Presentation on theme: "1 Annuity Maximization A strategy to leave more to your heirs at death."— Presentation transcript:
1 Annuity Maximization A strategy to leave more to your heirs at death
2 Disclosures These disclosures apply to this presentation in its entirety Custom GrowthCV is issued on policy form series LS166; Custom Guarantee is issued on policy form series LS163A, Premium Guarantee Rider is issued on form series LR452; Accelerated Benefit Endorsement is issued on form series LR352A, Chronic Illness Accelerated Benefit Rider (In Minnesota, Accelerated Benefit Rider for Continuous Confinement) is issued on form series LR450A, or state variation by North American Company for Life and Health Insurance, Executive Office: Chicago, IL Products, features or riders, endorsements or issues ages may not be available in all jurisdictions. Limitations or restrictions may apply. If the policyowner terminates the No Lapse Guarantee period, significantly higher premiums may be necessary to keep the policy in force. Paying a premium that is equal to, but not greater than, the No Lapse Guarantee Premium will keep the policy in force during the No Lapse Guarantee Period but may result in a negative or zero policy fund. By paying only the premium required to satisfy the no-lapse guarantee, the policyowner may be forgoing the advantage of building significant cash value. North American nor its agent give legal or tax advice. Please advise your customers to consult with and rely on a qualified legal or tax advisor before entering into or paying additional premiums with respect to such arrangements. In some situations loans and withdrawals may be subject to federal taxes. North American does not give tax or legal advice. Clients should be instructed to consult with and rely on their own tax advisor or attorney for advice on their specific situation. Snapshots from Illustrations are for example purposes only and do not represent the full Illustrations.
3 Scenario Many clients dont plan to spend down all their assets Leaving money to heirs is a common goal A great deal of assets are currently held in annuities
4 Annuities at death Subject to income taxes Subject to estate taxes Diminished amount passed to clients heirs
5 Considerations Annuity Income & Estate Taxable at death RMDs at 70 ½ for qualified funds Life Insurance Income Tax free at death* ILIT or outside ownership avoids estate tax No RMDs
6 Annuity Maximization Leverage assets currently in an annuity policy into a greater benefit for heirs at death using life insurance.
7 Some Considerations Taxes Moving Funds Irrevocable Life Insurance Trust (ILIT) Client objective
8 Taxes Income Tax (Federal and State) Estate Tax (Federal and State) Client may have personal opinion as to the future of income and estate tax rates
10 Irrevocable Life Insurance Trust (ILIT)? Estate Tax Planning Control Funding –Annual gift exemption ($13,000 in 2009) –Lifetime gift credit OR could own by children/grandchildren
11 Two types of clients 1.Death benefit objective to estate building Estate Taxable Non-estate taxable 2.Access to cash value a primary goal
12 Client Type 1 – Death Benefit Objective Estate Taxable Irrevocable Life Insurance Trust (ILIT) –Gifting limit –Lifetime exclusion Custom Guarantee –Maximizing guaranteed death benefit to heirs
13 Case Study Mr. Big Estate $250,000 annuity ($125,00 basis) Significant estate size Top tax bracket No need of funds Goal: Maximize estate size for heirs
14 Case Study Mr. Big Estate Policy owned by ILIT Funding options (net after 30% combined fed & state tax) –Lifetime SPIA: $16,111/yr –10-pay SPIA: $24,931/yr –Lump sum: $212,500 Guaranteed death benefit purchased: –Lifetime SPIA = $654,151 –10-pay SPIA = $572,743 –Lump Sum = $637,473 Age 65 Male, Standard rate class, Guaranteed DB to age 100
15 Case Study Mr. Big Estate Selected Solution is Lifetime SPIA $16,111/yr after taxes $13,000/yr used of annual gift exemption –Balance of $3,111/yr lifetime gift exclusion –Future gifting limits indexed for inflation Death Benefit of $654,151 Age 65 Male, Standard rate class, Guaranteed DB to age 100
16 Partial illustration shown. Age 65 Male, Standard rate class, Guaranteed DB to age 100 Maximum guaranteed coverage The information presented is hypothetical and not intended to project investment results. Illustration is not complete unless all pages are included.
17 Assumes income tax rate of 30% and estate tax rate of 45%. Annuity rate 5%
18 Client Type 1 – Death Benefit Objective No Estate Taxes Individually owned Custom Guarantee –Maximizing guaranteed death benefit to heirs
19 Case Study Mrs. Next Door $75,000 annuity ($40,000 basis) No expected estate taxes No need for funds Goal: Maximize benefit for heirs
20 Case Study Mrs. Next Door Policy owned individually Funding options (net after 25% combined fed & state tax) –Lifetime SPIA: $4,730/yr –5-pay SPIA: $14,025/yr –Lump sum: $66,250 Guaranteed death benefit purchased: –Lifetime SPIA = $237,513 –5-pay SPIA = $219,140 –Lump Sum = $232,382 Age 65 Male, Standard rate class, Guaranteed DB to age 100
21 Maximum guaranteed coverage The information presented is hypothetical and not intended to project investment results. Illustration is not complete unless all pages are included.
23 Custom Guarantee Advantages Competitive price guarantee up to % table ratings Strong in a variety of funding methods Extra effective age 60+ Life policy can be funded directly from SPIA
24 Client #2 – Access to cash value goal Desire cash value –Access to value –Growth in value Death benefit for heirs Custom GrowthCV –Waiver of surrender charge rider for early cash value –Interest rate and premium bonuses for cash value growth
25 Case Study Mrs. Next Door $75,000 annuity ($40,000 basis) Money not needed now, but retained access desired No expected estate taxes Goal: Leave as much to children as possible, but maintain control for unexpected needs.
26 Case Study Mrs. Next Door Individually owned Seeking access to cash value –Avoid lump sum causing Modified Endowment Contract –Quickly fund to provide fast access to cash 5-pay annuitization –$14,025/yr after tax (25% tax rate) –$171,493 death benefit (minimum non-MEC) Age 65 Female, Standard rate class, Solve for $75,000 at age 100
27 Partial illustration shown. Age 65 Female, Standard rate class, Minimum face amount to meet 7pay test Early cash value Waiver of surrender charge with table shaving Chronic Illness Accelerated Benefit Rider Cash value growth Potentially growing death benefit Interest rate & premium bonuses The information presented is hypothetical and not intended to project investment results. Illustration is not complete unless all pages are included.
29 Custom GrowthCV Advantages Leverage assets with death benefit –Use Cash Value Accumulation Test to get quicker rising death benefit with cash value Waiver of Surrender charge rider with table Shaving Designed for cash value –Interest Rate bonus –Premium bonus Chronic Illness Accelerated Benefit Rider Life policy can be funded directly from SPIA
30 North American Provides: TWO competitive solutions for Annuity Maximization
31 North American: More sales opportunities Custom Guarantee –For the death benefit objective Annuity Maximizer –High death benefit coverage guaranteed up to age 120 Custom GrowthCV –For the cash value objective Annuity Maximizer –Waiver of surrender charge rider for quicker access to cash value and table shaving