The Estate Taxation Loophole
The opportunity presented by the "gotcha" we mentioned last time is rather significant: A nonresident alien can personally own life insurance to offset estate taxation without having to go through all the trust planning and annual gifting processes U.S. citizens have to go through.
What this sets up is an incredibly attractive accumulation opportunity with cash values life insurance that can be used as a potential source of supplemental, non-reportable, tax-free income during the foreign national's lifetime and death benefits that can be used to offset future estate tax liability.
The Design of The Policy
How to design a policy to accomplish both goals?
The key elements are fairly straightforward: We will use the following example to illustrate:
Male, age 50, Preferred Nonsmoker, $1MM potential estate tax liability
» Accumulation focused product
» Option 2 Death Benefit during the premium payment years
» Change to level for balance of years
» Funded at Maximum Guideline Premium
» Income is maximized, but only to a point
In this example, the key was preserving a minimum of $1MM of cash value to preserve the death benefit needed for estate tax planning purposes.
The moral of the story: Don't drain the policy of all the available cash value.
International Indices
Another consideration in the policy design is to use international indices in the life insurance policy.
People from outside the U.S. typically have a much higher comfort level with, and appreciation of, foreign stock markets. As a consequence, it is possible to design the life insurance contract with some exposure to foreign markets if the insurance carrier was chosen appropriately.
Of course, in all cases that involve foreign nationals, it's critical to know the individual requirements of each insurance company (which could vary a lot!) and how to properly package the case so that it meets all of the guidelines established by each carrier.
Please contact us as we can do just that.