Christie was able to more than double what she intends to leave behind for her loved ones without spending even one extra cent! Of course, I’ll tell you exactly how she was able to accomplish that, but before I forget, let me thank the 71-year-young lady for allowing me to discuss her story with you.
Income from Christie’s pension, Social Security, and savings is more than enough for her ongoing expenses. In addition, she’s always been able to maintain a comfortable, sizeable emergency fund. Roughly nine years ago, Christie thought it wise to stash away $100,000 in the form of a CD at a local bank because, as she puts it, “I didn’t foresee any circumstances under which I’d need to tap into those funds, other than leave it as an inheritance.”
A couple years ago, she sought my thoughts on “anything you could come up with” that would be better than her idea, “without compromising the guarantee of that $100,000 inheritance.” Boy, did I have a recommendation for her!
The Right Answer Could Be the Simplest
My suggestion? Use the $100,000 CD to purchase a permanent cash value life insurance contract. In spite of Christie’s health challenges, we were able to secure such a contract with an A++ rated insurer with a no-lapse guarantee for life in the amount of $276,000!!
In plain language: I got the carrier to write up a contract saying that in exchange for Christie’s $100,000, the company guarantees that come what may, whenever she dies her named beneficiaries will receive a check for $276,000. The thing you must understand about this contract is that it must happen exactly as is written, irrespective of what happens on Wall Street. Whether Christie dies the very next day or twenty-five years later, her heirs will receive that check.
And most amazing of all is that under Section 101 of the U. S. Tax Code – read the next words very slowly – every bit of that $276,000 check will be completely and absolutely income-tax free. Yes, her beneficiaries will not owe a penny in income tax! So just like that – in an instant – we’ve turned Christie’s $100,000 CD inheritance into a $276,000 tax-free check with ironclad guarantees.
But the question IS…?
Can her current CD – or any CD/mutual fund, for that matter – produce the same result? The honest and straightforward answer is that it would depend on the rate of return that the specific instrument earns. And let’s not forget that since CDs/mutual funds are “taxable” instruments, she’d have to prudently factor the paying of taxes into the equation (given a 28 percent marginal rate). Let’s look at a couple of scenarios here.
If Christie were to live for another 10 years, a CD/mutual fund must consistently – without fail – earn 14.84 percent every single year for the next 10 years in order for her heirs to walk away with the same $276,000. What if she lived for 15 years instead? That return would have to be 9.37 percent – again consistently, without fail – for the next 15 years straight. Hey sure, that’s possible, because anything is possible, right? But wouldn’t you agree with me that it would take a complete fool (with a capital “F”) to pursue that possibility?
I’ve always maintained that when it comes to your overall financial wellness (retirement, asset transfers, etc.), you first need to know what you’d like to achieve. Then you must talk with an honest financial professional(s) with a hefty dose of common sense. And please be prepared and willing to step outside of the traditional, cookie cutter mold, because more likely than not, that’s what will have to happen for you to make the best gains possible for your retirement.
You know that warning they put on those daredevil reality shows? Please don’t try this at home! Contact a financial professional at Laser Financial Group today so that we can have a discussion about your specific situation and see what we can come up with to help you to supercharge your assets. It took Christie nine years of searching, but only a couple of hours of meeting with me, to know she’s finally nailed it for her heirs.
Call us today at 301.949.4449 or visit us on the Web to schedule your complimentary session.
Section 101 of the U. S. Tax Code is a very long document - can you be more specific as to where it indicates that the life insurance policy would pay off tax free?
ReplyDeletePeter
Peter,
ReplyDeleteThis quote from Internal Revenue Bulletin 2009-38 should help:
"Section 101(a)(1) provides that except as otherwise provided in §§ 101(a)(2), 101(d), 101(f), and 101(j), gross income does not include amounts received (whether in a single sum or otherwise) under a life insurance contract, if such amounts are paid by reason of the death of the insured."
I agree with you that the tax code is a very complex and lengthy document. As such, you'd want to consut with a qualified professional who'll give recommendations AFTER reviewing your situation.
Thanks for reading
I really enjoyed reading your blog.Thanks for sharing these facts.
ReplyDeleteThank you for reading , and for those kind words, AArp life insurance.
ReplyDelete