Turn Tax-Qualified Funds into Tax-Advantaged Life Insurance Benefits

Taxes. They’re front of mind for many clients these days. Likewise, amid rising prices and uncertain markets, the future well-being of children and grandchildren is another key concern.

Now step up with an innovative way to address legacy strategies and help clients pass qualified assets in a tax-efficient manner to future generations. Legacy Span, a new strategy, combines two strong products into one streamlined solution for both your clients and you.

How We Got Here

The pandemic has Americans thinking more about their mortality and, with that, their legacy. At the same time, the largest wealth transfer in our nation’s history is underway. Estimates forecast that as much as $68 trillion will pass between generations in the next 25 years.²

Meanwhile the SECURE Act, which became effective in 2020, eliminated the “stretch” IRA provision for most non-spouse beneficiaries. This has forced a rethinking of how best to pass qualified assets to future generations. No longer can most non-spouse beneficiaries extend their taxable distributions from an inherited 401(k) or IRA over their life expectancy (which might easily be decades). The SECURE Act allows exceptions to allow eligible beneficiaries to take distributions over their remaining life expectancy. Eligible designated beneficiary include a surviving spouse, a child of the account owner who has not reached the age of majority, an individual who is disabled, a chronically ill individual and an individual who is not more than 10 years younger than the account owner. Non-spousal beneficiaries who are not eligible for the exception as an eligible beneficiary are now bound to take annual required minimum distributions from inherited IRAs over a period of no longer than 10 years. 

So why is the elimination of the “stretch” IRA provision so impactful? Keep in mind: the beneficiary now must take all the funds from the inherited IRA within 10 years. That increases the beneficiary’s taxable income over that period – and at a time which may also be their peak earnings years. The result: extra taxes being paid, i.e., fewer funds to the beneficiary.

What stands out under these new rules is the need to more closely consider the taxable income level of the retiree versus that of the beneficiary as part of the legacy planning process. 

Enter the Legacy Span Strategy

So, what’s a solution? Legacy Span. It can help your clients secure, and potentially grow, their legacy. Moreover, they can do so while maintaining liquidity and ownership. They key: converting tax-qualified funds into generally tax-advantaged life insurance benefits. 

Legacy Span provides a path for qualified assets to fund a Lafayette Life 10 Pay Life 2022 whole life policy via the newly enhanced Lafayette Life Marquis Centennial deferred fixed indexed annuity. Legacy Span offers clients:

• tax-deferred growth,
• protection from loss due to negative changes in market indexes, and
• legacy protection for heirs through the life insurance death benefit that will generally pass income-tax-free to beneficiaries.¹

Using Marquis Centennial, each year 10% of the original premium is withdrawn and automatically used to pay the premium due on the 10 Pay Life 2022. The owner can either withhold taxes on the withdrawal each year, using the after-tax amount to pay the life insurance premium, or can pay the taxes due from another source so the full 10% can fund the premium. 

Added Flexibility with ADBR

Creating a legacy for future generations is the primary goal of Legacy Span. But life seldom happens exactly as planned. Because matters can quickly change, having flexibility helps provide peace of mind.

The powerful combination of the Accelerated Death Benefit PLUS Rider (ABDR) on the 10 Pay Life 2022 policy allows the policyowner – in case of a qualifying medical event or condition – to access part of the death benefit while still living. This offers flexibility for addressing unexpected financial needs during changing life stages. Knowing this ability exists provides an added measure of confidence.

ABDR offers access to benefits if the insured is diagnosed with any of the three qualifying events:

• Terminal illness, meaning the insured has a condition that is expected to result in death within one year.
• Chronic Illness, meaning impairment in two out of six activities of daily living (eating, bathing, dressing, transferring, toileting and continence) or severe cognitive impairment.
• Specified Medical Condition, in most states meaning things such as first coronary angioplasty; first coronary artery bypass; end-stage renal failure; major organ transplant, etc.

New Convenience for the New Normal

In many ways the pandemic accelerated our industry’s digital transformation. Expectations for how many clients and producers prefer to interact have changed. Recognition of the new reality was a driving force as Lafayette Life developed Legacy Span. The overriding goal was to make the sales process and administration for the underlying 10 Pay Life 2022 and Marquis Centennial products as easy as possible. A seamless digital process from start to finish was essential.

A successful concept starts with a simplified quoting process that provides:

• a life illustration paired with an annuity quote plus a summary report for an easy overview,
• a combined application for both products to reduce the required information entries, and
• the capability to deliver the policies electronically.

Beyond an easy sales process, going forward Legacy Span is designed for ease and efficiency. This includes, among other features:

• managing the policies after issue with automatic payment of the life Insurance premium from the annuity each year,
• annual statements for each product sent out together, and
• recognition on the producer portal that the two policies are linked.

Legacy Span exists to help your clients establish a secure legacy with as easy of a process as possible for both your client and you. Look to Lafayette for innovative solutions and responsive support backed by rock-solid strength.