FDR financial professionals use Annuity Arbitrage Strategy to reduce taxable estate, maintain necessary cash flow,
and transfer wealth to client's loved one.†
OVERVIEW/PROFILE OF CLIENT
What does the client look like (i.e. net worth and location, tax status and other pertinent facts that helped identify the appropriate solution?)
A long-time eighty-nine (89) year old client had a taxable estate but needed the cash flow from her investments to maintain her standard of living. Thus, making gifts to reduce her taxable estate was not a practical solution. Her husband was deceased and she has one daughter living.
What does the client need?
The client needs a strategy to help reduce her taxable estate yet maintain the cash flow from her investments to maintain her standard of living.
SOLUTION/RESULTS
The Advisor's Answer - What did the FDR advisor do to meet the needs if their client?
We utilized an annuity arbitrage strategy to transfer wealth to her daughter yet continue the client's cash flow. Even though the client was eighty-nine (89) years old, we convinced a major insurance company to issue a policy to her in the amount of five hundred thousand dollars ($500,000.00) on a standard basis. This policy will be owned by her daughter. In order to fund the annual premium on this policy, we applied to a number of insurance companies to obtain a rated life annuity. We were able to convince a company that because of the client's medical conditions, that she should be treated as though she were age ninety (90) rather than age eighty-nine (89). This had the effect of increasing the amount of money that the insurance company would give her monthly. We were able to give the client a cash flow equivalent to an 8.52% after-tax return based upon her five hundred thousand dollar ($500,000.00) commitment to the annuity in year one. Meanwhile, her daughter was able to receive enough additional income from the annuity to pay the monthly premium on the life insurance policy. We were able to accomplish the client receiving a higher after-tax return than she had been earning in her bond portfolio, yet exclude the $500,000.00 from her estate, thereby increasing the amount her daughter would receive by approximately two hundred seventy-three thousand five hundred dollars ($273,500.00) in year one and three hundred eighty-three thousand seven hundred and ninety four dollars ($383,794.00) in year 2014. At the client's death, the annuity payments cease, but her daughter receives the five hundred thousand dollar ($500,000.00) death benefit free of estate tax.
†This case study results is for illustrative purposes only and should not be deemed a representation of past or future results.