In this month’s discussion, I posed questions to three top producers regarding some of the practicalities and issues surrounding the use of life insurance in tax planning. (Click here to read part I and part II.)
Q. What do you view as the most significant threats to the way life insurance is currently treated and to the use of life insurance in tax planning? Further, what steps are you taking to help ensure that the threats are minimized?
William M. Upson, CLU, ChFC, Walnut Creek, Calif., founder of Strategic Asset Management Group: I think the greatest concern I have today is the cavalier attitude the Congress and the respective legislative bodies of the respective states have, where they’ve been so paralyzed with politics, they have not given the public any clear agenda for proper investing, necessary insurance coverage and estate planning. We are looking at a very uncomfortable future if we do not address the need for a consistent tax program the public can understand and embrace. The last four years showed us how minimally educated working adults could lose everything because they were not dealing with true investment advisors in the process. Education is the only solution that will help all of us — the advisors and the public — do better in the future.
William H. Black Jr., CLU, Winter Park, Fla., president of W.H. Black and Company and PensionSite.org: The first thing that comes to mind is the relentless attack on the inside buildup of the policy cash value. There are reasons cash value growth is untaxed, and it deals historically with public policy and the basic reason for the life insurance: providing the beneficiary with monies to assist in the financial implications of the loss of the insured. However, some will position this untaxed buildup of cash value as a loophole. How do I ensure the threats are minimized? That’s very difficult to do out here by oneself in the wilderness. That is why I belong to NAIFA and joined MDRT many years ago. There is strength in numbers.
Douglas R. Peete, CLU, ChFC, Overland Park, Kan., founder of Douglas R. Peete & Associates: I am mostly concerned with the no-load offshore-type of insurance planning, which is obviously designed to avoid taxation. To minimize the concerns, we don’t sell edgy concepts that would potentially put our clients at risk.
Q. Any further thoughts?
Peete: Much has changed throughout the past 10 years. Nonetheless, preserving the tax-free death proceeds and cash values is critical to the well-being of the American public.
Upson: I would strongly encourage anyone seeking to be successful in this field in the years ahead to fully understand the concept of the “client does not care how much you know until they know how much you care.” If you can provide solutions, but they do not address human interactive needs, then your solutions will fall on deaf ears. You must come to the table with empathy, a willingness to lose the sale because of your honesty as to what is best for the client, and your willingness to work with other advisors in the best interest of the clients with whom you meet.
Black: Most high-net-worth clients, most business clients and almost anyone who is aware consider the tax implications on any purchase, investment or item of importance. To think otherwise is folly. One recurring event in my years in the business continues to astound me: watching advisors make recommendations to a client that will adversely impact the client due to the tax ramifications. The client’s CPA rightly quashes the recommendation, and the advisor comes away thinking the CPA is a “deal killer.” Nothing could be further from the truth. If an advisor wants to be more productive, more credible, and more respected, understand the tax implications of the offered advice. It will increase production, increase referrals and benefit the client and his or her beneficiaries.