One doctor almost lost everything ………..
In 2006 Doctor X found himself in what he thought was the pleasant position of having a substantial amount of cash on hand that was not essential to the operation of his practice. That comfortable feeling did not last long. He quickly fell prey to a predatory insurance agent who sold him on the idea of Section 79 scam as a vehicle to obtain tax deductions. Of course what really interested the insurance agent was the funding vehicle, a large life insurance contract with American General as the insurance carrier, which just happened to net the agent a large commission. Read the rest of the story here
section 79 and 419 lawsuits help www.taxaudit419.com for section 79 help as an expert witness lance wallach has never lost a case
ReplyDeleteWhat is the sales pitch with a Section 79 Plan?
1) Partially income tax deductible to business owners.
2) Once funded money can grow tax-free and come out tax-free (creating a nice retirement nest egg ).
3) Low cost when including employees.
Unfortunately, for unsuspecting business owners, what they don’t know is that, not only are Section 79 Plans not the “best” wealth-building tool they can use, they are not even a “good” wealth-building tool.
I rail against Section 79 plans for several reasons including the following:
1) You have to lie to employees to implement them.
2) The life illustrations given by ignorant or crooked insurance agents are not realistic (most use today’s historically low lending rates with 2-3% loan spreads on variable loans on EIUL policies (ones that do not have a fixed lending rate)).
3) You have to be a C-Corporation to use them.
4) The life policies sold in these plans are so bad that the companies don’t want them sold unless they are in Section 79 plans (the policies are designed to have poor performance so the deduction is increased).
5) Another very good reason not to use these plans is because there are better alternatives like Captive Insurance Companies
6) And the best reason not to use a Section 79 plan is because when you run the real numbers the client would be better off not funding the plan, taking his/her money home after taxes, and funding a “good” EIUL policy.
Conclusion
Section 79 Plans do not offer the benefits of those who sell them. If you are being told by an advisor that should use a Section 79 plan to build wealth for retirement google lance wallach for section 79 and 419 lawsuits help
If you are in section 79 insurance plan file 8886 for audits or lawsuits www.lancewallach.com
ReplyDeleteThe Truth Behind Section 79 Benefit Plans—I Can’t Stand the Hypocrisy Anymore
The Truth Behind Section 79 Benefit Plans—
I Can’t Stand the Hypocrisy Anymore
As you already know, I often tell the readers of my newsletter that many times they are not providing the best advice to their clients. Click here to read a list of cautionary newsletters.
I know I sometimes upset readers when I say they are not always providing the best advice. I walk a fine line between being seen as a straight shooter who just tells you how it is no matter what I’m discussing (sort of the Ralph Nader of the insurance/financial industry) and giving you useful information and tools so you can be unique and provide good advice to your clients.
What about Section 79 Plans? First, you can read my past few newsletters on Section 79 Plans by clicking here and looking for the newsletters from 7-14-08 and 7-22-08. I’ve been consistent in indicating that they are marginal plans from a wealth building standpoint, but I have not broken them down like I will in this newsletter.
What is a Section 79 Plan? Simply put, it is a tax-plan where small business owners are allowed to take a 20-40% deduction through their business to purchase an individually owned cash value life (CLV) insurance policy. This is the huge selling point of the plan.
If you just read the above paragraph, you’d think that a Section 79 Plan is the nirvana of plans because you’ve been trying to get your profitable small business owners to buy CVL for years.
Why are the finances of Section 79 so marginal? In short, the reason Section 79 Plans are up to 40% deductible is because the life insurance policy purchased is a crummy policy by design. That’s right, by design, the policy is a terrible cash accumulator.
The better the policy, the less the deduction. A good policy (Retirement Life) for example would receive only an 8-10% deduction through the plan.
Improving the finances of the Section 79 Plan Section 79 Plans are funded into a crummy cash accumulating policy for five years. Then the client is shown how the policy can be flipped to a variable life policy earning 9% annually going forward. Besides that this is not a conservative example, the numbers are marginal even assuming a 9% rate of return.
Now in the marketplace is a new Section 79 Plan using an EIUL policy. The EIUL policy was also designed to be a crummy cash accumulating policy in the early years so the client can obtain his/her 30-40% deduction (not to mention that the company screwed up their plan for groups under 10 employees by not dealing the non-medical underwriting issue).
Why are so many agents trying to sell Section 79 Plans? This is what really moved me to write this newsletter. Agents are pitching Section 79 Plans to clients for two simple reasons: 1) Many small business clients will buy any plan that is “deductible” because they so despise paying income taxes. 2) Insurance advisors want to sell life insurance.
This brings up an interesting issue. If the plan is marginal from a wealth building standpoint, then why are agents selling it?
Again two reasons: 1) Most advisors have not broken down the math so they can come to the conclusion I have which is that the plans are not worth implementing from a pure financial standpoint. 2) Some advisors know the plan is marginal from a financial standpoint and don’t care because they know they can still sell it to business owners who are looking for deductions.