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Irrevocable Life Insurance

Finishing Well / Hans Scheil
The Truth Network Radio
May 25, 2024 8:30 am

Irrevocable Life Insurance

Finishing Well / Hans Scheil

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May 25, 2024 8:30 am

Hans and Robby are back again this week with a brand new episode! This week's discussion is about irrevocable life insurance. 

Don’t forget to get your copy of “The Complete Cardinal Guide to Planning for and Living in Retirement” on Amazon or on for free!

You can contact Hans and Cardinal by emailing or calling 919-535-8261. Learn more at Find us on YouTube: Cardinal Advisors.


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Share it. But most of all, thank you for listening and for choosing the Truth Podcast Network. Medicare, IRAs, long-term care, life insurance, investments, and taxes. Now let's get started with Finishing Well. Welcome to Finishing Well with Certified Financial Planner, Hans Scheil. And I know you're going to be loving the topic today.

I know I am. It's called irrevocable life insurance. And so I love that word of irrevocable. And clearly, as I thought about it, it couldn't help but make me think about John chapter 10, where Jesus talks about this whole idea of irrevocability when it comes to our salvation.

What he said was, my sheep, this is verse 27, it starts out, my sheep hear my voice, and I know them, and they follow me. And I give them eternal life, and they shall never perish. Neither shall any man pluck them out of my hand. My Father, which gave them to me, is greater than all, and no man is able to pluck them out of my Father's hand. When I think about irrevocable, I'm like, oh, my goodness. And so, you know, I just had the absolute honor, as I told Hans a minute ago, of baptizing 11 folks at our church on Sunday.

And for all of those who truly accepted Jesus in their heart, I mean, nobody is—you can't out-wristle God. I mean, it's irrevocable. It's a done deal, right, Hans? It is. No changing it.

No going back. So when we're talking about estate planning, which covers a lot more than life insurance, it covers really, in general, what do you want to have happen to your stuff and your money? And most people want to leave this first to their spouse. And then if their spouse is not living, or when their spouse passes away, they want to leave the estate to their children. And then most folks are wanting to make this as tax-friendly as they possibly can. And so that's the general place that we're working with estate planning, is that people want the same thing. And they want all that. So, you know, if you come to us for financial planning, we're certainly going to check in on all that.

And we're going to want to hear that from you, because people have different objectives. And so what this is, and there's lots of uses of life insurance, but they're all to create a big sum of money to go directly to somebody, somebody that matters to you when you pass away. And what we're talking about today is the irrevocable life insurance trust.

Okay. And it has to be irrevocable because that's what keeps it out of entering into the estate. I mean, the goal here is to, you got your whole estate and your estate is taxable by the federal government.

And that can be pretty significant, the estate tax, especially down in a couple of years here where the credits are cutting back. And so our irrevocable life insurance trust is a vehicle that we use to create a sum of money at your death, you being the insured, and to have that money pass to whoever the beneficiary is, and to not have those dollars counted in your estate. I just kind of told you a whole mouthful, but it's like we're going to put them over to the side and they're not even going to come up when we're accounting to the federal government for all your possessions and all your money and going through the estate planning and estate transfer and probate and all that business. This is going to be way out to the side, and it's just going to send a check to the name beneficiaries.

All right. I remember Hans, when I, you know, met with the folks, actually in the county, because they're the ones that were figuring all that number out. And I was kind of surprised that they included his life insurance in the state. In other words, they were looking at all these different things and they add this all up to get a grand total to figure out what the tax would be. And we're talking about totaling real estate and all his stuff, exactly what you're talking about. And we've talked so many times on the show about life insurance not having an income tax component to it, but it does have, if it's in the estate and not in an irrevocable trust, like we're talking about today, right? There is an estate tax application, right?

Sure. It just counts in the total value of an estate. So if somebody had a million dollar life insurance policy and they, it wasn't set up properly, it was just owned by them or somebody in the family and they passed away, that million dollar death benefit counts in their overall estate. So when we're planning for estate taxes and we're setting things up, we don't want to further increase the tax burden by the amount of the life insurance. So this is a way to create a sum of money that happens right after you die or your spouse dies, if this was a policy that was survivorship policy. And then it's going to pay out very quickly and it's not going to count in the estate.

So let's talk real quick about how we set something like this up is that, you know, we go to an attorney and we have some attorneys that spit these things out. There isn't a lot to a life insurance trust other than the fact that you being the donor or the grantor or the, you know, which is generally the person that's buying the insurance is the grantor of the trust. And that's an irrevocable gift into the trust, the whole trust itself, you being the grantor, you can't come back in later and say, Oh, I don't really want that anymore.

