128. Mark Kull, Capitalis Planning Partners — Be Your Own Bank: How to Fund Your Vision of the Future

subscribe NOW

Over-funded whole-life insurance often gets a bad rap. But, for high earners, it is an important piece of a strong wealth creation strategy. Is your firm leaving money on the table? Today, Mark Kull, founder at Capitalis Planning Partners at Northwestern Mutual, explains the benefits of over-funded whole-life policies and “infinite banking” for litigating firms.

Mark is an expert at creating security through financial planning. At age 19, he began as an intern at Northwestern Mutual. In a nationwide cohort of 1,700 – Mark ranked second. Nearly two decades later he has helped attorneys across the country and been featured in Forbes magazine, TOPS Magazine, and Business First among others.

Whats in This Episode

  • Who is Mark Kull?
  • Who can benefit from over-funded whole-life insurance?
  • How can a law firm become its own bank?
  • What is the difference between standard and over-funded life insurance?
  • What unconventional ways can a firm financially support partners and employees that benefit the firm?
  • How d you hire the right person to put the correct policy in place?

Transcript

Mark Kull

If you’re making a half a million or $5 million or $10 million in America, you probably can’t Google and follow the advice of those kinds of people.

Chris Dreyer

For high earners who want to leave a long term legacy, overfunded whole life insurance -done properly can be a wise investment. Despite what you’ve read on Google.

Mark Kull

All of a sudden you’ll be really confused because it’s wait, I thought everybody hated whole life. And then you get up to the top of the pyramid or the end of the bell curve. Wait a second. Everybody loves permanent life insurance. What is going on?

Chris Dreyer

You’re listening to Personal Injury Mastermind, where we give you the tools you need to take your personal injury practice to the next level. For those in the top tax brackets, permanent life insurance is an important piece of an overall wealth creation strategy, but overfunded whole life insurance often gets a bad rap. To help clear things up. We have a great guest Mark Kull. He specializes in helping personal injury attorneys set up overfunded, whole life insurance policies and infinite banking for litigating firms. Mark is one of those few people who truly knew what he wanted to do as a teenager at age 19 he began as an intern at Northwestern Mutual. Out of 1700 interns, Mark ranked second in the country. Nearly two decades later, he’s been featured in Forbes, tops, magazine, and business first, among many others and his business spans across the country. I’m your host Chris Dreyer founder and CEO of Rankings.io. We help elite personal injury attorneys dominate first page rankings with search engine optimization. Before we begin, please know that this conversation is not intended to be recommendations for specific investment behaviour and it’s intended for informational and educational purposes only. This is not a research report or investment advice and not to be relied upon for a basis of investment decisions. Investors are advised that past investment performance is not guaranteed for future price performance. Before making any investment, you should carefully seek independent legal tax and regulatory advice. All right. Let’s start. The show. Being at the forefront of marketing is all about understanding people. So let’s get to know our guests. Here’s Mark Kull founder of Capitalist Planning Partners at Northwestern Mutual on how a teen became enamoured with finance.

Mark Kull

I love this industry somewhere around my junior year of high school. Through junior achievement, whenever they would bring business people in from the community to teach we played the stock market game and the stock market game gave you hypothetical money to try to build a portfolio. And I’d always been extroverted. People had always told me, Hey, I think you’d do, great and sales. And then the combination of really enjoying the pursuit of, making money coupled with the human contact element of financial planning. So is sure as someone can be as a junior in high school, I thought, yeah. I want to be a financial planner. And so it’s funny if you want to be a police officer, a firefighter or a doctor in high school, and you tell people they don’t question it, but when you tell them that they say that’s a great career, keep your options open. And then I got to college and it’s my rendition of keep your options open was go to business school, go to a career advisor name Ali Goatley, and be like, Hey are there internships and financial planning? And so I showed up Almost finished with my freshman year of college at Northwestern Mutual and Louisville, Kentucky. And they said, yeah, we have this long standing internship. We’ll actually get you licensed. You’ll have to do all of your meetings, like with a mentor, because who’s going to listen to 1920 or 21 year old. However, if you originate business, split the revenue from that with them. And I was like a one interview clothes. I said, is there any limit to the amount of business you’re allowed to originate? And they were like, no. And I said, yeah, I think I’d like to do this. And so that was in may of 2003, and here we sit in may of 2022 and 19 years later I keep showing up nobody’s fired me. So I keep showing up.

Chris Dreyer

Well, you come highly recommended. a large percentage of our audience is personal injury attorneys. And I think what you do has some very valuable, impact. How did you end up working with so many personal injury attorneys?

Mark Kull

It’s very interesting because when you first get into this business, they pretty much tell you like, Hey, your income will mirror the people that you’re calling on. And so I initially started with big firm attorneys think like super regional attorneys, which back when I started in this business, they were making between 95 and 105,000. Which when you take a job making zero sounds like all the money in the world. So I did what everybody did. I’d find my way in with one eye. I print off a feed list of a whole bunch of people that were also associates and be like, Hey, who else do you think I should be talking to? And we retain a lot of those clients today. But what I realized about those for is I was essentially working on a contingency basis. They were working on an hourly basis. And so I wasn’t charging by the hour back then for my time. And so I might have three or four meetings with them, Chris. And in the end, they’re like, no, I think I’m just going to stay the course with what I’m doing. And I met a personal injury attorney who’s now quite frankly, no exaggeration, like nationally famous. He was involved in the Brianna Taylor case. And when I first met him, he was a solo guy. He comes into our office and says, if this phone rings I’m going to have to pick it up. And I just watched how hard he worked and realized that he never wanted to waste my time or vice versa, because we were only going to get paid if the client got the outcome that they liked. And so he was in my age range and the godfather of the young folks and that were in the plaintiff’s bar. And so I just started bouncing around on a friend to friend basis, and then I started encouraging a whole bunch of people to leave their super regional jobs and start their own firm. And so it’s weird. We have a bunch of blue collar business owners as clients. We have a bunch of medical sales people, whether it’s device or durable equipment. And then we have a ton of members of the plaintiff’s bar. And I think the fact that they work on contingency. So they don’t want to waste your time or their time. And number two, that they have variable cashflow, no different than the business I run. And number three, that most of them are a large percentage of them are either small businesses or maybe partners in a larger practice. But they understand what it’s like to meet payroll, to have to pay for everyone’s laptop, to have to provide benefits. Those were all the things, I was thinking about. So I’ve probably been to more justice associations and those type of meetings is a non-attorney than just about anybody you’d ever meet.

