The Leveraged Distribution Strategy® – Cases Study 2

The Leveraged Legacy Strategy.

Maximizing life insurance portfolios while reducing the out-of-pocket costs.

Legacy planning is necessary to maintain continuity of wealth for future generations. Premium financing may allow clients to use less of their existing capital to fund their legacy and inheritance objectives.

The Client

Age 60 and 57, nearing retirement    

  • Married, three adult children
  • Seven grandchildren, so far
  • Growing estate of $15 million

The clients don’t currently have estate tax exposure,, but they are concerned about their financial legacy. They want to enjoy their upcoming retirement, and simply do not want to give up lifestyle

A common challenge among successful entrepreneurs is the need to simultaneously create and grow wealth both inside and outside of the business. These are competing priorities for some, while others may find a custom premium finance plan may provide a potential solution. A bank may finance premiums, making it easier to reinvest in the business. In doing so, the life insurance policy is positioned to create potentially significant tax-efficient income throughout retirement, while safeguarding legacy with the policy death benefit.

The Leveraged Legacy Strategy™ provides flexibility while avoiding commitment to large life insurance premiums.

Loan Repayment

The lender usually is repaid via policy loan against cash values; this loan is carried in all future policy years. The net death benefit is paid out to policy beneficiaries.

Results are not guaranteed. All TLDS structures are designed under IRS non-MEC guidelines to maintain tax-free status. Loan repayment amount is estimated based on varying interest rate. Rates are based on a spread over lender-determined rate. This is based, in part, on the amount of annual borrowed premium. TCP calculates interest for case studies based on SOFR forward rate curve. For educational purposes only .

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Partial withdrawals and surrenders from life policies are generally taxed as ordinary income to the extent the withdrawal exceeds your investment in the contract, which is also called the “basis.” In some situations, partial withdrawals during the first 15 policy years may result in taxable income prior to recovery of the investment in the contract. Loans are generally not taxable if taken from a life insurance policy that is not a modified endowment contract (MEC). However, when cash values are used to repay a loan, the transaction is treated like a withdrawal and taxed accordingly. Unpaid interest on loans is added to the loan principal, thereby increasing the total debt on the policy. The combination of an increasing loan balance and deductions for contract charges and fees may cause the policy to lapse, triggering ordinary income tax on the outstanding loan balance to the extent it exceeds the cost basis in the policy. Loans, if not repaid, and withdrawals reduce the policy’s death benefit and cash surrender value. Refer to compliant life insurance carrier illustrations for specific disclosures related to policy loans and how they may impact a policy. Copies of illustrations used for case study samples are available upon request.
Premium financing involves certain lending risks including, but not limited to: change in interest rates, increased premium costs, market volatility, change in collateral valuation, margin calls, and termination, modification or non-renewal of the loan. These risks include the risk that life insurance protection will not be present at the time of the insured(s) death either because the lender has foreclosed on the policy or because the amount owed to the lender exceeds the insurance proceeds, in which case additional funds may be needed to repay the loan. If the policy is surrendered, the policy owner may be taxed on any policy gain even though the policy proceeds are paid to the collateral assignee.
Material discussed herewith is meant for general illustration and/or informal purposes only. Although the information has been gathered from sources believed to be reliable, please note that individual situations may vary. Neither SCF Securities, Inc., nor Tennyson Capital Partners LLC provide tax or legal advice. Please consult with tax or legal professional for specific individual guidance.
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Tennyson Capital Partners is not a broker-dealer or registered investment advisor and does not offer securities or advisory services. SCF & Tennyson Capital Partners are not affiliated.