Qualified Assets

Qualified Assets

  • December 18, 2020

Story Description

Avoiding the 65%-75% Tax Trap on Qualifying IRA’s, 401K’s, etc.

Traditionally, life insurance has been used to protect a family against the death of the breadwinner. It has also become the primary tool for providing liquidity for families to pay estate taxes upon the death of those who have a net worth in excess of the non-taxable limits. Unfortunately, when it comes to many retirement accounts, that tax becomes even worse, since both estate and income taxes are imposed simultaneously and can be as much as 65% to 75%. The Qualified Leveraged Strategy may offer a solution.


During a recent review meeting, a client informed us that he had a $2 million rollover IRA. Based on his net worth, we shared with him how his current assets would be taxed upon death. He was completely unaware that his IRA Rollover assets would be subject to a combined tax in excess of both the income and estate taxes individually and asked us if we might have a solution.


We discussed the QLS solution and the possibility to mitigate this potential overall tax of over 60% at the time of his death, as long as he qualified both financially and medically. After meeting with his estate planning attorney and reviewing both the strategy and legal documents he would need to produce, he moved forward with underwriting and, ultimately, successful implementation of the strategy.


On a side-by-side basis, when making a comparison between implementing this strategy or not, based on current assumptions being used in both scenarios, the QLS program yielded almost three times the amount of money that would ultimately be inherited by his heirs. It also enabled him, based on these estimates, to consider including some of his philanthropic desires while being comfortable he wasn’t disinheriting any of his loved ones.