It's January and as many of us are getting our tax documents ready for our 2016 filing, be aware of the ticking tax time bomb that your clients could be facing. As an example, a healthy female, age 67 has $100,000 of non-qualified assets she wants to keep safe and eventually gift to her children when she passes away. At today's current CD rates, she purchases a CD paying 2.40% annual interest. As time passes, her investment in the CD grows. It's 10 years later and she suddenly passes away. Her original investment has gained $24,765 in interest, however, she has to pay taxes on that interest. She is in a 28% tax bracket and would end up paying $6,934 in taxes. Leaving only $117,831 to her children.
If she would have ended up taking the $100,000 in assets and purchasing a single premium life insurance policy the results would have been very different. On a guaranteed basis, she gains an immediate death benefit on top of her initial $100,000 investment of $74,000. If she passes away in 10 years, she has a death benefit of $180,906 in which all of the assets would pass on to her children income tax free. If you have a client in this situation that is looking to pass wealth to their children, help them pass more benefit to their children 100% income tax free.
