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Building a Legacy.

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Presentation Transcript
slide2
This material was not intended or written to be used, and cannot be used, to avoid penalties imposed under the Internal Revenue Code. This material was written to support the promotion or marketing of the products, services, and/or concepts addressed in this material. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely solely on their own independent advisors regarding their particular situation and the concepts presented here.

For producer use only. Not for presentation to the public.

what is charitable legacy planning
What is Charitable Legacy Planning?

A method to provide a sizeable donation to a

charitable organization while preserving wealth

and transferring it in a tax-efficient manner to

the next generation

  • Addresses income tax planning, estate planning, wealth replacement/transfer
  • Creates a legacy for both charity and family
  • Takes advantage of strategies such as charitable trusts

For producer use only. Not for presentation to the public.

is charitable giving still relevant
Is Charitable Giving Still Relevant?
  • Individuals still support organizations and causes they believe in
    • Despite being in the worst economic downturn since the Great Depression, U.S. charitable giving in 2008 was estimated at $308 billion*
  • Donors are seeking alternatives to accomplish more with their donations
  • Many charities are in greater need of support

* Source: Giving USA Report, 2009

For producer use only. Not for presentation to the public.

who s giving
Who’s Giving?
  • High-net-worth households (incomes over $200,000 or assets in excess of $1 million) are responsible for approximately two-thirds of all household charitable gifts in this country*
  • Wealthy donors are relying on legal and financial professionals to help them make charitable giving decisions**
  • Financial advisors influenced 61% of high-net-worth households towards the establishment of a charitable trust**

* Source: Bank of America Philanthropy Report, 2006.

** Source: Bank of America Philanthropy Study, 2009.

For producer use only. Not for presentation to the public.

charitable trusts
Charitable Trusts
  • Allow for split-interest gifts so that a donor can make a charitable gift of an asset of one of its two parts
    • Charity receives either the income interest or the remainder interest of an asset
  • Types of Charitable Trusts:
    • Charitable Remainder Trust (CRT): Remainder interest to charity
    • Charitable Lead Trust (CLT): Income interest to charity
  • Unitrust versus Annuity Trust:
    • Unitrust (CRUT, CLUT): Annual income is a fixed percentage of trust assets
    • Annuity Trust (CRAT, CLAT): Annual income is a fixed or specified amount

For producer use only. Not for presentation to the public.

benefits of a charitable lead annuity trust clat
Benefits of a Charitable Lead Annuity Trust (CLAT)
  • Provides income to charity
  • Wealth transfer to family
  • Tax deduction
    • Gift “for the use of” charity
    • 30% adjusted gross income (AGI) limit
    • 20% AGI limit for private charity or gift of capital gain property
    • 5-year carry-forward

For producer use only. Not for presentation to the public.

charitable lead annuity trust clat
Charitable Lead Annuity Trust (CLAT)
  • CLATs provide tremendous advantages in a low interest rate environment
  • CLATs lock in the current interest rate for the trust term
    • Based on the Section 7520 Applicable Federal Rate

The Section 7520 rate was: 10.2% - October 1989 7.2% - October 1999 3.2% - October 2009

  • By locking in a low Section 7520 rate for the trust term, the excess return on assets above that rate is transferred to family both estate and gift tax-free

We are in a period of historically low rates. The time to take

advantage of this strategy is NOW!

For producer use only. Not for presentation to the public.

the enhanced charitable trust
The Enhanced Charitable Trust

An Enhanced Charitable Trust (ECLAT) is a charitable

lead annuity trust with a unique structure that

leverages a charitable gift through purchase of life

insurance policy

Donor receives:

  • Now - Charitable income tax deduction

Charity receives:

  • During donor’s lifetime - Annual income stream
  • At donor’s death – Large lump-sum payment

Donor’s family receives:

  • At donor’s death – Remaining trust assets

For producer use only. Not for presentation to the public.

a grantor trust why
A Grantor Trust: Why?
  • The Enhanced Charitable Trust is a Grantor CLAT
  • Grantor receives an up-front charitable income tax deduction based on the payout to charity
  • Grantor makes a taxable gift discounted by the amount of the charitable income tax deduction

Taxable Gift = Original Gift - Charitable Deduction

  • The taxable gift can be offset by applying grantor’s lifetime gift tax exemption, if available ($1 million per individual in 2009)

