In Las Vegas, folks many times bet their home or farm when they believe that the odds are in their favor.

In Las Vegas, folks many times bet their home or farm when they believe that the odds are in their favor.

Imagine that if in your sleep last Sunday night you dreamed that God spoke to you. And in that dream he gave you the winning Powerball numbers. You wake up the Monday morning and you are not sure if that was a dream or if God really gave you the inside edge. On your way to work, you gas up your car and also decide to get your car washed. The pump prints off a receipt with code for the car wash. When you look at the number, it is the same number as in your dream and underneath it says, "good luck." Would you buy a Powerball ticket with that number?

What if I told you there are some certainties in life that you can financially leverage?

My daughter-in-law asked me once about what was the best investment for their retirement. I know my response surprised her. I told her that they should participate in employee sponsored retirement plans up the employer's match whenever possible. However, if they wanted to create a wealth with guarantees that were tax free, consider buying a permanent life insurance policy on a parent, in-law or relative that was a generation ahead, i.e. a relative that was 25 to 30 years older like me.

Now we all understand buying life insurance on ourselves and family members. I have recently written a series of articles on determining your insurance needs. What I am suggesting now is financially leveraging a known event. And that is that none of us will pass from this world alive. We all have to die before we move onto the next world. Armed with that knowledge, families can do legacy planning.
Legacy planning is leveraging family relationships to purchase life insurance on relatives one generation ahead. What are the benefits of that? It produces a guaranteed death benefit from a permanent life insurance policy that will pay regardless of market fluctuations.
Even better than an IRA or employee-sponsored retirement plan that you have to pay taxes on when you pull money out, a life insurance policy generates a lump sum of cash that is tax free.

Now, insurance companies won't allow folks to purchase a policy on just anyone without sufficient reason. There must be an insurable interest. Dairect relations are generally sufficient for insurable interest.

So how would this work? Let's go back to Bob and Mary.
Bob and Mary are both 46 years old. After they did their needs analysis, they purchased life insurance on themselves and both are contributing to IRAs to reach their retirement objectives. Of course, their investments are subject to market risk and they realize that they may not achieve their objectives. Mary's father is deceased and her mother is diabetic. Bob's parents are both in their mid-60s and in good health. Bob's parents were not familiar with the concept of legacy planning but after a series of family meetings, Bob's parents liked the concept and encouraged Bob and his other siblings to purchase a life insurance policy on one of them when they could afford it.

Bob would like to purchase a $100,000 insurance policy on his mother. Women tend to have lower insurance costs because they live longer than men and there is more time to pay into the policy. The policy must be permanent so it is guaranteed to pay. He also wants a policy that maximizes the death benefit, not cash value. Typically, that is best met by a universal life policy. Some universal life policies are only guaranteed to age 90 or 95. A policy that is guaranteed to age 100 or longer is preferred.

Bob could purchase a 100-year guaranteed policy for about $171/month (American General Secure to age 100). Assuming that he paid on the policy for as long as 25 years, he would have paid a total of $51,318 into the policy. On payment of the death benefit, he would collect $100,000 tax free. His total return would be 47 percent over 25 years, regardless of market fluctuations. If you compared it with an account that was taxed on withdrawal, the return would be closer to 65 percent (at 25 percent federal tax rate). When Bob and Mary's kids get older and can afford to buy insurance on their parents, they should do the same.

We are all going to experience death. Legacy planning financially leverages a known event.

Previous articles are posted on my web page at If you would like to comment or make any suggestions, contact me at larrymartin@ or call at 651-4321.
Larry Martin is a registered investment advisor offering advisory services through Main Street Advisor, LLC (MSA). The opinions expressed in these articles may not represent those of MSA. 1407 Main Street, Hays, KS 67601. The Consultants Financial Services, LLC and MSA are not affiliated.