Accounting
Tax advantages of life insurance for wealthy families
Life insurance strategies could help wealthy families remove assets from their estates while acting as the collateral for loan financing and a source of tax-free distributions.
These possible benefits come with potentially high premium costs for a “whole life” or “permanent” policy instead of a fixed-term contract. The strategies also come with an array of complex planning questions related to trusts and estates and tax rules that are
“It’s not necessarily the estate taxes per se — it’s really the loans and the leverage and eliminating the uncertainty for their family when they’re not here,” Harjes said in an interview. “Having a vehicle that provides immediate liquidity to eliminate that uncertainty is more valuable to them.”
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And,
“Usually, death benefits from employer-sponsored life insurance plans or private life insurance policies are tax-free,”
At its root, thinking through those ramifications comes down to whether a client would like to pay taxes on the seed or an entire garden, according to Harjes.
Using cash-value insurance policies for tax-free loans, more
A “cash value” policy that assigns the leftover portion of a premium net of costs into an interest-earning account means that, “essentially we’re creating a bond-like return inside of the policy without the duration risk,” Harjes noted. In addition, the clients could take out tax-free loans against the policy or withdraw from the cash account without any tax hit, as long as the amount doesn’t exceed their total premiums.
“Using cash-value life insurance products, in general, really eliminates the uncertainty of where taxes go,” Harjes said. “
However, advisors and their clients should carefully consider the consequences of any movements of assets out of the account.
“It’s important to note that withdrawing the cash value will reduce the policy’s overall value and might increase the risk of the policy lapsing,”
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The many factors and possible uses to consider add up to great reasons for advisors to discuss life insurance with their wealthy clients, Harjes said. He brought up an example of a billionaire real estate investor whose life insurance policy preserves the client’s family-owned company as the collateral for hundreds of millions of dollars in financing and an asset to be handed to the next generation.
“The tax attributes alone make it a very successful product in someone’s financial plan from a tax perspective,” Harjes said.
Al Drago/Bloomberg
The week before confirmation hearings for President Donald Trump’s nominee for commissioner of the Internal Revenue Service, former Missouri Congressman Billy Long, Democrats in the Senate are asking questions about the timing of campaign donations he received immediately after his nomination.
In
Between Dec. 4, 2024, and the end of January 2025, the letters said, Long’s unsuccessful 2022 campaign for Senate received $165,000 in donations — after nearly two years without receiving any — and his leadership PAC received an additional $45,000.
The donations allowed Long to repay himself the $130,000 balance of a $250,000 loan he had personally made to his campaign back in 2022.
(Read more: “
The senators’ letters described the donations as “a highly unusual and almost immediate windfall,” and characterized many of the donors as being “involved in an allegedly fraudulent tax credit scheme.”
“The overlap between potential targets of IRS investigations and the list of recent donors heightens the potential for conflicts of interest and suggests that contributors to Mr. Long’s campaign may be seeking his help to undermine or avoid IRS scrutiny,” the letters said; adding, “This brazen attempt to curry favor with Mr. Long is not only unethical — it may also be illegal.”
The senators then warned, “There appears to be no legitimate rationale for these contributions to a long-defunct campaign other than to purchase Mr. Long’s goodwill should he be confirmed as the IRS commissioner,” before appending a list of approximately a dozen questions for the donors to answer.
The donations were originally discovered in early April by investigative news outlet
After Long left Congress in 2023, he worked for a tax consulting firm, including promoting the COVID-related Employee Retention Credit. In early January, Sen. Warren sent a letter to Long questioning his tax credentials and promotion of the ERC.
The IRS has run is now on its
Long’s confirmation hearing before the Senate Finance Committee is scheduled for this Tuesday, May 20.
Al Drago/Bloomberg
President Donald Trump called on members of his party to unite behind his economic agenda in Congress, putting pressure on factions of lawmakers who are calling for last-minute changes to the legislation to drop their demands.
“We don’t need ‘GRANDSTANDERS’ in the Republican Party,” Trump said in a social media post on Friday. “STOP TALKING, AND GET IT DONE! It is time to fix the MESS that Biden and the Democrats gave us. Thank you for your attention to this matter!”
Trump sent the post from Air Force One after departing the Middle East as the House Budget Committee was meeting to approve the legislation, one of the final steps before the bill can move to the House floor for a vote.
House Speaker Mike Johnson has set a goal to pass the bill next week before the House recesses for its Memorial Day break.
However, the the bill
Narrow majorities in the House mean that a small group of Republicans can block the bill. Factions pushing for steeper Medicaid cuts and for an increase to the SALT write-off have both threatened to defeat the bill unless their demands are met.
“No one group gets to decide all this stuff in either direction,” Representative Chip Roy, an ultraconservative Texas Republican advocating for bigger spending cuts, said in a brief interview on Friday. “There are key issues that we think have this budget falling short.”
Trump’s social media muscle and calls to lawmakers have previously been crucial to advancing his priorities and come as competing constituencies have threatened to tank the measure.
But shortly after Trump’s Friday post, Roy and fellow hardliner Ralph Norman of South Carolina appeared unmoved — at least for the moment. Both men urged continued negotiations and significant changes to the bill that could in turn jeopardize support among moderates.
“I’m a hard no until we get this ironed out,” Norman said. “I think we can. We’ve made progress but it just takes time”
Let a non-CPA do it!
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