Among other perplexing issues facing clients these days is what to do with life insurance policies that are calling out for attention, sometimes very loudly. Clients might be hearing that they need to increase their premiums to support the death benefit. Or, they're being told that they need to extend liberally the number of years that premiums will be required before their policies are self-sufficient. Many are finding that their latest policy illustrations are projecting significantly less death benefit than they were anticipating for income replacement or estate liquidity needs. Others are seeing projections of far less cash value than they had been anticipating and planning on for retirement. As a result, a lot of personal financial planning and estate planning that was carefully predicated on a number of things going right, now has to be revisited. And the recent changes in the estate and gift tax laws, which may or may not be permanent, will certainly require extended visiting hours.
While this kind of news is never welcome, it's coming at a particularly inconvenient time for many clients whose cash flow, whether from earned or unearned income, is constrained by a number of forces that aren't expected to abate any time soon. And even when cash flow isn't constrained, those increased or extended premiums on trust-owned policies can be creating pressure from a gift (or generation-skipping transfer) tax perspective. In other words, the client may have plenty of money, but those increased or prolonged premiums are threatening to exhaust the client's exemptions, something that was never anticipated when the client's trust purchased the policy.
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