Give Your Children or Grandchildren a Very Special Gift

I was recently approached by a prospect who wanted to put some money into an account for his two infant grandchildren.  His thought was to start with $10,000 each and that would cover him for birthday’s and holidays for a few years.  I’m perfectly capable with helping with that but showed him something that could be the greatest gift he could ever provide.  The gift of a fully funded TAX-FREE retirement.

If you only knew then what you know now.
Most people would certainly have benefited from a knowledge of time and the power of compound interest.  With the plan, his two grandchildren at age 62 would both have about $1 million in available tax-free cash that converts to over $80,000 a year in tax-free income.  Not only that, but this account can be used to help pay for their own college or weddings or their children’s college or weddings.  What I put together for him was an Index Universal Life policy.

Understanding Index Universal Life(IUL). 
An IUL is like a bucket with a hole in the bottom.  The interest is generated by a stock market index and goes into the bucket along with your premiums.  Over time the bucket begins to fill with a little bit of bleeding out of the hole in the bottom, which is the cost for the insurance.  Also, this is life insurance so there is also a significant amount of death benefit on the plan.  Since our goal is future income we minimize the death benefit so we can maximize the cash value.

You maintain control over the policy.
For this particular plan, the grandchildren would be the insured and my client would be the owner.  This will allow him to maintain control in the event his grandchildren don’t grow up as responsibly as he would like.  He starts by putting just $100 a month until they turn 25.  At that age he can transfer ownership to the grandkids and they pay in $300 a month until age 62.  At that point, the policy begins paying $80,000 a year tax-free for the rest of their lives.  No need to save in an IRA, 401(k), or other retirement plans.  All they need to do is listen to Pap-pap and they will have a very wealthy retirement.

Can you do this for yourself?
This depends on your age and general health.  From my bucket analogy, as you get older, the hole in the bottom of the bucket(cost of insurance) gets bigger and bigger.  This means the cash value inside the bucket doesn’t grow as fast as it would for a younger person.  The best way to know if this is a good option for you is to request an illustration.

Being more strategic with the gifts you give could be the best gift you could give your kids or grandchildren.

Please call our office at (480) 428-8005 if you would like to schedule a no-cost video conference consultation

Written by Marc Montini, IAR, and Managing Partner of Montini & Co Tax Advisory Group.