- The Story
Richard*, a seasoned real estate mogul with a net worth exceeding $50 million, spent decades amassing a vast portfolio of commercial and residential properties. As he approached estate planning, he faced a significant challenge: ensuring that his heirs could inherit his real estate empire without being forced to sell properties to cover estate taxes. Given the illiquid nature of real estate, traditional methods of funding estate taxes were not ideal. Richard sought a structured solution that would maintain his family’s holdings while efficiently addressing his tax obligations.
Developing a tax efficient estate plan
Stone Owl designed a strategic plan that leveraged corporate-owned life insurance and an Immediate Financing Arrangement (IFA) to cover estate taxes without disrupting liquidity. The key elements of the strategy included:
Instead of self-funding an expensive policy, Richard’s holding company purchased a high cash value whole life insurance policy. This policy grew tax-sheltered within the corporation and provided a tax-free payout to cover estate taxes upon his passing.
To avoid tying up capital, Richard secured a loan against the policy’s cash value, ensuring liquidity remained available for real estate investments. Through this arrangement, the corporation paid the insurance premiums, a lender provided a secured loan against the policy’s cash value, and Richard maintained financial flexibility while preserving his estate plan.
The life insurance payout would cover the estate’s capital gains tax liability, ensuring no properties had to be liquidated at an inopportune time.
Richard’s heirs would inherit the entire real estate portfolio, continuing to benefit from rental income and property appreciation without tax-related disruptions.
A closer look at wealth preservation and liquidity
By integrating an IFA into his estate plan, Richard successfully structured a financial strategy that maintained both his real estate holdings and his investment liquidity. The plan ensured:
- Estate taxes were covered without needing to sell properties.
- Corporate liquidity was preserved for future investment opportunities.
- The insurance policy’s tax-free payout minimized out-of-pocket costs.
- The family’s real estate assets remained intact for generational wealth transfer.
The power of proactive estate planning
With the expertise of Stone Owl, Richard turned a potential financial burden into an opportunity for long-term wealth preservation. By strategically financing his life insurance policy and optimizing tax efficiency, he ensured a smooth estate transfer that protected his legacy.
Today, Richard’s heirs stand to inherit a fully intact real estate empire without financial strain. His case underscores the importance of structured estate planning in safeguarding generational wealth and maintaining investment opportunities.
* We take our clients’ confidentiality seriously. While we’ve changed their names, the results are real.