Chris Dreyer

That’s incredible. And the first thing that I think of when I hear you insurance, is I think I have the standard reaction. A lot of people do. I think of, everyone’s been invited to that breakfast, Northwestern Mutual push and term or whole life. And I, and I’ve got the bad pitch, cause if they would’ve gave me the good pitch, I would understand said the value. And so I want to jump right in there. And so I just want to get some basic terminology down. So first. What is this concept of infinite banking or being your own bank?

Mark Kull

And I think that infinite banking is a concept has been around man probably for 50 plus years. At this point, plenty of people have written books on it. And infinite banking in and of itself is just that it’s a concept. There’s no actual product per se. That necessarily is an infinite banking life insurance policy. The concept of infinite banking is. Yeah. At its core, there’s two types of insurance. There’s term life insurance, where you buy protection for a given period of time. And if you pass while you’re in that time, your family receives the death benefit, proceeds tax-free. And if you outlive it, you had the protection, but it’s a sunk cost at that point. And then there’s permanent insurance. Permanent insurance can come as whole life or cash value. Insurance is universal. Life is variable. Universal life is index universal life. Infinite banking is this concept of, Hey, while I’m alive, I have a permanent death benefit that never goes away while simultaneously building an accumulated or cash value that I can use on a tax favourable basis during my lifetime. So the concept is, Hey, look, if I can build assets inside of an insurance policy that are treated tax favourably and they can grow faster or at a higher rate than what they might grow in a deposit account. And I can use that money pre 59 and a half, because it’s not qualified dollars. Like an IRA, 401k, SEP IRA, Roth, IRA, et cetera. Then I could essentially quote, turn myself into my own bank. I could have money in the policy and when I needed it for any reason, I could take it out. And when I pay that money back into the policy or replenish it, most of the interest I’m paying is actually going back in to the accumulated or cash value. So the concept’s probably five decades old, but it remains, grounded in the fact that you’re using a product that can overtime when properly structured with the right company gets you a better rate of return than you might on your own cash. And also has some incredible flexibility in how you access the living benefits of the policy.

Chris Dreyer

There’s so much here and we’re going to have to dig into this because the first thing we have to talk about the arbitrage, the advantages of that of what you’re borrowing against and how it continues to grow. And I know we’ll go down that, that rabbit hole a little bit and how you can utilize those funds and borrow against it. But let’s talk specifically. Personal injury attorneys, how have you seen people manage litigation practice historically? And how could this be, utilize. From a cashflow perspective for these personal injury attorney.

Mark Kull

Yeah. that’s the deal right there is that, in my opinion, what I’ve seen far too often is that folks who are solo practitioners or set up their own firm, so they’re not super benefit heavy, like whenever they were in-house or have counsel somewhere or an associate or a partner in a big firm. And so a lot of times they don’t have 401ks. Cause what they’re telling me is. Hey look, my best and highest use of a dollar is putting it back into a case. There’s no rate of return in the known universe on any individual equity insurance policy, et cetera. That’s going to get me the rate of return I can get if I get a successful verdict for my client. And I agree with all of that, however, and it’s a big, however, Normally means that they just hold on to gobs and gobs of cash. The problem is you don’t always need the gobs and gobs of cash. You need the gobs and gobs of cash on the right cases for all the expenses we all know are associated with the right cases. So my view has always been. Hey, look, what if we keep enough cash in cash right now? Cause it does take time for these policies to build where it makes more sense to be using the policy than it does your own cash. But if somebody has got a lot of cash and I say, Hey, what’s an expensive trial. Let’s keep that cash on the side. And then let’s take that other cash and new cash that comes in and, start building this war chest for you. And then ultimately once the war chest inside of the policy gets big enough that you feel comfortable, that you could try a really big case with it. Then maybe you still keep the operational cash just for salaries and stuff. And, or you can continue to put it in the policy. So in the past, I’ve just seen it as Hey, I know I should be doing something other than have it in cash. But I need it to be really liquid, but I hate the fact that I don’t get any return on it. And the one thing Chris, most people don’t know is you pay ordinary income tax on the interest earned in a deposit account. The problem is we’ve just gotten such little return on deposit accounts in the current interest rate environment that most people don’t realize they’re paying interest because even right now, if you’ve got a half, a million dollars or more on deposit with the exclusion of some online banks, you’re still in the. 50 basis points to, if you’ve got a really great banking relationship, maybe a hundred basis points or 1%. And so that’s how I’ve seen it in the past. I can’t get rid of it because I need liquidity, but I hate the fact I’m not getting any return. And if I do get returned, I have to pay ordinary income tax. And if I’m holding that much cash as I’m normally making good money and in a high marginal rate, so we’re just trying to sell. Hey, look, let’s carve out what we know we need to have. If that case falls in our lap tomorrow, and let’s start building a better long term strategy, because unless you think you’re getting out of this business in the next two to five years, that’ll give you enough runway time to be able to do both.

Chris Dreyer

Yeah. And first you don’t pay taxes on debt yeah. So that’s the first one borrowing against the policy. The second thing is it continues to grow. It’s not gone. So if you compare your options and I’m not an attorney, so I don’t know all the options that, that many of you listening do, but very common one that I’ve heard is they’ll go borrow against the line of credit. The line of credit’s not creating value in growing over time. It works from. Cashflow perspective, right? Your case settles, you’ll pay back the, all your expert witnesses and all the costs you accumulate during the trial. You go pay that back after settles the line of credit, but it doesn’t continue to grow. You might be able to borrow more because of reliability. Is that what I’m hearing when you compare these types of options?

