Lecture Notes: Global Life Insurance and Tax-Free Income

Introduction

• Presenter: Doug Andrew
• Topic: Why can't you fund a universal life insurance policy with a one-time payment?
• Series: Part of "Secrets to Tax-Free Retirement" (Video 5 of 21)
• Duration: A 4-hour series potentially worth an additional tax-free million dollars

Presenter Information

• Experience: Over 45 years as a financial strategist and retirement planning expert
• Favorite Financial Vehicle: Maximum indexed universal life insurance, with tax advantages

Advantages of Indexed Universal Life Insurance

• Liquidity, Safety, Rate of Return: Excels in passing these tests
• Tax-Free: Income and transfers

Historical Background

• Origin: Idea by EF Hutton in 1980
• Impact: Major shift of money from banks, credit unions, and brokerage firms to insurance contracts
• IRS Response: Tax regulations to control tax-free accumulation and withdrawal

Key Tax Laws

1. TEFRA, DEFRA: Minimum insurance requirements based on age and gender for tax exemption
2. TAMRA (June 21, 1988): Slowing the flow of funds from financial institutions to insurance policies

Impact of the TAMRA Act

• Purpose: To slow the movement of large amounts of money into superior insurance contracts
• Requirement: To fully fund a policy takes at least 5 years
• Effect on Universal Life Policies: If funded with a one-time payment, withdrawals of interest will be taxed
• Compliance: Allocate deposits over at least five years to maintain tax-free status

Funding and Compliance

• Max Funding: Before TAMRA, allowed one-time funding for immediate tax-free benefits
• After TAMRA: Must allocate deposits over 5 years for universal life (7 years for whole life)
• Bucket Analogy: The policy is like a bucket, cannot pour in more than 20% each year
• Grandfather Clause: Existing contracts before TAMRA are unaffected

Modified Endowment Contract (MEC)

• Violation: Funding too quickly triggers MEC status – resulting in taxable withdrawals
• Correction: Possible within a 60-day period after the anniversary date

Strategies and Practical Tips

• Use Unused Capacity: Unfunded portions can be carried over
• Accessing Money: Immediate access possible for emergencies, tax-free benefits require compliance
• Avoiding MEC: Ensure funding allocation to protect tax-free status

Additional Resources

• Book: "The Laser Fund" by Doug Andrew
  • Content: 300 pages with charts and 62 client stories
  • Offer: Available with minimal shipping cost
  • Further Learning: Audio, digital versions, and an 18-hour intensive class

Conclusion

• Call to Action: Watch the next episode to connect financial strategies
• Expertise Provided: Training tax attorneys, law firms, CPAs on related tax laws