Rain And Shine

In a contracting economy, observers say, life insurance is also viewed favorably among the affluent because of the product's superior cost/benefit performance relative to investments that are suffering below-average market returns, such as stocks, mutual funds and exchange-traded funds.

"When showing a client the benefits of using insurance in an estate plan, much of the time they want to know whether the insurance is a good deal," says Blaser. "The internal rate of return of a guaranteed universal life policy, as measured by the ratio of the premiums paid to the death benefit at life expectancy, is very attractive in today's interest rate and investment environment. Typically, it's as high as 6%."

Also appealing in today's low interest rate environment, sources say, are other life insurance-funded vehicles, such as grantor-retained annuity trusts and testamentary charitable lead trusts. With a GRAT, the grantor transfers appreciating or income-producing property to the trust in exchange for a fixed annuity for a period of years. When the term of the trust ends, the remaining balance in the GRAT is transferred to the remaining beneficiaries.

A CLT, by contrast, pays an income stream to a designated charity. At the close of the trust period, the remaining trust property returns to the grantor or to other non-charitable beneficiaries. A key benefit is the ability to "zero out" the estate tax.

Sources note, however, there is greater demand for the interest-sensitive CLT than for other charitable planning vehicles, most notably the charitable remainder trust, which operates in reverse fashion (providing an income stream to the grantor or beneficiaries and a remaining interest to a charity.) Blaser says the CRT, a vehicle well suited to deferring capital gains tax on highly appreciated assets, is garnering less traction than in years past, in part because of the currently low long-term capital gains rate (15%).

Another reason: Many of these "highly appreciated assets"–summer villas, artworks, stock options and the like–no longer hold the high values they did in recent years. And so many of the high net worth, fearing either for their retirement or for the family legacy, are feeling less charitably inclined.

"Most affluent clients who give to charity do so for emotional reasons, rather than tax reasons," says Tyrpak. "But if their portfolios are dramatically affected, the levels at which they're willing to contribute to charity is somewhat reduced."

Also diminished is their desire for aggressive planning. Family limited partnerships, off-shore trusts, private annuities and 419(e) welfare benefit trusts are falling out of favor. Sources say that is in large measure due to heightened IRS and judicial scrutiny of these vehicles, which have been the focus of much-publicized abuses in recent years.

To protect their assets, many of the high net worth are also giving their portfolios a more conservative tilt. Wilma Anderson, a principal of Senior Care Associates, Littleton, Colo., says her clients are increasingly asking about policy guarantees, such as secondary guarantees on UL products, to secure their invested principal or the death benefit; and, in the case of long-term care riders on such products, to help assure that their nest eggs remain intact.

"The question I now get most often is, 'Will I have enough money to last my lifetime,'" says Anderson. "Perhaps 2 to 3 clients per week call to ask about this, which is unusual. In my 18 years in this business, I've never had so many people call with this concern."

Adds Bob Graham, an advisor and CEO Scottsdale, Ariz.-based RG Capital: "Our business is up significantly from last year because of the [economic] uncertainty. People are much more concerned about their portfolios and want advice. I now get between 5 and 10 referrals per week from people looking for help."