How can writing one check create a lifetime of memories for your grandchildren?
During my years working directly with life insurance, I learned a lot of unique ways to make use of the product’s versatility. Even though I no longer sell it, I still believe in the power of properly used permanent insurance. One creative use that I still keep handy for the right situation is the “Grandparent’s Gift”.
What Does It Do?
This technique turns an annual gift check from the grandparents (up to $28,000 in 2014 without incurring gift taxes, assuming it is a couple gifting to one grandchild) into annual gifts for the grandchild for as long as the grandchild is alive. Often, the timing of the checks is set to begin at the grandchild’s 18th birthday, and every birthday after. Imagine your grandchildren, every birthday, getting a check that reminds them of your love for the rest of their life!
I will spare you the details, but in general (let’s call the grandchild Alyssa):
- The check amount is used to purchase a life insurance policy on Alyssa. Often a policy only needing 10 years of premiums is used, so the check amount is split into 1/10 to determine the policy size.
- The policy accumulates cash value while Alyssa is a minor.
- On Alyssa’s 18th birthday, the annual policy “dividends” are changed to send her check.
When done properly, with the right product, right company, right health and age of Alyssa, the initial checks were often several hundred dollars and increased every year! These funds can be used to help pay off school debt, help furnish a first home, and help with many other important milestones.
Remember: retirement planning is much more complicated than simply managing a portfolio. Applying creative ideas can help reduce your tax burden while creating a part of your legacy!