THE SITUATION
A 50-year-old Brazilian hedge fund manager with a $150 million net worth has thrived as both an entrepreneur and investor in the global financial, real estate, and private equity markets. He and his family moved to the United States and are working towards becoming US Citizens.
The family’s exposure to estate tax could be quite significant. Therefore, as part of his preimmigration planning, he is taking the proactive measures necessary to protect his family. He has a high opportunity cost on his capital and, because his portfolio is comprised of alternative investments that generate very high yield, he isn’t interested in paying premiums out of pocket.
OUR SOLUTION
Combination of Strategies:
$20M Coverage for Each Family Member
This client is still in the accumulation phase of his life and already has a sizeable investment portfolio exposed to estate taxes. It was decided to take advantage of his children’s ages in order to maximize cash value accumulation within the structure, solving potential estate tax issues for the second generation and providing protection to following ones.
That’s when this balanced solution came into play, allowing the client to take advantage of his own investment portfolio and pledging it as collateral. For this client it made sense to execute a combination of strategies targeted towards minimizing the pledge of out-of-pocket collateral and optimizing long term return.
The returns on whole life insurance, along with its guaranteed growth and protection from market risk, have historically outperformed the cost of capital. Premium Financing is a smart credit strategy that merges the cash value of life insurance with lending. This client chose to finance the premiums for the purchase of his family’s insurance contracts because he has a high opportunity cost on his money and understands the benefits of leverage.
This solution is very attractive to hedge fund managers or individuals who own an extensive investment portfolio. It allows them to keep their investment portfolio intact, thus preserving the opportunity cost on their money and optimizing long term returns.