Mark Kull

Yeah. And the thing to remember from a tax perspective as permanent life insurance is powerful because you get to take out basis first. So if over the course of 10 years, you’ve been dollar cost averaging 50 grand a year in, and you’ve got 500,000 and through interest, 500,000 of basis and through interests, maybe now you’re at 650,000 of accumulated value. Most companies will allow you to borrow 95% of that value out of the policy. You’re using your policy as collateral with the issuing company, right? However, while the money’s out, you still have the permanent death benefit. Less, whatever you borrowed. So if this was a $2 million policy and you took out a half a million, you pass the next day, your family would still get the million and a half dollars. Number two, you still continue to get dividends if it is a participating policy. And if you’re going to look down this quote concept, because again, it’s not a product of infinite banking. You’re really only going to want to buy a policy from a participating company that pays dividends. And when you pay policies back or replenish them a vast majority of the quote interest that’s being charged, because it is interest. If you don’t pay it back, it will continue to accumulate. But so much of that goes back into your policy. So you do have your cash value continuing to grow, and the policy is getting diverted. And you are getting a big chunk of the interest. So the net borrowing cost is pretty slim compared to traditional vehicles. But again, I would say two things. Number one, it does take some time to build up because even when these are structured properly, Chris, it’s you might have a seven to eight year break even. Where it’s okay, I’ve put in three 50, it’s finally worth three 50, man. Mark. You’re really good at your job. It took you seven years to break even, but then the hockey stick takes off. And so it might’ve taken you seven years to break even. And then all of a sudden, in this example, you look up and seven more years and you’ve got 700,000 of basis, but now it’s worth 1,000,001. And you’re like, oh, I get it. And even if you retire someday, if you started the concept later in life and you retired. We would believe that you’re going to have some amount of quote, safe dollars on your balance sheet and because insurance is funded on an after-tax basis. So it’s not tax deductible. And because it grows, tax deferred and because it can be accessed basis first, which is so powerful If you’re going to have some saved dollars on your balance sheet, we would argue that even once you get out of the practice of law, these are better safe dollars than a lot of like alternatives, like deposit accounts, like corporate and municipal bonds. So you can think of it like a Swiss army knife. There are a lot of uses the most important use of my opinion that most clients see in their later years is permanent death. They might say, Hey, I did this as a better way to finance my own cases. I did this as a way to give me a much higher ability to contribute than a 401k or IRA would all these things. And then a lot of times they have their first grandchild and all they care about is now has all this death benefit going to be there. And tax-free someday, when I’m gone. So it is a if you give it enough time, buy it from the right company properly structured, properly funded. It can just be an incredible tool in your tool kit.

Chris Dreyer

I couldn’t agree more and I a mad, angry at myself. So I’ve had term for awhile and I know your standard, whole life insurance when I got married and I have a kid and it’s man, if I would’ve done, whole life and specifically overfunded, I could have had that same security. But then during that time period of accumulation, I could have utilized it for my real estate investments. That are going to appreciate and grow at a larger, there’s that arbitrage of my borrowing rate versus the arbitrage of my growth of my real estate. And now seeing what inflation’s doing, it’s this. So I see a ton of advantages and how those funds could be utilized. But I kinda want to take it back a little bit. I want to take it back. So let’s just do some basics here, what we’re talking about, what’s the difference between standard and overfunded or permanent?

Mark Kull

Yeah. So when you buy life insurance, just like anything else, think about quote over-funding or what we call additional premiums to be like a principal only style payment on a mortgage. So when you buy a 30 year mortgage, you know exactly how much you need to pay each month, if you wanted to pay it up in 30 years you can obviously use a mortgage calculator and say, Hey, What if I wanted to pay it off in 20 years, how much extra money would I need to include each month or each year to make that happen? Or 10 years, five years, whatever your duration is. When you buy a permanent insurance policy, it’s, based on your age, your health, your gender. And so they may say, Hey Chris, a million dollars of insurance for you, the permanent kind costs $12,000 a year. That’s a totally made up number. That’s easily divisible by 12 months, but it costs 12,000 a year. There is something known as an MEC or the modified endowment contract limit. And that’s the limit that the IRS sets on, how much, a certain amount of death benefit it, a given age, health and gender. To where it still passes the test of life insurance and has a lot of the attractive tax features that life insurance can offer. So I might come back to you Chris and say, Hey Chris, at 12,000, this is what it does. Long-term it doesn’t look super sexy from a return perspective, but you’re, you have permanent death benefit, which is the main reason you’re going to buy this contract. And you will feel better than just throwing away your money on the term. However, the other bookend in this example, Chris is the fact that you could put up to $60,000 a year or 48,000 extra dollars. In this example, in the policy and that tier of quote over-funding or additional premiums with most companies is paid out at a super low commission rate to the agent. And typically there’s not a lot of reserving requirements for the death benefit said differently. The first 12 that you put in at the end of the first year and traditional whole life, you might have three to show for it of that 48 that you put in and over-funding, you might have 45 of it to show for it. And so you can walk up to that modified endowment contract line, and you can fund these in seven years. That’s about the fastest you could. Or you could look at me and say, Hey Mark, I’m 42 today. I want to retire at 62. I want to know for this given death benefit, what the maximum amount of money is, I can put over 20 years. And so to tie a bow on it, just think about it like a principal only payment. When you make a principal only payment on a mortgage, you save interest. When you put in additional premiums or over-fund a policy, you speed up how quickly you earn interest.

Chris Dreyer

Yeah. So that’s the key thing. And I know we’re going to talk about like what to look for and how to structure this and how to hire to get this set up because. Even if you chose whole life, if you’re not doing the over-funding, it may not have those borrowing capacities, depending upon your policy limit that you’re looking for. So you really got to structure it the right way. The other thing, at least from what I’m hearing When you get on the internet and you talk to everyone and it’s oh, every article is why you shouldn’t buy permanent whole life. Right.

Mark Kull

I used to joke All I have to do is meet you and hope that you’ve never Google anything for the first 13 months you have the policy. Right?

Chris Dreyer

There’s so much in it. You got the Dave Ramsey people that are, against the permanent whole life. And there’s just a lot of bad information. Why is that?

