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Premium Financing Leveraging Assets for Wealth Transfer Planning. Disclosures.

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Premium Financing

Leveraging Assets for Wealth Transfer Planning


Disclosures
Disclosures

The Voya™ Life Companies and their agents and representatives do not give tax or legal advice. This information is general in nature and not comprehensive; the applicable laws change frequently and the strategies suggested may not be suitable for everyone. Each taxpayer should seek advice from his or her tax and legal advisors regarding their individual situation.

All guarantees are based on the financial strength and claims paying ability of Security Life of Denver Insurance Company, who is solely responsible for all obligations under its policies.

These materials are not intended to and cannot be used to avoid tax penalties; and they were prepared to support the promotion or marketing of the matter addressed in this document. Each taxpayer should seek advice from an independent tax advisor.

Life insurance products are issued by ReliaStar Life Insurance Company (Minneapolis, MN), ReliaStar Life Insurance Company of New York (Woodbury, NY) and Security Life of Denver Insurance Company (Denver, CO). Within the state of New York, only ReliaStar Life Insurance Company of New York is admitted, and its products issued. All are members of the Voya™ family of companies.

There are risks involved with premium financing that you should consider. Loan interest rates may rise and may force you to liquidate assets to pay such rates, or be at risk of loan default. Similarly, the lender may require additional collateral if the value of posted collateral falls and/or if policy crediting rates drop. Finally, if you have failed to repay at loan maturity, perhaps because a planned exit strategy failed, the loan would default. If the loan defaults, the lender may foreclose on collateral, including the policy, and negatively affect your credit rating.


A Question

  • Are you planning to leave the full valueof your estate as an inheritance to your children or grandchildren?


A Question

  • Are you planning to leave the full value of your estate as an inheritance to your children or grandchildren?

  • For many people, the answer is: “It Depends!”


“It Depends!”

  • Many things are uncertain:

    • Growth of assets

    • Taxes and expenses for estate

    • Ability to create liquidity at death

  • How much will be left to pass on?


You’ve successfully accumulated enough wealth for financial independence.

Your success in business and investing may create even greater wealthbefore you die.

As your wealth grows, the potential cost of transferring that wealth to your heirs also grows.



Is there a way to potentially grandchildren without reducing the value of their inheritance to pay taxespreserve the inheritance for your children without putting your own financial security at risk?


Is there a way to potentially grandchildren without reducing the value of their inheritance to pay taxesleverage the value of your business or investments without giving up all control?


Yes! grandchildren without reducing the value of their inheritance to pay taxes

Premium Financingcould help you meet both objectives.


Introducing Premium Financing grandchildren without reducing the value of their inheritance to pay taxes

A Leveraging Tool to potentially:

  • Identify a Source of Fundingfor Large Policies

  • Provide Estate Liquidityfor High Net Worth Clients

  • Reduce Gift Taxes


What Is Premium Financing? grandchildren without reducing the value of their inheritance to pay taxes

Premium Financing, simply stated, is borrowing money from a bank to pay premiums on a large life insurance policy designed to provide liquidity at death and preserve assets for your heirs.

Premium Financingis a strategy that uses a life insurance policy to potentially create or increase the amount of money you can pass on to your children and grandchildren.

Premium Financingcan help you create funds to pass on to younger family members without giving up all control of your assets and can reduce annual gifting.


Why Use Life Insurance? grandchildren without reducing the value of their inheritance to pay taxes

Life insurance can be an effective tool to transfer assets to younger family members for two reasons:


Why Use Life Insurance? grandchildren without reducing the value of their inheritance to pay taxes

  • Life insurance can be an efficient way to transfer assets to younger family members for two important reasons:

  • Reason #1–Potential For Growth

    • Policy death benefits generally exceed the total premiums paid.

    • The difference between the death benefit that is available at the insured’s death to be paid to the beneficiaries and the premiums paid represents additional assets.


Why Use Life Insurance? grandchildren without reducing the value of their inheritance to pay taxes

  • Life insurance can be an efficient way to transfer assets to younger family members for two important reasons:

  • Reason #1–Potential For Growth

    • Policy death benefits usually exceed the total premiums paid.

    • The difference between total premiums and death benefits represents additional assets that are paid to policy beneficiaries.

  • Reason #2–Tax Benefits

    • Life insurance death benefits are generally income tax free.

    • Policy death benefits can also be structured to avoid estate taxes.


  • How Does the Strategy Work? grandchildren without reducing the value of their inheritance to pay taxes

    • Premium Financing has five steps:


    How Does the Strategy Work? grandchildren without reducing the value of their inheritance to pay taxes

    • Premium Financing has five steps:

      • Create an ILIT.


    How Does the Strategy Work? grandchildren without reducing the value of their inheritance to pay taxes

    • Premium Financing has five steps:

      • Create an ILIT.

      • Apply for a loan from a Premium Financing Lender.

