Estate planning attorneys often help navigate the technicalities of the tax code. On the back end of this planning, lawyers may be well served to make clients aware of the benefits of a life settlement transaction.
Often universal life insurance is sold to solve an estate tax issue. If a client has a significant estate to leave to family, he or she may use the death benefit from insurance to cover any estate tax liability. In this way, a loved one receives the gift without the accompanying burden of paying a large tax. What happens when circumstances change and the life insurance is no longer needed?
Consider recent changes to the size of the estate tax exemption. If the exemption increases, the client may no longer owe tax on a gift. Or an estate lawyer may come up with a more tax efficient way to give a gift. Through the use of trusts and other planning techniques, a good attorney can decrease, or even eliminate, a tax burden.
What better way to follow up solving a tax problem than to also find extra money for that client? If the tax is eliminated through the good work of a consultant, the client’s life insurance may be rendered unnecessary. Life insurance policies are not a liability. They are an asset that can be sold.
A lack of understanding is the reason $100 billion+ in face value of life insurance is lapsed or voluntarily surrendered each year for seniors aged 65 or older. Research suggests that if policy holders knew life settlements were an option, they would have considered selling their policy. So if the tax burden goes away, it may be good to advise the client to sell his or her insurance.
Life settlements are a great compliment to an estate planning lawyer’s practice. To learn more about this and other options available to consumers who no longer need or can afford their life insurance policies, visit the “Life Policy Owners” section of the LISA website