Universal Life Insurance to avoid inheritance taxes

My retired sister in law invests her money with Edward Jones. She plans to leave money to her only son when she dies, somewhere between $500k and $1M. The EJ guy is telling her that this will get eaten up in taxes given the 10 year rule now on inherited IRA’s. So, he is suggesting that she move money into a UL policy such that the money moves tax free upon death.

I don’t know how it works. The UL policy would be indexed to inflation, and any money in it would not be available to her in the future, so she needs to make sure she has enough without this. I also didn’t know you could move money into a UL policy rather than it building up over time as a normal UL policy would. Premiums are $500/mo.

If she moves money into it, then it would not be invested I’m assuming. Rather, it would only increase with inflation if I understand the “indexed to inflation” part. If she’s around another 20 years, would the increase in value be meager? I’m sure the EJ guy is getting a decent commission out of this.

It doesn’t sound like a good idea to me, but I don’t have the details on why. Does anyone know what this about?

If she moves the IRA money out, she’d have to pay taxes (federal and probably state) on it, right? Then why not move it to a Roth IRA (do a Roth conversion)? Then the money can continue to grow tax-free, and when inherited, will be tax-free, too.

The insurance policy sounds like a way for someone to make a nice commission…


At $1M her estate is not remotely near the size where a life insurance policy would make sense.

The “what this is about” part is that it is about the fat commission the Edward Jones guy is going to make make when he sells her the UL policy.

It’s what they do


Your sister-in-lay might want to read the information about universal life insurance at whitecoatinvestor.com. The articles, written for high income/ net worth individuals, go over the reasons the policies are bad choices.
Also your sister-in-law might want to consider other institutions to invest her money.


Thanks for the replies. I have been trying to get her away from EJ for a while, but the guy is a friend of hers. I’ve told her he’s not doing her any favors. These replies give me more ammo to talk with her further.

This is correct advice.

I cant speak to EJ because I don’t use a financial advisor…but I would think if this person was a fiduciary they would have a hard time explaining this transaction.

Depending on your sisters current level of income, laddering from a Traditional IRA to a Roth IRA could make sense. This would eliminate the 10-year drawdown requirement.


She needs to get out of Edward Jones but that is a whole other battle.

Wonder what the Bogleheads forum would say on this? They definitely would tell your sister-in-law to dump EJ and avoid life insurance schemes advice initially, especially from EJ.

Personal Finance (Not Investing) - Bogleheads.org

AutstinBonds is correct. There are two things that I try. I show the SPIVA data comparing performance of active versus passive (index) funds. Over the last 20 years, over 95% of active U.S. domestic funds underperformed their benchmark index performance. The info can be found by searching for “IFA SPIVA 2022 year-end active vs. passive scorecard”. I also will use an investment returns calculator to show the difference that higher expenses will likely make on their portfolio. For a 1 million dollar portfolio and expected 7% returns, an additional 0.5% expense ratio will reduce returns by about $90,000 over 10 years

The IRA is inheritable w/o paying any taxes. The son would have to pay the Minimum Required Witdrawel once his mother reaches 70 years old if she wasn’t before she passed. If the mother is in a lower tax bracket, then the Roth conversion is a good idea. Then from that point on no one pays any taxes. Whole Life products used to be a good way to avoid the huge Death Tax situation, but that was only for the ultra-wealthy and I believe that Tax loophole which made it possible has been closed. I knew some people that made huge amounts of money selling whole life policies to older people, in the hundreds of million dollar realm, but there was a tax code that allowed them to deduct the premiums in a way that made it work. How much would the premium for a $500M whole-life policy cost for an 80-year-old person? Around $500M + Commission! Without the Tax issue, it doesn’t make sense. If you already have a life insurance policy in place, it will go to the inheritor tax-free. WL can be useful at times. She needs a Tax advisor, not an investment advisor!


Are you saying that you know of a way to do a Roth conversion without paying any taxes?

I was kind of thinking the same thing - The more you convert the higher your tax bracket becomes

I read the statement as you can inherit an IRA without paying “death” taxes…

To be accurate, the statement should say “Once a Roth conversion is done, the IRA is inheritable without paying any taxes.”

The sentence that follows the one I quoted doesn’t make sense to me. It says “The son would have to pay the Minimum Required Withdrawal once his mother reaches 70 years old if she wasn’t before she passed.”… what does THAT mean?

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No, but if her tax bracket is low it makes since. That’s the nature of the Roth. A traditional IRA only defers taxes with exceptions of lower taxes later. But, I think the reality is taxes go up and people’s retirement incomes are higher. For the most part the Roth is a good deal. The growth isn’t taxable as well. But, an inherited Traditional IRA means you pay the taxes and if you are still working it could make your taxes even higher.

Just to clear… SOMEONE is going to pay the tax.

During you’re twilight years spending money you might need for who-knows-what just to benefit your heirs might be taking an unnecessary chance on your future.

Death and Taxes! The point with the Roth is to pay as little taxes as possible. Many people think that is cheating, but if it is, the country has a lot of cheaters. If the rules allow it, then do it. Trying to leave money for your heirs is noble, but to some, it is considered mostly as a bad thing. That’s a different discussion. It’s probably not a good plan to suffer just to do it, but at the same time, it’s a good thing to try to leave it in the most economical way. Who wants to leave it for the government to take it? I’m nearing retirement and I still utilize the Roth IRAs. I think my taxes will be higher when I actually need the money than they are now. It’s a crap shoot, no doubt.

It’s not cheating, it’s just being dumb. If you’re dealing with a retiree with less than a NW of $1M dollars it’s not smart to take a chance by spending money to benefit heirs when old-age heath care is skyrocketing.

I understand, but calling someone dumb for what they desire to do with their own money is a bit much. I have a net worth of less than $1m and would sacrifice some of my treasure to help my children have a better life. And, the cheating remark had nothing to do with the inheritance issue. It was more of a political commentary of those that think trying to pay as little tax as possible, is cheating. But, if someone wants to leave an inheritance, then they should try to do it the best way possible. I agree that in many situations it may not be the best way to go about it, but they worked for their money, and it may just make them happy to share it. I’ve had several conversations with family members like this before, but none of them were “Dumb.”

When family members talk their seniors into taking action to transfer assets in order to qualify for low-income senior housing and other benefits, it’s cheating. That’s why the practice is unlawful. It happens a lot.

If a retired senior who has expended funds to save an heir a few bucks on taxes doesn’t have the money to pay for a life-or-death treatment, it’s dumb. And asking the heir to pay for it is likely a financial hardship for the heir.

Only true if the estate’s value does not exceed the estate tax exemption (currently ~$13 million).