Mark Kull

And then, oh, I, yeah, I definitely know the answer so that the why is that is this there’s about 1200. I think companies left and I may be off on that. It’s a lot. That’s still sells some form of a permanent style product. Be it a whole life universal life variable, universal life index, universal life of that. There’s probably no more than seven. And if I’m being brutally honest, no more than about three that I would actually use for a client now. This is, largely personal opinion, but I think I could back it up with the underlying financials of the companies that I feel comfortable with. So even if we just assume that out of, let’s say there’s only a thousand instead of 1200, and let’s say there’s 10, that are good, and instead of the seven. Honestly three that I feel confident in by definition. Most of the articles you read are in fact, correct. If you buy a product from the vast majority of other people, I think you’re going to run into a problem because a lot of insurance companies now are stock owned insurance companies versus the mutual insurance company. So in a stock owned company, whenever I put money in The policy or the company makes a profit. They have to decide how much of that profit is going to be paid to shareholders. And how much of that profit is going to go back in the form of dividends to drive cash value. And so it’s really hard, in this scenario to serve two gods, if you’re a publicly traded corporation by definition, you should be trying to increase shareholder value. So if you have a profit at the end of the year, And by the way, you’re an executive who gets or board that gets to make this call and has a lot of equity comp. You may be inclined to, put a lot of money towards shareholder dividends versus policy holder dividends. So with mutual companies, when they turn a profit, they can only really do two things with it. They can either retain it to strengthen surplus, which is their claims paying ability, regardless of the economic environment, they find themselves. Or number two, they can pay it out in the form of dividends. So I think the reason there’s so many bad articles is because. Quite frankly, by definition, there’s not as many mutual companies left. So I think they’re correct in that. And I joke, but it’s a little bit like eggs during I’m 39 years old during my life. I know that it’s flipped at least four or five times that eggs are either going to kill us or it’s the healthiest foods you could ever eat. And I also would encourage the listeners unless you’re just in the startup phase of this. If you really step back and listen to a lot of the people who call into a Dave Ramsey or Susie Orman, many of our listeners are making more money if they were to average a year in a month, that a lot of these people stayed that doesn’t make the callers bad people. But I always tell our clients like, Hey, if nobody’s told you this, you’re not normal, but I mean that in a good way. If you’re making a half a million or 5 million or $10 million in America, you probably can’t Google and follow the advice of those kinds of people. And I think that the higher you go up in the tax bracket range and the higher you go up in the balance sheet range and the higher you go up in the CPA and estate planning world, all of a sudden you’ll be really confused because it’s wait, I thought everybody hated whole life. And then you get up to the top of the pyramid or the end of the bell curve. Wait a second. Everybody loves permanent life insurance. What is going on? It can be valuable for anyone because the main reason people buy it is if they want to leave a legacy long-term. But unlocking some of the benefits that I think would most interest our listeners, that’s typically going to come whenever you’re sitting in a position to do some pretty neat things, up to some IRS limits to really make it sing.

Chris Dreyer

There’s so much I have to respond here. I would say I have more knowledge of this than I would say the average, from our conversations in previous conversations with other individuals and masterminds like Taylor Welch and individuals like that, the, I think the nomenclature of dividend is what, I don’t like. Where you’ve got the stock owned insurance companies and stocks pay dividends. I wish that the insurance own, when they’re paid, they’re distributing their money, it was called something different because I think that word dividends is automatically associated with stocks, but it’s not a stock, a dividend it’s the insurance company’s dividend distribution. Maybe there’s some other individuals that are. What kind of struggling with that nomenclature, but, that’s where it continues to grow and compound over time.

Mark Kull

Yeah. If you think about it, when you run an insurance company, all of us turn in our premiums and then the insurance company takes those premiums and they pay the operating expenses of the organization. So all the people in the home office, the executive team, et cetera, they pay the women or men who sold it. So they’ve got like a cost of goods sold there. Then they pay out claims. And then what’s remaining is essentially profit or net income. And over time insurance companies build up large general accounts. So for instance, Northwestern Mutual’s is $285 billion with a B. And when they pay a dividend, it’s made up of three different components. Part of it is investment return of the general account. Part of it is how accurately did they rate mortality? Meaning that if you’re five, eight and 253 pounds like me, maybe five nine on a good day in cowboy boots, you’re probably gonna pay more for insurance than my wife who’s five, two, and suffice it to say. Far better shape than me. So mortality is part of it. Did we accurately rate our risk and then expense management as part of it, the beauty of it for a consumer. And I think we’re going to talk about this on how to hire and what to look for. The beauty is all of that is published data. The expense ratio of every insurance company’s published data, the mortality is published data, the investment return or their general account is that’s why I said earlier, there’s only. If I’m being generous seven, if I’m being realistic, three companies to do it with because I can spreadsheet ’em or anyone, if you hire the right advisor can spreadsheet in for and say, Hey, this company only takes 16 cents out of every dollar for expenses. They have very low mortality, meaning they were realistic about risk and their investment performance is high. Do you think that’s better than these ones that are not doing as good in those categories? So dividends are simply all the premium in less operating expenses, less people who pass away become disabled, et cetera. And then that profit goes into a general account and then they have options on whether to retain some of that for surplus for a future claims or to pay it back in and the dividend and that dividend does two things. It grows your death benefit. So your policy is typically growing throughout the course of your life. To the extent the company continues to pay a dividend and it also powers your cash value. Now, if you throw some additional premiums or over-funding on top of that’s where you can really unlock the magic and start to quote, be your own bank again. For compliance sake, no real product, infinite banking product. And in fact, anyone on the internet who tells you, they have a quote, infinite banking product, they might have a slick website, but basically it’s a nice wrapper for some form of permanent life insurance. Yeah. Yeah.

Chris Dreyer

When thinking about establishing a legacy- we can look at back at some of America’s wealthiest families and see how they use whole life insurance to maintain and grow their wealth.