        • The ILIT trustee will pledge the life insurance policy and possibly other collateral for the loan.

        • Depending on the lender, the amount of the loan, and your financial status, other collateral may be required from you (e.g. a letter of credit, personal guarantee and/or other assets such as securities).


    How Does the Strategy Work? grandchildren without reducing the value of their inheritance to pay taxes

    • Premium Financing has five steps:

      • Create an ILIT.

      • Apply for a loan from a Premium Financing Lender.

      • The Trustee of your ILIT uses the loan proceeds to purchase a life insurance policy insuring your life by:

        • Paying premiums from borrowed funds

        • Managing policy cash values as needed


    How Does the Strategy Work? grandchildren without reducing the value of their inheritance to pay taxes

    • Premium Financing has five steps:

      • Create an ILIT.

      • Apply for a loan from a Premium Financing Lender.

      • The Trustee of your ILIT uses the loan proceeds to purchase a life insurance policy insuring your life.

      • Each year, depending on the arrangement, the Trustee either pays interest on the loan or the interest is accrued and added to the balance of the loan.


    How Does the Strategy Work? grandchildren without reducing the value of their inheritance to pay taxes

    • Premium Financing has five steps:

      • Create an ILIT.

      • Apply for a loan from a Premium Financing Lender.

      • The Trustee of your ILIT uses the loan proceeds to purchase a life insurance policy insuring your life.

      • Each year, depending on the arrangement, the Trustee either pays interest on the loan or the interest is accrued and added to the balance of the loan.

      • At your death, the ILIT uses part of the policy proceeds to repay the remaining loan balance; all remaining proceeds go to the ILIT.


    Potential Premium Financing Advantages grandchildren without reducing the value of their inheritance to pay taxes

    • Policy premiums can grow into larger and generally income tax free death benefits.

    • The ILIT can be structured to protect policy death benefits from estate taxes.

    • You generally retain control of your assets (though you may have to pledge some assets as collateral); you do not have to liquidate assets to pay insurance premiums.

    • You may be able to avoid taxable gifts. If there are enough trust beneficiaries, you can potentially qualify an amount equal to the interest payments as annual exclusion gifts.


    Some of the Premium Financing Disadvantages grandchildren without reducing the value of their inheritance to pay taxes

    • Interest Rate Risk–interest rates fluctuate over time; if interest rates become too high:

      • Additional collateral required

      • Possibility of default and surrender of the policy

      • Reduction of net death benefit to ILIT beneficiary

  • Collateral Requirements

    • A personal guarantee and/or the pledge of additional assets

    • Letter of Credit may be required

  • Arrangement Fees

    • Fees required to process loan

    • Fees cannot be financed

    • May require gift to ILIT


  • Premium Financing in grandchildren without reducing the value of their inheritance to pay taxesAction: David & Dorothy Dawkins*

    * These hypothetical results are based on current assumptions, are for illustrative purposes only and should not be deemed a representation of past or future results. The results would generally be lower using guaranteed assumptions, including earlier policy lapse and the inability to take any assumed policy loans or partial withdrawals. This example does not represent any specific product nor reflect sales charges or other expenses that may be required.

    David & Dorothy are both 50 years old and Preferred non-smokers.

    They have an estate worth $20 million.

    Need $5 million Death Benefit for Estate Liquidity.

    They have a limited number of heirs to whom they wish to gift.


    David & Dorothy Dawkins* grandchildren without reducing the value of their inheritance to pay taxes

    • The Dawkins have their attorney draft an irrevocable life insurance trust (“ILIT”).

    * These hypothetical results are based on current assumptions, are for illustrative purposes only and should not be deemed a representation of past or future results. The results would generally be lower using guaranteed assumptions, including earlier policy lapse and the inability to take any assumed policy loans or partial withdrawals. This example does not represent any specific product nor reflect sales charges or other expenses that may be required.


    David & Dorothy Dawkins* grandchildren without reducing the value of their inheritance to pay taxes

    • The Dawkins have their attorney draft an irrevocable life insurance trust (“ILIT”).

    • Working with a bank, the ILIT Trustee arranges to borrow $392,628 to finance the first two premiums.

    * These hypothetical results are based on current assumptions, are for illustrative purposes only and should not be deemed a representation of past or future results. The results would generally be lower using guaranteed assumptions, including earlier policy lapse and the inability to take any assumed policy loans or partial withdrawals. This example does not represent any specific product nor reflect sales charges or other expenses that may be required.


    David & Dorothy Dawkins* grandchildren without reducing the value of their inheritance to pay taxes

    • The Dawkins have their attorney draft an irrevocable life insurance trust (“ILIT”).

    • Working with a bank, the ILIT Trustee arranges to borrow $392,628 to finance the first two premiums.

    • The ILIT purchases a second-to-die policy with an initial death benefit of $5 million and an option 3 death benefit (face + premium).

