/// Posted by Aviva Sapers & Ken Vacovec
This blog is co-authored by Aviva Sapers, CEO of Sapers & Wallack, and Kenneth J. Vacovec, Founding Partner of Vacovec, Mayotte & Singer.
For many Green Card holders or US citizens who own property or assets abroad, the eventual estate taxes that will be due on those holdings can be significant and even prohibitive if not planned for accordingly. One, often overlooked, technique for addressing this problem is to use a life insurance policy to cover the taxes on those assets when they are added to the estate held in the US.
Life insurance usually costs about 1% of your estate to provide for the taxes due on 100% of the estate. If set up properly in an irrevocable life insurance trust, the proceeds can be kept out of your estate for income and estate tax purposes. In addition, depending on how much insurance you need, most of the premiums can be paid using the annual gift tax exclusion, which is currently set at $15k per person. A survivorship or second-to-die life insurance policy pays out at the second death within a covered couple, which will line up with when estate taxes are due.
For foreign nationals, life insurance can also provide for a great tax-sheltered investment in US dollars. Assuming that you spend some time here and have bank accounts in the US, foreign nationals can purchase a life insurance policy that builds cash value and earns returns similar to bonds or investments in the stock market within the policy. Some foreign nationals may want to diversify their currency investments by acquiring assets in US dollars, and life insurance policies sold by US companies can offer a tax-advantaged way to do this.
Life insurance cash value growth is not taxed unless the policy is surrendered. This means that one can pull out what was paid in policy premiums without any tax on those withdrawals. Cash amounts above premium costs can be ‘borrowed out,’ typically at zero net cost borrowing after the first 10 policy years—as long as there is still enough left in the policy to keep it going until death. When an insurance policy is utilized as an investment vehicle, we can typically solve for max funding and minimal death benefit to receive the greatest investment growth for the lowest insurance cost. This is just the opposite of how we would solve for insurance premiums being purchased for a death benefit.
Either way, we would recommend life insurance be part of the conversation for wealth accumulation or liquidity needs for those with assets abroad or foreigners who want to diversify investments in the US.
Please get in touch if you would like further information.
Securities offered through Lion Street Financial, LLC (LSF), member FINRA/SIPC. Investment advisory services offered through Lion Street Advisors, LLC (LSA). LSF and LSA are not affiliated with Sapers & Wallack.
Variable life insurance is sold by prospectus. Please consider the investment objectives, risks, charges, expenses, and your need for death-benefit coverage carefully before investing. The prospectus, which contains this and other information about the variable life policy and the underlying investment options, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
The investment return and principal value of the variable life policy are not guaranteed. Variable life sub-accounts fluctuate with changes in market conditions. The principal may be worth more or less than the original amount invested when the policy is surrendered. Contract surrender charges may also apply.