For producer use only. Not for presentation to the public.

a grantor trust why cont
A Grantor Trust: Why?—cont.
  • Grantor is subject to income tax on the trust earnings
  • Trust is a grantor trust for income tax purposes only
    • Gift to the trust is excluded from the grantor’s estate
  • Trust term is based on the grantor/insured’s life
    • Addresses recapturing of the charitable income tax deduction
    • Addresses inclusion of trust assets in grantor’s taxable estate if grantor dies before the trust term ends

For producer use only. Not for presentation to the public.

benefits of an enhanced charitable trust
Benefits of an Enhanced Charitable Trust

Allows donor to:

  • Receive a current charitable income tax deduction
  • Provide a meaningful contribution to charity
  • Make a tax-efficient wealth transfer to loved ones

For producer use only. Not for presentation to the public.

enhanced charitable trust client profile
Enhanced Charitable Trust: Client Profile
  • High-net-worth clients with an asset that they will not need during lifetime
  • Expecting to receive large amount of taxable income
    • Bonus or commission check
    • Sale of real estate
    • Sale of business
  • Needs options on what to do with non-recurring taxable income
  • High-net-worth retirees with a large IRA, qualified plan, or annuity
  • Individuals concerned about estate taxes

For producer use only. Not for presentation to the public.

enhanced charitable trust how does it work
Enhanced Charitable Trust: How Does it Work?
  • Donor gifts an asset to the trust
  • Donor receives a current charitable income tax deduction
  • Trust receives cash and purchases income-producing asset and life insurance

For producer use only. Not for presentation to the public.

how does it work cont
How Does it Work—cont.
  • A portion of the Enhanced Charitable Trust’s assets is used to purchase an income-producing asset that will provide an annual payout to charity
    • Generally 10–15% of donated assets goes towards purchase of income-producing asset
    • Municipal bonds make a viable option for lead payment to charity due to their federal income tax-free nature

For producer use only. Not for presentation to the public.

how does it work cont16
How Does it Work—cont.
  • For maximum charitable contribution, the majority of the trust’s assets are used to purchase a single premium guaranteed universal life insurance policy
    • Trust is the owner, premium payor and beneficiary of the life insurance policy
    • Upon death of insured, trust terminates after making its final payout to charity
    • Remainder of death benefit and other trust assets are paid to non-charitable trust beneficiary, the grantor’s family

For producer use only. Not for presentation to the public.

life insurance the perfect fit
Life Insurance—the Perfect Fit

Life insurance inside an Enhanced Charitable Trust offers

multiple advantages

  • Provides a guaranteed amount for charity and family*
  • Tax-free benefits to the donor’s family
  • May maximize the charitable deduction
  • Liquidity of final payout for charity

* A universal life insurance policy with a secondary guarantee feature will remain in force provided that sufficient premium is paid.

For producer use only. Not for presentation to the public.

summary enhanced charitable trust
Summary: Enhanced Charitable Trust
  • Benefits to the grantor:
    • Current income tax deduction
    • Enhances assets passed on death to loved ones through purchase of life insurance
    • Minimizes potential estate tax
    • Benefits charity of choice
  • Benefits to the charity:
    • Annual income
    • Large lump-sum gift at death of insured

For producer use only. Not for presentation to the public.

enhanced charitable trust eclat
Enhanced Charitable Trust (ECLAT)

Donor receives up-frontcharitable deductionand makes a taxable gift

Gift to trust

Donor

ENHANCED CHARITABLE TRUST

Trust purchasesincome-producing asset

Trust purchaseslife insurance

Annual income to Charity

Upon Donor’s death…

Non-charitable trustbeneficiaries receive remaining trust assets

Trust makes final payment to Charity

Beneficiaries

For producer use only. Not for presentation to the public.

hypothetical example
Hypothetical Example

Margaret, female business executive, age 67

Her grandson is suffering from leukemia

  • She received a bonus of $750,000 this year
  • Key Goals:
    • Minimize the impact of income taxes
    • Provide benefit to St. Jude Children’s Research Hospital
    • Maximize wealth transfer to her children
  • Current and future tax implications:
    • 45% combined state and federal income tax
    • 45% estate and gift tax rate
    • 4.0% Section 7520 Applicable Federal Rate

