Family Discount Life Overview

It is now possible for estate and financial planners to be highly creative, highly effective and highly conservative all at the same time. Aggressive tax results from a conservative posture. That's what FDL is all about. Why resort to controversial split-dollar insurance, risky variable policies, death benefit drop-offs or aggressive charitable programs when the same results can be achieved safely?

Unlike so many niche life insurance concepts, Family Discount Life can enhance almost any planning situation. The FDL program utilizes the highest quality low interpolated terminal reserve whole life products to achieve substantial valuation discounts — safely and effectively — on both single life and survivorship policies for clients up to age 80. Between the ages of 80 and 90, consider the  Guaranteed Annuity Life (GAL) program which offers up to triple leverage on lump sum gifts, along with unprecedented guarantees.

Not Just Another Niche Concept

It is with great reluctance that we attempt to define the markets for Family Discount Life, for to do so is to impose limitations that in practice do not exist. FDL is simply the least expensive way to purchase life insurance outside of the estate for any purpose. Instead, ask yourself the following question: "Under what circumstances should life insurance be purchased outside of the estate?"  Perhaps to replace wealth lost to estate taxes. Or to rescue a qualified plan from devastation at death. Maybe to compensate heirs for the lost remainder interest on a charitable gift. Or to facilitate the passing of a family-owned business.  These are just a few of the more popular markets for Family Discount Life. There are others. Be creative. You will be amazed.

Once the need for life insurance is identified, the general question to ask is: "Why pay gift taxes or use up valuable Unified Credits or Annual Exclusions on every dollar of premium gifted when in fact the same premium could be transferred at a substantial valuation discount?"

The Ultra-Wealthy

The larger the estate, the more dramatic are the effects of Family Discount Life. A common objection to any gifting program raised by a very wealthy individual is as follows: "I already give away my annual exclusions, and I have completely used up my available Unified Credit. I realize that given the size of my estate I should be transferring additional assets to my family, but I refuse to pay gift taxes at rates that can exceed 50%." Using the FDL program, unlimited gifts can be made (in the form of a life insurance premium), well beyond the annual exclusion and Unified Credit limitations, at effective transfer tax rates that are usually as low as 0 to 20%.

The question for The Ultra-Wealthy is this: "If the IRS were running a  special  which allowed anyone to gift as much money in equal installments over the next five years as they so desire at a maximum gift tax rate of about 10% instead of 55%, how much would you give?"

The Credit Optimizers

Admittedly, not everyone is willing to pay gift taxes — even at significantly reduced rates. The Credit Optimizers are high net worth individuals who have yet to utilize some or all of their $650,000 of Unified Credit. They are already taking advantage of their $10,000 annual exclusions (or would like to keep them available in case they are needed in the future). They recognize the need to transfer assets to their families, but only to the extent that a gift tax is not triggered.

Rule of thumb: Family Discount Life allows three dollars of premium to be transferred for every one dollar of Unified Credit used. Accordingly, $650,000 of Unified Credit can accommodate almost $2 million of gifted premium (which will buy many more times that in actual income and estate tax free death benefit). Conversely, if an individual wishes to transfer a total of $650,000 of premium, it will only require the use of about $200,000 of Unified Credit.

The question for The Credit Optimizer is: "If I can show you a way to gift three dollars for every one dollar of Unified Credit that you use, would you be interested?"

The Pension Savers

High income earners such as business owners and professionals tend to amass significant accumulations in their pension and profit sharing accounts. At death, these assets may be subject to estate, income and even generation skipping transfer (GST) taxes, making the plan practically worthless to beneficiaries. Using the FDL program, qualified plan assets can be used before they are confiscated to completely replace the value of the tax-riddled plan.

The result: In addition to saving gift taxes, as discussed in the Ultra-Wealthy and Credit Optimizer sections, Family Discount Life can be used to save income taxes as well. By purchasing the policy inside the qualified plan and then distributing the policy at its discounted income tax value before transferring the policy at its discounted gift tax value, two taxes can be saved. In many cases, the result will be a net transfer tax cost that is close to zero.

The question for The Pension Saver is: "If we could use pre-tax dollars that will eventually be subject to taxes at confiscatory rates of 75 to 80 percent, to fund your estate planning objectives at a fraction of that cost, would you be interested in moving forward with your estate plan?"

The Business Owners

Business owners of traditional C Corporations who have excess retained earnings can use those troublesome dollars to fund the FDL program. The FDL policy is purchased by the corporation. After several years, bonuses the policy to the employee-owner. The employee-owner realizes two discounts. First - An income tax discount when received and second when the policy is transferred out of the estate a gift tax discount. The result will be identical to that achieved by the Pension Savers — the net effective transfer tax rate will be reduced from a maximum of 55 percent to a number much closer to zero.

The question for The Business Owner is: "Would you be interested in an estate plan that is paid for by your company and solves your excess accumulations problem, while at the same time allowing you to make gifts to your children at significantly reduced transfer tax rates?"

The Philanthropists

The problem from the heirs' perspective with most charitable arrangements (such as a charitable remainder trust, charitable gift annuity, or the new and much more aggressive charitable family limited partnerships) is the fact that the remainder interest is usually earmarked for the charity. Using Family Discount Life, the charitably-minded can now more comfortably pursue their generous inclinations knowing that their loved ones will not be disinherited. The FDL program provides the ideal tax-advantaged wealth replacement vehicle because it offers the least expensive way to buy life insurance outside of the estate.

The question for The Philanthropist is: "Would you be interested in making substantial gifts to your favorite charity if it would actually enhance your income and provide you with current income tax deductions, all the while knowing that your children will still receive their full inheritance?"

FDL Scenario Grid

To view a more descriptive flow chart with step-by-step instructions, click on the box below which best describes the scenario that interests you and the page will open in your original browser window. To decide which scenario best suits the client's particular needs, review the Decision Tree.