One of the Easiest Decisions You can Make for Your Clients

One of the Easiest Decisions You can Make for Your Clients

Clients have a lot going on at the start of the year. Work brings new challenges and new budget constraints. Kids have to get to college and start a new semester, which brings the returned stress of tuition. And, they’ve probably deferred a conversation with you, their planner, because they were too busy in December. Now it seems as if they are just as busy, if not busier. 


So many things going on in other aspects of your clients’ lives that you have to make their financial decisions easy. You can address longevity concerns, making at least one decision easier and less painful than all the distractions swirling around them. 


Tax-Deferred to Tax-Free?

We’re always trying to minimize taxes for our clients. Unfortunately, some of our products create a tax at death that is higher than if we had not placed it in a tax-deferred instrument to begin with. According to LIMRA’s 2017 Fact Book, there are $486 billion in non-qualified assets on insurance carriers’ books that are not providing income to their owners. Amazingly, a large percentage of those clients are over age 75 and considered affluent or mega-millionaires. 


If those are one of your clients, they have a potentially severe problem. 


How can you better leverage an asset that isn’t being used for its intended purpose?


Current tax law allows a 1035 exchange from one annuity to another annuity with continued tax deferral. Better yet, if you transfer the asset to an approved asset-based LTC annuity, the proceeds are accessible tax free when used for qualified long-term care expenses. Where else can you transfer a tax-deferred gain to a tax-free distribution under the proper scenario? “Rothification” requires claiming the gain as a taxable gain in the current year. By concentrating on non-qualified assets, you can continue to defer the gain and potentially access it tax free. 


When you propose this type of transfer, the client benefits in several ways:

  • The asset continues to grow tax deferred and they have no taxable gain on the transfer 
  • The client creates leverage from the purchase of the long-term care annuity as the carrier provides a tax-free pool of assets for long-term care expenses
  • If the client needs long-term care, they access the cost basis and the gain in the policy without any tax consequences


Your practice benefits from this conversation in several ways:

  • You preserve and protect your assets under management from one of the costliest expenses in longevity planning
  • You generate another source of revenue from an asset that was likely not creating revenue for the firm; or, you capture more assets from a previous financial planning firm
  • Because you have helped the family and generated capital when they need it most, you have a greater chance of working with the next generation


Think about looking at your existing clients and asking about their non-qualified assets. The opportunity is large and can help relieve their longevity concerns immensely. For more details on this strategy, check out this video. 


Winning Strategy

There is a large opportunity ready to be transferred to the next generation. If you provide a better transfer path and better tax consequences you will win business and clients.


About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”