Episode Transcript
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Speaker 1 (00:00):
Good morning to all. Craig Shillig here and this is
Safe Money. I'm here every Saturday to talk with our
listeners about financial strategies we use to manage and protect
assets safely. I've been an insurance agent for over twenty
four years. During that time, I've learned a few insurance strategies,
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like using annuities as safe money harbors, or using cash
value life insurance to supplement retirement income. Just a reminder,
you can call our office at five six three three
three two two two zero zero if you'd like to
enroll into one of my virtual Medicare community meetings that
(00:45):
I do via zoom. I give two every month, or
you can email me at Craig at Craigshillig dot com.
And that's my first name, Craig Crai at cr AIG
s c h I LLLIG dot com. Today I want
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to talk about some your end tax strategies and then
I'll talk more about some life insurance strategies. Now some
of this may get a little dry in the legal yes,
but just listen to the concepts, work with your financial professional,
tax expert, and or let your attorney worry about the
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will and trust documentation requirements. They're their professionals. Let them
do it. Just remember you're the driver of that idea. Contribute, convert, evaluate, donate, fund,
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contribute more to your retirement plan accounts. Contributing to a
tax deferred retirement vehicle such as a four oh one K,
a four H three B, or an IRA can be
one of the most effective year in tax saving strategies.
Consider increasing your plan contributions or consider making a catchup contribution.
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If you're over the age of fifty, Fund a roth
IRA or complete a WROTH IRA conversion. Consider funding a
roth IRA or converting a traditional IRA or employer sponsored
plan to a WROTH account. You'll need to pay income
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taxes on your WROTH contributions, but your distributions will not
be subject to income tax. Remember, with a WROTH there's
no RMD requirement. Now, for those of you under the
age of seventy three, you're not familiar with that word
RMD yet, but when you get there, you'll know exactly
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what a required minimum distribution is, and a lot of
you won't like it. Evaluate the different distribution options from
your iras and or qualified plans. Changers changes too, required
minimum distributions RMD rules pose an opportunity for you to
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determine how to address your RMD strategy. At the same time,
you should also review your beneficiary designations and distribution options.
I can't tell you how many times I've had somebody
I've just casually asked them if you updated your beneficiaries lately. Oh, yeah,
they're fine, And then I'll read what's listed there and
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they'll go, oh, that person's not supposed to be on there. Well,
that's because it was a designation about ten years old.
Keep an eye on that. You should do that, at
least annually. Increase your charitable contributions. The holidays are a
popular time forgiving, and charitably inclined individuals can also utilize
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it is a time to reduce their tax burden. For
a charitable deduction to apply to the current year, the
contribution must be made by December thirty first to a
five oh one C three tax exempt organization that is
eligible for tax deductible contributions. Here's another idea fund a
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permanent life insurance policy or a tax deferred annuity. Permanent
life insurance offers income tax deferred growth of policy cash value,
tax favored access to cash values. And an income tax
free death benefit AXT. DIFFERD annuities provide control over the
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time of income recognition. There are many advantages to have
a non qualified annuity bucket or a paid up cash
value life insurance contract going into retirement. Both can really
be useful as a hedge during a down market or
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a bear market, or a need or for a need
of it from another income source. Also, remember both of
these items don't have an R and D requirement like
you would with your iras. Work together with your financial
professional to discuss your goals and how you might be
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able to take advantage of your end text strategies. Let's
talk about charitable planning. This often is considered a subset
of wealth transfer planning, which edits core is planning for
something or someone that you love more than yourself. If
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that's something happens to be a favorite charity, then advance
planning using life insurance may help enhance what has passed
to a charity during an individual's life or death. Now,
charitable means charitable regardless of the strategy being considered. Please
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remember this is not about charitable that this is about
excuse me, Please remember this is about charitable planning. That
means an individual must be charitably inclined to one of
these strategies in order for it to make sense. If
an individual isn't charitably inclined, there are other planning, other
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planning strategies out there that can be considered that will
make more sense than what I'm going to talk about now.
While the income tax deductions associated with some charitable planning
strategies may be enticing, the bottom line is that planning
must be intended to benefit the charity in order for
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this to be viable. Some simple strategies life insurance owned
by a charity. There are some cases where it is
advisable for a charity to own life insurance policies on
the lives of their key donors. If the charity suffers
substantial financial loss, should that donor pass away, life insurance
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can provide protection to that charity. In many cases, the
premiums for these policies may be paid through donations to
the charity from the insured, which may be income tax
deductible subject to certain adjusted gross income agi limitations. That
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being said, a charity cannot buy an unlimited amount of
life insurance on one of its donors. Life insurance at
its core is a loss replacement vehicle. Specifically, the death
benefit of a life insurance policy predicts against the financial
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loss associated with that insurance death. In the case of
a policy being owned by a charity on the life
of one of its donors, the loss being protected is
the loss of future donations should the insured die prematurely.
