Success Story: Dynasty Trusts and Intra-Family Lending

Case Data

• The client is an Ultra High Net Worth single individual in her early-50’s

• Present net worth of approximately $150,000,000. Client is exposed to a substantial and meaningful estate tax liability that would consume the majority of her liquid net worth

• Prior to the insurance discussion, the client’s Attorney, CPA, and Advisory Team had been working for an extended period of time to assess a number of planning techniques

• TPG Financial was asked to join the estate planning conversation in early 2019 and we assisted in evaluating a variety of insurance types and funding methodologies that could minimize premiums while providing a high degree of certainty as to product performance

• Client’s attorney held significant influence in this case and his product “experience” and a personal desire to “shop” the case with multiple providers proved to be a challenge.  This was tactfully dealt with by  exhibiting the extensive experience of TPG with similarly affluent clients

Solution

• Although the product type, face amount and funding were undetermined, the client agreed to enter the underwriting process in order to meet her key goals and considerations

• Through our competitive underwriting process, TPG Financial negotiated multiple best class offers  

• After further discussion and consultation with the client and her professional advisors, it was determined that the client would secure a permanent life insurance policy with a face amount of $50,000,000

• With premiums well in excess of the annual exclusions and a desire to avoid utilizing the client’s lifetime exemption, it was determined that the client would loan investable assets to a Dynasty Trust holding the policy and that those assets would fund a 10-year premium requirement of roughly $837,000 annually

• The loaned assets within the Dynasty Trust are expected to appreciate at a level that will allow the trustee to (1) pay the annual interest payments to the client, and (2) generate enough growth to cover the insurance premiums with minimal need for use of the lifetime exemption

Results

• A decision was made to secure a Guaranteed VUL product offering a lifetime $50,000,000 death benefit guarantee.  Assuming a 25% tax rate, this solution provided the client with a 7.25% taxable equivalent rate of return at statistical life expectancy and a successful, creative solution to her current estate tax liability