The election’s over. The Republicans ran the table. Now, agents who were preparing to meet with clients to discuss the “either-or” approach to sunset planning described in “Helping Clients Plan Their Life Insurance Strategy for Possible Sunset” are focusing exclusively on the no-sunset side of the equation. In fact, I wouldn’t be surprised if the notion of outright repeal of the estate tax is now finding its way into the conversation.
A More Consultative Conversation
There’s no more interesting aspect of the no-sunset planning discussion than the potential use of a life settlement. However, to ensure that the transaction is accorded proper attention in that discussion, agents and the life settlement companies they call on for assistance may have to revise their typical approach to presenting the transaction in favor of a more consultative one. It’s a bit of a paradigm shift, largely because it’s not the usual exercise in selling the transaction to a policyholder who could really use the money. This is an exercise in consulting on the transaction to a client who doesn’t need the money and can’t get at it anyway because the policy is owned by an irrevocable life insurance trust (ILIT). This conversation calls for a much different tenor, texture and tempo than the usual life settlement presentation.
The Setting and the Players
A wealthy client purchased a large policy a few years ago to provide estate tax liquidity. The policy is held in an ILIT, supported by either cash gifts or a split-dollar plan. While the election presumably eliminated the estate tax liquidity need, the client and their planning team are about to start considering whether the ILIT should keep the policy, though perhaps with a tweak or two, redeploy it for other needs or strategic purposes, exchange it for a new policy or sell it to achieve still other objectives, like repaying the client’s split-dollar loans to the ILIT or just getting a better return on the money invested in the policy.
As the orchestrator of the several discussions it will take for the client and team to arrive at a conclusion, the agent faces a multi-faceted challenge. They have to describe a decidedly technical, nuanced and arcane set of facts, planning issues and potential responses to a group of advisors comprised of attorneys, tax advisors, investment advisors and, of course, ILIT trustees, all with varying levels of understanding of, and professional interest in, what’s involved here. So, the agent and the life settlement company (the company) representative joining the agent on the call have to be prepared to meet the client and team where they find them to bring them up the learning curve with just enough pace to avoid creating a paralysis by analysis. Easy, right?
Here’s a suggestion. In “The No-Sunset Life Insurance Paradigm Shift May Now Be Underway,” I recommended that agents confer with the advanced planning attorneys who will assist them in these discussions. Here again, I recommend that the agent confer with and “prep” the representative so that, as a team, they’re in sync as to where to go in the conversation, where not to go and, critically, where each of the advisors will be coming from when they ask their questions.
Presentation Highlights
We’ll assume that the agent has reviewed the case with the company so that when the group gets to the agenda item “Life Settlement,” the agent can briefly introduce the company and the representative and their credentials and then get down to business. Here’s what the agent, with timely support from the representative, plans to cover:
- At a high level, whether the policy is marketable. Can they even go down that road?
- Ballpark only: how much can the ILIT get for the policy
- The tax implications of the sale. Remember, the ILIT is likely a grantor trust, which means that the ILIT will keep the full proceeds of the sale but send the tax bill to the client, which will definitely impact the deliberations.
- What the agent will require to get a more definitive reading, that is, the process, who does what and how long it takes.
- Recognizing that, in many situations, the discussion will likely boil down to a decision to sell the policy and reinvest the proceeds or hold it at the lowest supporting premium to life expectancy, how the agent and the company can help the client and team make an informed decision. Because the client’s investment advisor and the ILIT’s trustee will take center stage in this aspect of the discussion, the agent should be sure the representative has seen my articles “Life Settlements - Planning Considerations Beyond the Offer “and “How Trustees Should Incorporate Life Settlements in ILIT Reviews.”
That’s it. Anything more at this juncture will be “TMI.” Anything less will rob the discussion of needed momentum. This isn’t an easy balance for the agent and the representative to strike. But once they get through their first presentation, they can refine it and have their template for discussions with other clients.
I can’t overstate the value of the contribution that the agent and the company can make to the discussion if they do it right. And I’d be very surprised if that contribution doesn’t result in some referrals from those advisors.
