The Untold Tax Perks of Life Insurance Policies

Rob Gill, founder of Epic Financial Strategies, and listen, a lot of people like to say that life insurance is tax-free. It's not necessarily tax-free. Understanding loans, understanding putting policies in trust, there's a lot of things that you have to do. And then understanding on the withdrawal up to basis, it's all tax-free. But to maintain tax-free status, you'd have to borrow beyond basis. But with all that, let's get into some of the tax benefits of life insurance. And the thing that stands out to me the most right now is if you look at cash value life insurance, in my opinion, when you're overall planning, when you have all different asset classes, what's in the middle? And to me, the best place to store your cash is inside cash value whole life. It has the liquidity of a bank account and a very conservative guaranteed growth. And here are five ways that investing in your policy can also save you money on a tax bill. Because you know what? If you don't do it the right way, if your right hand isn't talking to your left hand, meaning accountant, financial planner, fiduciary, trust officer, insurance agent, if they're not speaking, well, guess what? Your money's going to get evaporated. Anyway, number one, tax-deferred growth. The cash value within a life insurance policy can grow over time without being subject to immediate taxation, unless you over-funded to make it a MEC. Allowing for wealth accumulation and interest within that over the life of the contract not only give you dividends, but also give you guarantees. Here's the thing, though. That's tax-deferred. Nowhere does that say tax-free. When you take distributions on that, if you borrow or go up to basis first, it's still going to be tax-free. So if you invest a million dollars into something that's worth two million, and now at two million you want to draw the first million out, that's all tax-free because it's up to basis. But once you get past basis, break even, they're going to tax you unless you do borrowing strategies within the policies. A very good insurance agent should show you how to do that. Number two, the death benefit. The life insurance death benefit is generally tax-free, meaning that beneficiaries receive full amount of the death benefit without having to pay income taxes on it. Okay, here's the deal. Maybe not income taxes, but estate taxes if it's not properly done. Now if mom and dad are below the estate tax threshold, there's no worries. But remember, life insurance death benefit grosses up your estate, the value of your estate. So mom and dad could have a million dollar house with a three million dollar death benefit, and they pass away. Well guess what? If it's not in the trust, the estate's going to look at that as four million dollars. And hypothetically speaking, if the estate tax threshold is three million, well that million will be taxed at estate tax levels. However, if you want to be able to protect yourself from that, there would be a reason why you would put that death benefit inside a trust so it's outside of the estate tax or the estate tax confiscation, and now all of a sudden your kids can get everything tax-free including, not have to sell out their other assets to pay the tax bill. Number three, minimize estate tax. Think trust, trust, trust, trust, trust. But remember, here's what no CFP wants to talk about, and you heard me. They don't want to, so you get a guy that has a 20 million dollar policy death benefit, right? And now what a CFP's going to do is try and get everything in a trust now, and when these policies go in trust, they don't have the same flexibility, but here's what they're going to say. They're going to say, Mr. Jones, when you die, this is going to get added to your estate. But what they should say is, Mr. Jones, when you die, because there is the unlimited marital deduction, which means you could be worth a billion dollars, whatever spouse dies first, the surviving spouse gets everything tax-free. It's not until the death of the second spouse when the estate tax kicks in. Don't forget that. That's a billion dollar advice right there, because if you understand that, the likelihood of a husband and wife dying within two seconds or like two weeks or even a month is so, it's like hitting lotto six times. I can't prove the math. I'm just throwing it out to you, so understand unlimited marital deduction is the greatest gift in the tax code. Now, how do you work with that? Well, instead of getting a second to die policy, which is basically pre-paying the death benefit, get a policy on a husband, get a policy on a wife. So when husband dies first, typically, now all of a sudden that's into the family. Wife gets to spend that money down again, and then her death benefit pays off everything else. That's how you do a proper plan, at least from the way I look at it. You want to be able to test everything every three to five years, but let me go. Life insurance can help minimize estate taxes by providing tax-free cash to cover estate tax expenses, if it's done the right way, allowing heirs to receive their inheritance without having to sell assets to pay taxes. By the way, that happens a lot, where the kids, all of a sudden, they don't want your 100 piece of real estate. They just want the money. They got to pay the government five grand, the real estate's worth 10 grand. They're going to sell it at seven grand, pay off the taxes and take three million, and devour in three months what you put together in 30 years. Anyway, number four, charitable donations. Now listen, I think charities and having an impact on the world is one of the greatest gifts you can give to anybody. The art of living is giving. You can name a charitable institution as a beneficiary of your policy, yes. Allowing for tax deductions on the premiums paid and providing a legacy of support to the chosen cause. Well, check this out. If you think of a charitable remainder trust, all you bright people, charitable remainder trust, watch this. Let's say you have real estate, I'm making up numbers, it's worth $2 million, and let's say you have a $2 million 401k. We all know that when you take money out of a 401k, it gets taxed at ordinary income. Just understand that. If you have $2 million in real estate and you put that into a charity or charitable remainder trust, that's going to give you income for a period certain that you decide whether it's 5, 10, 15, or 20 years. You get an estate tax, you get a deduction. That deduction can now go against the distributions on your 401k. I'm not saying it's going to make it tax free, but it'll make it tax efficient. If you're following the story, your next question should be, okay, but wait a second, we just lost $2 million in real estate. I'm going to say, no you didn't, because you put a wealth replacement trust in there funded with life insurance, and the value of the death benefit of the life insurance will exceed the value of what the real estate was. You got the tax right off on the estate side, and then you're able to take deductions off of your 401k plan by using that tax deduction to offset what you would pay. Take that shit and rewind it back. I'm telling you right now, no one wants to talk that language, and I'll break it down on the back of a napkin like we're three years old playing in the sandbox. Number five, policy loans. We talk about this all the time. Using your cash value as collateral for loans provides tax free money, got to pay interest on it, which can then use to invest in businesses, real estate, or consumer goods. When you borrow from a policy, you want to make sure the arbitrage is in your favor, and then when you invest in something different, you better do your research, invest in that real estate between your ears first, make sure you get the right people around you, because if you don't, you'll be running these looking for a sunset, and guess what? You will be so pissed off, because now all of a sudden, this investment didn't work out, and you still want to pay your policy back. If you do pass away, though, it'll just come off the death benefit, but you still want to pay your policy back, so you can rinse and repeat and do it all over again. Anyway, I'm dropping nuggets daily. I'm trying to provide information for you, be disruptive with integrity, and show you that if it is to be, it's up to me. You don't have to do what everyone else does. You don't have to keep up with the Joneses. I don't even know what the Joneses, where they live anymore. I used to know, I don't know where they live. I stopped, I divorced myself from money, and guess what? When that shit happened, everything skyrocketed, because all the people around me that were true people that I stood on their shoulders, were able to help me go to the next level. Anyway, if you want to boost your wealth, go ahead and click that link below. One of the team members here at Epic, they will sit down with you, take you through the success process, really show you how to turn decades into days, not overnight success, but decades into days by shrinking time, knowing that, listen, if I'm looking for financial freedom, it's to do what I want, when I want, with who I want, how I want, without any time or money constraints. Anyway, take that and rewind it back. Watch this video again, look for the closed caption, if you don't know what I'm saying, and take notes, because you'll be satisfied. Continue to follow, and thank you for checking us out.