Mark Kull

I think we all love two of the most famous companies that really are three of the most famous companies that really got their jump off with. Disneyland was largely constructed because of Walt Disney’s cash value. And that’s, you can Google that there’s a gazillion articles on it. JC Penney’s was founded by using insurance and insurance policies, cash value as collateral. And so it was Baskin Robbins. Those are some, iconic brands the beauty. Permanent life insurance or whole life insurance is you have a death benefit. You have an accumulated value, as long as you work with a good advisor and good company that the policy lasts until you see to last and you don’t always. I have to put it into an irrevocable life insurance trust right off the bat. The one place insurance can become taxable is, right now let’s just call the exemption. If you’re married somewhere around $25 million, if you had a $25 million or let’s make this easy, a $22 million net worth and a $5 million policy not held in a trust when you died your 22 million plus five. Tip you over the estate tax exemption. And that could cause some problems. So when you’re working with your advisor, they’re going to want a thumbnail sketch of kind of what your net worth is to know whether or not the policy needs to be owned by a trust for a lot of our clients, because the exemption so high. They don’t need it owned by a trust, which gives them far more flexibility to use some of the living benefits, but what you can do down the road, like once you retire and you may no longer need the living benefits as much is that you can transfer it to an irrevocable life insurance trust. Now you’re going to want to meet with your estate planning, attorney and CPA to understand that there are some clawbacks. So I can’t find out that I have terminal cancer. I had ownership of the policy, my whole life, and then. Throw it right in this trust avoid, a state tax 90 days before I die. So there’s a look back period on it. But yeah, for the longest time when the estate tax exemption would low, it was this easy. It was like, Hey, you’re going to your states where 25 million, the exemptions, 10 mils. He got 15 million that’s subject to 40% tax or $6 million. You can either do that in cash or for these dynasty type families. They had incredible balance sheets, but not a ton of liquidity. So it’s you don’t want to sell part of the farm. You don’t want to sell the building your law firms and you don’t want to sell the skyscraper in New York, you own. So let’s just use a financial calculator to find. What’s the taxable equivalent yield you’d need to earn on the premiums to cover the $6 million estate tax or what most people found is it was in the 10 to 15%, depending on how old they were and how healthy they were. And it’s not hard, Chris, to look at somebody and go, Hey do you think in between now and a guaranteed event and death that you’re going to magically find some, a place to put your money, that’s going to pay you 12 and a half percent and people would say no, and they would do that. But again, back to the Swiss army knife analogy. You can begin a policy held outside of a trust and then later put it in a trust. Again, you’ll be subject to some back period, if you died unexpectedly and it tipped you over. But with the estate tax exemption, as high as it is now, even successful people are not as worried about that as they once were. So yeah, they were using it to start businesses. They were using it to pass generational wealth without having to sell illiquid assets. They were using it rather than. If you think about a bank they’re not bad, but they’re reserved based lenders. You give them a dollar, they can loan a multiple of the dollar that they have on deposit. They give you right now 0.2, 5%. They loan it out to you at four and a half or 5%. And then the craziest part is they take a lot of the dollars. You give them and they go buy a product called BOLI or bank owned, life insurance. So it’s they give you a half a percent. They charge you 5% for the money, and then they take your money and go drop it off at New York Life or Mass Mutual or Guardian or Northwestern Mutual and get four and a half or 5% it’s arbitrage at the wildest edges of arbitrage. And it’s been used to, I, it also goes back to the question you asked about, I read all these articles. I’m telling you right now, if you walk into just about any family office in America and say, Hey, it’s somewhere in this immense wealth that this family has done. If they found wildly creative use of. For whole life insurance or permanent life insurance, they’re going to say yes. So we might not all be in family office territory yet, but if you want to get somewhere in life, sometimes you modelling the behaviour of the people who are already there can be a sound strategy.

Chris Dreyer

I, I couldn’t agree more and I agree with the arbitrage and just leverage in general. So the bank wants you to invest your cash just so they could borrow more so that they can use. Use that leverage for arbitrage investing and insurance. So that’s what, that’s just what that’s the Dave Ramsey people just don’t understand how leverage works.

Mark Kull

In his defence, Nine of his like 10 hallmarks I tend to agree with, but in particular for his callers, I probably agree with all 10, most of them need to get an emergency fund. They need to pay off non-asset back debt. That’s extremely high interest and is eating their cashflow alive. And those kinds of people do need to buy term life insurance, because if they passed away yesterday, Their spouse. Isn’t going to say, Hey, did we own permanent life insurance or term life insurance? They’re just going to want the simple question. Am I going to be okay. Answered in the best insurance is the insurance that’s enforced when you die someday. And so for a lot of those people, it can be answered with term insurance. And, I see the point to people who say yeah, but I’m going to buy term and invest the difference. If the terms two grand and the permanents 12 grand, I’m going to take the 10 and I’m going to put it over here. I’m okay with that. For most of the people I’ve met Chris, they just enjoy the difference. You show up five years later and you’re like, Hey man, your side fund at six and a half percent should be here. How much is in there? And they’re like, what side fund? So most of them enjoy the difference. In part two, they forget that every dollar can have a different duty. You should never buy insurance under the auspice that it’s going to outperform some individual equity accounts. Because the standard deviation of risk on a mutual insurance company’s general account is about like cash and T-bills the standard deviation of a Roth IRA funding with individual equities. Is it the exact opposite end of the spectrum? And they’re both good. That’s where we get into trouble. I also think that’s where a lot of articles are. If the only tool you have is a hammer, the whole world looks like a nail. So to the extent anyone’s ever been in a bad Starbucks, meaning, getting their arm twisted over permanent life insurance or whole life and. We’re at a point in our practice because we also manage a ton of money for clients in addition to insurance. And I’m Hey, look, I’m here telling you about a tool. If we take it through the right, if we ski through the right gates, it’s probably going to be awesome for you. And if for any reason, we miss a gate because of your available cash flow or your health issues or whatever, it’s probably not a good tool, but for the right people and the right situation with the right company, with the right advisor structured correctly. We’ve got a lot of happy clients who are like, man, I’m really glad I did this.

Chris Dreyer

Yeah. And I, one of the things you said too is Hey, if the term’s low and I’m just going to invest the difference that immediately I got sidetracked in my head. I was thinking if I gave my wife five grand, a five grand budget, is she going to spend less on the purse buy, she’s going to spend the full amount on the Louie Vitton and there’s not gonna be anything left over. Sorry, Jen, if you’re listening, I love you.

