Accounting
Life insurance strategies that reduce estate taxes
With
Purchasing a “whole-life” or “permanent” policy rather than one that runs for a defined term carries much higher premiums — but those and other fees paid by high net worth clients for the insurance product now will go toward tax advantages for their estates’ inheriting beneficiaries down the line.
As financial advisors, tax professionals and their clients try to make sense of a plethora of questions about the future guidelines looming
Many registered investment advisory firms are “allergic to life insurance” as a concept, and it’s certainly not “the wrench that fits every nut,” Jack Elder, the senior vice president of advanced sales with Shakopee, Minnesota-based
“Your clients are going to be approached, so the conversation should start with you,” Elder said. “Somebody’s going to talk to them about life insurance, so it should come from you.”
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The case for a wealthy client to buy a whole-life policy and hold the contract in a vehicle such as an irrevocable life insurance trust revolves around the fact that, under the current rules, the asset no longer applies to the value of the estate. If they can afford the premiums, then the clients’ heirs
In
“An irrevocable trust is a great way to avoid estate taxes,” the website’s founder, Dr. James Dahle wrote. “By placing an asset into an irrevocable trust, any appreciation after that point occurs outside of the estate. However, trust tax rates are notoriously high, and trust tax returns can be complicated and expensive. What if you could put an asset into the trust that grows in a tax-deferred way until death and then provides an income tax-free lump sum? Voila, a whole life policy can do that.”
A strategic gift to heirs using life insurance could reduce the estate’s value for tax purposes and boost the amount that beneficiaries will receive upon a wealthy client’s death by millions of dollars, according to two illustrations that Elder shares with clients. In one example, a couple living in Washington state who are both 66 years old with an estimated longevity of 20 more years and a current net worth of $12 million will have projected wealth of $34.9 million two decades in the future. If they plan for an estate tax of $10.3 million at that time, they could spend $2.8 million on life insurance held in a trust today rather than spending the much higher amount in the future.
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In Elder’s other illustrative example, a couple who are 63 and 64 years old have an estimated net worth of $15.2 million. If they buy a life insurance policy that costs $2 million rather than transferring that directly to an heir, they not only avoid the gift tax, but they could instead pass down $8 million from the proceeds of the death benefits and slash the percentage of their estate that’s taxed at that time by hundreds of basis points while hiking up the heirs’ inheritances by $4.6 million.
“Strategic gifts before 2026 can save your family millions of dollars in estate taxes,” the case study said. “Those who don’t proactively use the exemption risk losing the opportunity to shelter their wealth from estate taxes. Life insurance coupled with strategic gifting can reduce estate taxes and substantially increase your net to heirs.”
Elder’s examples display some of the complexities involved with every individual client. Other complications include the fact that
“While that taxable estate threshold remains high today ($12,920,000 per person for tax year 2023), it looks fairly certain to dip lower in the coming years,” Boyer wrote. “Without legislative action, in 2026, anyone with more than roughly $6,000,000 (or $12,000,000 for a married couple with appropriate estate tax planning built into their wills) will find themselves on the undesirable side of that taxable threshold. Insurance policy payouts that seemed perfectly reasonable under our currently-high estate tax thresholds may now push taxpayers over the lower limits set to take effect in 2026. If alternative ownership can be arranged, for instance, by using irrevocable trusts, limited partnerships, limited liability companies or direct ownership by children, taxpayers can realize dramatic estate tax savings.”
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In other words, any advisors and clients considering the strategy must look closely at the details of their particular estate and any potential policy before making such a costly purchase. Elder and CBS Brokerage advisors use his examples as “a conversation starter” with their clients rather than a method to use in every situation, he noted.
“The responsibility of an RIA is to expose the clients to all of the solutions and tools that can be used to efficiently transfer wealth and then let the clients decide,” Elder said.
The Financial Accounting Standards Board released a
The amendments in the proposed ASU involve incremental changes to the codification and would affect a wide range of topics. They would apply to all reporting entities within the scope of the affected accounting guidance.
The proposed ASU would address 34 issues, including issues related to:
- Removing the term “amortized cost” from the Master Glossary;
- Clarifying the calculation of earnings per share when a loss from continuing operations exists;
- Clarifying the calculation of the reference amount for beneficial interests;
- Clarifying the guidance for the transfer of receivables from contracts with customers; and,
- Clarifying the accounting for certain receivables by not-for-profit entities.
FASB is asking for comments by April 22, 2025.
