Originally Posted by Rothman
Is anyone here using life insurance as part of a wealth transfer strategy? I watched the PBS show with Ed Slott and have read some of his materials and using the tax free benefit of insurance benefit to get money to heirs.
No, but I've seen these explained and they always seem very circular to me, and they always seem to lack full disclosure. I suppose they could be useful where liquidity is needed at death. This could be the case if Estate taxes are due, but there isn't enough liquid cash to pay the bill - you might not be in a position to sell things off. But I wonder if there are cheaper ways to gain liquidity?
Here's where it falls apart for me - they usually present this as taking money that is gifted annually from the estate (below the threshold where it needs to be reported/accounted for something like $13,000 these days), and the giftee uses it to pay for life insurance on the estate holder. So then they make this big point that the money buying the insurance escapes estate taxes, and you'll get his big insurance payout.
OK, but I never see them do a comparison to investing the money instead of buying insurance. The gifted money still escapes estate taxes. If, on average insurance would be a better deal, then why don't we all invest in insurance? Again, if the estate needs a guaranteed amount of money at death, even if that happens sooner rather than later, insurance might make sense. But then it is actually insurance, not so much an investment.
So did this Ed Slott show a table where the money is invested, and the break-even points compared to insurance? I'm guessing not. I'll also guess he has some friends who sell insurance.