A wealthy 75 year old widow needs a way to purchase a life insurance policy that will allow her to transfer more wealth to her children. She does not want the cost of the life insurance to affect her current income.
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She currently has the following assets: a $750,000 home (her primary residence), $1,000,000 municipal bond portfolio (her primary income source), and a $500,000 IRA (from her deceased husband). She is living on an annual income of $75,000 that comes from the municipal bond protfolio, distributions from the IRA, and social security.
One solution that she can consider is to take out a reverse mortgage on her primary residence. She would be able to recieve $224,657 from the reverse mortgage that could be used to purchase a single premium immediate annuity, with the annual net after tax payment equal to approximately $20,000. The $20,000 annuity payment could be gifted to a trust. A life insurance policy in the amount of $600,000 would be purchased inside the Trust using these gifts to pay the premiums.
The reverse mortgage will have a significat financial impact on her estate. The reverse mortgage reduces the taxable portion of the widow's estate, while the purchased Life Insurance increases the non-taxable portion of her estate. By using a reverse mortgage for this purpose, she will achieve her objective of increasing the amount of wealth passed on to her children.
(c) 2006 - Reverse Mortgage.
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