Spend management solution provider
Specifically,
Users can create as many business accounts as they need versus having to juggle multiple accounts and passwords. They can also set a target balance for their Ramp Business Account and top up from their checking account. Upon opening a Ramp Business Account, Ramp will pay users a monthly cash reward, calculated as a percentage of their deposited funds. They begin earning on the first dollar they deposit, and there is no cap to how much they can earn. Earnings are disbursed automatically by Ramp each month. Earnings are paid as cash, versus statement credits or rewards requiring redemption. Instead, the customer can transfer earnings from their Ramp Business Account to be used as cash elsewhere.
Customers can transfer funds in and out of a Ramp Business Account via externally linked commercial or business bank accounts. Funds that are moved may settle as quickly as the same day, but could take as long as five business days. Funds in a Ramp Business Account can be used to pay Ramp statements, Ramp Bill Pay and employee reimbursements. Payments to Ramp statements settle instantly. At this time, the Business Account cannot be used to deposit checks, receive external payments, receive transfers from bank accounts that are not linked to Ramp, or make payments outside of the Ramp platform.
The Ramp Investment Account, meanwhile, allows businesses to invest cash in the Invesco Premier U.S. Government Money Portfolio (FUGXX), a money market fund. Securities products and brokerage services are provided by Apex Clearing Corporation, an SEC-registered broker-dealer. The Investment Account is not a deposit product, not insured by the FDIC, and may lose value.
The launch is part of Ramp’s ambitions to automate more areas of the financial tech stack beyond payments.
“The old treasury playbook meant either constant micromanaging of cash positions and payment dates … or just accepting you’ll lose out on interest. The new playbook is refreshingly simple: let technology do the heavy lifting, so you don’t have to,” said Ramp CEO Eric Glyman. “This is why we created Ramp in the first place. We find every cent you deserve so you can focus on moving your business forward. It’s all about the timeless principle of making every dollar and hour work harder, and go farther.”
While the service acts a lot like a bank account, Ramp is not a bank and therefore is not subject to all the same rules and regulations of a bank (though the accounts are FDIC insured, according to the website). The Business Account is a deposit account offered through First Internet Bank of Indiana, which is the one who provides the bank services. There are no account opening or management fees, no deposit minimums, and no withdrawal restrictions.
Ramp Treasury allows for unlimited same-day ACH, international wires and domestic wires. It also offers alerts before funds are low or if cash is available to invest. The solution provides support for fully integrated workflows from beginning to end, meaning that cash transfers and earnings automatically sync with a connected ERP system and get categorized in the correct general ledger accounts. The security features allow only authorized people to transfer or release money, and the software provides a comprehensive audit trail. Ramp also makes
Accounting and contract management solutions provider
“It’s an honor to be appointed CEO of FinQuery,” said Schab. “I’m incredibly proud of the positive impact we’ve made on our customers, helping them simplify complex accounting processes and gain unparalleled visibility into their committed spend. I’m eager to continue building on this success and deliver even more impactful solutions that meet their evolving needs.”
Meanwhile, George Azih, founder and now-former CEO, will transition to the role of founder and executive chairman, where he will continue to provide strategic guidance and support the company’s growth.
“Joe has been an invaluable partner in building FinQuery into the successful company it is today,” said Azih. “A deep understanding of the technology industry coupled with his strategic vision and operational expertise make him the ideal leader to guide FinQuery through its next phase of growth. I am confident that under Joe’s leadership, FinQuery will continue to innovate and deliver exceptional value to our customers.”
In addition to Schab’s promotion, FinQuery also announced the promotion of Justin Smith from chief financial officer to both CFO and COO. Smith will assume responsibility for overseeing the company’s financial and operational performance. It is unknown who the replacement CEO will be.
Overall, according to Azih, these changeups in the leadership reflect a natural evolution in people’s roles through the years.
“This transition is about aligning titles with the roles that have already been shaping FinQuery’s success,” he said. “Joe has been serving as president and COO for several years, playing a pivotal role in driving our strategy and operations. His promotion to CEO is a natural evolution, recognizing his outstanding leadership and vision. Similarly, Justin’s move into the dual roles of CFO and COO reflects how closely these two functions have become aligned in recent years, as we prioritize both financial strategy and operational excellence to deliver greater value to our customers. As I step into the role of executive chairman, my focus will remain on guiding FinQuery’s strategic vision while empowering this exceptional team to continue simplifying complex accounting processes for our customers.”
FinQuery, formerly LeaseQuery, has spent the last few years
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