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estate maximization utilizing irrevocable trusts with life insurance and annuities

Estate MaximizationUtilizing Irrevocable Trusts with Life Insuranceand Annuities

Presenter Name

Presenter Title

Date of Presentation

disclosure
Disclosure

This presentation is for educational purposes only. It is not intended to be used with the public. It is intended to be accurate and authoritative in regard to the subject matter covered. It is presented with the understanding that I am not engaged in rendering legal or tax advice. Lincoln Financial Group provides the sales concepts for information purposes only.

While this seminar discusses general tax aspects and concepts of planning with insurance, no representations are made as to suitability for individual clients. Interested parties should be strongly encouraged to seek separate tax and legal advice before implementing a plan of the type described in this presentation.

IRS Circular 230 Disclosure

This material was prepared to support the promotion and marketing of variable annuities, mutual funds, and insurance company products. Lincoln Financial Group® affiliates, distributors, and their respective employees and representatives do not provide tax, accounting, or legal advice. Any tax statements contained herein were not intended or written to be used, and cannot be used for the purpose of avoiding U.S. federal, state, or local tax penalties. Please consult your own independent advisor as to any tax, accounting, or legal statements made herein.

irrevocable life insurance trust

Lincoln

LifeGuarantee

SUL

Irrevocable Life Insurance Trust

Male age 70 Standard, Female age 70 Standard

$1,000,000

Gift

$3,355,948

To Trust

Beneficiaries

Life Insurance

Death Benefit

6.24% IRR

Irrevocable Trust

*Death benefit assumes a guaranteed interest rate of 3%

objections to single premium into life insurance
Objections to Single-Premium into Life Insurance?
  • No future changes by Trustee
  • No upside potential
  • No income generation
  • Lack of liquidity
  • Fiduciary standards may require income and flexibility
choiceplus assurance sm va with i4life advantage and gib hypothetical example

ChoicePlus

VA with i4Life

and GIB

SUL

Death Benefit

$2,726,735

ChoicePlus AssuranceSM VA with i4LIFE® Advantage and GIB Hypothetical Example

Male age 70 Standard, Female age 70 Standard

$1,000,000

Gift

Guaranteed

Income Benefit

$50,000/yr

Intentionally Defective Grantor Trust

(The income benefit is determined at the time the contract is purchased. In this example the 50K/yr is 5% of the purchase payment based on the annuitants’ ages.)

5

the basics of a lincoln variable annuity
The basics of a Lincoln variable annuity
  • Variable Annuity
    • A long-term investment product designed for retirement savings
  • Tax-deferred growth
    • Earnings aren’t taxed until withdrawals are made, allowing for greater growth
  • Lifetime income
    • There are several options for receiving an income stream for life.
  • Death benefits
    • Savings can be transferred to beneficiaries
  • Optional protection features
    • For an additional charge, clients can elect optional features that can help protect their minimum future income and ensure growth.
  • Flexibility
    • Clients can meet individual needs by customizing their contract through investment allocation, withdrawal options, and adding or canceling optional features.
the benefits of i4life advantage
The benefits of i4LIFE® Advantage
  • Lifetime Income
    • An income stream, no matter how long your clients live.
  • Growth potential
    • Income that has the potential to grow based on their investment results.
  • Increasing wealth floor
    • With the Guaranteed Income Benefit (GIB), their payments will never go below the guaranteed minimum amount and may actually automatically increase every year if their i4LIFE® Advantage payment increases to a new high.
  • Control and access
    • Clients don’t have to choose between lifetime income and access to savings. They can have both: an income and the ability to make additional withdrawals during the Access Period.*

*Additional withdrawals reduce the cost basis, account value, and income payments proportionately, and are subject to ordinary income tax to the extent of the gain.

lincoln choiceplus assurance sm with i4life and gib
Lincoln ChoicePlus AssuranceSMwith i4LIFE® and GIB

Guaranteed

Income (GIB)

$50,000

Total Income

Year 1

$55,315

Non-taxable Income

$37,864

(The income benefit is determined at the time the contract is purchased. In this example the 50K/yr is 5% of the purchase payment based on the annuitants’ ages.)

lincoln choiceplus assurance sm with i4life and gib1
Lincoln ChoicePlus AssuranceSMwith i4LIFE® and GIB

(The income benefit is determined at the time the contract is purchased. In this example the 50K/yr is 5% of the purchase payment based on the annuitants’ ages.)

hypothetical assumptions for irrevocable trust
Hypothetical Assumptions for Irrevocable Trust
  • Intentionally Defective Grantor Trust
    • Grantor/Owner pays taxes outside the Trust
    • Trust assets grow with no tax withdrawals since Grantor pays taxes outside the Trust
  • Annuity asset allocation:
    • 60% LVIP American Growth Fund
    • 40% LVIP Delaware Bond Fund
    • 20-year historical returns from 12/1991-12/2010
  • The GIB is a minimum of $50,000 annually which pays for the SUL policy
  • Income above the $50,000 GIB (based upon 20 year historical avg.) stays in the Trust as a “cash reserve”
  • This example assumes that cash reserves inside the Trust grow 5% per year
  • Past performance does not guarantee future results. Different funding options, allocations and time periods would produce different results.
three buckets of money