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Now understand, I can't tell you how many times I've
heard a version of this scenario. The phone rings, Hi,
This is Bill, Hi, Bill, this is Craig. I'm a
financial professional. I have a client who wants a life
insurance policy owned by their alma mater on their life,
and the insurance company says, okay, great, how much has
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he or she given to his or her alma mater
in the past, And I'll say, well, actually zero. But
they really want them to own the policy and give
to charity so they can get a deduction. The reality
is the life insurance isn't going to be viable in
this type of a situation. The underwriting department for that
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carrier being considered will look at past donations to determine
the justifiable death benefit aka financial underwriting. In this case,
underwriting is going to say it'll be zero because they
haven't given anything to this charity. Let's talk about charities
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named as a beneficiary. This is the cousin of the
previous strategy. In this case, the policy is owned by
the insured and the charity is named is the named beneficiary.
This is an advisable strategy if the client is using
the life insurance for cash value accumulation or for other
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living benefits, but it wants the charity to receive the
residual death benefit. There's no current income tax deduction for
this type of strategy, but the policy owners estate will
get an estate tax deduction for the death benefit paid
to that charity. Now keep in mind the same financial
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underwriting considerations are in place here as well. Having the
policy owned by the insured does not alleviate this. So
if the insured hasn't made significant donations to that charity,
the justifiable death benefit may be limited or nonexistent, depending
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on how underwriting looks at that. Let's talk about gifts
of life insurance. For individuals who own life insurance policies
that are no longer needed for things such as family
protection or wealth transfer planning, those policies may be donated
to charities, assuming the charity will accept a life insurance
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policy as a donation. An income tax deduction may be
available for a gift of an enforced life policy. However,
the availability and the size of the deduction can vary
depending on several different factors outside of the scope of
what I'm talking about today. Please consult your tax advisor
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for more information. Clients should always discuss the tax implifications
of donating a life insurance policy to their favorite charity
with their tax advisor before doing so. If the policy
requires additional premiums, then those premiums may be paid by
the insured, which may also result in income tax deductions
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for those subsequent premiums or donations. Charities love life insurance
beneficiary checks. I have some clients that just give a
small percentage of their life insurance to a favorite charity
via their beneficiary designation. It's a real simple procedure. You
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just designate that charity on your beneficiary designation, whether it
be a percentage amount or a fixed amount off your
death benefit. Now, in today's world, you're gonna actually need
the full actual name of that charity. You're going to
need their address, their phone number, website, usually an email address,
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and more importantly and almost required on every beneficiary designation
is going to be that charity's tax ID number in
order for this to work properly. But if you plan ahead,
this is actually pretty simple to do. And again, charities
love life insurance beneficiary checks. I know of several endowments
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out there that were created that have started by just
using this strategy. They would go around and ask donors
if you would just gift one percent of your life
insurance to that charity or endowment. One percent, sometimes five percent,
maybe ten percent. It depends. It doesn't cost that life
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insured any money. All it is is a stroke of
a pen, and if something does happen to you, the
charity benefits from that beneficiary check. Also, remember when we're
in college, the names of the buildings that were on campus,
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the name of that hall, the name of the quad,
or the dorm you lived in, or the building you
took classes in. I went to Northern Iowa and Cedar Falls, Iowa.
Now the name of the building is usually someone's last name,
but in many cases they had a choice between just
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cutting a check to that university or institution using their
own checkbook, or smart people would use a life insurance
company money instead set up a way to have a
life insurance benefit via upon your death paid to that institution.
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Life insurance company money is usually cheaper than writing it
out of your check writing it out of your own checkbook.
That's just the thought. Let's talk about a more advanced
plan idea. This is where we get into the legal
ease a little bit. Wealth replacement trusts are also known
as wrts. You might think this is the first time
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you've heard of a what wealth replacement trust? But I
know you've heard of one before because it's just an
irrevocable life insurance trust also called an islet. Wealth replacement
trusts or trust designed to hold assets, including life insurance,
to replace wealth for family members that have been given
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to a charity during their granted's life or at their death.
For example, if an individual wants to give ten million
to a favorite charity at their death from their assets,
then they might establish a wealth replacement trust and fund
it with a ten million dollars ten million dollars of
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life insurance coverage. A wealth replacement trust is often used
in conjunction with other advanced planning charitable contribution strategies. Let's
talk about as CRT. A charitable remainder trust. A charitable
remainder trust is a trust that is designed to pay
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out an income stream to a beneficiary, such as a
family member of the end donor or the donor themselves,
with a charity or charities receiving the remainder of the
trust assets once the income stream ceases. A charitable remainder
trust can be established either during an individual's lifetime or
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at their death. A CRT may provide a current income
tax deduction for the present value of the remainder interest
that will be passed to that charity. Charitable remainder trusts
are complex strategies and can be structured to distribute assets
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to the lifetime beneficiary in a number of different ways,
and there are some cool names for them, such as
cruts and crats. A crutz is a charitable remainder UNI trust,
AT is a charitable remainder annuity trust, and net income
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with makeup charitable remainder UNI trusts those are called nim cruts.
