Presentation on theme: "OLA 1103 T 1008 Preserving Assets for Your Loved Ones."— Presentation transcript:
OLA 1103 T 1008 Preserving Assets for Your Loved Ones
2 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.
3 The Bypass TrustAn Important Part of Estate Planning Bypass Trust is often created to protect surviving spouse during his/her lifetimeto provide income, if needed, and access for emergencies After death of surviving spouse, trust will usually provide distributions to his/her children or other heirs Trust is often called Bypass or B trust because, if properly structured, its value will bypass estate of surviving spouse and not be subject to estate taxes at his/her death Trustee of Bypass Trust should be trusted friend or family member other than surviving spouse to prevent inadvertent inclusion of trust assets in his/her estate
4 Enhancing Trust Value with Life Insurance Bypass Trust purchase of life insurance policy has several benefits: Diversifies and lowers investment risk of trust assets May greatly magnify value of trust for future generations Life insurance policy cash values grow tax–deferred May reduce trusts income tax liabilities Policy death benefit can be guaranteed
5 When Purchase of Insurance by a Bypass Trust May Be Appropriate Consider income needs of surviving spouse Depending upon his/her income needs, may want to magnify trust value for children and/or grandchildren Life insurance premiums can be paid using assets already in trust, avoiding need for gifts to trust from surviving spouse
6 Example: How It Works Mary, age 72 After her husbands death, executor funded Bypass Trust with $2 million in stocks and bonds from husbands separate property Trust assets may benefit Mary during her lifetime and will pass to her three children at her death Mary has substantial assets and does not need to use trust income or access principal Mary wants to maximize trusts value for her children
7 Example: Maximizing Trust Value Assume trust earns 7% annual income on $2 million in trust assets: 40% tax bracket Assumes 35% federal and 5% state tax bracket Trustee uses $84,000 of after-tax earnings to purchase universal life insurance policy with $3 million guaranteed death benefit Trusts first-year after-tax earnings = 100% – 40% = 60% x 7% x $2 million = $84,000 Life insurance policy cash values grow tax–deferred
8 Year Trust Value without Life Insurance * Trust Value with Life Insurance ** 5$2,456,793$5,059,000 103,017,9155,059,000 153,707,1955,059,000 204,553,9065,059,000 255,594,0035,059,000 Example: Comparing Trust Values *Trust growth shown at 7% with combined 40% federal and state income tax bracket. **Trust value with life insurance equals $2 million plus life insurance death benefits. 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. In most states, in the event of suicide during the first two policy years, death benefits are limited only to the return of premiums paid. In Missouri, suicide is no defense to payment of benefits unless the Company can show that the insured intended suicide at the time of application for coverage.
9 Example: More Trust Value for Loved Ones For a long period of time, exceeding 20 years, life insurance provides more trust value for Marys loved ones. Consider the following projections: Year Trust Value without Life Insurance Trust Value with Life Insurance 10$3,017,915$5,059,000 204,553,9065,059,000
10 *Consult your attorney and financial advisors to determine the proper course of action regarding the purchase of life insurance by a Bypass Trust. Evaluating the Bypass Trust Several factors should be evaluated before Bypass Trust purchases life insurance policy: * Beneficiary needs Trust terms Investment alternatives Type of life insurance policy Overall estate plan
11 Estate Enhancement A life insurance policy purchased by a Bypass Trust may enhance an estate and allow individuals to pass on their legacies free of estate taxes
12 Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company (collectively Transamerica), and their 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 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 Transamericas 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 April 2007. Transamerica Financial Life Insurance Company is authorized to conduct business in New York. Transamerica Life Insurance Company is authorized to conduct business in all other states.
OLA 1103 T 1008 Preserving Assets for Your Loved Ones
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