Scenario: Another financial advisor asked Bob for his help with a couple that he has worked with for over 30 years. The couple has 2 children in their 40s, and they have made annual gifts to their children and their spouses. They are very philanthropic and set up a family foundation for charitable gifting many years ago.
Problem: As a result of a moderately frugal lifestyle and wise investing, the couple knew they were facing a substantial estate tax issue. Moreover, their net worth was still growing even after making six figure gifts annually. Their largest single asset was a seven-figure IRA that was going to be subject to not only estate taxes, but also income taxes.
Solution: The advisor and Bob ultimately recommended that the clients establish an Irrevocable Life Insurance Trust (ILIT) funded by a multi-million-dollar gift that would be sheltered from gift taxes by their lifetime gift exclusion. The gift would fund a $10,000,000 life insurance policy free from income and estate taxes, plus the ILIT had provisions to benefit their heirs for many generations in the future. This would allow their IRA to transition income- and estate-tax free to their family foundation, thereby perpetuating their philanthropy. The gift to the ILIT would come from liquid assets that the couple were never going to need for lifestyle or gifting purposes. It appeared to be a win/win solution for the family.
Objection: However, when the idea was presented to the couple, the wife said, “That’s too much!” It became immediately apparent that she was not talking about the seven-figure premium, she was talking about the $10 million legacy flowing tax-free into the trust. The husband added, “We’ve been reading about the dangers of sudden wealth to children. We don’t want them to become trust bums!”
Resolution: The couple’s concerns were addressed when Bob introduced them to the concept of Empowered Wealth
Outcome: A legacy of giving was created beyond Generation I and the parents and children are grateful, and we are grateful to be able to have assisted this wonderful couple and advisor in finding the proper solution.