Blog

May 11 2022

Key Employee Life Insurance Checklist

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The purpose of key employee life insurance coverage is to help indemnify a business for the loss of a key employee’s skills and experience in the event of the death of that person. Death benefits or cash values may be used to help recruit and train a replacement, to pay business debt, or to maintain the business’s credit and financial standing during a transition of management. ¹

The following checklist details the items that are generally needed to properly complete a key employee life insurance arrangement.

April 29 2022

Recent Modifications to Required Minimum Distribution Rules for Lifetime Distributions

Situation: Financial representatives know that clients who own IRAs or participate in qualified retirement plans must take distributions from their accounts according to the required minimum distribution (RMD) rules. The RMD rules mandate the timing and minimum amount an IRA owner and retirement plan participant must distribute both during life and after his/her death. Clients must comply with the rules because failing to satisfy the minimum distribution requirements results in a penalty of 50% of the amount that should have been taken but was not.

Financial professionals might be surprised to learn that the amount required to be distributed recently changed. On February 23, 2022, the Treasury released proposed regulations that amend the RMD rules to conform to the statutory changes made by the SECURE Act enacted in 2019.1 The regulations contained a few surprises. In addition, the IRS updated the tables used to calculate required minimum distributions. The new tables apply to distribution calendar years beginning January 1, 2022. The tables reflect longer life expectancies than the previous tables and so provide smaller annual RMDs. As a result of these changes, I thought it important to review how the new RMD rules work.

This Counselor’s Corner will address minimum distribution requirements during the lifetime of the participant. Next month we will describe the more complex rules concerning required distributions after the death of the participant.

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April 25 2022

Joel Johnson Retiring after successful career

On May 2nd, Joel Johnson, CLU, ChFC, Field Relationship Manager for the North Central Region at DBS, is retiring after 17 years of exceptional service with DBS. Since mid-March, the team at DBS has been focused on making plans for the advisors and brokers currently working with Joel to ensure they are in good hands with the Field Relationship Managers they will be assigned to after his retirement. We are firmly committed to continuing to provide the level of service and support that Joel exemplifies each and every day and are confident that the transition will be seamless.

Joel’s wife Therese and their entire family will be enjoying having more time with Joel as he enters retirement, and ALL of us at DBS share a deep appreciation of Joel for all of his contributions to our company’s success. Our wish to Joel and his family is for good health and happiness in the years to come.

THANK YOU JOEL for all of your contributions to DBS and for being a role model in providing the very best service and support for independent brokers and advisors. You will be greatly missed by everyone at DBS and for all those you have so passionately served during your outstanding life sales career.

April 22 2022

Greenbook Deja’vu: Proposed Tax Increase on the Wealth

On March 28, 2022, the Biden Administration released its budget and tax proposals for FY2023. Alongside the Budget the Treasury released its document further describing the revenue proposals in what is typically called the Greenbook. Many of the proposals are reminiscent to those in last year’s Greenbook and/or part of the Build Back Better (BBB) proposals that passed the House but ran into opposition in the Senate.

Congressional Democrats can pass legislation on their own using a simple majority vote in the Senate through the budget reconciliation process. While Democratic senators were unable to reach a consensus on the BBB legislation passed by the House, largely due to the objections of Senators Manchin and Sinema, the political landscape may be changing. Both senators indicate a willingness to renewing negotiations. It is generally believed that a new package will be considered by Congress before the start of the Congressional August recess.

Read more to view a summary of some of the proposals that may be of interest to financial professionals.

April 19 2022

DBS Announces Strategic Partnership with Kalamath Consulting Group

DBS announced a strategic partnership with Kalamath Consulting Group (KCG) at its 2022 National Sales Meeting held this past March. As part of the arrangement, KCG’s Cary Fry and Fletcher Brown are now collaborating with the DBS Sales Team to help educate and provide in-depth support for financial advisors who specialize in providing solutions for their business owner clients.

Kalamath’s core offering includes best-in-class Business Exit Plans for the growing number of businesses that are operating with outdated exit plans or without any formal exit plan in place. According to the 2019 Business Enterprise Institute Business Owner Survey, 81% of businesses in the U.S. will need to execute an exit plan within the next 10 years, highlighting the need for this service.

April 8 2022

“SECUREing” America’s Retirement System

On March 29, 2022, in a bipartisan 414-5 vote the House passed legislation known as SECURE 2.0. The bill intends to build upon the original SECURE legislation passed in 2019. The bill aims at increasing retirement savings and expanding availability and participation in employer sponsored retirement plans. It’s likely that Congress will pass, and the President will approve some form of the legislation this year. However, since the Senate has yet to move on its version of the bill the final legislation is likely to change as the bills move through the legislative process.

Read more to view some of the key provisions of the House bill.

March 16 2022

DBS Welcomes Kevin Laing as new Enterprise Relationship Manager

DBS is very pleased to welcome Kevin Laing as its new Enterprise Relationship Manager, effective Monday, March 14, 2022. Kevin will be reporting to Kurt Fasen, LLIF, LUTCF, DBS Sales & Marketing Executive and is responsible for both cultivating and growing existing accounts as well as attracting new relationships at the national account level.

Kevin comes to DBS with a wealth of experience in the financial services industry, having spent more than 30 years serving in a number of senior sales and key account management positions where he was highly successful in fostering strong relationships in brokerage distribution.

