1. For Producer And Professional Advisor Use Only. Not For Use With The Public. The American Taxpayer Relief Act (ATRA) of 2012 Al Kingan, JD, LLM, CLU, ChFC AVP, Estate and Business Planning Estate & Business Planning CRN201502-169437

2. For Producer And Professional Advisor Use Only. Not For Use With The Public. 2 Disclaimer The information contained in this presentation is being provided with the understanding that it is not intended to be interpreted as specific legal or tax advice. Neither MassMutual nor any of its employees or representatives are authorized to give legal or tax advice. The information provided herein may not be relied on for purposes of avoiding any federal tax penalties. Individuals are encouraged to seek the guidance of their own legal or tax counsel. Any individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel.

3. For Producer And Professional Advisor Use Only. Not For Use With The Public. 3  New Tax Law Summary  Fiscal Cliff Averted?  Planning strategies Copyright AALU 2012 All Rights Reserved Main Topics of the Day:

4. For Producer And Professional Advisor Use Only. Not For Use With The Public. 4 Summary of Key Provisions of New Tax Law  Estate, gift and generation-skipping tax exemptions and rates*  Exemptions: $5,000,000 indexed from 2010 ($5,250,000 for 2013)  Flat tax rate above exemption amount: 40%  Permanent reunification of estate, gift and generation-skipping transfer tax system  Portability made permanent * Cost of these provisions is estimated to be $396.068 billion over 10 years by Congressional Budget Office (CBO) scoring of this tax act. All estimates on this and later slides are from the CBO scoring of ATRA 2012 and appear in RED.

5. For Producer And Professional Advisor Use Only. Not For Use With The Public. 5 Summary of Key Provisions of New Tax Law  Other key provisions - Permanent  Extension of 10% (lowest) income tax bracket $442.641 billion/10yrs  Extension of lower tax brackets (25%, 28%, 33% and 35%) for taxpayers with income at or below: $319.711 billion/10yrs  $400,000 - single filers  $425,000 – head of household  $450,000 – married filing jointly  Extension of 15% (and lower) capital gains and dividend rates (qualified dividends only) for taxpayers with income at or below:  $400,000 - single filers $289.920 billion/10yrs  $425,000 – head of household  $450,000 – married filing jointly  For taxpayers with income above the threshold amount, both dividends and capital gains will be taxed at 20%

6. For Producer And Professional Advisor Use Only. Not For Use With The Public. 6 Summary of Key Provisions of New Tax Law  Other key provisions – Permanent  Repeal of the personal exemption phase-out (“PEP”) and itemized deduction phase-out (“Pease”) on incomes at or below:  $250,000 - single filersPEP and Pease: $10.514 billion/10yrs  $275,000 – head of household  $300,000 – married filing jointly  Pease phase-out is the lesser of 3% of excess over threshold amount, or 80% of allowable deductions (no reduction of medical, investment interest or casualty/theft and gambling losses)  PEP phase-out is calculated at 2% for each $2,500 that taxpayer’s adjusted gross income exceeds threshold amount  Example:  Jim and Sally are married and earn $350,000  Pease Adj: ($350,000 - $300,000) x 3% = $1,500 reduction  PEP Adj: ($350,000 - $300,000) / $2,500 = 20 * 2% = = 40% reduction in allowable personal exemption

7. For Producer And Professional Advisor Use Only. Not For Use With The Public. 7 Summary of Key Provisions of New Tax Law  Alternative Minimum Tax $1,815.6 billion/10yrs  Permanent exemption increase for 2012 as follows:  $50,600 - single filers (from $33,750 current law)  $78,750 - married filing jointly (from $45,000)  Phase-out of exemption  Phase-out formula: Exemption is reduced by 25% of amount that taxpayer’s AMT income exceeds:  $112,500 - single filers  $150,000 - married filing jointly  Now allows non-refundable credits against the AMT  Both exemption and phase-out threshold now indexed for inflation  Future inflation indexing eliminates yearly need for “patches”

8. For Producer And Professional Advisor Use Only. Not For Use With The Public. 8 Summary of Key Provisions of New Tax Law  IRA Charitable Rollover – 2 year ext. thru 2013 $1.280 billion/10yrs  Over 70½, Tax free distribution from IRA to qualified charity of up to $100,000  Meets RMD requirement  Transition rules:  Rollover to charity during January 2013 can count as a 2012 distribution  Taxpayers who took distribution in December 2012 can make a cash gift to qualified charity during January 2013 that will be treated as an eligible 2012 charitable rollover  Itemized deduction for state and local sales taxes in lieu of state and local income taxes – also only 2 years $5.538 billion/10yrs  Mainly helps those with large ticket purchases or who live in states with no income tax

9. For Producer And Professional Advisor Use Only. Not For Use With The Public. 9 Summary of Key Provisions of New Tax Law  Roth conversions for retirement plans $12.186 billion/10yrs revenue  Applies to 401(k), 403(b), or 457(b) government plans  Any amount in a non-Roth account can be converted to a Roth account in the same plan  Prior law permitted conversion only as to amounts eligible to be withdrawn from plan (usually participant over 59½ or separated from service)  New law permits conversion whether or not eligible for distribution

