Maximize what you leave behind tax-free. In this episode, I'm going to answer the question, "How
can life insurance be used in estate planning?" For far more reasons than you probably think.
So, my name's Doug Andrew and I've helped many many people accumulate and build wealth, create an
estate, and then help them preserve, protect, and perpetuate that wealth and what I call a family
bank. And I've been doing this for four and a half decades. And so, many times, people when I teach
them about the merits of life insurance, minimum funding it for death benefit, maximum funding for
living tax-free income benefits and all kinds of uses in between, they're like, "Whoa! I didn't
realize that life insurance is like this swiss army knife that has so many different functions
inside of estate planning." So, when you watch the entire episode here, you're going to understand
how to preserve and protect and perpetuate wealth by using life insurance. It is the dream
solution for estate planning. So, let me share with you first 6 reasons why I think most people
should have a living trust. Not in place of a will in addition to a will. Now, what are the benefits,
I have other episodes on this channel that talk about the advantages and disadvantages of a living
trust. But let me just highlight here. When you set up a living trust, you can avoid unnecessary
estate tax if your estate is worth enough that it may trigger an estate tax upon the death of the
second spouse in a marriage. Now, those limits of paying a state tax come and go based upon what tax
revenuers want to do and what congress decides to do. But having a living trust can cut the
amount of estate tax that is owed within 9 months after the death of a second spouse as much as in
half. So, you can save unnecessary estate tax. A living trust keeps things private because if you
just have a will or you die without a will, people can look the court documents, the probate is what
it's called. They can see all of your assets. So, people like to use a living trust to keep things
private. Number 3, you want to be able to preserve the love of your family. In fact, there's a lot
of families that fight and bicker over who gets what. And when you have a living trust,
it's pretty cut and dried. You leave the rules a trustee decides and must follow those directions
of how your assets are to be used. Are they going to be distributed equally or what I like is equal
opportunity rules of governance instead of equal distribution. And so, you preserve the love of
the family. It gives you liability protection in this who happy society because if somebody were to
sue you for any reason, if you have your assets divided into let's say two different trusts or
an a/b trust, you have liability protection. The most they can wipe you out is halfway. Also we
have what is called the second spouse syndrome where many times when someone passes away,
the surviving spouse is lonely and remarries. And if you do not have a living trust, maybe all of
the assets end up being inherited or passed down to the new spouse and children when you pass away.
And so, this keeps the money or the wealth in the family down to your bloodline if that makes sense.
The last big benefit of a living trust is it avoids probate. Probate sometimes can be lengthy
going 2 or 3 years and it can be costly. So, it avoids going through the process of probate under
the jurisdiction of the court that can drag on while the court decides, okay? Are all federal
taxes paid of the deceased and then state and then local taxes? And then how about the court
fees and costs and the attorney, the executor, and the creditors, and then the heirs.
Finally, get what's left-over. You eliminate all that. So, let me expound a little bit more on
how you can use life insurance to satisfy paying any estate tax that may be due upon the death of
the second in a marriage because that's when estate tax would likely come into play. So,
let me remind you that if you are married and one of you passes away first, anything in your estate
transfers to the spouse without an estate tax. An estate tax sometimes called an inheritance tax
only comes into play after the death of the second in a marriage. And that tax is usually due
9 months after the death of the second in that marriage if this is your parents' let's say. So,
that estate tax I believe it's still a form 706. Your children, the heirs have to file that
form with the IRS disclosing every single thing that you owned, okay? And so, if you're
doing this on your parents or if your children are doing this on your estate they have to list
everything down to your underwear of what you owned. And they add it all up and if it exceeds
what is called the exclusion portion, then the estate tax will come into play. And at times,
the estate taxes started out at 37% and topped out at 55%. Under the Biden administration,
he has stated he wants to take the inheritance tax clear up to 67%. A 50% increase. Because
tax revenuers who like to raise, raise, raise taxes in order to fund their initiatives, they
love to tax people that are 6 feet under because they can't complain about it, okay? Their children
just have to accept whatever they're going to get after the estate tax. So, that is where
a lot of people use life insurance to pay the estate tax using discounted dollars. Meaning,
if you took some of the money that you would have to come up with out of your parents assets to pay
the estate tax. For example, sometimes people leave behind a business or apartment complexes
or real estate or whatever and it's not a good time to sell that but the only way to satisfy
the estate tax is to sell the asset. And it may not be a good time to sell. And so, it doesn't
matter if you sell it for 60 cents on the dollar. The IRS will make you pay tax on what it appraised
for not what you sold it for. It's very hard to get. I've seen people have to pay as much as 50,
