Taking Action
At this point, everything is fairly mechanical. The difficult aspects were thinking through why a death benefit was still needed and how much of it was. Other decisions flow from those questions. Once those decisions have been made, capable professionals can readily implement them.
More Investable Assets
While the federal estate tax might change again, ensnaring families that have estates of less than $22 million, the wealthy are increasingly willing to take that risk if it means not having to pay more premiums or take certain risks associated with financing them. At the same time, it is clear that many wealthy families have more death benefit than they need, regardless of what the estate taxes are. In these situations, most families regularly decide to either exit or restructure their life insurance policies, if they can.
Such restructurings will sometimes leave them with additional money to invest—say, if they are entering a life settlement agreement and they put the proceeds from the policy sale into an investment account. Some wealthy families might choose to convert existing traditional policies into private placement life insurance or private placement variable annuities. The continued tax-free buildup of value, coupled with the investment expertise of financial advisors in whom they are confident, makes these alternatives very attractive.
Russ Alan Prince is president of R.A. Prince & Associates.
Pat Rufolo is a partner at Stern, Kilcullen & Rufolo. Frank Seneco is president of Seneco & Associates.