Mark Kull

That’s why I didn’t say my wife’s weight, but suffice it to say, it’s not even half of mine for all the listening audience in case she ever gets a hold of this.

Chris Dreyer

But the other thing, and I love the protection aspect of the whole life. It makes me feel, it makes me feel more secure and for my family and not, and the everything else is just the benefit, the borrowing the growing and compounding benefits. Have you seen any companies structure, these overfunded whole life insurance policies on maybe the partners or the executives? There’s a lot of benefits. They, ways to structure a benefit plan. Have you seen.

Mark Kull

Oh, yes. I would tell you that non-qualified deferred compensation. So if you think about 401k, simple IRAs, et cetera, those are all subject to Arista reporting on the exact opposite side of that coin is non-arissa type arrangements. Be it what’s known as a bonus plan, a double bonus plan, a deferred compensation arrangement. We do a lot of work in the non-qualified deferred compensation space. So just imagine a universe for a second, where you have some key people and this could be partners, or this could even be like, Hey, we’ve got case managers in this guy, or girl has been with us forever. They help us make a ton of money. We’re only doing a 3% match in the 401k. We want to do something special for them. You can set up a supplemental executive retirement plan and just there’s bank owned, life insurance. There’s also coli or corporate owned life insurance. So you can enter into what’s known as a split dollar arrangement for a key person or executive. Where you say, Hey, look, based on the profitability of the firm, we’re going to put X in regardless. And then if we hit a certain profit margin, we’re going to put in Y if we hit another threshold, we’re going to put in Z and while you’re alive, if something happens, part of this will be bonused out to your family is an executive benefit. So maybe it’s a million dollar policy. And if something happens while you’re alive and working with. 250,000 extra dollars above the group term life will go to your family. The firm will retain the rest is key person insurance to hopefully go out and hire someone else to do your role. However, when you get through the vesting schedule or retirement, the firm will then turn the policy over to you, which will be a taxable event to you, Mr. Or Mrs. Executive. But you don’t care because let’s say you get a policy with 750 grand, they turn it over to you. You owe two 50, you still got a half a million in this example, in your policy. And then the firm gets a tax deduction when they turn it over. So that, that got it. If you’re in a partnership arrangement with say two to 10 partners and a bigger show, It can be a beautiful way for the firm to protect themselves from the death of a partner while simultaneously building everybody’s balance sheet. And in particular for the younger partners, they’re absolutely going to love it because when the old guy retires with the big policy, they weren’t taking the tax deductions on the front end. But when it goes to the partner, they get this huge tax deduction. As a firm. So we definitely do a lot of non-qualified deferred comp work and we even tear it. Sometimes there’s an executive tier. There’s a tier two, there’s a tier three, but nobody doesn’t like the idea of, Hey, I’m getting extra insurance while I’m working here for nothing. And if I help the firms stay profitable and ultimately meet the vesting schedule and retire here someday, I get a bunch of tax free money on top of that.

Chris Dreyer

I think that’s incredibly smart. And, I look at just the retirement options for, and like how I can help my staff, my senior executive staff and just all my staff in general. And the 3% that the up to 5%, a lot of times it’s just not going to be enough. And a lot of times they’re not going to max out those policies. So I’m thinking if they work for me for, 20 years because I don’t have any plans to sell, Are they going to be prepared at the end? And I think that, introducing something like this could really help them. Yeah.

Mark Kull

And that there’s a lot of nobility in it because it’s like, what good does it do if in running your law firm or your business or my business that ultimately we all end up incredibly wealthy and able to create generational wealth, but the people who helped us get there. We’re just spending it as quick as it came in. And so on one hand you could say if I pay more than market wage, it’s their responsibility. But on the flip side, I also think you gotta know that employees not a bad term and not everybody’s going to be an owner founder. And so sometimes you kinda gotta be like a big brother, big sister and help people think through it. And the beauty of these plans are, it can be set on a rolling vest. So you could say. Because it is an honor Rissa world. Hey, look, if you die during a seven year vesting period, your family gets ax. If you leave us during that period, you get nothing and it’s retained as a corporate asset, but it’s seven years. If you leave, whether we fire you, you retire or, you just quit. You get this much but Hey, by the way, it year 12, it’s this much at year 17, it’s this much. And so in a good way, you can be equally or mutually yoked with a carrot out in front the whole time. And then to your exact point. Even if they don’t do the 3%, cause it’s a safe Harbor and you’re just doing three and they don’t do anything, you can, base it on their total comp is a baseline with a kicker for the profitability of the firm. So there’s incredible ways to structure it. And because it’s not a risk that you could pick up person, you could pick 10, you could pick it by class, et cetera, but it doesn’t have to be like mark, this sounds really interesting. And I got just the lady or just the gentleman of mine in my organization. You can do it for one person and do it for no one else and not run a foul of any kind of reporting requirements.

Chris Dreyer

Jeez, I don’t love to use this phrase, but I think of a golden handcuffs. You want them to have a top litigator? You want to retain them? They’re close to that vesting period. They’re like, oh, I’m going to stay. Cause I want to retain this.

Mark Kull

Yes. They were the ones that we have set up about once a year on a per plan basis. We’ll get a call from somebody that’ll say, Hey, I know my annual statements coming up soon, but how much is in the policy? And I’ll tell them, and then I’ll say, by the way, it’s this much right now, but you are 17 months away from this next deal. And when they don’t call back, I know it means it’s working because that means they went to the other firm or wherever they were looking. And we use like some “R”s in there. We want to recruit retain reward and retire people as effectively as possible, but there it’s gotta be a dance. That’s why I like nerisa structure. Once you’ve met their basic needs with a 401k is it’s like, Hey look. You are a female stud or male stud, whatever term you want to apply to it. We want you here long-term and it’s an incredibly good way to help people build in what feels like almost an equity component to someone that might not have the opportunity to buy equity. Because if you tell some idea they, why do you really want equity? If you’re already making a ton of money, you want equity. So someday when you sell your shares, you get a big pop. What if you didn’t have to worry about equity going out, trying to find the money. Or if I give you equity, you have to pay taxes on it. And if this firm’s worth a lot, it’s going to be a big tax bill. What if I could just set up some kind of Phantom stock style program, where at the end of this, you’re going to get paid handsomely through wages, bonuses, commissions, et cetera. And at the end, there’s going to be a big pot waiting for you. As long as you come to the end with us.