The bottom line is that they may be a good
fit for someone who has highly appreciated assets, such as
a hefty stock portfolio, lots of real estate, or a
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closely held family business or family business interest. A wealth
replacement trust is often used in conjunction with a charitable
remainder trust to provide a true up to the family
for the amount given to the charity at the end
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of installment payouts. Please remember to make my compliance friends happy.
The primary purpose of life insurance is death benefit protection.
That's what life insurance is for. Let's talk about charitable
lead trusts. The COLT charitable lead trust is the inverse
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of a charitable remainder trust. In a charitable lead trust,
the charity receives an income stream from the trust, where
an individual or a trust will receive a remainder interest.
The potential income tax deduction for a charitable lead trust
is based on the present value of the income stream
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paid to the charity. Any assets left that are paid
to the beneficiary, not the remainder interest, may be passed
without gift or estate tax consequences. Charitable charitable lead trusts
are great for charitably inclined individuals with highly appreciating assets.
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If the assets inside of the charitable lead trust appreciate
at a rate that exceeds the irs seventy five twenty rate,
a significant amount of wealth can be passed to the
remainder beneficiary without transfer taxes while providing for the charity.
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In some cases, a charitable lead trust is used with
a wealth replacement trust and is sometimes used as a
potential partial or full rollout strategy for a split dollar
or a premium financing arrangement funding irrevocable life insurance trust
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owned life insurance known as an island. Let's talk about
a zero estate tax plan. State tax plan is really easy. Reality,
It's pretty simple from a planning standpoint. If a high
networth individual is charitably inclined and once to avoid estate taxes,
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here's one way to do it. Essentially, there is state
planning documents. This specifically, their will will be drafted in
a way to give a majority of a decedent's assets
to a charity. In many cases, a zero estate tax
plan is designed to provide an amount equal to the
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available estate tax exemption amount to a deceitent's family, with
the remainder going to charity. Amounts given to charity at death.
Given a state, a full estate tax deduction for the
value of those asses sets, so no estate taxes are paid.
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Of course, this is where our old friend the WRT
comes into play. A wealth replacement trust is often a
central focus to the zero estate tax plan. The wealth
replacement trust in this scenario is generally funded with life
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insurance and designed to provide amounts to the family that
equal a percentage of what is given to charity at
the insurance death. It's a very neat, simple, and elegant
design for high net worth individuals who are charitably inclined.
Individuals who want to give a little bit or in
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some cases, a lot, to a charity may consider one
of these planning strategies to maximize the amounts given to
the charity. Life insurance can be in a important part
where the wealth transfer planning is designed to provide both
an individual's family and a favorite charity around the country.
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Regardless of what your favorite charity is, I hope you
will consider making a donation this holiday season. There are
so many wonderful causes out there that do need our support.
I'll even put a plug in here for my favorite charity,
The Rum with Carl and the Carl D. Schillick Memorial Fund, Inc.
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When we started the Room with Carl, we didn't know
what we were doing, nor did we understand the costs involved.
Everybody knows that events like that. When you're starting to run,
they make money off of sponsorships, but to get things
off the ground, the Run with Carl wasn't funded by dirt.
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Some of the startup funds came from a life insurance policy. Today,
the Run with Carl proceeds go to the BETTNRF and
Pleasant Valley Scholarship funds, and if they do well every
year for based on run proceeds, the Carl D. Shilk
Memorial Fund also gets a little share of those proceeds.
The Carl D. Shilk Memorial Fund funds two scholarships every year,
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one to a graduating senior at Pleasant Valley High School
and one to a graduating senior at Bettendorf High School.
For more information, you can go to the website Run
with Carl dot com if you'd like information about donating
to that charity or information about if you're a senior
this year applying for one of those scholarships. Doesn't it
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make you feel good when you donate to a charity? Now?
Just a reminder. I give virtual meetings regarding Medicare for
two different companies every month. In one meeting, I will
cover Medicare supplements also known as MEDIGAP insurance, and I'll
also talk up the standalone Part D drug plan. That
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meeting is usually sponsored by well Mark. The other meeting
I do is usually a sponsored by United Healthcare, and
again these are both virtual community meetings that I do
on Zoom. The United Healthcare meeting is usually on a
Thursday at ten am. I focus on Medicare advantage plans
known as Medicare Parts C, and I cover the benefits
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of that platform, but I will cover all four parts
ABC and D of Medicare. You can call our office
at five six three three three two two two zero
zero for the Zoom meeting codes and additional dates and
times that I'll be having those meetings. You're also welcome
to email me at craigat Craigshillig dot com and that's
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c r Aig at cr Aig E S C H
I L L I G dot com. Send me a note,
I'd be happy to send you the zoom Link meeting codes.
This is Craig Schillig with Safe Money