10. For Producer And Professional Advisor Use Only. Not For Use With The Public. 10 Summary of Key Provisions of New Tax Law  Misc. Provisions - permanent  Extend marriage penalty relief – 15% bracket, standard deduction and EITC $84.630 billion/10yrs  Child tax credit (some refundability) $354.493 billion/10yrs  Adoption assistance/credits $5.580 billion/10yrs  Expanded dependent care credit $1.791 billion/10yrs  Student loan interest deduction $9.676 billion/10yrs  Employer provided education benefits $11.477 billion/10yrs  Misc. – temporary  Child credit (expanded refundability) – 5 years $50.518 billion/10yrs  American Opportunity Tuition Tax Credits – 5 years $67.280 billion/10yrs  College tuition (above line deduction) – thru 2013 $1.706 billion/10yrs  Mortgage insurance treated as mortgage interest - 1 yr $1.297 billion/10yrs  Energy efficient home and appliance credit – thru 2013 - 2 years $2.446 billion/10yrs

11. For Producer And Professional Advisor Use Only. Not For Use With The Public. 11 Summary of Key Provisions of New Tax Law  Misc. Business Provisions  Bonus depreciation – thru 2013 (2014 for certain “longer lived” and transportation assets) $4.956 billion/10yrs  R & D credit– thru 2013 (2 yrs) $14.324 billion/10yrs  15 year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements and qualified retail improvements – extended thru 2013 (2 yrs) $3.717 billion/10yrs  Enhanced Sec. 179 expensing – thru 2013 (2 yrs) $2.352 billion/10yrs  Full/partial exclusion gain on sale of certain small business stock held for 5 years – applies to stock acquired by 12/31/2013 $954 million/10yrs  Reduction in holding period of S Corp Stock to 5 years to avoid Built in Gain Tax – applies to asset sales during 2012/13 $256 million/10yrs

12. For Producer And Professional Advisor Use Only. Not For Use With The Public. 12 Financial Impact of New Tax Law  10 year cost estimated at over $3.96 trillion  Current debt ceiling limit is $16.394 trillion  Yet:  Some Congressional leaders have taken credit for raising $620 billion in new revenue through passage of ATRA 2012  Note the cited $620 billion figure is the difference between what the tax law cost and what it would have cost if all Bush-era and 2010 Tax Act provisions had been permanently extended

13. For Producer And Professional Advisor Use Only. Not For Use With The Public. 13 Not Impacted By New Tax Law  Social Security tax holiday is gone!  Base Social Security withholding tax back to 6.2% (from 4.2%) for employees  Self-employment tax back to 12.4% from 10.4%  2013 FICA tax base earnings limit: $113.700  Patient Protection and Affordable Care Act of 2010 adds 0.90% surtax employee’s portion of FICA Medicare tax for income over:  $200,000 – Single taxpayers  $250,000 – Married couples

14. For Producer And Professional Advisor Use Only. Not For Use With The Public. 14 Higher Medicare Payroll Tax -.90% FICA201120122013Cap Medicare (HI) 1.45% 2.35% 1 None Social Security (OASDI) 4.20% ($4,486) 4.20% ($4,624) 6.20% ($7,049) ’11- $106,800 ’12- $110,100 ’13- $113,700 Total5.65% 8.55%Blended 1 Patient Protection and Affordable Care Act adds 0.90 percent to employee portion: a. Single individuals earning more than $200,000 per year and b. Married couples earning more than $250,000 per year Remember: Vested Deferred Compensation is subject to FICA, including additional.90% Medicare Tax

15. For Producer And Professional Advisor Use Only. Not For Use With The Public. 15 Not Impacted By New Tax Law Medicare Tax Extended to Unearned Income in 2013  3.8% surtax on unearned income  Interest  Dividends  Capital Gains  Passive income  Rental income  Annuity payments (taxable portion)  Applies to Modified Adjusted Gross Income (MAGI) above:  $200,000 (Single)  $250,000 (Married filing joint)  $11,950 (Estates and Trusts)  Applies to lesser of :  Net investment income  Total income over threshold  Not indexed for inflation

16. For Producer And Professional Advisor Use Only. Not For Use With The Public. 16 Medicare Tax Expanded “Unearned Income”YesNo Interest/DividendsX Capital gainsX Rental and Passive incomeX Annuity “income”X Tax-exempt bondsX IRA/Qualified Plan distributionsX Principal residenceX* Vacation residenceX Life Insurance death benefits, loans and non-taxable distributions X * In excess of Exclusion amount ($250,000/$500,000)

