The Art of Estate Planning

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When trust clients of U.S. Bank Private Wealth Management ask about how to ensure their heirs have an inheritance, Wealth Management Advisor Rocky Sperka and Wealth Planner David Scaife in Milwaukee consider all the traditional estate-planning tools, such as living trusts, annuities and retirement accounts. Ultimately, however, they may recommend a custom product.


“At times, a client may have a will and estate plan that are designed to help them protect their assets from estate taxes,” Sperka says. “Unfortunately, investment returns can be very unpredictable and could result in an inheritance or charitable objective shortfall. That’s where a custom product could be potentially valuable.”


Imagine wealthy parents who want to guarantee that when they die, their heirs will receive a significant chunk of money. “Although returns on investment portfolios over time are typically going to be positive, you really don’t know the results,” Sperka explains. So Sperka and Scaife have a strategy that may allow the clients to use insurance to guarantee an inheritance for their heirs — carving out a portion of their assets into a guaranteed investment. “A guaranteed life insurance policy may be a great way to accomplish this,” Sperka explains.

Think Contribution, Not Expense


Rather than thinking of an insurance premium payment as an expense, clients are encouraged to think of it as a contribution to an asset that will act like a Roth IRA with a guaranteed and often attractive rate of return.


“Generally, the rate of return on a five-year CD these days is in the 1 to 2 percent range,” Sperka says. “However, assuming a person lives until 90 or 95 [a growing segment of the population], it wouldn’t be unusual for the policy death benefits to generate guaranteed after-tax rates of return of 4 to 4.5 percent.”


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Scaife explains that life insurance can feel like an expense because of annual premium payments, though policies can range from one payment to many years of premium payments. When contemplating a payment strategy, clients must understand their estate planning objectives and decide whether their annual gift tax exclusions ($14,000 per donee) will be incorporated in the plan to purchase life insurance.


Irrevocable Life Insurance Trust


Another technique clients may want to discuss with their tax and legal advisors in this low interest-rate environment involves a gift from a donee to an irrevocable life insurance trust (ILIT) for the purchase of a life insurance policy. The trust as owner and beneficiary of the life insurance policy pays the premiums and distributes the death benefit proceeds to the beneficiaries of the trust in accordance with its terms. By placing ownership of the policy in the trust — not the insured — the death benefit is removed from the client’s estate, thus avoiding estate taxes if the life insurance proceeds push the estate value above the exemption level of $5.49 million.


“An ILIT, if set up and administered properly, keeps the life insurance proceeds outside of the client’s estate and provides asset protection for the beneficiaries,” Scaife explains. ILITs can be complicated, so it is best to include your legal advisors and the beneficiaries in your planning.


U.S. Bank does not offer insurance products. 

Estate Planning