Stop Lending to Your Kids From ONE Policy (Do This Instead) (Ep. 370)

"We have to come up with some strategies. We have to be creative. We're not just doing the same old thing with every single client. There are times we're having to think of something different. Do we do a lot of the same stuff? Yeah, absolutely, because people have the same problems. However, that doesn't mean everybody is treated the same. You can go to any old agent you want, and they can sell you a life insurance policy. Are they going to give you the strategies that are going to meet your needs? Because are they even asking what your needs are? What do you have going on. Which kid is gonna come back? Which kid isn't gonna come back? What's happening with family dynamics? In order for us to truly understand how to best serve you and how to best set up that policy, those are the things that we need to know."

Hello, hello, hello, and welcome back to the podcast. Thank you very much for being here. All right, today we are going to talk about strategies, and I have a lot of strategies. I'm always having to problem solve. If somebody comes to me and says, "Hey, I need this," or, "This is our problem," then we need to try to solve that problem.

Some of the problems or some of the strategies — they're not problems per se, but some of the strategies around children, let's talk about.

And first off, one of my strategies is if you have three children, for example, and all three kids are gonna be different, right? No two kids are the same. Doesn't matter what family they were born into, they are extremely different.

And so one of them might be entrepreneurial. One of them might be a college kid that goes to school and is in school forever and gets some kind of PhD and is brilliant in their own matter, and they go off and have a job. And then the other one may not be doing a whole lot of anything. They just have a regular job. They're just chucking along.

And so people will lend money to their children, or they will give money to their children. And when they do that outside of one policy… Now, if I gave Susie a bunch of money because she's entrepreneurial, and I gave Johnny a bunch of money because he went to college, and the third one doesn't get any money, now we gotta figure out upon my death how that's gonna all be settled up because it's all from one policy.

I'm giving kids money or I'm lending kids money, and I'm gonna have to do the paperwork, and I'm gonna have to track payments back so that if I die, the number three, who didn't get anything, doesn't — number one and number two have to pay number three to make them whole.

Sometimes what I've done is if parents have three children, for example, I will do three policies for the exact same amount of money on the same person. So I have done this twice now, and an example, Mom will have a policy — three different policies, the exact same amount. Every policy is on her life. The children will be beneficiary of their respective policy.

So if I lend money to Susie and I die, Susie's loan is paid for out of my death benefit. There's no arguing, there's no fighting. Everybody's death benefit goes to them respectively. I don't have to keep track of things, none of that stuff.

And so as we're paying for kids to go to college, as we're helping kids get started with their entrepreneurial career or business, as we have kids that are starting to farm and ranch, and we want to help them, but we aren't helping the off-the-farm kids, and we're not helping all kids equally, we may want to consider doing separate policies all for the same amount, so if it's on Mom and Dad, the death benefit's the same for everybody.

What a lot of times happens is clients will come in and say, "Well, Mary Jo, I wanna do a policy on the kids, and then I wanna leave them the policy." You can do that for the same amount of money, maybe, if the child is insurable, if the child's human life value is enough. There's a lot of factors on kids that make that strategy much harder.

As an adult child, we need to make sure that you have insurable interest in that kid. You can't just insure your adult children because they're your adult children. The insurance company has a lot of questions. Even if the kid got a policy on themselves, the insurance company is gonna make sure that they can pay it.

They're gonna look at their human life value and say, "What is the factor of 30 times gross income?" Well, if you're 18, 19, 20, 25 years old, you're probably not making a lot of money, so there's not a lot of death benefit, which means we can't put a big premium on them because we can't… It's too much. It buys too much death benefit. It's over what the insurance company calls their human life value.

And so I'm kind of using big terms here and just going over a big view of it, but we have to be aware of those things. It's not always as easy as, "Oh, I'm just gonna put policies on the kids."

The other thing is, in this particular industry of farming and ranching, I run into it a lot where kids have a lot of money. And so now we have three kids, or we have five kids, and the oldest one is sitting on a ton of money in savings. Mom and Dad are like, "Man, I want that oldest one to get started. I want them to have a policy." But they're like 15, 16 years old. They're not 18 yet.

So when they turn 18, they can own their own policy. Under 18, they can't own their own policy. So what do we do? We cannot structure a policy on a minor to put extra money in year one. On an adult, I can structure a policy so we can put extra premium in year one.

If I do a $12,000 premium a year, I could do $30,000 year one. If I do a $5,000 premium year one — or every year, sorry — I could do $12,000 year one. Because I can put extra money in year one. I can't do that on a minor, but yet this minor has a lot of money. Maybe it's 4-H premium, maybe it's just that Grandpa and Grandma have given them a ton of money over their life, but the youngest one doesn't have that.

So the insurance company says, "If you're going to do policies on kids, they all have to look very similar to one another." And if that's the case, we don't have that money for the youngest one.

So what I have had parents do is they will take the money from the 16-year-old, and they will buy a policy on themselves. So an example again, Mom bought a policy on herself and used the kid's money to pay that premium. Now, she also put that child on as beneficiary.

