With insurance dedicated funds, wealthy people can invest money that will eventually go to their heirs, while avoiding estate and capital gains taxes.
Life insurance has been a popular estate planning tool for a long time. It is normally used as a relatively simple way to even out inheritances between heirs or to provide needed cash for family members, after the policy holder passes away.
In most cases, life insurance is a very simple process to understand.
A policy is purchased, premiums paid and upon the death of the policy holder, cash is distributed to the beneficiary.
To sweeten the deal, because life insurance is a death benefit, the beneficiary does not have to pay income taxes on it when paid out as a lump sum.
Wall Street has a way to make this even more beneficial for wealthy people and it is becoming increasingly popular according to Barron’s in “New-ish Tax Planning Instrument Gathering Billions.”
An insurance dedicated fund is a complicated investment tool that gets treated for tax purposes in the same way as life insurance.
It allows people to invest money that is then managed by hedge funds, without paying any capital gains tax on the investment. When the investor passes away, the accumulated funds in the account are distributed to beneficiaries and have the same tax benefits as life insurance.
Insurance dedicated funds are not new, but they have recently started becoming more popular.
Reference: Barron’s (June 28, 2017) “New-ish Tax Planning Instrument Gathering Billions.”
