Wednesday, September 12, 2012
Many high net worth clients are more concerned with loss than gain when looking at asset protection and estate planning. The focus is on loss due to the increased risk of litigation, decrease in earnings, stalled or negative investments, and the uncertainty surrounding estate taxes at the end of this year.
To protect assets in this economic climate, it may pay to convert liquid assets into assets that are creditor-protected. In many states, including Texas, life-insurance is protected from creditors by statute. These statutes allow an individual to convert exposed assets such as cash to assets protected by a death benefit.
There is more liquid wealth out there than there ever has been because people perceive the stock market and real estate market to be unstable. Why convert the liquid wealth? A recent report on banks indicates that they remain at risk of imminent failure. Furthermore, in addition to being vulnerable to creditors, cash is producing next to zero returns.
If individuals decide to convert cash to policies, the following are good policies to consider: "'full/high cash value in year one, No surrender charges or lagging cash value, a high death benefit to prove up the legitimate business purpose, ability to access cash value through policy loans and to collateralize, ability to allocate to a 'segregated account' that protects your client from real or perceived solvency risk of the carrier itself.'"
When looking to make this conversion, individuals should consider the timing, ensure that he or she is an insurable policy owner, and consult an attorney for details of his or her state's statute.
See Ike Devji, Life Insurance as Asset Protection, LifeHealthPro, Sept. 1, 2012.