So just cancel the life insurance and send me the money. Now, once you put it in an irrevocable life insurance trust, it's just that you don't have control of it anymore. And some people don't like that, but it's necessary to keep it out of the estate. If you can control any part of it, it's going to get counted in your estate.

Okay. Yeah, that's fundamental, it would appear. And then when you have, so that's an irrevocable trust. And there's many purposes for irrevocable trust, this being one of them. But there's also such a thing as revocable trust, or a revocable living trust.

And many of you out there might have these already. And that's a, you know, by revocable. So that's where you're putting a lot of your assets or all your assets into a trust. And the primary purpose of a revocable trust is to avoid probate. So because it's going to, when you die, then the trust becomes irrevocable. And they just distribute your assets to the beneficiaries. So you can, there's reasons for both kind of trust, irrevocable and revocable. But what we're talking about here is the irrevocable can't change it once it's done, can't recoup money out of it.

It's just kind of out there. Now, that's the first step is you got to create the trust. And then you got to buy the life insurance, we could certainly help you with that, get the right type of life insurance. And then you have to be very careful paying the premiums. Because if you as a grantor, and the insured, and the person trying to keep it out of your estate, if you pay the premiums, and this is where a lot of people mess up, then you're in you're in effect, this thing's going to be drawn back into your estate.

So we have a way to get around that as well. And it is as simple as you gift to your children, or with typically your children, but it could be to anyone, you give them the premium. And you know, there's a maximum gift of $18,000 a year. That's a tax free gift. So if we get into large premiums on life insurance, you know, we got to make several gifts.

But, you know, I don't want to get into too much detail of this. But every year you essentially gift the premium to your kids or grandkids or nephews and nieces, whoever this is going to be the beneficiaries of this thing. So and there's a wait, go ahead. I was gonna say so when you say the premium, that means the monthly payment, right? The cost of the insurance? Yes.

Okay. And most people pay for things in a life insurance trust on an annual basis, they pay the premium. So I'm glad you brought that up. And so, you know, let's say the premium was $5,000 a year. And when you get the bill for it, you just send the insurance company a check directly for the $5,000.

That's going to make you that's effectively making you own the policy, and it'll get counted in your estate. So what you do instead, is you gift the money to your children. And there's a lot of people that have trouble with that they say, I don't want to give this money to my kids. Because if I give it to them, they might say they might not pay the premium.

So we got a way to get around that too. And you know, that's where these crummy powers come in, and you send them crummy letters. And people think that we're talking about a crummy life insurance policy.

That doesn't have anything to do with it. Or you got crummy kids that wouldn't make the payments. Just to crummy everything. Yeah, it just so happens that the gentleman who made this thing, the law or the, you know, was the example in the law.

His name was crummy, you know, let's just call him Joe crummy. And so over this way that the lawyers got around this whole incidence of ownership and life insurance, is they created this whole thing in law called crummy powers. You send crummy letters.

I mean, it's just we, they were teaching me this stuff 40 years ago, you know, and it's just, people are still laughing about it. But in a sense, you send the money to the trust. And then you but you're given it to your kids. And then you send a crummy letter to the kids that say you have 30 to come ask for this money. And if you don't ask for it in 30 days, we're going to send it to the insurance company to pay the premium. And so that's a, that's a pretty effective way of making sure that your kids don't spend it or that it gets done.

In fact, there's more goofing up of this of the parents who set these things up years ago, and then all of a sudden, they just start paying the premium directly. And that can create problems. So in a nutshell, we're just setting up a way to keep the life insurance payment out of the estate and from increasing the overall value of the estate.

Right. And so we have a whole lot more on the subject left. But I think you can see it's a really valuable thing to protect your estate. And so we want to remind you that the show is always brought to you by cardinal If you go to cardinal there, you're going to find the seven worries tabs we talk about quite often one of those is the estate. And so if you go there, you're going to see there's a wonderful video that is at Cardinal advisors, YouTube channel, but it's also there and under the seven worries tab. And it's got wonderful show notes that shows all sorts of details about what we're talking about today. Again, it's all there at cardinal as well as contact information. If you want to get up with Hans personally, his email, phone number, all that stuff is there as well as Tom's. And then of course, Hans is complete cardinal guide to planning for and living a retirement book. It's all available at cardinal And so when we come back, we got a whole lot more on this idea of irrevocable life insurance.

