I have faint memories my grandfather dropping off presents on our front porch at Christmas – and then ride away without stepping a foot in the door. Sure, their son was not involved in my life, nor them in his, but if my life depended on it now – I could not tell you what even one of the presents was. I knew he owned a factory so he must have been too busy for much more.
My children have had grandparents involved their entire lives so the gifts they gave may be in my son and daughter’s memory – but now I think of a gift that goes beyond any toys or clothes – the gift of investment and planning. We were fortunate enough to provide much of their education but gifts from prior holidays are stacked to the ceiling in our basement instead of having a substantial cash value.
Permanent life insurance is a gift that will never break, never wear out, and never go out of style. Becoming insured at a younger age often means lower premiums, easier qualifications and more time to grow cash value. As a result, you as a grandparent has the capability to do something for your grandchild(ren) that they can not do for themselves: create a resource that can be used to help pay for college, a wedding, a first home—or any other future needs.
From a tax standpoint, there are several advantages for a grandparent to make a gift of permanent life insurance to a grandchild. First, the current gift tax exemption is $14,000 per year per child, or $28,000 combined for two grandparents. Alternatively, a grandparent may gift $70,000, or $140,000 as a couple, in one lump sum for one five-year period.
The second advantage is that the gift is not only tax-free, but it removes that amount of money from the grandparent’s estate for purposes of future estate tax consideration. Finally, as part of a permanent life insurance policy, the money within the policy’s cash value grows tax-deferred and can be withdrawn income tax-free. Therefore, once the money has been gifted, there is generally no tax on any of the gift or any of the future cash value growth in the policy. Furthermore, for purposes of college tuition, the cash value in the permanent life insurance policy does not count against the child’s scholarship eligibility.
If a grandparent, or pair of grandparents, has the means, college funding by way of permanent life insurance policies is a great way to utilize the gift tax exemption, remove money from their estate, and set up their grandchildren for a college education without the burden of student loans. It also locks in the child’s insurability at a young age and gives them additional financial freedom and protection throughout their lives. *
If you are a grandparent that would like to pass on a legacy of education and overall financial well-being to your grandchildren, this strategy might be the right one for you. It will let you immortalize your love for your grandchildren in a gift that will grow as they grow, and let you share in the special moments throughout their lives.
* Loans against your policy accrue interest and decrease the death benefit and cash value by the amount of the outstanding loan and interest.
Chew on that for a while – how cool, huh? For an appointment:
Toll free – 844-675-2111