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Asset Protection+ Preserving a legacy of retirement assets using life insurance. [PRESENTER] [Title]. # 0241306-00004-00 Ed. 9/2013 Exp. 03/24/2015 . NOT FOR CONSUMER USE. Before we begin….

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asset protection preserving a legacy of retirement assets using life insurance

Asset Protection+Preserving a legacy of retirement assets using life insurance

[PRESENTER]

[Title]

# 0241306-00004-00 Ed. 9/2013 Exp. 03/24/2015

NOT FOR CONSUMER USE

before we begin
Before we begin…

What are two common financial goals many affluent clients have during the second and third phase?

  • Have enough assets during their lifetime
  • Leave a legacy to their heirs at death

Financial Lifecycle

Accumulation

Distribution

Succession

NOT FOR CONSUMER USE

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agenda
Agenda
  • Legacy Threats
  • Why Asset Protection+
  • Getting Started

Examples in this presentation are hypothetical and used for illustrative purposes only to describe how the strategy may work. Which strategy works best for clients will depend on their individual facts and circumstances. Actual results will vary. Any representation of life insurance premium or death benefit is purely hypothetical in amount and is not a guarantee of cost or death benefit now or in the future from a specific life insurance policy.

NOT FOR CONSUMER USE

3

clients who may benefit
Clients Who May Benefit…
  • Age 59 ½ + and family oriented
  • Net worth of $1,000,000 and sufficient liquid assets to support this strategy (excluding equity in the home)
  • Hold an IRA or Annuity not needed for support in retirement
  • Have sufficient retirement income from other sources, besides the IRA or Annuity. Additionally, the client should have a financial plan completed as determined in conjunction with their financial advisor
  • Desire to provide for children, grandchildren, and/or charity and consider the IRA or annuity as a “leave-on” asset for them

NOT FOR CONSUMER USE

Not for Consumer Use.

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4

legacy threats
Legacy Threats

“What are two common risks that can negatively impact a client’s ability to leave a legacy to heirs?”

One that you can calculate and one you can not:

Taxes

Chronic illness

NOT FOR CONSUMER USE

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taxes are a reality
Taxes are a reality

IRA or Existing

Annuity

Legacy Threats

Stock

Bond

Mutual Fund

CD or Cash

Tax-deferred, ordinary income to extent of gain on distributions

Ordinary income on gain at withdrawal AND subject to estate taxes

Capital gain on realized gains, ordinary income on interest and dividends

Step-up in basis at death, subject to estate taxes

NOT FOR CONSUMER USE

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taxes are a reality1
Taxes are a reality

Legacy Threats

How much is a $500,000 IRA really worth to heirs?

Income

Tax

$198,000

39.6%

Assumes the IRA is liquidated by one beneficiary at IRA owner’s death as a lump sum subject to a tax rate of 39.6%. There may be other options besides lump sum available.

NOT FOR CONSUMER USE

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chronic illness is a reality
Chronic illness is a reality

Legacy Threats

  • 78 million baby boomers will retire over the next two decades1
  • About 70% of Americans over age 65 will require some type of chronic care services during their lifetime2
  • Average national costs of chronic care3 (2010) in the United States:
      • $205/day for a semi-private room in a nursing home ($74,825/year)
      • $229/day for a private room in a nursing home ($83,585/year)
      • $3,293/month for one bedroom unit in an Assisted Living Facility ($39,516/year)
      • $21/hour for a Home Health Aide ($30,660/year at 4 hours/day)

1U.S. Census Bureau, Facts for Figures, 2006.

2Source: http://www.longtermcare.gov/LTC/Main Site/index.aspx Last accessed April 8, 2013.

3Source: www.longtermcare.gov. U.S. Department of Health and Human Services. May, 2011.

Statistics referenced on this slide are believed to be the most up-to-date available as of April, 2013.

NOT FOR CONSUMER USE

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chronic illness is a reality1
Chronic illness is a reality

Legacy Threats

  • 15 million Americans currently provide UNPAID care to adults with Alzheimer’s or another dementia (22 hours per week on average)4
  • 80% of care provided at home is delivered by FAMILY caregivers4
  • Less than 10% of older adults receive all their care from PAID workers4

4Source: Alzheimer’s Association, 2011 Alzheimer’s Disease Facts and Figures, Alzheimer’s & Dementia, Volume 7, Issue 2

Statistics referenced on this slide are believed to be the most up-to-date available as of April, 2013.

