Legacy Planning Using Life Insurance: Insured Family Legacy

Every parent and grandparent knows they have worked a lifetime to create financial security for themselves and their family. In this fast-paced modern world, where your clients’ lives are filled with various responsibilities and goals, it's easy to overlook the significance of legacy planning. It’s your job to remind them that a properly structured legacy plan will help them provide for the well-being of their loved ones, even after they're gone.

Through proactive planning, you can help your clients minimize potential tax burdens, ensure a smooth transfer of assets, and provide financial security to their beneficiaries. There are many tools available to accomplish these goals, such as: wills, trusts, and insurance policies all tailored to your clients’ specific needs. This ensures that their assets are distributed according to their wishes, while minimizing conflicts and legal complications.

With proper planning, it is possible for your clients to utilize assets that are not needed for everyday living expenses and make more efficient use of them for the benefit of future generations, while still maintaining control over these assets. Indexed Universal Life Insurance is the perfect tool for this job.

Indexed Universal Life (IUL) insurance is a powerful tool that your clients may utilize when planning a legacy for multiple generations. If properly structured, an IUL policy can provide the following key benefits:

• Income tax-free death benefit
• Tax-deferred growth of cash value
• Potential tax-free access to cash value that can be used to meet a variety of needs*
• Protection from creditors (varies by state)

Let’s discuss how an IUL policy can be used as the cornerstone to your client’s legacy plan.

Legacy Planning Using Life Insurance: Insured Family Legacy

A legacy plan using life insurance, otherwise known as an Insured Family Legacy Plan, is a strategy that utilizes an IUL policy to provide benefits for 3 generations:

• Generation 1 (Grandparent/Owner)
• Generation 2 (Child/Insured)
• Generation 3 (Grandchild/Beneficiary)

In short, an insured family legacy plan allows your client (Generation 1) to purchase a life insurance policy on their adult children (Generation 2). Upon Generation 1’s death the policy becomes the property of the next generation (Generation 2). Upon Generation 2’s death the policy proceeds go to Generation 3 – the grandchildren.

How it Works:

1. Generation 1 (Grandparent/Owner) purchases a permanent life insurance policy insuring their adult child (Generation 2). As the owners of this policy, Generation 1 has the flexibility to access cash values if their needs change during their lifetime.
2. Upon Generation 1’s death, a multigenerational trust, created by Generation 1, becomes the owner and beneficiary of the life insurance policy.
3. The income beneficiaries of the multigenerational trust can include the adult children (Generation 2) and/or the grandchildren (Generation 3). The trustee can access the policy cash values as outlined in the trust, based upon the planning goals and wishes (e.g., support and education funding) of Generation 1.
4. The trust receives the death benefit at the insured’s (Generation 2’s) death providing a legacy designed to have an enduring impact for the grandchildren (Generation 3).

Do you think one of your clients may be interested in an Insured Family Legacy Plan? Input your information below and we will send you a sample proposal from our software explaining this strategy, which you may share with your client(s).

*Accessible through loans and withdrawals, certain limitations may apply to loans or withdrawals. Policy loans and withdrawals will reduce the benefit and cash values and may be taxable under certain circumstances.