Denman's Estate Planning Secrets

     Almost everyone who has major wealth knows about trusts.  In a very large estate, in which one would like to pass on assets intact, the best way to do so is with a combination of gifts and trusts.  The exemption from federal estate taxes in 2025 is $13,990,000 per person.  In January 2026, the exemption reverts to around $7,000,000 per person.  The annual exclusion for gift taxes in 2025 is $19,000 per person. 

     The best way for a taxable estate at death to have most or all the estate go to the heirs is the use of an irrevocable life insurance trust.  The following example of a successful case I helped orchestrate about 12 years ago will provide the importance of this. 

     A couple was worth $60,000,000 and most of the value was in a family business.  The 67 year-old husband set up an irrevocable life insurance trust with his family as beneficiaries, which purchased a $20,000,000 life insurance policy.  But instead of paying a $500,000 annual premium, he only paid $60,000.  Why?  Because a bank loaned the money to the trust to pay the premium and he simply paid the annual interest on the loan!  And the second year, instead of paying another $500,000 premium, he paid $120,000 in interest for the first and second year loans!  As you can see, the time value of money here is incredible.   

     There are many reasons to set up such a trust 

1—If properly drafted, the assets in the trust are generally creditor-proof. 

2—A properly drafted irrevocable trust avoids probate. 

3—At the death of the insured, or the second to die if that is when the estate taxes are due, the trustee can loan the insurance proceeds to or purchase assets from the estate to provide the estate with the money to pay some or all the estate taxes.  

     The first “secret” tool is financed premium life insurance, which is what you have when a bank lends the money for the premiums. A huge benefit here for the very wealthy is that in a regular insurance policy where one is paying large annal premiums, after the annual gift exclusions run out, each gift of premiums to the trust to buy the insurance are taxed at an enormous rate.  If a bank is loaning the money to the trust so that it can pay the premiums, there is no gift tax because the person who set up the trust has not made a gift! 

     The second “secret” is that one could possibly get three times or more life insurance from the same financial outlay than in regular life insurance. 

     Over the years, I have been personally involved in the placement of policies using financed premium insurance ranging from $9,000,000 to $50,000,000.  And I am familiar with a $100,000,000 placement. 

     Anther “secret” regards the application for the insurance.  The top agents applying for very large policies do not simply apply to an insurance company for the policy.  The underwriter for that particular company may give a lousy rating (read, higher premiums).  These ratings are sent to the Medical Information Bureau for all insurance companies to see, and if bad, may negatively affect the applicant’s future applications.  The best way to handle this is to send several companies an INFORMAL SURVEY, the results of which are not sent to the Bureau.  I have seen one applicant get three different ratings from three different companies from the same application.  It is not guaranteed, but to then apply to the company which gave the best informal rating would be by far the best way to go.    

     Financed premium life insurance takes some time to understand, so the agent who undertakes to put it together should be one who has done many of them successfully and basically concentrates primarily, if not solely, on this subject.  After research on the subject, I have found three professionals who I believe are extremely well qualified, and each boasts amazing records in this field.  Depending on which amount and type of financed premium life insurance is needed, and considering the ages of the prospective insureds, along with their net worth, I can arrange a meeting with one of these.  Two are in Houston and one is in Newport Beach, California.  

     Two more secrets--In estate planning sessions, most people want to eventually leave their entire estate to their children in equal shares and then on to their grandchildren.  But a business owner may want to set up one of the children privately with enough money to succeed in managing the business or have enough money to start a new business or one might want to privately leave a large amount to a charity, a former dedicated employee, a lover or for some other reason.  As you will see, financed life insurance can keep this private!   

    Secondly, a wealthy non-U.S. citizen might want to leave a large, professionally-managed creditor-proof trust in the United States in U.S. dollars that his/her family could call upon for generations!  Once again Financed premium life insurance “saves the day”. 

     How?  There are no premiums paid to a life insurance company by the insured, so it would be very difficult for someone to uncover a life insurance trust in existence, especially if the insured takes other precautions .  A trust is a private, non-probate asset and the insurance proceeds are non-taxable!  

To explore this important subject further call or text for a complimentary and confidential discussion.  Denman Moody, J.D., CLU, Chartered Financial Consultant  713 202 5229