You don't ideally want that child as a beneficiary because they're a minor, but she didn't care. So when you have a minor as a beneficiary, the money doesn't get paid out till they're 18. The insurance company's gonna hold it in an account that earns interest, but it's not gonna get paid out until that child turns 18. You can have whoever you want as beneficiary. But in this case, she put that child as beneficiary. So if she passes, that kid is going to get the death benefit on her life.

Now, that is a phenomenal strategy. I've done that one a couple of times as well, because we are starting the generational wealth at that point so early on, it's crazy. So if we have kids that have premiums, like 4-H premiums, I mean, of about $5,000 a year, that's phenomenal. Because now we can use that money, buy a policy on Mom and Dad, we can do $5,000 to $8,000 a year in premium. Mom and Dad are still super young in most cases, and that works great.

And then ideally, as every kid gets to 16 years old, they're buying a policy on Mom. And yes, she's gonna be older, and the death benefit is gonna be different, but you can't make everything fair when you're looking at different ages of kids. And so you kind of just try to do the best you can. If one kid doesn't have a bunch of money saved because they weren't workers, they didn't understand money, they didn't care, then they don't get anything. It just is what it is.

And so in that scenario, when that child turns 18, Mom can now make him owner of the policy. She can do an ownership change. Now he will continue to take over the policy. He'll pay the premium. He can use cash value, all the things.

When he's under 18, he can still use cash value. It's just Mom is borrowing it and giving it to him to use for whatever. In this case, we're gonna borrow it. He's gonna buy cows. He's gonna do his thing with cows. It's gonna get paid back. It's still his policy. It's not— They're not treating it like it's her policy and it's his money. They very much are treating it like it's his policy. He understands it. He has control to some extent of it. He just has to ask Mom for permission.

It's not any different than if you had a savings account and Mom and Dad were custodians on that savings account. It's gonna work the same way.

So those are some of the strategies that we're thinking of when we're in a situation with, "Hey, what can I do?" Because this kid has a lot of money, and we would like to do extra premium year one, but we can't on somebody under 18.

Kids are hard. Because under 18, they can have half of what Mom and Dad have. As soon as they are over 18, they're only worth 30 times their gross income. So they can actually have more insurance as a minor than they can as an adult that doesn't make any money.

If you are farming and ranching, and you're selling grain in the kids' name, or they've got 4-H animals, or you've given them cattle, and they're selling cattle every year, they're selling calves — if you are doing that sort of thing and these kids are making a bunch of money, they've built quite their herd, that's what my folks did with us.

I had a lot of cows at one point, just starting with one, 'cause my cows always had heifer calves. And so I had a lot of cows at one point that Dad — I remember Dad joking with me, he's gonna make me pay pasture rent. And so 'cause of my brothers, they always had bull calves, so they didn't hardly have anything for cows, and I had quite the herd built up.

And so when that happens, and now we have all these calves to sell at the end of the year, and we've got this minor with a whole bunch of money, what do we do with them? If we have a fair amount of money at 18, great, because now they're worth something in the insurance company's eyes. But that doesn't mean that it's always that easy to get them insured either.

So those are just a couple of strategies. This is the important piece. If you're working with myself or John, the strategies are key.

There is not a lot of agents, very few, that meet with the quantity of people that we meet with, and you can see it. When I say I've met with thousands of people, it breaks the internet as well. Like everybody gets… I- is anybody even nice on the internet? I don't think so. It's just nasty people. But people are like, "How is that even possible?" Well, I don't… 'Cause I market, because I have a successful business? Like, how is it possible that you're not meeting with people? Like, that's what I'd like to know.

But when you're meeting with the quantity of people that we meet with and the m- amount of meetings that we have in a year, we have to come up with some strategies. We have to be creative. We're not just doing the same old thing with every single client. There are times we're having to think of something different. Do we do a lot of the same stuff? Yeah, absolutely, because people have the same problems. However, that doesn't mean that everybody is treated the same.

You can go to any old agent you want, and they can sell you a life insurance policy. Are they going to give you the strategies that are going to meet your needs? Because are they even asking what your needs are?

We have an hour-and-a-half meeting, and we have an hour-and-a-half meeting for a reason. Sometimes it goes two hours because we're trying to dig deep into what do you have going on. Which kid is gonna come back? Which kid isn't gonna come back? What's happening with family dynamics? In order for us to truly understand how to best serve you and how to best set up that policy, those are the things that we need to know.

I mean, obviously I have other strategies and I've done other things, but those are two that came up in a meeting I had this week that I thought, "You know what? I haven't really shared those with a lot of people," or on a podcast, because it doesn't happen a lot that we need to do that. But it is something that you guys should think about if you're lending money to your kids.

So if you do not have the Farming Without the Bank book, grab the book, grab the bundle. If you can get my book and Nelson's book, that's going to be your best option. Read both of those, schedule an appointment with us, let us go over all of your stuff, and then we'll go from there and see if it's a fit for you. If it's not, we'll let you know that. We're not going to sell you insurance just to sell you insurance.

So let us know how we can help. You know the routine, maryjo@withoutthebank.com. You have a fantastic rest of your day.