Client Scenarios: Applying AAVUL
Click to read about AAVUL’s many planning applications useful to your HNW, high-income clients.
Retired Widower (Client Scenarios)
Background
Alan, the retired CEO of an auto parts company, lives in Indianapolis and is 66 years old. He lost his wife a year ago after a long battle with cancer. The three children and eight grandchildren all live within an hour of Alan’s home, and the extended family enjoys frequent visits to a large lake house three hours away.
Investment Profile
Alan’s company pension pays him $135,000 a year, and he also has two board seats that pay a combined $65,000.
His investable wealth is $6.92 million, 62% ($4.29 million) is in diversified fixed income, 18% ($1.25 million) in municipal bonds, and 20% ($1.38 million) in REITs. The portfolio income pays him $208,000 a year. With his retirement and portfolio income, Alan has an ongoing surplus of $245,000 over his lifestyle budget.
Wealth Planning
After meeting with his wealth advisor, Alan decided to restructure his wealth plan to take care of his needs while also transferring wealth to his three children. It’s important to Alan that the wealth he transfers to his children establish a legacy that can support two generations. His remaining investable wealth will be donated to the American Cancer Society.
The planning priorities are:
- Wealth transfer
- Minimize taxes
- Long-term care
- Charitable giving
Investment Plan Execution
Core Tactic
Alan will fund a $1 million AAVUL policy for each of his three children (each paid at $250,000 per year for four years) and set up a charitable trust funded with $3 million.
Planning Priorities | AAVUL’s Execution Benefits |
Wealth Transfer |
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Minimize taxes |
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Long-term care |
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Charitable giving |
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High-Income/Dual Career Family (Client Scenarios)
Meet John & Catherine, Healthcare Successes
Background
John and Catherine have been married for twelve years and live in Chicago. They have a son (nine years old) and a daughter (six). John, 45 years old, is the CEO of a publicly-traded, pharmaceutical company; Catherine is a 43-year old cardiac surgeon at a major teaching hospital.
Investment Profile
The family’s combined annual income is $1.35 million and their investable net worth is $5.41 million. The taxable portfolio has 63% in equities ($3.4 million), 14% in government bonds ($1.67 million), 18% in municipal bonds ($0.972 million), and 5% in REITs ($0.27 million).
They own a four bedroom home on the North Shore, and John has options worth $23 million upon exercise.
Wealth Planning
With their income and wealth highly exposed to the health care industry, John and Catherine are especially anxious to build a stable and well-diversified portfolio. John, in particular, wants certainty that their wealth is secure should his company suffer an operational setback.
As a medical professional in a high-risk practice, Catherine is concerned about exposing the family’s wealth to litigants beyond what her malpractice insurance protects.
They want to ensure their children have fully funded college and graduate school expenses regardless of the institution, and, during their empty-nest years, both want sufficient wealth to fund various philanthropic aspirations.
The planning priorities are:
- Minimize taxes
- Wealth diversification
- Long-term security
- Funding college
- Charitable giving
- Wealth protection
Investment Plan Execution
Core Tactic
Invest in a $1 million AAVUL policy for both John and Catherine in a 4-pay structure at $250K per year. The payment structure permits tax-free cash access to the portfolio’s cash value as well as dollar cost averaging the portfolio’s funding to smooth market volatility.
Planning Priorities | AAVUL’s Execution Benefits |
Minimize taxes |
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Wealth diversification |
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Long-term security |
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Funding college |
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Charitable giving |
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Wealth protection |
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Wealthy Real Estate Investor (Client Scenarios)
Meet Walt & Bernadette, Committed Real Estate Investors
Background
Walt began investing in North Carolina residential real estate back in the late 80s. He would buy, refurbish, and rent homes. As his equity increased, he leveraged his properties and expanded into owning small apartment buildings.
Now 56 years old, Walt and his wife (Bernadette; age 55) are restructuring their wealth plan since their four children are independent; none of the children have chosen to take over the family’s real estate company.
Investment Profile
Walt receives an average of $900,000 in cash distributions each year from his LLC in which he is the general partner. He and Bernadette have a taxable portfolio valued at $3.79 million, 80% of which is allocated to diversified public equities and 20% to private equity. The real estate investment portfolio is worth $38.2 million with a cost basis of $14.1 million.
Wealth Planning
Walt plans to work another 15 to 20 years at which point he and Bernadette want to fund trusts for their children and any grandchildren. Walt’s biggest concern is his highly concentrated positions in real estate, especially given his fears about a replay of the 2008 global liquidity crisis.
Bernadette recently lost her mother after a long stay in a nursing home, and her main focus is a comprehensive long-term-care plan that maintains the lifestyle Walt and she have enjoyed the past ten years.
The planning priorities are:
- Wealth diversification
- Long-term security
- Flexibility for funding trusts
- Minimize taxes
Investment Plan Execution
Core Tactic
Invest in a $12 million AAVUL policy in a 4-pay structure at $3 million per year. Two apartment buildings, with a combined $16 million in unrealized gains, will be used as collateral for a bank to fund the premium payments.
Planning Priorities | AAVUL’s Execution Benefits |
Wealth diversification |
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Long-term care |
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Flexibility for funding trusts |
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Minimize taxes |
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Recent Divorcee (Client Scenarios)
Background
Sandra is 49 years old with one child (age 12); she currently does not work. She and her husband divorced last year, and Sandra intends to remain in her Denver home at least until her son graduates from college. When her son goes to high school in two years, Sandra plans to return to work part time as a nurse practitioner, to rekindle the career that has meant so much to her.
Investment Profile
Sandra’s divorce decree provided her with $185,000 in alimony and child support (both will end when her son is 22 years old) and $4.61 million in investable wealth.
Currently, her portfolio is 100% allocated to fixed income. Sandra is responsible for the debt on the home ($670,000 with 14 years left on the mortgage) as well as her son’s college expenses.
Wealth Planning
Sandra’s anxiety about retirement income drives her focus, and it’s her desire to maintain the lifestyle she’s become accustomed to. Given her family history, she expects to live into her 90s and the 40-year horizon is of concern to her.
She will receive approximately $42,000 in social security payments if she begins at age 67, but she lacks any other meaningful retirement income.
Her lifestyle expenses will reduce to $164,000 (inflation adjusted) by the time her son graduates from college, but this requires over $200,000 in gross income, putting her into the 33% federal bracket at current rates.
The planning priorities are:
- Education funding
- Retirement income
- Long-term care
- Minimize taxes
Investment Plan Execution
Core Tactic
Since her alimony and child support payments will sustain her for the next 10 years, Sandra will fund a $4 million AAVUL policy at $1 million per year. This will leave her with about $500,000 in a taxable portfolio. This policy will be her primary retirement portfolio and wealth resource for the remainder of her life.