One Tax Free Wealth Strategy Every Should Own

Background: Every family wants to help the next generation. Some will even go so far as to help financially and some cannot or will not. The bottom line, it does not matter as you can create tax-free wealth and transfer it to you and your siblings either way.

Let’s look at what a normal family with mom, who is 73, and 3 siblings are contemplating:

Mary Smith Age 73

Tax-Free Wealth Creation & Transfer Legacy Plan

Background Facts: up to 80% of the wealthiest families transfer assets tax-free from one generation to the next via properly owned and structured life insurance policies.

Taxable Versus Tax-Free: If the policy is owned outside of Mary’s estate and premiums are paid  by the Smith children who are also the beneficiaries the proceeds from the policy at completion are tax-free.

For example: In the 40% tax bracket you would need the following taxable returns every single year to equal the life insurance tax-free return:

Life Insurance Tax Free Return________________Taxable Equivalent Return Needed

5.00%_________________________________________ 8.33%




Life insurance tax benefits and returns act as a alternative to the stock market volatility we have witnessed in the last 15 years. That includes the 2001-2003 Internet crash and the 2008 worldwide crash.

Possible Gifts From Mary Smith: If Mary decides to help offset premium costs she could gift up to $14,000 per year per person, (spouses could be included) tax free using the annual gift exclusion. The siblings would then turn around and pay premiums.

Health Rating and Premiums: Health rating determine premium pricing and are not guaranteed until the policy is issued and paid for. You buy life insurance with your good health. When your health changes you may not be able to buy a policy at any price.

I have run pricing based on a standard health rating for discussion purposes:

_____Benefit                    Premium               IRR at age 87       _ Pre-Tax Equivalent*

  1. $500,000                    $18,157                       7.28%                          12.13%
  2. $750,000                    $27,235                       7.28%                          12.13%
  3. $1 million                    $36,314                       7.28%                          12.13%
  4. $1.5 million                 $54,471                       7.28%                          12.13%


  1. Pick a number you/siblings feel is comfortable and not a burden and buy it.

* pre-tax equivalent return you would need to receive in a taxable account for 15 years in a row to equal the tax-free internal rate of return (IRR) with life insurance at completion age 87. Completion could be earlier or later. For discussion purposes only.

Leave a Reply