Episode 18 – Foundations & Universal Life Solutions: Differences & Similarities
In our eighteenth episode, Ashok Sardana, Managing Director at Continental Insurance Brokers & Financial Services joins Yann Mrazek, Managing Partner at M/HQ to discuss the similarities & differences between Foundations & Universal life solutions.
Key Takeaways
[Yann Mrazek] What is Universal Life Insurance?
[Ashok Sardana]
Universal Life insurance provides high death benefit protection, (often not available to clients in their local jurisdiction) combined with sophisticated underwriting and guaranteed minimum cash value accumulation. The result is a uniquely flexible wealth transfer solution with enhanced potential for cash value growth.
Universal life insurance almost always enjoys tax benefits in the home jurisdiction of the policyholder and/or beneficiary. Depending on the lifetime goals of the client, a Universal Life solution can be held in one’s own name but is usually combined with a wealth planning structure such as a company or foundation.
[YM] What are the Multi-Generational Benefits?
[AS]
PHILANTHROPY:
Achieving philanthropic goals is a common usage of Universal life insurance. The foundation could apportion all, or some, of the insurance proceeds to chosen philanthropic causes.
ESTATE PLANNING:
As a liquidity planning tool in case of demise. An insurance policy would typically be held in Trust or by a foundation and in an offshore company. The cash pay out can be used by the council members to replace the family’s lost future income.
This can also be used to avoid probate.
TAX PLANNING:
The insurance proceeds can be used by the foundation owning the policy to pay worldwide wealth taxes that become due upon the death of the life insured. They can also be used to compensate for inheritance tax charges on foreign property. E.g. UK inheritance tax will be applicable on the value of the UK real estate on the demise of the owner. This amount can be offset by these solutions held in the correct structure. The aim is to pay the taxes due rather than creating complex structures that seek to avoid payment.
SUCCESSION PLANNING:
To plan for complex asset transfer.
- Estate equalization in the context of family business succession, to benefit non-active family members
- to create liquidity to settle existing debts without liquidating businesses or investments.
These solutions can prevent a fire sale of assets being made to repay debt secured against them, thereby leaving the assets intact to be enjoyed by the family.
WEALTH PLANNING:
To provide family security and protect the family’s lifestyle and standard of living in event of a tragic loss. A large cash lump sum payment would be made by the life insurance policy in the event of the life insured’s death. This cash could be used to protect a family’s lifestyle if the insured life was the main income earner.
BUSINESS CONTINUITY:
In the event of the loss of a founder or key employee, life insurance proceeds can provide a business the cash flow it needs to maintain operations. The policy provides a pool of liquidity to hire a qualified replacement, purchase the additional human capital or assets necessary to keep operations intact and help replace lost profits.
These solutions could also help fund buy/sell agreements, where cash from an insurance policy can be used to provide the funding needed to purchase a deceased’s partner’s shares.
DIVERSIFICATION:
Seen as an alternative asset class that has the ability to generate cash in the future, life insurance is one of the few assets with a guaranteed value and predictable cost. It offers value by providing both peace-of-mind now and potential death benefit payments later.
Foundations with Universal Life Insurance