We'll be right back. Investment Advisory Services offered through Brookstone Capital Management LLC, abbreviated BCM, a registered investment advisor, BCM and Cardinal Advisors are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. Welcome back to Finishing Well with Certified Financial Hans Scheil and today's show we're talking about irrevocable life insurance, right Hans?

We are. And it's really an estate tax move to use a trust, to use an irrevocable trust to keep this life insurance out of the state. But let's just talk about the estate tax for a little bit and what's going down with that. So in 2018, or in 2017, the the unified credit or the amount of estate that you could have, and not paying the estate tax was about 5 million. So anybody that had less than $5 million didn't really need to concern themselves with the estate tax. And that's still true.

But that was 2017. If you go back to about 2000, the estate tax unified credit was about 600,000. So people that have some wealth, even, you know, like a million dollars or so, 24 years ago, really needed to concern themselves with the estate tax. And that number has just increased and increased and increased and increased, partially from inflation, but also just as they keep having discussions, or they did years ago about eliminating the estate tax. And they so they just increased the threshold. And when it was at 5 million, 5.5 million, something like that, in 2017, when they passed the Tax Cuts and Jobs Act, which mainly reduced the income taxes under Trump 2018.

I don't know if you all recall, but they have a eight year sunset on that. So in other words, the income tax reduction was, was only going to last for eight years, and then all of that gets unwound, or it goes back to the old estate tax, excuse me, not a state tax, income tax rates of old of 2017. That's going to happen in 2026. So now, so now those are going to be inflation adjusted amounts. So in 2024, and 2025, that 5 million exemption, it's almost 7 million.

Now, so again, people, some of you might be saying, What am I listening to this for? I don't have 7 million bucks. So I don't need to worry about any of this stuff.

Well, might be true. But you still need to concern yourself with estate planning. And you need to concern yourself with people that are tax planners and people in Congress, and the president that have to deal with this 40 trillion dollar, almost 40 trillion of deficit, that they're going to be looking for revenue sources. And I think as money transfers from the generation, right above me, to the baby boom generation, and then as the baby boomers start transferring their wealth to the next generation, you can see those thresholds come way back down.

So don't completely write off the subject, I'm going to tell for anybody that has money accumulated. Now, the level right now is almost $14 million under the Trump or the Tax Cuts and Jobs Act through 2025. You know, by the time you put inflation, it's almost $14 million a person.

That's like $28 million a couple. But that is scheduled to be cut in half at the beginning of 2026. And many people on estate planning that are doing what I do, and we're just making the assumption that this is going to be 7 million a person, and it could be cut further than that down the road. And I want to make it clear that this is the law of the land is a lot of people, if you listen to the people talking about the election, talking about the election, they're all both Trump and Biden and their people are saying, this is what I'm going to do with taxes. And this is what I'm going to do about the taxes going up and changing in 2026.

This is what I'm going to do. And the reality is they can't do anything by themselves. It's Congress that changes things. And I want you to understand that this, this is the law of the land right now is that it's, it's being cut in half the exemption starting in 2026. And so there's a lot of people that are buying life insurance to pay those estate taxes. And even if they're not up near where the thresholds are, they're going and putting it in an irrevocable life insurance trust, just in case the tax planners are going to be coming after your money. After you passed away 30 years from now, because we don't we don't know where this is going. And the irrevocable life insurance trust has been around for a lot of years, let's just put it that way.

And it's survived the test of time. So anyhow, there's a discussion of what that is. And I want to talk further more about about life insurance in general, and survivorship life insurance to leave to your kids. Yeah. I mean, therein lies the whole idea of the estate, right?

Well, it is. And so this is just one way to position life insurance is a point I want to make. And for those of you that don't have millions, you really can, you might probably won't do one of these irrevocable life insurance trusts, or we won't recommend that you do that, it'll be fine for you to just own your own life insurance.

And he is still going to avoid probate. And I want to talk about the different kinds of life insurance that people buy. Most people don't buy this stuff when they're in their 20s and 30s. Life insurance for true estate planning. They're buying that in case there's an early death, they're buying term insurance.

And they're perfectly fine with the fact that it's going to end when they're 60 or 70. This is life insurance that you're going to buy, that's going to hold you're going to hold for your whole life. You know, it's knows how the word whole life kind of has a bad name, but it really shouldn't because it's life insurance is actually going to pay off when you die. It's there for your whole life. It's enforced for whole life. And when we put life insurance in an irrevocable trust, it's generally whole life. And it's designed that if you pass away at 100, it's still going to pay out its benefit to your beneficiaries.

