tax benefits of using a premium deposit account
tax benefits of using a premium deposit account
November 4th, 2022
New West Short
Estate Planning & Avoiding MECs
The IRS announcement of the new annual exclusion and lifetime exemption taxation has put an added emphasis on this year's estate planning conversations.
Want to  brush up on estate planning before talking your clients? 
Framing Your Legacy from Pacific Life covers everything from the basics to advanced planning strategies including various Trust plans.   
We're seeing a resurgence of multi-generational plans focused on single pay designs.  Adequately funding a policy without creating a MEC* can be a challenge.  The solution goes by many names depending on the carrier, but the overall concept is known as a Premium Deposit Account.  The client makes a single lump sum payment into the carrier's Premium Deposit Account (PDA) and annual premiums are paid from that account into the policy automatically.  Usually premiums are paid between 3-10 years.  Not only is this a clean one and done payment design for the client but the money that remains the PDA is working to earn interest.  For example, paying a single lump sum of $100,000 into a PDA could net a total premium amount of $110,610 (paid into the policy over 7 years). That's $10,610 of additional premium paid into the policy!  
Even better news is that many carriers are increasing the interest rates on their PDAs. See below for some of the carriers we work with that offer PDAs: 
  • Allianz
  • Columbus Life
  • John Hancock
  • Lincoln Financial Group
  • National Life Group
  • North American
  • Pacific Life
  • Penn Mutual 
Carrier not listed?  Fear not - alternatively we can put the lump sum into a Single Premium Immediate Annuity (SPIA) and achieve similar results.  
Get all the details on Modified Endow Contracts (MECs) and the taxation of life insurance in this reference guide by Mass Mutual 

*Premium Deposit Accounts are not available on all products offered by the carrier.  
Contact me for more information on avoiding MECs in estate planning.

Melissa Church
Director of Marketing
208-622-5211 x 2
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