“Kevin’s prior experience was a perfect fit as we analyzed what we were looking for in this position,” explains Fasen. “His strength in fostering strong relationships will be a key asset in managing a number of important national account connections.”

Most recently, Kevin served as National Sales Manager for American National, responsible for identifying new market opportunities along with positioning agencies for success. Prior to that, Kevin held business development roles for several other carriers overseeing National Account, General Agency and Institutional Account relationships.

“Kevin is a great choice for the culture we’ve created here at DBS with our Sales Team,” adds Chip Van Dusen, DBS President & CEO. “I have no doubt that he’ll hit the ground running and will make a big difference as he joins our organization.”

Kevin lives in Lakeville, Minnesota with his wife and 2 children.

Kevin is replacing Brad Tansom, CLU, ChFC, who announced his retirement effective May 1, 2022.

March 10 2022

Multi-Generational Estate Planning for Uninsurable Individuals

THE SITUATION
A financial professional called DBS seeking estate planning advice for a very wealthy widow. The client had previously used most of her estate tax exemption and was still in good health . . . that is for a person 87-years old.

THE PROBLEM
Carriers have a maximum issue age which for most carriers age is 90. Of course, individuals with significant health issues generally cannot qualify for life insurance coverage. The financial representative wanted a “creative idea.”

THE SOLUTION
The call was transferred to DBS’s in-house Advanced Marketing Attorney who suggested that the financial representative might want to have his client consider multi-generational insurance planning.
Specifically, the DBS in-house attorney explained that for an individual who has already used their exemption amount, the estate and gift tax rates are both the same at 40%, but a wealthy client can save a significant amount in taxes by making taxable gifts instead of paying estate tax. The following example was provided: (Assume assets available to transfer either by gift or left in the estate equals $9,000,000)

The DBS Marketing Attorney explained that the over $1 million in tax savings could be leveraged by the children of the 91-year-old purchasing insurance.

THE RESULT
The client and her legal advisors loved the idea. The financial representative placed a large life
insurance policy and perhaps more importantly, developed a business relationship with the next generation.

February 26 2022

Will there be an Estate Tax Problem if a Couple Establishes Reciprocal ILITS?

Situation: Today, moderately wealthy couples are increasingly worried about the future lower Federal exemption amount. To keep the life insurance proceeds outside their estate, we often suggest that their life insurance be owned by an irrevocable life insurance trust (ILIT). Many of those clients purchase life insurance because of the long-term care or chronic illness riders. We often find that these couples want to include provisions in their ILITs that make the trust assets “accessible” while removing the policy proceeds from their estates – so called Spousal Limited Access Trusts or SLATs.

Arguably, it’s possible to give the non-insured spouse a limited beneficial interest and the children the ultimate remainder beneficiaries, while still excluding the policy from the couple’s estate. However, the law regarding the use of SLATs as well as the choice of long-term care rider is still developing, so there is a tax risk of estate inclusion. Clients must consider the tax risks, along with what should happen in the event of divorce or premature death of the noninsured spouse. Furthermore, a question that inevitably comes up is, “If one spouse can do this, can both spouses create trusts with substantially similar provisions?” Specifically, can the wife and children be the beneficiaries of a trust with the husband as the insured, while the husband and the children are the beneficiaries of a trust with the wife as the insured?
This Counselor’s Corner sheds light on this question.

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February 17 2022

Case Study – Strategy for Uncertain Estate Tax Environment

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Situation:A producer contacted DBS’ in-house advanced case design resource to discuss an insurance structure for a couple in their late 40’s with $8 million net worth. The producer noted that the net worth was less than the current joint exemption ($24.12 million), but more than the prior exemption which is set to return in 2026. The DBS advanced case design resource explained that DBS is finding a fair number of moderately well-to-do young couples aware that the exemption will drop to $5M in 2026. Since they are young and still working they are likely to accumulate an estate exceeding the future smaller exemption. While they want to plan for this now while they are healthy, they are very reluctant to give up control.

Problem: The clients were interested in purchasing a $5 million dollar second-to-die policy for the benefit of their heirs and the competition was suggesting the use of an ILIT. The producer wanted ideas that would help him capture the case.

Solution: The DBS advanced case design resource described two insurance approaches. The first technique mentioned was a Survivorship Standby Trust as a method of owning a second-to-die policy. With this approach, the insured most likely to die first is the applicant, owner, and premium payer. The contingent owner and primary beneficiary is the “Standby Trust.” The DBS associate described the Standby Trust as another name for an unfunded ILIT (insurance trust) or credit shelter trust established under the terms of the client-insured- policyholder’s estate document. Since one insured retains ownership of the policy, the clients retain control during the lifetime of the joint insureds, yet the proceeds are outside of the estate at the death of the surviving spouse.

For the second technique, the DBS associate described how the clients could take advantage of the current low Applicable Federal Rates (AFR) to lend money to a trust using the Private Finance Strategy. With the Private Financing Strategy, the clients would enter into a loan with the trustee. Like the above technique with this structure, the policy cash value is equal to the cumulative premium. This is retained by the client; however, the proceeds above this value are outside of the estate.

Both strategies fit perfectly for this situation and can be modified in the future if the clients become more comfortable giving up control of the policy.

Result: DBS was able to offer the total solution, which included competitive product and technical consulting resources.