60, or 70 percent because uncle sam's waiting for their portion. So, instead of having to liquidate
the assets, people will take a portion of the estate and they will buy a life insurance policy
for 5 million, 10 million, 20 million, whatever it is. That then provides them the tax-free cash
to pay for the estate tax if it's due. Now, you have to be careful because life insurance is
included in the valuation of the estate unless you use strategies like an irrevocable life
insurance trust and so forth. But life insurance can be used to pay a state tax liability with
discounted dollars. I'm going to share next some other advantages that you can have by using life
insurance in estate planning. But that's a big one and you want to make sure you go to somebody who
understands how to incorporate the life insurance correctly so that it doesn't unnecessarily add
to the value of the estate. Now, with estate planning, you can also use life insurance to
protect and preserve your assets. Especially if you use max-funded indexed universal life which
is my favorite vehicle or instrument when we're talking about estate planning. So, let's say
that you have some assets in the estate. Whether it's real estate or whether it's liquid cash,
I would recommend that you keep the equity and those assets liquid safe earning predictable
rates of return. And frankly, a max-funded life insurance policy passes the liquidity safety and
rate of return test with flying colors and it's tax-free. So, if you want to preserve the assets
and make sure they're not exposed to market risk the market volatility, use indexed universal life
insurance because when the market goes up you get to benefit but when the market crashes,
you do not lose because your money is actually not invested in the market. The insurance company
is crediting you based upon what the economy does. But your money is safely tucked in the insurance
company. If the economy crashes, if the market goes down and nose dives, you don't lose. Watch
other episodes on this channel on how indexing can help you. But see, by using life insurance,
you can preserve. And you can protect your money. So, at the end of the day when you pass away,
the money is there and it can blossom in value and transfer totally income tax-free.
I'll talk about how that works next. But see a lot of people, they simply want to protect
what they have that they've worked their entire lifetime to accumulate. And they
want to preserve and pass it on. So, I'm going to share with you next how to perpetuate it and have
it blossom every time the oldest person in the family passes on. So, probably, the most powerful
use of life insurance with estate planning is not only to protect and preserve but actually create
tax-free cash flow. And be able to maximize what you leave behind when you die. It's sort
of like a swiss army knife. So, let me expound on this. Life insurance, when you maximum fund it,
like I recommend people do. You can have 500,000, a million, I've had clients have 5 million,
10 million in there. And it's earning predictable rates of return between 6 to 10 percent. Some
years much higher than that. But if they want to take out income, it's totally tax-free. Every
million can predictably generate 80,000, maybe 100,000 dollars a year of tax-free cash flow
without depleting principal. My heavens, that could help fund family vacations with a purpose
also college funding, humanitarian trips. All kinds of things that you may want to do with
your family under your estate plan. And that can go on for future generations because what
we do in our family is we put the life insurance on the oldest patriarchs and matriarchs so that
when they pass away which they usually do sooner than later compared to the other family members,
every time there's a death in our family, it receives in the family estate (what I call the
family bank) a tremendous infusion of tax-free capital in the form of life insurance proceeds.
And then we turn around and we take at least 20% of that and put it into a life insurance policy
on the next oldest healthiest family members in our family tree. Does that make sense? And so,
we never run out of money. Every time people pass away, the family wealth just blossoms
because we are using life insurance to increase the amount that is generated
every time somebody passes away. And we reinvest it back into new insurance on the next generation.
So, you can not only create predictable cash flow but you get a death benefit that comes along for
the ride that helps your estate continue to grow and blossom and stay ahead of your family tree,
your posterity as it grows. Is this making sense? So, when you think about it with a trust,
with entities with estates, life insurance can be very powerful instrument. A tool for tax planning,
for cash flow management, for helping your family fund all kinds of initiatives in your estate. So,
how can you learn more? If this has piqued interest, I would love to gift you a free copy
of my most recent best-selling 300-page book the Laser Fund which is actually 2 books in one. This
book here is about 200 pages comprised of 14 chapters with all kinds of charts and graphs and
explanations of how to diversify and create the foundation for a tax-free retirement. Now, if you
learn more right brain with stories and examples you flip the book over and read this one. This
is about 100 pages, 12 chapters, with 62 chicken soup for the financial soul stories like the one
I just told you. If you like to use your whole brain, I would recommend you read both books.
But it's 300 pages. This has been flying off of our warehouse shelves. I'll tell you what. I will
pay for the book. You go to laserfund... LASERfund.com (It's on the screen here)
and claim your free copy. You contribute a nominal amount towards the shipping and handling.
I'll cover the rest of that cost and I will send out a book to you. There's also options
there for you to listen and learn and watch and learn. But here's to your brighter future.