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Insurance-Dedicated Funds for Tax-Efficient Asset Protection

Insurance-Dedicated Funds for Tax-Efficient Asset Protection
(Dollar Photo Club)

By    |   Sunday, 06 August 2017 07:37 PM

Two of the greatest threats to achieving financial security are taxes and legal judgments from lawsuits.

No matter how hard you work, scrimp, and save when the government takes at least 40% of your hard work through federal, state, and local taxes, which leaves little for you to pay for your lifestyle and build a secure financial future.

If there is anything left, then without sophisticated estate planning death taxes take the rest.

Building up a significant net worth may only put a target on your back (so to speak) as the deep pocket for a lawsuit or, even more likely, a divorce.

Many who have built up some investment capital, getting reasonable yield without taking problematic investment risks is difficult.

Money managers and other investment professionals charge fees for picking out alternative asset funds, like hedge funds, and similar yield opportunities to enable wealth accumulation.

The problem with just investing in these investment structures is that they are tax inefficient and leave the investor still exposed to lawsuit risks.

Is there a way for investors to get the benefits of professional investment opportunities, like investing in hedge funds and other vehicles, on a tax efficient basis protected from creditors?

The answer for many investors is an insurance-dedicated fund (IDF).

An investor accesses an IDF by acquiring a private placement policy which offers a market rate return.

These can be individual, corporate, bank, or family office owned.

Insurance dedicated funds offer a policy owner a separate segregated fund, not part of the insurance companies common investment pool, that effectively follow the same investment strategy as their flagship hedge or other alternative funds.

Life insurance and annuities receive special treatment for income tax purposes. The build-up of the investments under a policy compound without having tax taken out.

If an investor earns $1 without being tax reduced, then the reinvestment is the whole $1 and not just the after tax 60 cents.

The key for most investors becoming financially secure is compound interest.

Estate planners prefer using trusts or other arrangements as the owner life insurance or annuity policies.

Forming a life insurance or annuity trust or another arrangement in one of the many states offering asset protection trust law gives an investor a means to have both a tax efficient and asset protected means to build financial security.

Florida, my home state, allows insurance, annuities, and the proceeds thereof exempt from creditors by law.

While an IRA uses pre-tax dollars, it comes with a heavy price. Congress may limit the amount allowed in an IRA. Using an IDF avoids the penalty on early withdrawals, mandatory distributions whether you want the money or not, and no limit on the amount.

Life insurance is the favored means to assure that money is available when needed. It is tough to beat the law of large numbers and compounding investment tax-free.

If someone has used their lifetime estate tax exemption, a younger generation can be the insured enabling the cash value available during life and passing a larger on a larger estate to beneficiaries or a favored charity.

For investors, closely-held companies, and family offices wanting to access multi-managed financial products, on a tax-efficient basis, and protected from creditors, then an insurance dedicated fund should be at the top of the list.

Denis Kleinfeld is known as a strategic tax and wealth protection lawyer, widely published author and creative teacher.

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Two of the greatest threats to achieving financial security are taxes and legal judgments from lawsuits.
insurance, dedicated, fund, asset, tax, protection, idf
Sunday, 06 August 2017 07:37 PM
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