Chris Dreyer

There’s so many applications of this, like you said, it’s like a tool. It can be used in a variety of ways. So let’s dive in there. Couple of questions first, where do they begin? What do you look for when hiring someone to structure this policy correctly?

Mark Kull

Yeah. So hiring a good place to start. If you’re ever approached by someone is finra.org. So F I N R a.org, they offer a tool for free called broker check, where you can type in somebody’s last name and then their first name. It’ll tell you how long they’ve been licensed with that company. How many other companies they’ve been licensed with? If they have. Complaints or disclosures that have to be filed. So before you made any big decision with anybody, I would go to F I N R a.org. That’s a third-party watchdog group. That’s number one, number two credentials are not always necessary, but they can’t hurt the American college, which is the governing body for financial services offers a CLU degree, which is a chartered life underwriter. So I wouldn’t go so far as to call it a master’s degree, but it’s definitely advanced stuff. And in life insurance products and concepts. So CLS use can be very good CFPs, the board of standards of the CFP. That can be another thing. Again, there are people Chris who are wickedly smart and have helped a ton of clients and made a ton of money in this business that don’t have a CLU or CFP, but all things being equal. If you are choosing between two people you liked, and one of them had gone that route of advanced credentialization. I think that would be smart. I think the FINRA piece would be smart. And then I would always ask for some existing client introductions. It’s my favorite thing when people say, oh do you have anyone who’s been doing this for awhile? I can talk to, I have got a bunch of them. Yeah. And I joke with them, but it’s not a joke. I’m like, I really hope you call these people because number one, I’m not even going to tell them you’re calling. And number two, if you do call them, you’re, we’re definitely gonna do business together. Cause they’re going to tell you what it’s like on the other side. So FINRA is good asking if they have two or three people. And then designations can be really helpful. Those are the three biggest things I’d be looking for in someone. And it’s like a CPA and other stuff. You don’t have to find a financial pier, right? Because let’s say Chris, the guy’s making a half a million or $2 million in this business and you’re making 10. I think we can both agree if the guy’s making a half a million or $2 million in this business and you’re making 10. It doesn’t mean you’re five X or however many multiple smarter, but you do want to be careful just based on years of experience. This guy or girl is not three years into the business and getting ready to sell the biggest, you never want to be surprised biggest client. And so you want to make sure that they’ve got some experience and then the fourth kind of secret sauce, in my opinion. Understanding their relationship and how they’re contracted. So for instance, with Northwestern Mutual, we can sell insurance with any company and Northwestern Mutual. Other people can sell insurance with any company, but not Northwestern Mutual because they’re still mutually exclusive. Just asking the question of, Hey, out of curiosity, how many companies are you licensed with? That can be helpful because we can be licensed with anybody. I think I’m licensed with somewhere 30 because sometimes people get declined for health reasons, but start@finra.org credentialization can be important. Understanding how many companies they represent. Can be really important and then asking them, Hey, do you have two or three people? And they should have those two or three people on the tip of their tongue. If they say, yeah, I’ll get you some people, then they’re just going to go back and lead the witness. We don’t want that. But if they say, oh yeah, sure. Here’s two people in mind that, model your situation. I’ll be happy to connect you all. Or I can share their contact. You can call them. I promise I won’t call them type of deal. That those would be the four things I’d look for.

Chris Dreyer

Overfunded whole life insurance may sound like an ideal investment, but Mark explains that setting up the right stage in your life and pairing it with term life insurance might be the best.

Mark Kull

Yeah. So step one, I would say, Hey, look, I want you to help me calculate how much insurance you think I need. Like I always tell people amount first type second, oftentimes for us, Chris, so that we don’t muddy the water. We might sit down with someone and they say, Hey look all in on debt. I have. 700 thousands. I’m writing that down. I have three kids and I’d like to make sure if something happens to me, I could educate them. So I might take 25,000 times, three times, four years of college and say, okay, that’s 700. 300 for that. So now we’re at a million find out how much you would need in a lump sum to kick off income for a surviving spouse, a made up example. Now we’re up to two and a half million. If that person doesn’t already have two and a half million dollars of term insurance, I’m going to pause and say, Hey, look, if you really want your permanent product to be there forever for death benefit legacy. If you really want your permanent product to be hyper efficient, you’d be better to buy your pure death benefit need in term life insurance. And here’s why when you’re doing it to accumulate money, you can smash down the cost of commissions. You can smash down the amount of insurance and you can walk right up to that modified endowment contract line. So I might tell a gentlemen who doesn’t have, or lady, Hey, let’s get this two and a half million dollars in 20 year level term insurance. That is death benefit for the people you care about. It will expire, but 20 years from now, you’re going to have more assets, less liabilities. Your kids are going to be grown, et cetera. Then let’s look at some permanent death benefit because that’s going to be a permission slip to spend in retirement. Because if you bounce your last check on the way out the door, if you’re one of the lucky few that like you exhaust right before the last check gets to somebody and doesn’t clear, you’ll always have a guaranteed legacy. And if we have the death benefit out of the way with term, then we’re not as focused on trying to get the death benefit to some specified amount. Then we can reverse engineer the permanent death benefit based on how much they might want to put in because two and a half million dollars a term for a healthy 40 year old might cost three grand a year, two and a half million of permanent. Mike cost 40 grand a year. I’d rather you have two and a half million, a term to cover death benefit. Cause amount first is important and then say, okay, mark, I’ve got 20 that I can put in there. I can shrink down the amount of permanent death benefit to stuff more, premiums inside of there because I’ve done the most important thing, which is handle the death benefit component first. So the structure really depends on, do you have enough insurance in the first place? Part one, if not, let’s talk about handling the most important thing the proper amount of insurance would term. Then let’s talk about either, you know what you’re trying to get to by a certain age and your cash value or how much you feel like you could commit. And I always want clients to think of it in two buckets. What’s the number on your permanent policy. That even if it was a really bad year at the firm you could meet that obligation. And then what’s a number that if it was an average year, you feel like you could put in and then if it was a really good year, so then I’m going to design a policy. If somebody says on an average year, I’m good for 12 grand or on a bad year, I’m good for 12 on an average year. I’m good for 20 on a great year. I’m good for 50. I’m going to try to reverse engineer. Since we already handled the death benefit with term, what’s the least amount of insurance that could hold up to 50 grand when they’re having a good. Because that smashes down the commissions that smashes down the reserving requirements that they have to hold as an insurance company to back that amount of insurance, they just sold you based on your age, health and gender. So that’s why, credentials, FINRA, these things can be important because most of the reason that people who are in either the second highest or the highest tax bracket don’t own permanent life insurance is because they’ve never had it explained correctly to them with the correct company and the correct structure. If they are in a top tax bracket and they have it properly explained to them properly structured from a really good company, it may be a small piece, but it’ll end up being a piece of their overall wealth creation strategy.

