40 INVESTMENT ADVISOR JANUARY 2017 | ThinkAdvisor.com
such language, the trustee’s options will be
significantly limited, and negative income
tax consequences may result.
6. MAKE ADVANCE DIRECTIVES PART
OF EVERY PLAN.
Durable powers of attorney for financial
matters, as well as for health care matters, are important resources to help
protect a client’s assets; these directives
also pave the way for an authorized
individual to act on the client’s behalf
in times of need. Without these documents, when unexpected health care
needs arise, family or friends may not
know which step to take with respect to
medical decisions or financial matters.
Clients should be encouraged to not
only execute these documents, but to
discuss their wishes with those they have
appointed to act on their behalf so there is
a clear understanding of responsibilities.
In addition, these documents should be
kept current. Recently executed documents
should be in line with current statutory
provisions, as well as easily recognizable
by financial and health care professionals.
7. MAKE SURE CLIENTS UNDERSTAND
WHAT THEIR DOCUMENTS ARE
DESIGNED TO ACCOMPLISH.
How many times has a client passed you
a stack of documents and said, “I have
no idea what is here or what they do”?
Clients may not remember the discus-
sion or the decisions they made during
the original execution process. They may
not understand the simplicity or com-
plexity of their plan. A regular review
can help keep clients up to date on how
their planning is working for them. Most
important, it can help them evaluate
whether their plan is right for them.
Not every client needs a complex estate
plan, and not every client’s goals are
accomplished by basic planning. Clients
need to understand how their plan works,
what it takes to maintain it, and how it
benefits them and their beneficiaries.
By discussing these resolutions with
your clients, you can demonstrate both
your attention to detail and your view
of the broader picture. Starting off the
new year with a well-rounded plan will
allow clients to move forward with other
goals, knowing that their estate plan is in
Rose Watson, JD, is director of advanced planning for Commonwealth Financial Network.
Single Premium Whole Life Gives Estate Planning an Edge
When it comes to financial planning, clients have a wide variety of goals that extend far beyond simply securing a monthly
income stream during retirement. Many higher-income clients
are concerned with providing for children and other beneficiaries
while also maintaining access to their savings during retirement.
For the right client, a single premium whole life insurance
product may provide the gateway for achieving their planning
goals, with the added benefit that these policies can provide a
significant tax benefit that generally doesn’t apply to annuities.
As the name suggests, single premium whole life insurance
is permanent life insurance that is purchased with one single
payment, rather than through a series of premium payments.
Because most of these policies will be taxed as a modified
endowment contract (because the premiums are paid up
front), withdrawals (loans) against the cash value of the
product will generally be taxed in the same manner as any
other annuity. These loans can also subject the client to IRS
penalties if the client has yet to reach age 59 ½ when he or
she makes the withdrawal. Some policies will, however, allow
tax-free withdrawals to pay for long-term care expenses.
Importantly, the death benefit on a single premium whole life
insurance policy passes to the client’s heirs tax-free just like any
other insurance product, giving it a substantial advantage over a
standard annuity product. Further, the inheritance will avoid probate, thus simplifying the process for the client’s beneficiaries.
Like many other investment products, the cash value of the
policy will grow tax-deferred until the funds are accessed or the
policy is surrendered. Growth within the single premium whole
life policy can be fixed or variable — meaning that the cash value
can grow at a fixed rate, or can vary based upon market condi-
tions in the subaccounts that are associated with the policy.
Generally, the ideal candidate for a single premium whole
life insurance product is a client who is nearing retirement (or
who has retired) and has easy access to the lump sum neces-
sary to fund the purchase.
It is important that the client allocate funds to the policy
that he or she had already intended to pass to heirs. If the
client anticipates a future need for the funds, a vehicle that
allows for tax-free withdrawals under any circumstances may
be more appropriate.
Most clients who purchase single premium whole life insurance will have a specific beneficiary in mind; many clients
with special needs beneficiaries are attracted to these types of
policies. Because the premiums are paid in advance, the eventual death benefit is guaranteed regardless of whether the client can afford premium payments for the rest of his or her life.
Advisors often fail to consider these policies, largely
because the modified endowment contract tax treatment
adds complexity. For clients who have specifically earmarked
funds for the next generation and who want to avoid ongoing
premium payments, however, the product can provide a valuable solution.—William Byrnes and Robert Bloink