NOT FOR CONSUMER USE

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slide10
Reposition Legacy Assets

Net Death Benefit

Withdrawal

Premium

Rider for Chronic and Terminal Illness Needs*

IRAor Existing

Annuity

Balance of IRA or Annuity at death

Why Asset Protection+

Life Insurance

Children or Charity

Client

Income tax on withdrawal?

*Receiving benefits under this rider will reduce the death benefit and may result in beneficiaries receiving no death benefit.

NOT FOR CONSUMER USE

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slide11
THE STRATEGY

Why Life Insurance

Why Asset Protection+

  • When properly structured, Life Insurance may provide:
  • Death benefit protection
  • Income tax-free payment
  • Predictability
  • Accumulation & leverage
  • Chronic or terminal illness protection

NOT FOR CONSUMER USE

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slide12

Why Asset Protection+

  • BenefitAccess¹ for Chronic or Terminal Illness
  • Accelerates up to 100% of the death benefit
  • Max monthly benefit2, lesser of:
    • 2% of death benefit
    • IRS Per Diem Limit (2013: $320/day)
    • IRS Per Diem Limit at issue compounded at 4% annually
  • Reduces death benefit dollar for dollar and policy value proportionately3

1Available for an additional cost for issue ages 20-80, underwriting classes up to Table D and face amounts up to $5,000,000.

Availability may vary by state. Additional underwriting requirements apply.

2Income taxes may apply if the policy owner is simultaneously receiving benefits from multiple accelerated death benefit riders for chronic

illness and/or long-term care riders/policies and the total benefits received exceed both the IRS per diem limit and his or her qualified LTC

expenses incurred. Whether rider proceeds are taxable as income depends on a number of factors, including whether qualified expenses

are incurred or reimbursed and if additional benefits are being received under similar contracts. Qualified expenses means costs incurred

for the necessary diagnostic, preventive, therapeutic, curing, treating, mitigating and rehabilitative services, and maintenance or personal

care services needed by a chronically ill individual.

3If the entire death benefit is accelerated, nothing will be paid to policy beneficiaries.

NOT FOR CONSUMER USE

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benefitaccess for chronic illness
BenefitAccess For Chronic Illness
  • No receipts (indemnity benefit)
  • No waiting period
  • No exclusions for family caregivers
  • All charges waived once benefits begin*
  • All charges permanently waived after 25 months of benefits

*If rider benefits stop within 25 months, additional premiums may be required to keep the policy in force.

NOT FOR CONSUMER USE

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benefitaccess for terminal illness
BenefitAccess For Terminal Illness

Upon being certified as terminally ill with a life expectancy of 6 months or less:

  • Accelerates the death benefit in a lump sum,
  • Or a portion in a lump sum (at least $25,000 must remain)
  • If a portion is accelerated the rest could later be accelerated in full
  • Benefits reduced by discount factor
  • No policy charge for this portion
  • (a fee applies each time it is used)

Benefits for chronic illness and terminal illness can not be paid simultaneously. Terminal illness benefits could be paid subsequent to chronic illness benefits but once terminal benefits are paid, chronic illness benefits are no longer available.

NOT FOR CONSUMER USE

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why asset protection
Why Asset Protection+

Hypothetical Case Study

Judy Hill (age 68)

  • Retired
  • Two sons, ages 40 and 42
  • Assets: $300,000 home, $1,000,000 of investable assets, and $500,000 IRA
  • Has income from a defined benefit plan and sufficient income from other assets to meet current and future income needs
  • Will take required minimum distributions (RMD)
  • IRA earmarked as legacy money
  • Would like to leave more to two sons
  • Concerned about impact of a chronic illness

NOT FOR CONSUMER USE

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slide16

Net RMD reinvested

Taxable Assets?

$865,685

Death Benefit WITHOUT Benefit

Access

$721,561

Death Benefit WITH Benefit

Access

Net distribution redirected as annual premium

Life Insurance

On Judy

$500,000 IRA

$500,000 IRA

Why Asset Protection+

Current Situation

Hypothetical and for illustrative purposes only.

Assumptions:

-5% growth on IRA assets

- Female age 68, preferred non tobacco, PruLife® Universal Life Protector, $20,000 annual premium, guaranteed to age 105.

Asset Protection+

Note: In the event the death benefit is accessed to help with a chronic illness, the remaining value will decrease leaving less or none to the beneficiaries according to the terms of The Prudential BenefitAccess Rider.

