Estate and capital gains taxes can be avoided.
Wall Street has an enhanced life insurance method that benefits wealthy people and is becoming increasingly popular, according to Barron’s in “New-ish Tax Planning Instrument Gathering Billions.”
Life insurance is a popular estate planning tool 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.
A policy is purchased, premiums paid and upon the death of the policy holder, cash is distributed to the beneficiary.
Since life insurance is a death benefit, the beneficiary does not have to pay income taxes on it when it is paid out as a lump sum.
Wall Street has an insurance dedicated fund as 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.
An estate planning attorney can advise you on whether an insurance dedicated fund will fit your unique circumstances.
Reference: Barron’s (June 28, 2017) “New-ish Tax Planning Instrument Gathering Billions.”