Excess Income

ChoicePlus

VA with i4Life

and GIB

SUL

Death Benefit

$2,726,735

Annuity

Death Benefit

(after-tax)

Cash

Reserve

$1,489,950

Assumes

5% growth

$707,686

Three Buckets of Money

Male age 70 Standard, Female age 70 Standard

Year 20 (hypothetical)

$1,000,000

Gift

>$50,000

20 year historical returns*

Guaranteed

Income Benefit

$50,000/yr

Intentionally Defective Grantor Trust

* 60% LVIP American Growth Fund, 40% LVIP Delaware Bond Fund 12/1991-12/2010. Illustrated amounts are not guaranteed.

three buckets of money1

Annuity

Death Benefit

(after-tax)*

SUL

Death Benefit

Cash

Reserve*

$2,726,735

$1,489,950

$707,686

SUL

Death Benefit

$3,355,948

Three Buckets of Money

Male age 70 Standard, Female age 70 Standard

  • $1,000,000 into a Lincoln ChoicePlus AssuranceSM Variable Annuity with
  • i4LIFE® Advantage and GIB (Referencing 20 Year Historical Returns)

Trust as Illustrated

$1 million Lump Sum

Into Life Insurance

$4,924,371

8.30% IRR

6.24% IRR

* Actual Cash Reserves and Annuity Death Benefit values will vary and are not guaranteed.

estate maximization
Estate Maximization

20 Year Historical Illustration

Lump Sum SUL

Death Benefit

$3,355,948

$4,924,371

$4,696,063

$4,593,626

$3,948015

0% Return

*Assuming a worst case scenario (0% return), the Life Death Benefit of $2,726,735 would be paid to the trust beneficiaries

disclosure for insurance policies and annuity contracts
Disclosure for Insurance Policies and Annuity Contracts

Life insurance policies, including Lincoln LifeGuarantee® SUL, policy form SUL5066 and state variations (when approved), and annuity contracts, including Lincoln ChoicePlus AssuranceSM variable annuities (contract form 30070-B and state variations), are issued by The Lincoln National Life Insurance Company, Fort Wayne, IN, and distributed by Lincoln Financial Distributors, Inc., a broker/dealer. The Lincoln National Life Insurance Company does not solicit business in the state of New York, nor is it authorized to do so.

Policies and contracts sold in New York (policy SUL5066N (when approved); contract forms 30070BNYA, 30070BNYC, 30070BNYAL, and 30070BNYN) are issued by Lincoln Life & Annuity Company of New York, Syracuse, NY, and distributed by Lincoln Financial Distributors, Inc., a broker/dealer.

All guarantees and benefits of the insurance policy and all contract and rider guarantees, including those for optional benefits, fixed subaccount crediting rates, or annuity payout rates, are backed by the claims-paying ability of the issuing insurance company. They are not backed by the broker/dealer or insurance agency from which this policy or annuity is purchased, or any affiliates of those entities other than the issuing company affiliates, and none makes any representations or guarantees regarding the claims-paying ability of the issuer.

In some states, policy contract terms are set out and coverage may be provided in the form of certificates issued under a group policy issued by The Lincoln National Life Insurance Company to a group life insurance trust. Products and features are subject to state availability. The insurance policy and riders have limitations, exclusions, and/or reductions.

There is no additional tax-deferral benefit for an annuity contract purchased in an IRA or other tax-qualified plan.

disclosure for insurance policies and annuity contracts1
Disclosure for Insurance Policies and Annuity Contracts

Variable annuities are long-term investment products designed for retirement purposes and are subject to market fluctuation, investment risk, and possible loss of principal. Variable annuities contain both investment and insurance components, and have fees and charges, including mortality and expense, administrative, and advisory fees. Optional features are available for an additional charge and are based on the financial strength of the insurer. The annuity’s value fluctuates with the market value of the underlying investment options, and all assets accumulate tax deferred. Withdrawals of earnings are taxable as ordinary income and, if taken prior to age 59½, may be subject to a 10% federal tax penalty. Withdrawals will reduce the death benefit and cash surrender value. 

Investors are advised to consider the investment objectives, risks, and charges and expenses of the variable annuity and its underlying investment options carefully before investing. The applicable variable annuity prospectus contains this and other important information about the variable annuity and its underlying investment options. Please call 800 942-5500 or 888 868-2583 for a free prospectus. Read it carefully before investing or sending money. Products and features are subject to state availability. 

Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates. Affiliates are separately responsible for their own financial and contractual obligations.

thank you
Thank You

Questions?