NOT FOR CONSUMER USE

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internal rate of return irr on judy s policy
Internal rate of return (IRR) on Judy’s policy

InternalRateofReturn - IRR

Life Expectancy

Assumes 30% income tax rate. Longevity may result in a negative internal rate of return.

NOT FOR CONSUMER USE

Not for Consumer Use.

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slide18

Why Asset Protection+

Assuming chronic illness and BenefitAccess benefits begin at age 82 under Judy’s Policy

*Requires certification by a licensed health care practitioner as being chronically ill. Terms associated with the rider must be satisfied. The IRS per diem limitation may be adjusted for inflation by the IRS. Prudential caps the maximum annual increase at 4%. In this example, the per diem limitation is being inflated at a hypothetical annual rate of 0%. The Maximum Monthly Benefit at any given point in time may be less than what is illustrated above depending on actual IRS adjustments to the per diem limitation.

NOT FOR CONSUMER USE

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comparison of net after tax proceeds at death without benefitaccess
Comparison of net after-taxproceeds at death, without BenefitAccess

Without

Asset Protection +

IRA Value

at age 86… $ 519,568

100% of RMD’s

reinvested... $ 457,223

Income Tax

on IRA (28%)… $ (145,479)

NET TO HEIRS… $ 831,312

NOT FOR CONSUMER USE

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comparison of net after tax proceeds at death without benefitaccess1
Comparison of net after-taxproceeds at death, without BenefitAccess

Without

Asset Protection +

With

Asset Protection +

IRA Value

at age 86… $ 519,568

100% of RMD’s

reinvested... $ 457,223

Income Tax

on IRA (28%)… $ (145,479)

NET TO HEIRS… $ 831,312

IRA Value

at age 86… $ 347,305

No RMD’s

reinvested... $ 0

Death Benefit $ 865,685

Income Tax

on IRA (28%)… $ (97,245)

NET TO HEIRS… $ 1,115,745

A difference of $284,433

NOT FOR CONSUMER USE

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comparison of net after tax proceeds at death with benefitaccess
Comparison of net after-taxproceeds at death, with BenefitAccess

Without

Asset Protection +

IRA Value

at age 86… $ 519,568

100% of RMD’s

reinvested... $ 457,223

Income Tax

on IRA (28%)… $ (145,479)

NET TO HEIRS… $ 831,312

NOT FOR CONSUMER USE

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slide22

Comparison of net after-taxproceeds at death, with BenefitAccess

Without

Asset Protection +

With

Asset Protection +

IRA Value

at age 86… $ 519,568

100% of RMD’s

reinvested... $ 457,223

Income Tax

on IRA (28%)… $ (145,479)

NET TO HEIRS… $ 831,312

IRA Value

at age 86… $ 347,305

100% of RMD’s

reinvested... $ 0

Death Benefit $ 721,561

Income Tax

on IRA (28%)… $ (97,245)

NET TO HEIRS… $ 971,621

A difference of $140,309

NOT FOR CONSUMER USE

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slide23
Reposition Legacy Assets + Stretch to Grandchildren

Survivorship

Life

Insurance

Withdrawal

Premium

IRA or Existing

Annuity

Balance of IRA or Annuity at death via “Stretch” strategy

Why Asset Protection+

Net

Death Benefit

Grand-children

Children

Clients

Income tax on withdrawal?

NOT FOR CONSUMER USE

23

why asset protection1
Why Asset Protection+

Hypothetical Case Study

Don (age 72) and Kathy (age 72) Campbell

  • Retired 4 years ago and have a modest lifestyle
  • One daughter, one grandchild (Ginny, age 10)
  • Assets include a $400,000 home, $900,000 in other assets and a $500,000 IRA
  • Has income from a defined benefit pension plan and sufficient income from other assets to meet current and future income needs
  • Taking required minimum distributions (RMDs)
  • IRA and RMDs are earmarked as legacy money
  • Would like to leave more to daughter and Ginny

NOT FOR CONSUMER USE

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slide25

$693,666

Death Benefit

$13,672

Some Net RMD redirected as annual premium

Survivorship

Life

Insurance

$500,000

IRA

Why Asset Protection+

  • Let’s assume the following:
  • Don lives to age 85, leaves IRA to Kathy
  • Kathy lives to age 92, leaves IRA to Ginny
  • Don and Kathy fund premiums with after-tax IRA withdrawals
  • Daughter is the life insurance beneficiary

Hypothetical and for illustrative purposes only.

