Trust sells a life insurance policy on behalf of beneficiaries

Life settlement transaction

$2.7M

Delivered to trust beneficiaries

PRODUCTS

OTHER SUCCESS STORIES

A family patriarch acquired a $10,000,000 life insurance policy in 1995, at the age of 55, with the intent to use the death benefit proceeds to fund a portion of the federal estate tax and to also provide liquidity to equalize inheritance to heirs. To this end, the coverage was funded outside the estate and owned within an ILIT (Irrevocable Life Insurance Trust).
Challenge

This year, at age 79, the client completed a review of his estate plan and no longer needed the life insurance coverage. The circumstances that had changed included: 1) through a series of estate planning techniques, the client had successfully transferred assets outside of his taxable estate; 2) 2017 HR 1 (“Trump Tax Cut”) increased the size of the available estate exemption sheltering more assets from estate tax; 3) ongoing life insurance premiums were going to put a burden on cash flow for current lifestyle needs; and finally, 4) his heirs already had “enough” wealth transferred to them.

Solution

The patriarch and trustee of the trust immediately saw the opportunity and benefits to evaluate the economics of selling the life insurance policy in a life settlement. TRC Financial was tasked with “selling” the life insurance policy to an institutional life settlement buyer. TRC Financial began by gathering the client’s medical records and ordering independent life expectancy reports. TRC also contacted the insurance carrier and ordered updated premium projections (inforce life insurance policy illustrations). With life expectancy estimates and premium cash flow projections, TRC Financial reached out to the institutional life settlement market in order to secure formal bids. After a 3-week bidding process, a final offer of $2.7 million was accepted by TRC Financial on behalf of the client. Over the next 3 weeks, TRC Financial facilitated all of the closing documents and the client received the life settlement proceeds.

  • The life settlement transaction allowed the patriarch to stop making annual gifts to pay the life insurance premiums
     

  • The trust, and its beneficiaries, received more money through the life settlement versus just surrendering the policy
     

  • A life settlement allowed the trust to pay capital gain taxes versus 100% ordinary income tax on a policy surrender

259% Increase in Policy Cash Surrender Value

The trust generated a substantial increase in value for the beneficiaries.

The life settlement transaction generated a 259% increase in value.

Patriarch was able to redirect annual gifts for life insurance premiums to current income needs.

$2,700,000 was paid to the trust upon execution of the life settlement transaction.

Delivered enhanced economics to the trust and its beneficiaries versus a surrender.

The competitive bidding structure allowed multiple institutional buyers to compete to obtain the highest possible offer.

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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TRC Financial Insurance Services and affiliates are presently licensed to sell insurance and annuity products, as well as other securities products in the following states: Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Idaho, Illinois, Iowa, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Washington, West Virginia and Wisconsin. Residents of other states should consult with a local registered representative for insurance services and securities products. Proper state registration is mandatory prior to conducting business in that state. This is not an offer to sell securities, which may be done only after proper delivery of a prospectus and a client suitability review. CA License - #0E14614 \ CA License #0B40789 \ CA License #0B52893 - The principle place of business and the state of domicile for TRC Financial is: 1 Post, Suite 150, Irvine, CA 92618. Securities offered through Registered Representatives of M Holdings Securities, Inc., a Registered Broker/Dealer Member FINRA / SIPC. Check the background of this Firm and/or investment professional on FINRA's BrokerCheck. TRC Financial is independently owned and operated and is a Member Firm of M Financial. Please go to www.mfin.com and click on “Disclosure Statement” at the bottom of the home page for further details regarding this relationship. For important information related to M Securities, refer to the M Securities’ Client Relationship Summary (Form CRS) by navigating to https://mfin.com/m-securities.

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