For Generations to Come

The month of August is back to school for many families and is also What Will Be Your Legacy Month, which has inspired this month’s Zinsurance blog.  Especially during back to school, the hustle and bustle of more demanding schedules, juggling many activities and responsibilities, and preparing for the onset of numerous holidays places family in the forefront as you prepare to manage it all on a day-to-day basis.

Whether you are a Millennial, Generation X, Baby Boomer, or of the Silent Generation, taking care of your next generation takes on very different priorities depending on how you are approaching your financial planning right now.  The question then becomes, are you covering all your bases or taking a chance that could negatively impact what you desire for your next generation or is unintentionally hindering your ability to leverage your income and assets right now as effectively as you could.  
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If legacy planning is important to you as an aspect of your financial plan, considering what it will look like for your next generation while also taking care of your needs throughout your life are key considerations. 

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​IRA Leveraged

​A 78-year-old client had an IRA valued at $350k, which he wanted to leave to his family for legacy planning, as he was not going to use this money as a part of his retirement income distribution. He was in good physical health for his age bracket, resulting in him being designated as Preferred by life insurance underwriting.


Due to his Preferred status, he was able to maximize the amount of money he could leave his family through taking a distribution that could buy him a life insurance policy with a $601k death benefit for his beneficiaries, potentially generating a higher payout to his family tax free.

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​Premium Overhaul

​A client couple in their mid-40’s with two school-age children were making a good income and were also astute to have life insurance policies to prepare them for the unexpected. However, they were paying high premiums on two different insurance policies and decided to investigate options to reduce their out-of-pocket obligation.

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​The wife had an insurance policy valued at $2 million costing $30k a year in premiums. The husband had a $1.5 million policy which was costing around $18k per year. With the couple both being in excellent health, we re-evaluated their insurance policies to see if their monetary obligation could be reduced. Their newly hired financial advisor hoped to be able to free up some of their money being applied to life insurance to be allocated to other financial instruments or options. The couple wanted to maintain the insurance policy values desired. What we found was that the insurance policies they had were not in alignment with what was in their best interests from a financial planning standpoint. Because leaving a legacy to their children was important to them, we recommended surrendering their current policies and purchasing a survivorship policy valued at $3.5 million payable upon both of their deaths, combined with two $1 million term policies for the wife and the husband separately, just in case, while their children were still young. The end result was over a $37,000 savings in premium costs that could be allocated to wealth creation within their financial plan. 

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​5 Key Questions to Ask – Life Insurance & Your Legacy

According to a study by HSBC bank reported in LegalZoom, 74% of working age people around the world plan to leave an inheritance to their children. 

When considering how you would like your legacy to play out financially for your next generation, here are some questions to ask yourself to make the best life insurance decisions for what matters most to you.
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1. ​What type of policy is it and what reward will it reap for your beneficiaries? Is it one built for high cash-low death benefit or maximum death benefit for legacy planning? The benefit of a high cash, low death benefit is your ability to leverage the cash while alive, within stipulations of the policy, offering cash flow in emergencies or if you would like to gift a portion prior to death. Another benefit to cash value is that you can leverage the available cash value to pay premiums once you are no longer working and are on a limited income during your retirement years. The tax-free higher death benefit option is a good alternative if you are not concerned with having readily available access to cash via the policy and you seek to have the policy be your primary source of gifting to your next generation. 
   
   
2. What are the tax implications in how you are leaving money to your next of kin? Are you in a position where there are taxes that will need to be paid if something were to happen to you, either federal estate or capital gains and has this been calculated into your planning?  Did you know that individual states also may have tax implications on your estate? An article from Think Advisor shares an overview on 17 states with their own estate inheritance taxes.
   
   
3. Do you have a significant amount of qualified money? This could be through an IRA or other retirement funding vehicle. Is it better to unwind now for tax planning reasons and purchase life insurance to leave as a legacy? A recent article in Forbes  confirms that a lot has changed over the past couple of years about IRAs and more changes are expected, so there is no better time than now to reassess your IRA strategy. 
   
   
4. Have you run the numbers if something unexpected happens? How much money will your family need if something were to happen to you? According to an Australian study by actuaries Rice Warner, the median level value of life insurance only covered 61% of what was actually needed. To calculate, Life Happens has created a calculator to help individuals more effectively calculate what would be needed.
   
   
5. Have you factored in the cost of long-term care on your assets?  Have you determined in your legacy planning a way to replace those assets for your family or pay for long-term care? Long term care can deplete assets and result in nothing left to leave your next generation if not planned for properly. Should you require long-term care and wish to still have a legacy to leave your loved ones, securing a rider on an existing policy or purchasing a long-term policy could safeguard your legacy. To learn more, read last month’s blog, “For the Long Haul.”

When it comes to bequeathing your assets and leveraging insurance to benefit loved ones or next of kin, there is so much more involved than merely having a will. To effectively cover yourself as well as your loved ones, considering how you can prepare, protect, and project will go a long way for your peace of mind.
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For Your Future,

​Lori Capozza Zeind
www.lczconsulting.com

P.S. Check out our Insights Library for additional articles and resources by CLICKING HERE. 

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