Assumptions:

-7% growth on IRA assets

-Don & Kathy, both age 72, preferred non tobacco, PruLife® SUL Protector, $13,672 annual premium, guaranteed to age 105.

Asset Protection+

NOT FOR CONSUMER USE

25

slide26

Don’s total RMD income from age 72-85 is $426,729 before income tax

Don

  • IRA Value $500,000
  • RMD using Uniform Table
  • Kathy elects an IRA rollover at Don’s death

Kathy’s total RMD income

from age 86-92 is $369,490 before income tax

Kathy

  • Inherited IRA Value $646,801
  • RMD using Uniform Lifetime Table
  • At Kathy’s death, Ginny elects distributions over life expectancy

Daughter receives life insurance death benefit of $693,666 upon Kathy’s death

Barbara

  • Death benefit generally received income tax-free
  • 7.44% IRR at Kathy’s age 92
  • 10.63% Tax-Equivalent IRR*

Ginny receives RMD income of $6,136,319 from age 31-83 before income tax

Ginny

  • Inherited IRA Value $587,049
  • RMD using Single Life Table
  • Receives first distribution of $11,203 at age 31

Why Asset Protection+

NOT FOR CONSUMER USE

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*Assumes a 30% tax rate

slide27

Why Asset Protection+

Total value to Barbara and Ginny is $6,829,985*

NOT FOR CONSUMER USE

27

*Equals sum of the life insurance death benefit to the child and thetotal lifetime IRA distributions to the grandchild.

getting started
Getting Started

Talking Points

  • Are you ever going to spend all this money you have in your IRA or Annuity?
  • What are you planning to do with it?
  • “We’re going to leave it to the kids and grandkids.”
  • You sound like you really love those kids. If you could find a way to leave them more you probably would, wouldn’t you?
  • Let me share an idea with you…

NOT FOR CONSUMER USE

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summary
Summary

Legacy Threats

  • Taxes and chronic illness can erode your clients’ legacy

Why Asset Protection+

  • Repositioning tax-deferred legacy assets using life insurance can help to enhance wealth for heirs

Getting Started

  • Implementing the strategy using simple talking points and our resources

NOT FOR CONSUMER USE

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what s in it for you
What’s in it for you?
  • Prospects are in your existing book
    • Meet the client profile
    • Who has or will complete a sound financial plan
  • Meet the needs of your clients
  • Easily preserve and grow your business
  • Support and Resources

NOT FOR CONSUMER USE

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important considerations
Important Considerations

In addition to the asset or income they may be repositioning to implement the strategy, clients should have sufficient liquid assets to support their current and future income and expenses. Equity in the home should not be considered a liquid asset.

This concept is only intended to be used for assets that will not be needed for living expenses for the expected lifetime of the insured. It is the responsibility of the client to estimate these needs and expenses and it is recommended that they consider developing a comprehensive financial plan in conjunction with implementing the strategy being considered. The accuracy of determining future needs and expenses is more critical for clients at older ages who have less opportunity to replace assets used for the strategy.

If your client’s financial or legacy planning situation changes and they need to use the assets or income that are being earmarked for future life insurance premiums, they may be unable to continue to make premium payments, the life insurance policy may terminate and the results illustrated may not be achieved.

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important considerations1
Important Considerations

If the asset or income earmarked for future life insurance premiums becomes fully exhausted, premiums may have to be paid using other assets or income to keep the life insurance policy in force.

Depending on your client’s life span, it is possible that your client’s beneficiary may receive more by just inheriting the assets, rather than by receiving the death benefit of the life insurance policy that was purchased.

Clients may have to pay taxes, early withdrawal penalties, and/or other fees on assets liquidated to pay the life insurance policy premiums.

We recommend that your client consult their tax and legal advisor to discuss their specific situation before implementing the strategy discussed herein.

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senior disclosure
Senior Disclosure

In recommending the replacement of an asset or using the income therefrom to a senior consumer (age 65 or older) that results in a life insurance transaction or a series of insurance transactions, the insurance producer must have reasonable grounds for believing the recommendation is suitable for the senior consumer on the basis of the facts disclosed by the senior consumer as to his or her investments and other insurance products and as to his or her financial situation and needs.

