2 Ways to Write the IRS Out of Your Will

You can protect your money many different ways. Investors (including me) can focus so hard on protecting their portfolios that they sometimes overlook a costlier potential danger …

That is, the confiscation of everything you've worked for, via inheritance tax. However, there are some ways around it that every investor ought to know about.

When comedian Robin Williams passed away this summer, some financial planning experts praised him for creating an irrevocable real estate trust designed to "protect the family from estate taxes on the properties and provide them with important equity in the properties," according to LegalZoom.com.

That's one good way to take care of your heirs. But in this age of downsizing and less-than-stellar activity in the housing market, one high-net-worth individual found another intriguing way to disinherit the IRS.

We may never know when this person passes away, as his or her identity is a tightly kept secret. But his strategy -- recorded by Guinness World Records as the most massive of its kind -- involves a tool you probably already have in your investment arsenal ...

$201 Million Ways to Preserve a Legacy

I don't talk about life insurance very often — but I should. The core responsibility of my job is to help you grow and protect your money. And I take my job very seriously.

While Guinness won't disclose the individual's name, earlier this year it revealed that a Silicon Valley billionaire bought the most-valuable life insurance policy in history, worth $201 million.

Avoid Estate Taxes

Who is this mystery Silicon Valley billionaire? Elon Musk of Tesla (TSLA)? Mark Zuckerberg of Facebook (FB)? Larry Page of Google (GOOG)? Larry Ellison of Oracle (ORCL)? Gordon Moore of Intel (INTC)?

The world may never know ... at least, not until after this person is long gone.

Good Deal, Bad Deal or What?

With a $201 million death benefit, this policy is more than twice as large as the previous record an unnamed entertainment industry figure set in 1990.

The policy is so big that it took 19 different life insurance companies to spread out the risk. No single insurance company wanted to be on the hook for a $201 million payout.

How much does it cost to buy a $201 million life insurance policy?

The insurance agent who placed the policy wouldn't reveal how much the Silicon Valley billionaire will pay in annual premiums, but he did say that the annual cost would be in the "single millions" of dollars.

So why would a person savvy enough to build a billion-dollar fortune spend somewhere between $1 million a year to $9.9 million a year in life insurance premiums if life insurance was such a horrible deal?

Answer: His heirs will use the $201 million proceeds from the life insurance policy to offset federal estate taxes that could take as much as 45% out of his total net worth.

'Disinherit the IRS'

This billionaire's goal is to disinherit the IRS from his or her estate. Life insurance is one of several techniques that you can use to minimize inheritance taxes and maximize the amount that goes to your heirs or favorite causes.

Currently, the top U.S. estate tax rate is 40% and it applies only to the portions of estates above $5.34 million.

A wealthy individual who wants to avoid the estate tax can employ many legal maneuvers, such as trusts, gifts, family partnerships, and yes ... even life insurance like the Silicon Valley billionaire.

My experience is that most millionaires are so prejudiced against life insurance that they would rather give millions to the IRS instead of tens of thousands to an insurance company.

If you're successful enough to have a taxable estate, a little advance planning can save your heirs hundreds of thousands, or even millions, of dollars.

Regardless of the size and makeup of your estate, you should develop and implement an estate plan that guarantees your legacy goes the direction you want.

Best wishes,
Tony Sagami

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Posted 09-30-2014 1:16 PM by Tony Sagami
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