to Generation II and III income and estate-tax free.
Delivered a compounded rate of return of 8.66% over the 19 years - this return is income and estate-tax free.
Total premiums paid by the trust was equal to $1,126,255.
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.
These results are for illustrative/informational purposes only and may not reflect the typical purchaser's (client’s) experience and are not intended to represent or guarantee that anyone will achieve the same or similar results.