The insurance producer must make reasonable efforts to obtain the following: senior consumer's financial status, tax status, investment objectives and such other information used or considered to be reasonable by the insurance producer in making recommendations to senior consumers.

next steps
Next Steps
  • Individual meeting
  • Identify prospects
  • Build and present case
  • Clients Who May Benefit
  • Age 59 ½ + and family oriented
  • Minimum net worth of $1,000,000 and sufficient liquid assets to support this strategy
  • Hold an IRA or Annuity not needed for support in retirement
  • Have sufficient retirement income from other sources, besides the IRA or Annuity
  • Desire to provide for and consider the IRA or Annuity as a ”leave on” asset for children, grandchildren and/or charity

NOT FOR CONSUMER USE

34

important information
Important Information

The Benefits Access Rider is available for an extra premium. Additional underwriting requirements and limits may also apply. Obtaining benefits under the terms of the rider will reduce and may eliminate the net death benefit.

Benefits paid under the BenefitAccess Rider are intended to be treated for federal tax purposes as accelerated life insurance death benefits under IRC §101(g)(1)(b). Tax laws related to the receipt of accelerated death benefits are complex and may be taxable in certain circumstances. Receipt of benefits may affect eligibility for public assistance programs such as Medicaid. Accelerated benefits paid under the terms of the Terminal Illness portion of the rider are subject to a $150 processing fee ($100 in Florida). Clients should consult your tax and legal advisors prior to initiating any claim.

A licensed health care practitioner must certify the chronic or terminal illness to qualify for benefits. Chronic illness claims will require recertification by a licensed heath care practitioner. Other terms and conditions may apply before benefits are paid. This rider is not Long Term Care insurance (LTC) and it is not intended to replace LTC. The rider may not cover all of the costs associated with chronic illness. The rider must follow state accelerated death benefit laws, is generally not subject to health insurance requirements, and may not be available in all states.

Life insurance policies contain fees and expenses, including cost of insurance, administrative fees, premium loads, surrender charges and other charges or fees that will impact policy values.

NOT FOR CONSUMER USE

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important information1
Important Information

This material has been prepared by The Prudential Insurance Company of America to assist financial professionals. It is designed to provide general information in regard to the subject matter covered. It should be used with the understanding that we are not rendering legal, accounting or tax advice. Such services should be provided by the client’s own advisors. Accordingly, any information in this document cannot be used by any taxpayer for purposes of avoiding penalties under the Internal Revenue Code.

PruLife® Universal Protector is issued by Pruco Life Insurance Company in all states except New York, where if available it is issued by Pruco Life Insurance Company of New Jersey. Other insurance policies and annuities are issued by The Prudential Insurance Company of America located in Newark, NJ. Securities are offered through Pruco Securities, LLC.

PruLife® SUL Protector is issued by Pruco Life Insurance Company, except in New York where, it is issued by Pruco Life Insurance Company of New Jersey. Both are Prudential Financial companies located in Newark, NJ. [Each is solely responsible for its own financial condition and contractual obligations. The contract number is SULNLG-2011].

NOT FOR CONSUMER USE

36

important information2
Important Information

The Living Needs Benefit℠ is an accelerated death benefit and is not a health, nursing home, or long-term care insurance benefit and is not designed to eliminate the need for insurance of these types. There is no charge for this rider but, when a claim is paid under this rider, the death benefit is reduced for early payment, and a $150 processing fee ($100 in Florida) is deducted. If more than one policy is used for the claim, each policy will have a processing fee of up to $150 deducted ($100 in Florida). Portions of the Living Needs Benefit payment may be taxable, and receiving an accelerated death benefit may affect eligibility for public assistance programs. The federal income tax treatment of payments made under this rider depends upon whether the insured is the recipient of the benefit and is considered "terminally ill" or "chronically ill." We suggest that clients seek assistance from a personal tax advisor regarding the implications of receiving Living Needs Benefit payments. This rider is not available in Minnesota to new purchasers over age 65 until the policy has been in force for one year, and the nursing home option is not available in Connecticut, Florida, Massachusetts, New York or the District of Columbia. This rider is not available in Washington state. In Oregon, term policies must include the waiver of premium benefit to be eligible for this rider.

BenefitAccess is covered by U.S. Patent No. 7,958,035, which was issued on the insurance product management system for an accelerated benefit provided in response to a medical condition, where the benefit is paid to the policyowner without restriction on use of proceeds.

Prudential, the Prudential logo, and the Rock symbol are service marks of Prudential Financial, Inc. and its related entities.

Securities and Insurance Products:

Not Insured by FDIC or Any Federal Government Agency. May Lose Value.

Not a Deposit of or Guaranteed by Any Bank or Bank Affiliate.

NOT FOR CONSUMER USE

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