Sean Brady

Greek philosopher Heraclitus famously captured the dynamic nature of life in his brilliant yet simple quote, “The only constant in life is change.” With the inevitable life changes we will all face, creating an estate plan to determine one’s future legacy can seem daunting, but that does not diminish the need for it. At its core, estate planning is a vital aspect of financial management that ensures the smooth transition of wealth and assets to future generations. Proper estate planning must consider these inevitable changes, anticipate their impact, and incorporate adaptability to successfully achieve the intended goals.

Individuals can address various objectives such as minimizing taxes, protecting assets, and ensuring the smooth transfer of wealth to intended beneficiaries by incorporating flexible strategies. This article emphasizes the importance of incorporating flexibility into estate plans by exemplifying its necessity within the context of changing tax laws, family dynamics, and individual needs. Additionally, I will provide a solution to this overlooked problem by examining how index universal life insurance (IUL) can provide the necessary flexibility to navigate these uncertainties effectively.

1. Changes in Tax Laws: Constant evolution characterizes the tax law landscape. Over the years, federal estate tax laws have undergone significant revisions, impacting estate planning strategies. The introduction of legislation such as the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Tax Cuts and Jobs Act of 2017 has brought about changes in exemption amounts, tax rates, and other provisions related to estate and gift taxes. Moreover, proposals to repeal or modify tax laws further highlight the uncertainty surrounding estate planning. In this dynamic environment, flexibility becomes essential to adapt to changing tax regulations and optimize wealth transfer strategies.
2. Changes in Family Dynamics: Family dynamics are subject to transformation over time, presenting opportunities and challenges in estate planning. Positive changes such as births, marriages, and business successes may alter the goals and priorities for wealth transfer. Conversely, negative events such as divorces, conflicts, and unexpected deaths can necessitate adjustments to estate plans. For example, a flexible approach to accommodate evolving circumstances requires the consideration of factors such as succession planning for family businesses or providing for special needs family members. By incorporating provisions to address potential changes in family dynamics, individuals can ensure that their estate plans remain relevant and effective.
3. Changes in Individual Needs: Financial needs and goals may also evolve due to a range of factors such as economic fluctuations, business ventures, or unforeseen emergencies. Traditional estate planning strategies often involve lifetime wealth transfers through gifting or asset sales. While these strategies offer potential tax benefits and asset protection, they may limit access to funds in times of need. Therefore, assessing current and future financial needs before implementing estate planning strategies is essential. Adopting flexible approaches with access to transferred funds allows individuals to balance wealth preservation with financial security.

These factors underscore the importance of building flexibility into estate plans to address changing circumstances. When considering a solution to these potential roadblocks, IUL emerges as a versatile tool. Individuals can reinforce their financial protection while retaining adaptability by funding their estate plans with IUL policies because of the unique advantages offered by this financial vehicle. Unlike alternative traditional planning strategies that require irrevocable decisions, IUL policyholders can achieve more versatility with expanded capabilities to adjust premiums, coverage, and beneficiaries as needed.

Additionally, the tax advantages associated with IUL provide a solid foundation for building a flexible estate plan. An IUL policy allows individuals to leverage the potential for tax-free death benefits, tax-deferred cash value growth, and tax-free access to funds if needed. These features make IUL an attractive option for individuals seeking flexibility in their estate plans while preserving wealth for future generations.

In conclusion, flexibility is a fundamental principle of estate planning and an IUL policy supports flexibility in estate plans by offering tax advantages, financial protection, and the ability to adjust to evolving needs. Individuals can safeguard their wealth, protect their loved ones, and achieve their long term financial goals by acknowledging the inevitability of change and incorporating flexible strategies into their estate plans. As you guide individuals on their estate planning journey, I encourage you to embrace flexibility and leverage the benefits of IUL to pave the way for a secure and prosperous future for generations to come.

Does your current strategy for clients offer accumulation potential without adding market risks? If you’re seeking a financial strategy that can help balance a portfolio’s risk and return potential, then you’re going to need to include a mixture of various financial assets and financial vehicles that can help address your needs. While it’s true that some risks are unavoidable, you can help mitigate some of their effects. Some of those financial risks are market volatility, taxes, longevity, and inflation. Some of the primary asset classes are things like equities, fixed income, money markets, cash, and real estate. Lack of diversification can lead to financial shortfalls that can impact your client’s retirement when preparing for the future, and that’s why diversification is key when it comes to spreading out market risk.

Many of these asset classes are correlated directly to the stock market in the form of financial vehicles like stocks and bonds and other market assets. When those assets fall, a financial portfolio could fall as well. That’s why it’s important to diversify into other financial vehicles that react differently to the market environment which could spread market risk, and your client’s portfolio can grow with fewer bumps in the road.

A low correlation asset can positively impact a retirement portfolio. A low correlation asset won’t be as severely impacted by the fluctuations of the market, such as an indexed universal life policy (IUL). Along with the ability to earn index interests, it also offers protection in the form of a death benefit, and it can help reduce the risk in an overall retirement portfolio during periods of market volatility.

An IUL offers financial reassurance to your client’s beneficiaries; an income-tax-free death benefit is paid to beneficiaries regardless of market conditions. It offers tax diversification, which can be an effective tool to manage how much and when assets are taxed. It offers tax-free growth and income tax-free policy loans and withdrawals. In addition to tax diversification it offers portfolio diversification. It’s an asset that has varying reactions to the market environment. A client can earn index interest based on an external market index with an additional level of protection with a zero percent floor. IUL clients are not directly invested in any equities or fixed-income vehicles and don’t own shares of an index. Finally, an IUL offers access and flexibility which allows clients to address any immediate financial concerns. They can access their cash value through income tax-free policy loans or withdrawals for any purpose at any time.

Taking on considerable risk and limiting how much you diversify could lead to substantial losses due to market volatility, and the time to recover from those losses could be significant. Over the last 25 years, the S&P 500 index has been negative for six of them. If the market goes down and you suffer a 15 percent, 20 percent loss, or even worse like we did in 2008 or 2009, it could take a long time to recover from those losses. If your clients had an IUL policy during those years, it would have received a zero percent credit, which is a significant improvement when compared to suffering a 30 percent loss. If a client were to suffer a 30 percent loss to his or her retirement portfolio, it would take a total return of 43 percent to recoup those losses. People approaching retirement don’t have unlimited time to recover losses that large. With IUL, zero is your hero. This means that although an IUL policy may not receive an index interest credit during volatile times, cash value will remain flat and unaffected by market loss. An IUL policy may not be able to protect other assets from losses, but it can help reduce the risk within an overall portfolio and help lessen the blow if there is a big loss down the road.

When it comes to financial planning, protection and preservation of wealth are of the utmost importance, particularly in unpredictable market conditions. To reduce risk and possibly increase returns over time, diversification is key. Adding a low correlation asset like an IUL policy can help your client diversify the risk and accumulation potential of his or her portfolio.