eAC Sales Idea:
Wealth Transfer
Over the next 25 years, approximately $40 trillion will pass from one generation
to the next. Annuity agents are in a unique position to assist people
with their need to pass wealth on to their beneficiaries in a tax-efficient
manner.
One of our agents in Florida has submitted an idea that is almost too simple
to write about. When she meets with a Medicare supplement prospect or
client (her primary product line) she simply asks, “Do you have
any dusty money?”
“Dusty money” is money your clients may have set aside as savings,
either for themselves or their children. Often, agents can help clients
increase returns on their dusty money while saving money on taxes.
Once she has identified funds, our Florida agent asks another simple question, “What’s
it for?”
She says there are four common answers:
- “It’s for my retirement.”
- “It’s for a specific goal, such as a trip or large purchase.”
- “I want to get at it if I need it but most likely it will go to my
kids.”
- “I plan to leave it to my kids, grandkids, etc.”
The first answer is likely an annuity sale. Upon further investigation,
answer #2 will either eliminate the opportunity or expose an opportunity for
a very short term annuity.
Most of our subscribers would consider #3 and #4 as an open door for an annuity
sale. These agents will use tax-deferred growth and probate avoidance
as the top reasons to consider an annuity for the asset to be transferred.
There is another option...single premium whole life insurance (SPWL). SPWL
avoids probate and provides tax-deferred growth, but has two additional advantages
over an annuity: 1) an immediate increase in the value of the asset and 2)
tax free death benefits.
First, single premium whole life insurance provides an immediate increase
in the value of the asset. For example, with one carrier a 65 year old
female could use $50,000 to purchase $98,814 of guaranteed, tax-free death
benefit. If the client dies shortly after purchasing the policy, the
full $98,814 is paid to the beneficiary. If the same client had purchased
an annuity with $50,000 and assuming an annual return of 5%, it would need
to grow for roughly 20 years to be worth the same amount as life insurance
(depending on the heir’s tax bracket).
The second major advantage is the tax benefit SPWL provides. With an
annuity, the client is building up deferred earnings within the annuity contract. When
the owner dies the beneficiary inherits built-up gain and must pay taxes on
that gain. This is called “income in respect to a decedent.” If
the money had been in life insurance, the entire face amount would have gone
to the beneficiary with no income taxes.
Many annuity agents choose to sell annuities in spite of the apparent benefits
of SPWL. Most of these agents don’t want to risk losing annuity sales
because of a possible decline on the life insurance. There are new single
premium life products that avoid this problem. These products allow for
underwriting answers to be given on the phone or online within just a couple
of minutes allowing the agent to proceed with the life app, or if the prospect
does not qualify, proceed with an annuity application.
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