For producer use only. Not for presentation to the public.

enhanced charitable trust eclat21
Enhanced Charitable Trust (ECLAT)

She receives a $675,000 charitable deduction; $75,000 taxable gift

Margaret gifts $750,000 to trust

ENHANCED CHARITABLE TRUST

$650,000Trust purchases $2,380,000 single-pay life insurance policy*

$100,000Trust purchasesmunicipal bonds

$4,000 annual income to the St. Jude Children’s Research Hospital

Upon Margaret’s death…

Trust makes a finalpayment of $1,340,000 to St. Jude Children’s Research Hospital

Her children receive $1,140,000 from death benefit and municipal bonds

Beneficiaries

* TransACE® policy based on a 67-year-old female preferred non-smoker

For producer use only. Not for presentation to the public.

benefits of an enhanced charitable trust22

Saves income taxes of $303,750 in 45% tax bracket

TransACE® policy DB and muni bonds

Benefits of an Enhanced Charitable Trust

For producer use only. Not for presentation to the public.

flexibility providing more to the family
Flexibility—Providing More to the Family

If the primary goal is to transfer wealth to family, the trust can be structured so that the family receives more.

  • By reducing the final payout to charity, more is transferred to family
  • Less to charity will reduce the charitable deduction and increase the amount of the taxable gift
  • Example: Margaret can structure the trust to provide more to her children. In doing so, the charitable deduction would be reduced and her taxable gift would increase.

For producer use only. Not for presentation to the public.

flexibility comparing different enhanced charitable trust options
Flexibility—Comparing Different Enhanced Charitable Trust Options

For producer use only. Not for presentation to the public.

enhanced charitable trust offers flexibility
Enhanced Charitable Trust Offers Flexibility
  • Ability to customize a strategy tailored to meet specific goals/needs. Donor decides:
    • Amount passed on to charity
    • Amount passed on to loved ones
    • Amount of income tax deduction

No guesswork—remainder is guaranteed through life insurance

Charity/ Deduction

Loved Ones

Loved Ones

Charity/ Deduction

For producer use only. Not for presentation to the public.

market opportunities
Market Opportunities
  • Business owners
  • Real estate investors
  • High-net-worth retirees
    • Large IRA, annuity or qualified plan balances
    • Have sufficient assets for retirement income
  • Charitable organizations in need of funding and searching for marketing strategies for its donor base

For producer use only. Not for presentation to the public.

next steps
Next Steps
  • Fill out a proposal request form available in the Enhanced Charitable Trust Producer Guide (OLA 1829)
  • Request for Transamerica marketing material and information on TransACE® guaranteed universal life insurance from your GA
  • Call Transamerica’s dedicated Enhanced Charitable Trust consultant at (877) 238-6758 for customized illustrations and case support

For producer use only. Not for presentation to the public.

tools and resources
Tools and Resources

Producer Presentation

Consumer Presentation

Producer Guide

Consumer Flyer

Customized Illustration

Strategy Summary

Consumer Guide

Online FAQ

For producer use only. Not for presentation to the public.

enhanced charitable trust
Enhanced Charitable Trust

TransACE® is a nonparticipating, flexible-premium universal life insurance policy issued by Transamerica Life Insurance Company, Cedar Rapids, IA 52499. Policy Form #1-12611107 (CVAT), Group Certificate #2-72336107 (CVAT) for certificates issued under a group policy issued to the Rhode Island National Consumer Protection Trust. Policy form and number may vary, and this policy may not be available in all jurisdictions.

Transamerica Insurance & Investment Group (“Transamerica”) and its representatives do not give tax or legal advice. This presentation is provided for informational purposes only and should not be construed as tax or legal advice. Clients and other interested parties must be urged to consult with and rely solely upon their own independent advisors regarding their particular situation and the concepts presented here.

Discussions of the various planning strategies and issues are based on our understanding of the applicable federal income, gift, and estate tax laws in effect at the time of this presentation. However, tax laws are subject to interpretation and change, and there is no guarantee that the relevant tax authorities will accept Transamerica’s interpretations. Additionally, this material does not consider the impact of applicable state laws upon clients and prospects.

Although care is taken in preparing this material and presenting it accurately, Transamerica disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it. This information is current as of October 2009.

For producer use only. Not for presentation to the public.

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