    2

    * These hypothetical results are based on current assumptions, are for illustrative purposes only and should not be deemed a representation of past or future results. The results would generally be lower using guaranteed assumptions, including earlier policy lapse and the inability to take any assumed policy loans or partial withdrawals. This example does not represent any specific product nor reflect sales charges or other expenses that may be required.


    David & Dorothy Dawkins* grandchildren without reducing the value of their inheritance to pay taxes

    • The Dawkins have their attorney draft an irrevocable life insurance trust (“ILIT”).

    • Working with a bank, the ILIT Trustee arranges to borrow $392,628 to finance the first two premiums.

    • The ILIT purchases a second-to-die policy with an initial death benefit of $5 million and an option 3 death benefit (face + premium).

    • The Dawkins make a one time gift to the ILIT of the loan’s arrangement fees.

    * These hypothetical results are based on current assumptions, are for illustrative purposes only and should not be deemed a representation of past or future results. The results would generally be lower using guaranteed assumptions, including earlier policy lapse and the inability to take any assumed policy loans or partial withdrawals. This example does not represent any specific product nor reflect sales charges or other expenses that may be required.


    David & Dorothy Dawkins* grandchildren without reducing the value of their inheritance to pay taxes

    • The Dawkins have their attorney draft an irrevocable life insurance trust (“ILIT”).

    • Working with a bank, the ILIT Trustee arranges to borrow $392,628 to finance the first two premiums.

    • The ILIT purchases a second-to-die policy with an initial death benefit of $5 million and an option 3 death benefit (face + premium).

    • The Dawkins make a one time gift to the ILIT of the loan’s arrangement fees.

    • David & Dorothy will gift to the ILIT an amount equal to the annual interest due on the loan each year.

    * These hypothetical results are based on current assumptions, are for illustrative purposes only and should not be deemed a representation of past or future results. The results would generally be lower using guaranteed assumptions, including earlier policy lapse and the inability to take any assumed policy loans or partial withdrawals. This example does not represent any specific product nor reflect sales charges or other expenses that may be required.


    David & Dorothy Dawkins* grandchildren without reducing the value of their inheritance to pay taxes

    • The Dawkins have their attorney draft an irrevocable life insurance trust (“ILIT”).

    • Working with a bank, the ILIT Trustee arranges to borrow $392,628 to finance the first two premiums.

    • The ILIT purchases a second-to-die policy with an initial death benefit of $5 million and an option 3 death benefit (face + premium).

    • The Dawkins make a one time gift to the ILIT of the loan’s arrangement fees.

    • David & Dorothy will gift to the ILIT an amount equal to the annual interest due on the loan each year.

    • Upon the second death, the loan balance is paid off and the net death benefit ($5 million or more) is paid out to the Dawkins’ ILIT.

    * These hypothetical results are based on current assumptions, are for illustrative purposes only and should not be deemed a representation of past or future results. The results would generally be lower using guaranteed assumptions, including earlier policy lapse and the inability to take any assumed policy loans or partial withdrawals. This example does not represent any specific product nor reflect sales charges or other expenses that may be required.


    What Have We Accomplished? grandchildren without reducing the value of their inheritance to pay taxes

    By using the Premium Financing technique, David & Dorothy Dawkins have potentially been able to accomplish the following:


    What Have We Accomplished? grandchildren without reducing the value of their inheritance to pay taxes

    By using the Premium Financing technique, David & Dorothy Dawkins have potentially been able to accomplish the following:

    • Created a large Death Benefit for Estate Liquidity;


    What Have We Accomplished? grandchildren without reducing the value of their inheritance to pay taxes

    By using the Premium Financing technique, David & Dorothy Dawkins have potentially been able to accomplish the following:

    • Created a large Death Benefit for Estate Liquidity;

    • Reduced the on-going tax costs of Annual Gifting;


    What Have We Accomplished? grandchildren without reducing the value of their inheritance to pay taxes

    By using the Premium Financing technique, David & Dorothy Dawkins have potentially been able to accomplish the following:

    • Created a large Death Benefit for Estate Liquidity;

    • Reduced the on-going tax costs of Annual Gifting;

    • Retained some control (through the ILIT terms) of how policy proceeds will be used after their deaths;


    What Have We Accomplished? grandchildren without reducing the value of their inheritance to pay taxes

    By using the Premium Financing technique, David & Dorothy Dawkins have potentially been able to accomplish the following:

    • Created a large Death Benefit for Estate Liquidity;

    • Reduced the on-going tax costs of Annual Gifting;

    • Retained some control (through the ILIT terms) of how policy proceeds will be used after their deaths;

    • Death benefits may be paid to the ILIT both estate-tax and income-tax free.


    Your grandchildren without reducing the value of their inheritance to pay taxesVoya representative can show how

    this idea might work for you.Ask for a proposal customized to fit your situation.


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