Do you have a pension or annuity that’s producing income you don’t need? A lot of people do because they don’t realize they can take that income and turn it into a tax-free, multi-million-dollar inheritance for their kids and the charities they support, thanks to life insurance. A properly structured life insurance strategy can be the ticket to truly maximizing your legacy.
Use Your Pension to Donate to Charity or Create Additional Tax-Free Wealth for Your Family
Pensions are a luxury – especially nowadays when corporations and governments seem to be sharply cutting back on their availability. Fortunately, some lucky folks will still receive one. But when it comes time to turn that income on, they may not need all it to live comfortably. If you’re receiving a pension and you do need that money to pay your living expenses, then by all means, do so. However, if you only need half of that income, or perhaps none of it at all, we have a strategy that will allow you to pass far more money along to your heirs than you ever thought possible.
Let’s say your pension benefit is $60,000 per year. After analyzing your other income and asset sources, you might determine that you’ll only need half of that money during retirement. The other $30,000 you won’t use, so you might earmark it for an eventual bequest to charity or leave additional tax-free wealth to your family to further impact the legacy you leave behind. Let’s take a closer look at how this can work with your favorite charity…
What if, instead of leaving a bequest after you die, you instead donated that $30,000 each year to charity now through a life insurance policy? First, you may be able to deduct that entire $30,000 from your income, therefore not paying any tax on it. Once the charity has the money, it can be used to purchase a last-to-die, survivorship life insurance policy. Assuming you and your spouse are roughly 65 years old, that annual premium of $30,000 should be able to purchase about $2.5 million of insurance for the ultimate benefit of your charity.
And just like that, you’ve used half of your pension benefit to create a large, future gift to charity. Many people don’t think this way and simply write checks each year instead. If your goal is truly to maximize your gift and support that charity to the largest extent possible, the difference in the number of dollars passed along using life insurance is astronomical. Whether your goal is to enhance your family legacy or benefit charity, the impact of life insurance is unparalleled.
Leverage Your Annuity to Maximize Your Money
Sometimes a traditional retirement vehicle like an annuity requires a fresh perspective. To you, it’s probably just one potential source of retirement income – one you may or may not need. But our advisors know it’s an opportunity to pass millions of dollars along to your family, charities, or both. Annuities come in many flavors but the basic premise is the same for most of them: to accumulate funds in a tax-deferred vehicle that can generate eventual retirement income.
If you don’t need to rely on that annuity income to live, you may be able to leverage its value into far more money for the benefit of your heirs. You can maximize the annual income from the annuity, perhaps by exchanging your deferred annuity for an immediate annuity, and then, rather than spending the money, use that annual income to purchase life insurance.
Part of the reason this strategy is so effective is that annuities can present some real tax issues at the owner’s death because the account may be subject to both income and estate taxes. Also, unlike individual stocks and bonds, annuities don’t have the benefit of receiving a step-up in basis at the owner’s date of death. This means it can make a lot more sense to take the maximum payments you’re entitled to, or even to deconstruct the entire contract and start funding life insurance with those dollars. We refer to this as our “annuity maximization” program because when you do the math to determine what your heirs would ultimately get by keeping the annuity versus having the life insurance, the numbers are staggeringly different.
Our conversations with clients often revert back to a basic point: money is money. We all want to leave the most money possible to our families and charities when we pass away. But that requires thinking about assets and overall estate planning in a different way. At Howard Kaye, we can lead this discovery process with you and help you to create the absolute largest legacy possible. Call us today at 800-DIE-RICH.
