Case Study Four was an ‘ask” for liquidity at the time the structure is implemented. Specifically, the owner wanted USD $2,000,000 of trapped capital immediately without incurring taxes on the amount received, retire the structure from excess funds within the structure as soon as possible while keeping the death benefit viable (with enough liquidity to survive until mortality).
The key takeaways on this design are as follows:
This non-modified endowment contract produces an estate tax free and income tax free death benefit of $115,631,999 in year 30 or age 79 (expected mortality) and a death benefit increasing year over year to $307,251,354 at age 100 found in Projected Death Benefit Net of Loan, column 11.
Cash accumulation and therefore cash surrender value as first utilized by the liquidity provider (95% of actual value) to determine collateral requirements is found in column 9. Once the structure has retired the bonds, year 25, column 4, the cash value or cash surrender value of the life insurance contract is available to support the life insurance contract.
The retirement of the debt associated with this design is extended in duration in order to optimize the internal growth and ultimate death benefit of the life insurance contract.
This design illustrates two (2) bond issuances at year 1 and year 6, column 1 that are inclusive of all costs associated with servicing the life insurance policy contract.
The “ask” is delivered and illustrated as Additional Funds to Trust, column 7, in the amount of USD $2,000,000 is withdrawn at closing. It is important to note that the Projected Variable Interest Costs, column 3, increase thus creating a minor drag on the internal growth of the life insurance contract since the $2,000,000 is not only unavailable for collateral, reflected in column 10, Supplemental Collateral Requirement, but also the cost to carry these monies remains.