When trust clients of U.S. Bank Private Wealth Management ask about how to ensure their heirs have an inheritance, Wealth Management Advisor Rocky Sperka and Wealth Planner David Scaife in Milwaukee consider all the traditional estate-planning tools, such as living trusts, annuities and retirement accounts. Ultimately, however, they may recommend a custom product.
“At times, a client may have a will and estate plan that are designed to help them protect their assets from estate taxes,” Sperka says. “Unfortunately, investment returns can be very unpredictable and could result in an inheritance or charitable objective shortfall. That’s where a custom product could be potentially valuable.”
Imagine wealthy parents who want to guarantee that when they die, their heirs will receive a significant chunk of money. “Although returns on investment portfolios over time are typically going to be positive, you really don’t know the results,” Sperka explains. So Sperka and Scaife have a strategy that may allow the clients to use insurance to guarantee an inheritance for their heirs — carving out a portion of their assets into a guaranteed investment. “A guaranteed life insurance policy may be a great way to accomplish this,” Sperka explains.
Think Contribution, Not Expense
Rather than thinking of an insurance premium payment as an expense, clients are encouraged to think of it as a contribution to an asset that will act like a Roth IRA with a guaranteed and often attractive rate of return.
“Generally, the rate of return on a five-year CD these days is in the 1 to 2 percent range,” Sperka says. “However, assuming a person lives until 90 or 95 [a growing segment of the population], it wouldn’t be unusual for the policy death benefits to generate guaranteed after-tax rates of return of 4 to 4.5 percent.”