All Forum Posts by: Thomas Rutkowski

@Thomas Rutkowski , what an eye opener thank you. I’ll PM you for more details. I read the 101 and the thread where it was chopped to pieces, especially enjoyed the active real estate investor and how he used the vehicle...not the insurance ;), its sinking in.

Your statement made in that thread is the golden nugget;

——start quote——

“A properly designed policy for leverage like this should have about 85% cash value to premium in a 5-pay or 7-pay design. The infinite banking guys underfund their policies to allow you to "pay interest to yourself". This "interest to yourself" is really just excess premium that you should have paid into the policy up front. Underfunding is great for the agent (higher commissions) but bad for the client (less cash value to leverage).

Remember, policy loans are loans from the insurance company. They are loaning you their money with your cash value as the collateral. The more cash value to premium, then the bigger the loan you can take. The bigger the loan, the more money that is working in two places at one time.

Strategically, and this is for everyone following, you should get a commercial loan with your cash value as collateral/personal guarantee. This will allow you to get a better rate and more importantly, deduct the interest as a business expense (assuming you are doing business in a business entity.

So not only do you get the advantage of tax-free growth on the cash value, but you can also reduce the taxable income on your real estate investments.”

——end quote—-

That statement is absolutely great and thank you for that Thomas.

Venturing forward a bit...crossing the line, maybe unchartered territory?

You mentioned deducting the interest if using a business entity, I get that, basically a business tax write-off, my original “vision” for my family a group of 25+ may require a different approach given that many of them may not even qualify for a WL plan as many don’t have stable income or may simply not make enough at their current jobs to afford the monthly premium payments.

My proposed solution is working with an RE CPA and Attorney to create an entity that would allow the family to pool funds in a checking account (use accounting tools to keep track and abide by all legal and IRS guidelines) funds that if needed will be available to take out as a loan (not borrow against the funds) the interest paid on that loan will go 100% back into the borrowers account, this interest will help offset the lower interest paid by the checking account itself (example Goldman Sachs has online savings with 2.25% interest) if the loans taken have a 1% per month interest on them, thats 12% a year on just the portion of what was taken out as a loan. Many family members may never need to take out a loan in a given year so they would have the option to transfer all or part of their funds to another checking account specifically for providing small loans to other family members at say 2% per month interest (1% going to the member who put funds in the loan account and 1% going to the person who took out the loan) Risk would be minimized as they are small loans under $2500 and can increase as each successful loan is paid (like building credit worthiness) within the family, no colateral, more of a trust as we meet religiously on a monthly basis it’s like Thanksgiving every month with my family.

We’d like to brainstorm different investment projects (cross checking each with a RE Attorney and CPA as well as a respected Pro in that field) it can be real estate, small business, etc.

Its a vision that has a lot of moving parts but it puts the interest rate paid to the insurance company back into family hands where it can be used to buy other assets and as for insurance a 35 year term policy would give any family member a 35 year window to generate more funds using assets, specifically real estate, which can very likely exceed the death benefit offered in a WL policy.

I read somewhere that upon death in a WL policy, the cash value is absorbed by the insurance company and then the death benefit is paid out to the beneficiary, so if a death benefit is say 1 million and the cash value is at $750k, it’s equivalent to having a $250k term policy even if you had to renew a 35 year term policy at an older age, there is life insurance for seniors.

The part of the WL premium that covers other costs including the life insurance portion, if its 15% of the value to premium, thats a big chunk if monthly premium payments are say $750-$1000 (I don’t know the numbers just an example) thats $125+/month for life insurance, same coverage may be had in a 35 year term for half that.

Just would like more understanding from a Financial Planner point of view.

What are your thoughts on this? have you seen this done or something similar for a large group.

@John Perrings is there a limit or penalty to how many months of payment can be missed?

Funds taken out are taken out as a loan correct?

The interest on the loan goes back 100% into one’s account?

I had a health and life Insurance license many years ago, I never really put it to use, so my knowledge is limited to what I can remember, which is not much :)

What I do remember at least from selling the products is that doing the math revealed that the portion in the whole life policy that covered the insurance was higher than the same face amount on a term policy.

I would assume this is due to a whole life insurance policy is just that for your whole life no need to seek it for a new term ever 10 years which would cost more as each term rolls in.

If the money can only be taken out as a loan, it won’t satisfy our families needs.

The forced savings element is so that part of that can be used for a group investment in say real estate.

Real estate when purchased and sold at the right times in the cycle can generate a higher return and offers more tax breaks than funds being held for decades in a whole life policy, as the value of the dollar goes done over time, it just doesn’t make sense, or I just don’t see how it does at this moment.

It's more complicated.  The following drive housing prices:

1. Disposable income - very high right now
2. Population increase - many areas are experiencing large population growth
3. Interest rates - still low
4. Innovative mortgage products - not the same as 2008 but still lots of flexibility
5. Access to credit - credit markets are wide open
6. Mortgage backed securities - we are in the golden age of capital with huge demand
7. Housing service providers - there are huge personal incentives to push transactions
8. Financial literacy - this will always cause irrational decisions

On a different note, I recommend talking about things that matter with people who care.  Consider how hard it is to change yourself and you will understand what little chance you have in changing others.  I learned that one the hard way.

@Roberta Holland - Florida

Can you give any pointers about properly-structured, asset-based life insurance policy with living benefits ?

Anyone know a lawyer who can attest to the legality of the 453 transactions and can provide an opinion letter on the strategy?

Life insurance is good. I’ve got Indexed Universal Life policies that mimic growth in the S&P500. When you take the money out it’s a loan with the insurance company so your money can continue to grow. People often do that with participating Whole Life to keep the dividend. The IRS does limit how much you can put in while keeping the tax free status of the growth (the percentage of the account that can be overfunded), but that doesn’t mean you can’t start a sizable account. 

Borrowing your money from the life insurance company is way easier than trying to access money from a retirement  account. You do pay interest, but it’s rarely significant considering the continued growth. 

* I may be biased. I’m a life insurance agent. 

Thank you everybody! Thank you for all the replies. 

Life insurance policies - that's interesting. I will have to look for more information on that.

@Caleb Heimsoth

Everybody has their own opinion, but 529 Plans really are not great products; they are a jail for your money and all you get is a lousy state tax deduction. The gov’t will punish you if your child gets a full ride and you don’t end up using it for education. There are a lot better ways to fund college in a tax favored environment than 529s.

I can share more if need be. Thx!

^ yes, but I’ll get a lot more for each property by selling it individually to a homeowner. 

Someone else mentioned Monetized Installment Sale, which sounds like a similar process. 

My main goal would be to be able to sell off each condo on its own, over the course of 1-2 years, and have all those sales proceeds 1- not be taxed and 2- to be 1031 exchanged into 1 or 2 large NNN properties (so the taxes are deferred.) I just want to know if that is possible with any of these deferred sales vehicles, and if it would fly with the IRS.