Chris Dreyer

I couldn’t agree more. But specifically for personal injury attorneys- just the TLDR, the summarize why specifically, could it be a good option for personal injury attorneys and then what’s next for capitalist planning?

Mark Kull

So one of the main reason I think it could be a good option is you’re almost always going to have some amount of cash on your balance sheet because you have liquidity needs. Because if you think about a rectangle and you drew two lines through it and you made three squares, you can close your eyes and think about this rectangle two lines, you got three squares far, would be what we would call aggressive. That’s your home run out or excuse me, what we would call your home, run opportunity on the far, right? Your home run opportunity. If you’re listening to this pod. Is your law firm and the next case you’re going to try, there is no insurance policy, individual equity that will get you the rate of return that a successful client outcome or verdict will so that’s your best and highest use of the dollar. If you move from the right in the middle, you have aggressive. That’s typically market-based money. Oftentimes the guys and girls I’m dealing with in the plaintiff’s world go. The only reason I have this is because we had to have a 401k for the employees. Our name really believe in the market. I can just take that money, put it in a case and make more money. But my CPA says I’m an idiot if I don’t do it. And I go, I agree with your CPA. So why don’t you let us do your fork and K2. And then the left bucket would be the safe money. And people just typically detest their safe money because it’s low yielding and heavily taxed. The problem is. Is that they never come off of the safe. And so they ended up holding somewhere between half a million and $5 million on their balance sheet for a 20 or 30 year legal career. Not thinking of what the opportunity cost is. They’ll look at a policy where they put a hundred grand in and only have 80 grand at the end of the first year, if they cancel it and go 20 grants missing, but they forget there’s millions of dollars or at least hundreds of thousand dollars, a Phantom interest not earned by holding it in cash. So I think the bottom line is find someone and selfishly, yeah, we would love for you to find us. But just find somebody who’s a CFP or a CLU. Who represents, enough companies that doesn’t have a FINRA deal and just explain to them I’m not ready to buy this product yet, but I do want to understand that deeper I think that’s the bottom line is if you start with someone who’s qualified, if you view it as a permanent death benefit, if you understand that it’s not meant to compete against equities because at its core it’s insurance with some really neat components and you find the right person to talk to about it, I think you’ll really enjoy it.

Chris Dreyer

Awesome. Mark. Thank you so much for coming on the show and sharing this with our audience.

Mark Kull

You are so welcome. And I’d say what’s next for the firm and closing this. I started as a 19 year old kid. And I still feel like a kid some days, but it’s morphed into an organization that serves clients in 33 of the 50 states. And we have multiple certified financial planners. We have an in-house CFA. We have a very robust wealth management practice in addition to insurance and financial planning. And I’m here in the not so distant future. We’re going to be bringing up. COO who was the COO of a small cap, publicly traded bank. And like a lot of our listeners, we’re probably going to get into acquisition mode. We just believe there’s a lot of people who’ve served their clients and this community here in Louisville and out in the state exceptionally well. Unfortunately this used to be very much a lone ranger type business. So they do not have a succession plan and it’s not that they don’t like their work, but if they had an exit where they knew the clients would be well cared for and they could be paid. They would most certainly do that versus. The financial planning attorney model of diet, their desk. And so I think what’s next is we’re so proud of our organic growth, but we really could help their clients benefit us and benefit them through some pretty strategic acquisitions of people who, at this point, I joke with them I say, you gotta be tired. I’m 39. I’m tired of, not of this business, but this business will grind on you. I’m like you’re 68, man. Did your wife like you? Cause if not, I understand why you’re still here, but if she does. And it, so I think that’s, what’s next. I think that getting a hold of someone, who’s got some mergers and acquisition continuing this organic process on a national scale, and then where it makes sense for both the clients first and most importantly, The retiring advisor and our team, giving everybody a safe landing zone. And hopefully someday Chris, it gets so big. I turn it into an Aesop. At 60 years old, I take a bow and we create a bunch of millionaires inside of this organization and we create even more millionaires through clients and their kids and grandkids and generations. I won’t meet that’s what keeps me going when the grind really sucks.

Chris Dreyer

After today’s conversation, I think we can all agree that wealth advice on the internet is not one size fits all. Generating and maintaining wealth for some of the nation’s top earners requires expert advice. I’d like to thank Mark Kull from Capitalist for sharing his story with us. And I hope you gain some valuable insights from the conversation you’ve been listening to Personal Injury Mastermind. I’m Chris Dreyer. If you like this episode, leave us a review.. We’d love to hear from our listeners. I’ll catch you on next. Week’s PIMM with another incredible guest and all the strategies you need to master personal injury marketing. The conversation you just heard is not intended to be recommendations for specific investment behaviour and is intended for informational and educational purposes only. This is not a research report or investment advice and not to be relied upon as a basis for investment decisions. Investors are advised that past investment performance is not a guarantee of future price performance. Before making any investment, you should carefully seek independent legal tax and regulatory advice.

Get Our Best Personal Injury
Marketing Tips

Delivered straight to your inbox
This field is for validation purposes and should be left unchanged.

Comments Below

Let us know your thoughts

More Episodes