Life Insurance Policies: The Good, the Bad and the Ugly

Hi. David Moore with Equity Advantage and IRA
Advantage here with my guest this week, [Art Scevola, and Art’s gonna talk to
us about life insurance contracts and just policies. The good, the bad, and the ugly. And I guess I’d like to start off by saying
that I’ve known Art for almost two decades now, and he looks pretty respectable today,
but he is a good old surfer boy from Florida. So. So, Art, I know you spent a number of years
with Merrill Lynch and somehow ended up out here in Portland, but- Yeah. But that water and guitar playing and surf
boards and everything else sort of have a permanent place in your heart, along with
Jimmy Buffet, so- Absolutely. You and I have a lot in common, being you’re
the Santa Cruz guy. Definitely. Definitely. So, yeah, bi-coastal. It’s been a fun run here. I have actually got my family all ensconced
the Northwest now. And we’re at a place where life insurance
has been a component of my business life since 1972, so I’m an old timer in that respect. And my basic thrust to try to help advisors
using my background, experience, and current affiliations to help solve particular problems
that come up when you’re successful. High net worth, people who have business ownership,
charitable planning wherein if life insurance is either already a component or may need
to become one, and to be able to navigate the channels of not only tax law but economics,
and understanding the type of life insurance that really fits a particular solution. Those types of things are really where people
get bogged down and they throw their hands up in the air. So what I hope to be able to bring to the
table are ideas, communication skill, with respect to navigating the particular companies
and organizations that are out there that really specialize, as I have been, in working
with the high net worth. And I’ve been doing that I guess since 1986
when I first came aboard with Merrill Lynch, so there you go. So you should be prepared to do that. I should be, yeah. So I think about a decade ago, I read a headline
somebody had, you know, self-directed IRA is putting sexy back in IRA. Yeah. So as you know, if you’re a regular follower
here, we don’t sell investments or give investment advice. Art’s here today really as sort of an accommodation
to people’s questions and also just as a resource that brings some things up that people probably
don’t think of, and tax reform made a couple changes which we’ll get to in a little while. Right. But the main thing is people don’t really
think about life insurance a lot of times until after they need it, and nobody ever
really likes to talk about insurance, period. Right, right. But there’s lots of opportunities out there
that people may or may not be aware of. When we’re looking at, let’s say for our 1031
clients, this is not something you’d be working into investing in, but you might need it for
estate planning purposes. So we’re gonna look at it from two different
directions: investing and also investing in and also investing in for your life and estate
planning and maybe- Right. … working things in around businesses, too. Right, right. But the main thing is hopefully at the end
of this, we’ll be able to give our followers some great ideas and little nuggets of knowledge,
and- Okay, you bet. … so, yeah. All right. Well, just to kick it off, the main thing
to remember is life insurance is just another financial tool in the toolbox. It’s not a panacea. It’s not something that may fit every situation. But wherein if it does fit, it’s one of the
unique, still under the tax laws, as well as under basic investing, that’s one of the
unique products because it represents something called discounted dollars. And if I need dollars to be delivered to a
particular place to help offset a problem, and the problem could be everything from replacement
of income if I’m a 30-year-old to paying $5 million in estate taxes when I’m somebody
that’s got a big, successful business interest. Life insurance provides and alternative solution
that needs to be examined. By the same token, we’ve reached a point where
today, life insurance, in some cases, is an asset that’s what we will call a hidden asset,
meaning that even in the case that all it was ever going to be being used for was protection
against such things as I mentioned, it now becomes less important because I don’t need
the protection, I.e. in the estate tax reform we’ve just had. Do I have to use life insurance to pay estate
taxes at a substantial discount? Who knows. At this point, we have a six-year window. There’s a lot that can be done for people
who would otherwise be in estate tax zone, so to speak, that either through the operation
of the numbers or through other planning, that no longer will need that life insurance
that’s sitting in an irrevocable trust or in some form of a family partnership. And I’m not saying that it’s bad, but it’s
an asset. Now, here’s the story- So, Art- Yeah. … let me interrupt you real quick. Yeah, yeah, please. So let’s go back to that just you said a six-year
window here. So for the people that aren’t necessarily
aware of what happened, can you explain a little bit more on that? Yeah. Well, with the most recent tax reform that
we had go into place in January, we know that ever taxpayer citizen has a unique amount
of dollars that are protected against the estate tax that are transferable at death. Now, we know between spouses there’s no estate
tax. But what’s interesting is individually, we’re
now over $12 million, which doubled, and so that makes 24 million plus for a couple to
be able to transfer to a next or even a further generation without the imposition of federal
estate tax. Now, that is not to say that the states have
conformed in any way, because there’s still state income tax. Oregon will collect over a certain amount
of asset value, and you always have to plan some of that. So really what you’re saying is you’ve gotta
be aware federally, we’ve got on set of guidelines, but we’ve got- Right. … a number of states that don’t follow that. Absolutely. And you’ve gotta … So it comes back down
to, and we talked, when we were talking earlier, talking about what to talk or not to talk
about in tax or legal issues. Right. And I want to stress that just as I said we
don’t sell investments or give investment advice, Art’s not gonna give tax or legal
… So we’re just members of a successful team of investment professionals, and you’re
gonna get your tax and legal people involved. Right. It’s a complicated world, and there’s lots
of different things out there. But you need to take advantage of the resources
you’ve got. Pay people that have the knowledge that are
not learning on your dollar- Absolutely. … necessarily. So- Yeah. … the thing is that we’re going to sort
of broad-stroke some of this stuff. It is truly case-by-case, state-by-state,
what’s happening with it. Right. But the tax reform, that window, we’ve got
… That tax reform’s not a permanent deal, so we’ve got a six-year window, basically,
that says, “Well, if you sell a policy today,” and that’s one component of what we’re talking
about today is actually investing in those policies, but also how to use the policy you’ve
got. The highest, best use, what you need, don’t
need to transfer generationally. Wealth or even businesses, you know
or anything else that might be going on. Right. It’s a team approach, though- Yeah. … that I respect the most in the process
of working with people that have been successful. When I say a team approach, no one person
on the team typically can provide all of the ingredients for a successful plan. Some of those ingredients come in the form
of advice which is paid for, as you always have in advice, hourly or by a project. Some of them come from products, and certain
products carry different prices. And I think it’s critical that if there are
products that need to be a part of a solution that you have capable and wonderfully well-positioned
people, to say a word, that have some independence, that can give you advice. So that’s the way I would look at that, yeah. So to wrap up this segment real quickly, I
mean, I just sort of look at it preservation of capital. You’re putting things in place to keep your
money yours. Right. And when we talk about a 1031 exchange, obviously,
that’s our goal is to keep our clients’ money theirs and working- You bet. … for them. If we’re talking about IRAs and 401k plans,
the same thing. The bottom line is highest, best use for your
money, keeping it yours. Historically, you’re probably gonna look at
things and feel you’ve got your best interests at mind and so on and so forth. So, once again, David Moore with Equity Advantage
and IRA Advantage here with Art Scavola. We’re talking about life insurance policies
today, and thank you. We’ll be back in a moment.

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