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A New Wealth Management Dimension
Our Program provides financial advisors a centralized source for the design of a specialized fringe benefit using an elite portfolio of quality life insurance companies on a turnkey basis. The Program involves a series of structured employer-sponsored loans to a valued executive. The executive then purchases tax-advantaged, equity build-up life insurance in order to pursue the achievement of an assortment of financial objectives:
*Life insurance protection*Income tax planning
*Tax deferred growth *Investment diversification
*Enhanced retirement income*Asset protection
Employer objectives can include:
*Enhanced executive retention *Buy-out plan funding
*Tax bracket leverage *Payroll expense reduction
*Increased employee morale *Income tax reduction
Product alternatives can include fixed and variable life insurance. The Program operates within IRC Section 7872 and the safe harbor of IRS Notice 2002-8.
Promissory notes are entered into between the employer and the executive. Insurance contracts are then purchased and assigned as collateral security for the notes. Each note is for a fixed period (the executive’s age 65) but can include the acceleration of repayment should the executive die or terminate employment prior to maturity date.
The fixed interest rate of each note is selected from applicable federal rates as established monthly by the IRS within the authority of IRC 7872. Depending upon the existing interest rate environment at that time, short-term (less than 3 years) mid-term (more than 3 years but not over 9 years) or long-term (more than 9 years) applicable federal rates can be selected from and, if necessary, re-negotiated in the future.
Annual imputed interest amounts are allocated to the executive as “1099 income”. In effect, the executive’s cost of the Program is the tax due on the 1099 income.
Over time, the executive has various tax-advantaged distribution/borrowing options available for the portion of the insurance contract cash values in excess of the amount required to collateralize the notes. These options can achieve multiple financial objectives.
$50,000/year over 5 years
Provides asset protection.Diverts assets and income to others.Provides tax deferred growth.Increases tax advantaged retirement income.
Minimizes federal estate taxation.Provides effective estate planning coordination.Reduces capital gains taxation.Provides a diversified investment portfolio.
(1)Assumes Applicable Federal Term Rates as of April 2013
Long-Term: 2.7%
(more than 9 years)
Mid-Term: 1.09%
(over 3 years but not more then 9 years)
Short-Term: .22%
(less then 3 years)
(1) Should interest rates begin to rise, Jim and his Company can re-structure the Notes into a “Long-Term Notes” using the applicable federal long-term rate published by the IRS for the month in which the new “Notes” are entered into.
