Cindy V. Gentry, CLU, ChFC, LUTCF

We have seen a flight to quality and a “back to basics” mentality with an interest in more security. Insurance is a conversation more and more Americans are open to and willing to explore.

As brokers and independent marketing organizations, we are always looking for opportunities to support producers in having meaningful conversations with their prospects and clients. I have found the LIFE Foundation materials to be helpful in doing just that. There are myriads of excellent resources and tools that can be used to educate and motivate prospects and clients.

The campaigns and programs provide opportunities to utilize the marketing elements in parts and as a whole—a “campaign in a box” scenario. The social media elements are excellent, too, for those using Facebook, LinkedIn and other social media platforms. For each campaign I use elements that help drive my business.

LIFE Foundation serves as a partner, a third party, trusted resource that each of us can access and leverage in the following ways at no cost!

• Insure Your Love. January/February campaign to celebrate and promote the importance of protecting those we love. Resources are available throughout the year (www.insureyourlove.org).

• Disability Insurance Awareness Month (DIAM) with its May campaign theme—Protect Your Paycheck—promotes the importance of disability insurance (www.protectyourpaycheck.org).

• Life Insurance Awareness Month (LIAM). September campaign to promote the importance of life insurance (www.lifehappens.org/liam).

• Long Term Care—November program to promote the importance of long term care insurance (www.lifehappens.org/long-term-care-insurance).

• Life Insurance Needs Calculator. A user-friendly way for clients to evaluate their insurance needs (www.lifehappens.org/lifecalculator).

• Life Lessons. A scholarship program to assist college-bound students who are impacted by the loss of a parent or guardian (www.lifehappens.org/life-lessons).

• Multi-Cultural Markets. LIFE materials and resources are available in Spanish and other languages to reach multi-cultural target markets (www.lifehappens.org/multicultural).

• NextGen3. An interactive educational program targeted at high school students having reached more than 63,000 teachers and 26 million students (www.nextgen3.org).

• realLIFEstories. High impact stories illustrating the importance of insurance (www.lifehappens.org/reallifestories).

• Speaker Bureau. Industry professionals available to speak at your next meeting (www.lifehappens.org).

• White Papers. Studies and white papers about relevant topics and trends available as a trusted third party resource (www.lifehappens.org).

• Marketing and Educational Materi­als. Materials and resources in support of insurance: life, health, disability, long term care; small business insurance needs; worksite benefits and more (www.­lifehappens.org/catalog).

Get started by contacting Jaimee C. Niles, vice president of communications at the LIFE Foundation. Email: [email protected], 703-888-4450 or visit www.lifehappens.org.

Taxes are going up!!

If you Google those words, you will find myriad sources saying just that, and some of the reasons why include:

    • Washington acknowledges that the 10-year deficit will be more than $9 trillion—greater than all previous federal deficits combined. As we come out of a recession, Congress will need to reduce the deficit.
 • Projections on the 10-year cost of any final health care bill range from $600 billion to more than $1.1 trillion.
 • State budgets are in dire straits, with 48 states reporting budget deficits. There will be growing pressure to provide federal money to help support the state programs.

Bottom line, your clients may be passing a significant and costly tax burden on to their beneficiaries by not properly planning for the distribution of their IRAs. According to a January 2007 report by the Employee Benefits Research Institute, more than $3.6 trillion are invested in IRAs! Chances are your clients have a share in that total; and if they do not plan properly, they will give the government more than its fair share.

You need to make your clients aware that if they pass their IRA directly to their beneficiary(ies) in a lump sum, the result might be income taxes on the entire IRA amount. Such taxation could erode the IRA’s value more than one-fourth to one-third at today’s tax rates. Can you imagine what the result could be in 10 years?

What Can You Do to Help?
There is an alternative that can enhance the value of the legacy your client has created and wishes to pass on. Let’s first look at a typical IRA distribution. Many IRA owners designate their spouse as beneficiary and then their children. The surviving spouse will receive the IRA balance upon the death of the owner and be able to roll it into his/her own account, allowing continued deferral of taxes and the minimum required distributions as mandated. Typically, the children will then be named beneficiaries.

When the children inherit the IRA, their maximum deferral is based on their ages at that time. If a child dies prior to the end of the maximum deferral period, the grandchildren inherit the balance of the funds plus the remaining balance of their parent’s maximum deferral period. This could mean an extremely short deferral period before the grandchildren have to pay tax on the remaining IRA. Let’s take a look at the effect of this in Chart 1. Note that although the surviving spouse and children could defer taxes on the IRA, the grandchildren are stuck with an excessive tax liability.

There Is a Better Way!
By just making some minor changes to your client’s current IRA planning, their legacy can be passed on to several generations. The key in the planning is to maximize the tax deferral. How is this done? The surviving spouse would name the grandchildren beneficiaries of the IRA rather than the children. Then the grandchildren’s life expectancies would be used in the tax deferral. See Chart 2.

Your first question might be: Are the parents actually going to disinherit their children? The answer is no, and this is where your opportunity lies. Simply have them replace the children’s IRA inheritance with a life insurance policy. Among the advantages to using life insurance is that the children receive the death benefit tax free.

Here are the results of this simple change in the parents’ planning:
 • Their children receive the life insurance proceeds (the maximum projected value) as their inheritance, income tax free.
 • Their grandchildren receive the IRA as an inheritance and are able to defer the taxes over their life expectancy, taking the minimum distribution each year. Because of their younger age, their tax-deferral advantages continue much longer. Of course, this should be done via a trust.

You’re probably thinking that this approach sounds good so far, but what about the underwriting for the life insurance policy? Plus, how are the parents going to pay for the premiums? True, this approach will work only if both parents are insurable. Though in some cases, a second-to-die policy might solve the problem of an uninsurable risk. If a client is over age 70, required yearly distributions from their IRA could be used to pay premiums. If the client is under age 70 but over age 591/2, distributions could be taken from their IRA to cover premiums, provided there are no other penalties involved.

As you can see, with just minor changes to your client’s IRA planning, they can significantly improve the performance of their IRA for generations to come.

These illustrations provide a broad, general guideline about IRA distribution. Calculations in the above illustrations are estimates. For tax or legal advice, have your client contact a legal or tax advisor.