Okay. Oh, that's a critical understanding. I've had to go through with my kids several times, you know, the difference between term insurance and whole life insurance.

And yeah, it sounds pretty good. But then when you start to get near late 60s and 70s, as terms start to run out, you know, all bets are off and all that that you invested, you know, compared to whole policy where it just keeps on like it's like you say, it's there for your whole life. And it really is a place from my perspective, you know, everybody could use some really good counsel, because it's nothing that you can just explain in a mouthful, you know? Well, it's not. And so whole life insurance is designed to pay off when a certain event happens, which is you're dying, and it is certain that all of us are going to die.

Okay. Term insurance is designed in the unlikely event that you die prematurely. During the term, it's going to pay off a large amount of money to your survivors. So the two kinds of insurance, term insurance and whole life insurance, they're for different purposes. You know, one is for young people, middle aged people, the other one is for people of any age that want to have a certain payment to go to their beneficiaries at their death no matter when they die.

Okay. And so for a state and we typically use whole life insurance and there's such a thing as survivorship, life insurance are second to die. So when you have a married couple, it's much less expensive than regular life insurance that's only on one life, because it doesn't pay off until the second of two dies. So consequently, it's a lot less expensive. And you can qualify for it. If one of you has some health conditions, by the time we ensure the two of you, you can qualify for it. And a lot of people that are even under the estate tax by this survivorship life insurance, because they just want to ensure and guarantee that their heirs are going to receive a tax free benefit when they pass away no matter what their age is.

So I really didn't want to give a whole lesson on all kinds of life insurance. I mean, we effectively do that over several radio shows. But we're really talking about the estate tax is a real thing. The amount is covering a lot more people. Starting in 2026, I can see further reductions in the exemptions for more and more states becoming falling under the estate tax. There are several states that have their own state, a state tax North Carolina is not one of them. But you could have some states passing these things. And the revocable life insurance trust is a way to just keep your keep the tax collectors hands off of the money that's sitting in there. And it can just go tax free to your heirs.

I mean, I don't know how I can make it any simpler. Right. So, you know, what we're talking about today is just simply, people, you know, are subject to the estate tax, you got to think in terms of what will all your money in your state, in your property, be worth 20 or 30 years from now, if you're in your 60s, or 50s? And then what is it going to be worth? What are the estate tax thresholds? And do you want to use life insurance to pay that estate tax, so that the burden of that so the government won't basically confiscate? You know, it's a 45% is what the state tax rate is, after 2026. So, there's reason to set up an irrevocable life insurance trust, and then set up a life insurance policy inside of that trust, where it's not going to be taxed when you pass away. Exactly.

Well, as usual, we've run out of time before we ran out of show. So we want to remind you that again, to get a lot further details on this idea of irrevocable life insurance, it's all there at At, you go to the seven worries tab.

Today, we're talking about the estate. And so you go to that, and then you click on that, you'll see a whole YouTube video on the subject of irrevocable life insurance, as well as the show notes we're talking about. Of course, the contact information, if you want to talk over all those insurance things at whatever age, believe me, even if you're 20, it's a great time to talk it over with Hans or Tom. And that number, the contact information, if you want to talk over all those insurance things at whatever age, the contact information is all at And as always, Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement. And so, again, we thank you so much for listening today. Great show, Hans.

Thank you. The opinions expressed by Hans Scheil and guests on this show are their own and do not reflect the opinions of this radio station. All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such.

Any statements or opinions are subject to change without notice. Investments involve risk, and unless otherwise stated, are not guaranteed. Past performance cannot be used as an indicator to determine future results. Any strategies mentioned may not be suitable for everyone. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you. Before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it's suitable for your specific situation.

Finishing Whale is designed to provide accurate and authoritative information with regard to the subject covered. Investment advisory services offered through Brookstone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and cardinal advisors are independent of each other.

Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. We hope you enjoyed Finishing Whale, brought to you by Visit for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes, as well as Hans' best-selling book, The Complete Cardinal Guide to Planning for and Living in Retirement, and the workbook. Once again, for dozens of free resources, past shows, or to get Hans' book, go to If you have a question, comment, or suggestion for future shows, click on the Finishing Whale radio show on the website and send us a word. Once again, that's This is the Truth Network.
Whisper: medium.en / 2024-05-25 10:15:45 / 2024-05-25 10:26:11 / 10

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