All Forum Posts by: Zachary Paschke

 Two member, you should just buy independently unless either of the two are true:

1) Prices are wildly different due to health or age. (Ultimately the cost still won’t be fair, but some prefer the partnership pay so it can affect the distributions accordingly.

2) You intend on more equal waited partners in the future. 

Remember you shouldn’t be writing this expense off as a business expense. I’ve seen some CPAs try to be so bold, but it’s not a good idea.

I recommend one if two solutions based on the situation:

Preferable option: GUL with living benefits- this is a low cost policy. I take them out until age 95. Offers the opportunity to cash out the policy due to death, chronic, critical, or terminal illness. After 20/25 years you can choose to either take return of premium (get all your money back) or keep the coverage going to age 95.

Secondary opinion: term life with living benefits so you can still have the death, critical, chronic, terminal illness riders. You simply won’t have the option of return of premium or continuing coverage to age 95 at the same price. This option is obviously less expensive. 

The chronic, critical, terminal illness riders are a big deal. Think if this: if a partner gets cancer, does the other partner need that money before or after the other partner dies? Likely before. The partner with cancer at minimum will have treatment, but may decide altogether to stop working. This can alleviate that worry and some policies include the benefit for free. 

 I'm always here to help. Always good to meet a fan of The Office! 

 Nope. How did they get the cash for the down payment? They worked for it. You're working for your equity in the deal. You present the offer, if they don't think it's fair, shop it to someone else. If you refi the loan to buy another property, you'll be the power force behind multiplying the money. The bank is fronting 80% of the money and doesn't get cut in on the deal. Get good deals, get rehab budgets out quick and people will love you forever. 50/50 is a fair offer if you're the one with the experience and running the whole deal. Also, if you talk with confidence, they'll just assume that's how deals like this work - because it is. 

I think this looks good, but I would think you should be able to walk away with more than 20% of the deal for doing the legwork if they don’t want to be involved. I’d look at 50%. Especially if you’ll be taking responsibility for management. Even if you have a management company, you’ll need to manage them and the partnership. I know you say you split income 50/50, but I would write the whole agreement that way. 

You’re not the dumb money in the deal. You deserve more than a 10% kicker.

Yes, this is incredibly common with one clarification. The LLC would often buy the policies for key employees or potentially if there are 3 or more partners. 2 partners simply buy policies on themselves.

Really smart because partners often don’t want the family of an owner being stuck with ownership shares. This is called a “buy-sell” policy. You have a lawyer draw up the agreement so it’s in writing before someone gets sick or dies (so that no one is making emotional decisions) and fund it with life insurance until the company can afford the it. 

The cheapest way to get the job done is to get simple term life policies. There’s nothing special about the policies, just how you explain the need to the insurance company. You should always pick a company with living benefits so the partners can get an advance on some of the death benefit if a partner is critically, chronically, or terminally ill. Think about it. If you get terminal cancer, is your biggest concern showing back up at work. 

My recommended policy is to get an IUL or GUL with living benefits. Here are the reasons: 

-You have a policy that grows as the business grows. 

- You have 3 ways to pay - Death, Illness, and paid off coverage.

- You can structure the policy with cash in a way that it is a paid off benefit that can be given back to the partner it covered once the need is gone or surrendered for return of premium. 

The coverage you get depends on the needs of the partnership. I’m more than happy to answer any questions about that. 

It’s never recommended that you try to deduct life insurance premiums. Some CPAs have the stomach for it and others don’t. The reason is the death benefit is tax fee. If you deduct your premiums- the beneficiary would technically owe taxes on the death benefit. 

I would shop your price with a broker that has access to 30+ carriers. It might be a better way to save some cash on your premiums. If the goal is saving money, look for the easiest way to do it. 

 It’s interesting you bring this up. I do actually get dividends on my auto insurance. When the carrier makes money at the end of the year they give me a credit of my portion of the profits on my final bill for the year. They’re a mutual insurer so by purchasing a policy, I get the benefit of their profit. 

Same thing happens with Whole Life dividends. The designation of “return of premium” for dividends is a tax designation that gives you improved tax benefits. It’s like depreciation on a house. The house is never worth $0, but you get to depreciate it for tax purposes. 

My daughter (a really young person) has a policy that is guaranteed after 20 years to be worth in cash what I paid. At that point, I stop paying. On top of that she’ll get a dividend in addition to the guaranteed interest. Even though I’m no longer paying into the policy, she’ll continue getting a dividend. The carrier will end up putting more in the policy than I did. Will she need to supplement with term from time to time? Yes. But she’ll always have a healthy whole life policy that’s paid off to help.  

Most of my business is dealing with clients who are in their 60’s and they haven’t been able to save what they wanted, or they got remarried later in life and need to protect a whole new family, or need some coverage for a business they’re starting, or realize they need to provide some tax free cash to help their family cover the taxes as they pass (especially as there’s serious talk about getting rid of stepped up basis for real estate).

Whole life isn’t to replace term, but people are often very glad they have it. I don’t think anyone argues to replace your investing with insurance, we just use it as a hedge. Sometimes life doesn’t work out the way you think it will. 

I’ve personally done a few things. I know a few may not work for you, but why not share:

1) I bought my daughter a house. I’m operating a duplex as a rental and paying in the mortgage in a way that it will be debt free when she’s 18. When she turns 18 it will be up to her to investigate the best way to avoid taxes on the transfer and if she wants to live in it, sell it, or rent it. 

2) The night my daughter was born, I leaned over to my wife’s belly and told her if she decided to come before I had to leave for work (I had a different job at the time that I really didn’t like) that I would give her $500 cash. My wife’s water broke a few hours later. I told some family the story and she soon had almost $1k. I put that in a UTMA. I personally manage it, but you can invest in index funds. My dad and I each contribute $50/ month into the account and she currently has close to $6k. Not bad for a 3 year old. 

3) She has her own dividend-paying Whole Life policy. Actually she’s about to have 2. The first one I didn’t really know what I was doing. I’ll leave it, but I’m getting another that I’ll pay off early. They’re so cheap it’s dumb to not do (note: I have plenty of life insurance on myself). I do feel strongly about this as buying kids a GOOD dividend paying WL policy (and paying it off early) can be one of the smartest financial moves you can make for them. It’s protected growth. I’m not talking about a Gerber Grow Up Plan here. Most agents won’t recommend it because they don’t make as much money on them (when they get paid off early). 

4) All of the money she earns goes into 3 piggy banks. 1 for charity, 1 for spending, 1 for savings. I believe only allowing kids to spend or only to save their money is an unrealistic picture of how money is spent in life. 

5) Once she's old enough to work she'll get a ROTH IRA because it's tax free money I can write off as a business owner that will grow tax free for her.

Some notes on $800-$900. Alone, You could invest this amount in an account in your own name. The point of a UTMA is to transfer the tax on growth. The Taxable growth on $1k won’t be a huge expense. You can toss it into VOO (Vanguard’s S&P ETF). And let it grow. If you’ll start regularly adding, then I’d look for something more tax efficient. Everything I’ve listed above has a different tax advantage. 

Good luck! 

For sure the insurance company  

 I’m not familiar with the laws in other countries, but in the US you do have to have insurable interest in the US and US funds to get a life insurance policy. I’ve done it for clients that are not US citizens. 

You have to have insurable interest (often business or property in the US), sign documents and receive the policy in the US, and maintain US banking. Most carriers will want you to spend a certain amount of time in the US as well.