17. For Producer And Professional Advisor Use Only. Not For Use With The Public. 17 2013 Income Tax Bracket Summary

18. For Producer And Professional Advisor Use Only. Not For Use With The Public. 18 Gifting and Estate Tax Basics Gift, Estate and Generation Skipping** Calendar Year Tax Exemption Tax Rate 2009$3.5 million 45% 2010$5 million 35% 2011$5 million 35% 2012$5.12 million 35% 2013$5.25 million 40% Future years$5.25 million + Inflation Adjustment Annual Gift Tax Exclusions (2013): $14,000 *** Permanent change to 40% tax rate*, Exemption $5 million, indexed from 2010 * Top marginal rate ** ATRA 2012 provides for indexing of Gift, Estate and GSTT exemptions *** indexed for inflation

19. For Producer And Professional Advisor Use Only. Not For Use With The Public. 19  Clawback Issue now irrelevant  At death, all gifts in excess of annual exclusions are added back to decedent’s taxable estate  Gifts made during 2011 or 2012 (utilizing $5 million+ exemption) that are added back to estate, will never exceed estate tax exemption amount at time of death  Portability reduces need for Credit shelter or “by-pass” trust  Property ownership between spouses no longer crucial  Other considerations:  Estate tax return required to be filed at death of first spouse  Unused exemption not indexed for cost of living  Generation skipping exemption not portable  Growth out of estate if credit shelter trust funded  No basis step up for assets in credit shelter trust Estate and Gift Tax Issues

20. For Producer And Professional Advisor Use Only. Not For Use With The Public. 20 “Fiscal Cliff” is not over Source: The Committee for a Responsible Federal Budget, available at: http://crfb.org/sites/default/files/Between_a_Mountain_of_Debt_and_a_Fiscal_Cliff.pdf http://crfb.org/sites/default/files/Between_a_Mountain_of_Debt_and_a_Fiscal_Cliff.pdf THE CONGRESSIONAL AGENDA…  Remaining “Fiscal Cliff” issues  Sequestration –  postponed to March 1st  Debt Ceiling  Technically reached  Required increase in March/April timeframe  Federal Deficit issues

21. For Producer And Professional Advisor Use Only. Not For Use With The Public. 21 The Fiscal Dilemma As a share of GDP, spending and revenue collection historically average 19-20% FY 2013 Projected Deficit: $1.2 trillion National Debt: $16.4 trillion Economic Growth Projections: 2.3% in 2012; ten-year average: 2.5% Structural budget and tax reform likely in 2013??? Source: Office of Management and Budget, FY 2013 Mid-Session Review, available at: http://www.whitehouse.gov/omb/budget/MSRhttp://www.whitehouse.gov/omb/budget/MSR Copyright AALU 2012 All Rights Reserved

22. For Producer And Professional Advisor Use Only. Not For Use With The Public. 22 Remaining “Fiscal Cliff”  Debt Ceiling limit approaching - $16.4 trillion  Tim Geitner told Congress Debt Ceiling was reached on December 26 th. Government accounting steps taken to postpone day of reckoning until early March  Congress extended Government borrowing authority in a bill informally called “no budget, no pay” which raises the debt ceiling by $450 billion until May 18 th, 2013  If there is no budget by April 15, 2013, Congress forgoes their paychecks until a budget blueprint is passed  Mandated roughly $600 billion in across-the-board spending cuts take effect January 1 – Budget Control Act of 2011  Postponed to by ATRA 2012 to March 1, 2013  Over 1,000 government programs will receive deep, automatic cuts, including Defense and Medicare

23. For Producer And Professional Advisor Use Only. Not For Use With The Public. 23 Income Taxes in 112 th / 113 th Congress Senate Finance Committee Chair Max Baucus (D-MT) & House Ways & Means Committee Chair Dave Camp (R-MI) Copyright AALU 2012 All Rights Reserved TAX REFORM…What we know  “Tax expenditures” serve as most significant source of revenue available for reform ($1.1T annually)  Life insurance policy inside build-up and death benefits – 12 th largest tax expenditure ($150 billion over five years)

24. For Producer And Professional Advisor Use Only. Not For Use With The Public. 24 Select Tax Expenditures – “Cost” in Billions 2011-2015*  Mortgage interest deduction $464.1 billion  Real Estate Taxes$117.1  Charitable contributions$242.6  State and local, sales, and personal property taxes$230.3  Exclusion of gain on sale of residence$123.2  Carry over basis on gifts$ 26.6  Step-up in basis at death$230.8  Reduced rates capital gains/dividends $456.6  Exclusion of Cafeteria benefits (IRC 125)$197.6  Employer medical benefits $725.0  Pension contributions and earnings$804.8  Municipal bond interest$177.6  Not taxing inside build-up life insurance/annuities$148.3 *Joint Committee on Taxation Estimates of Federal Tax Expenditures 2011-2015 (1/17/12) Before passage of American Taxpayer Relief Act of 2012

25. For Producer And Professional Advisor Use Only. Not For Use With The Public. 25 What to Do? Planning Opportunities

26. For Producer And Professional Advisor Use Only. Not For Use With The Public. 26 2013 Planning Opportunities  Income Tax Planning  Closely monitor level of income - rate brackets, surtaxes, deduction phase- outs  Deferred compensation planning – no impact on application of.90% Medicare surtax  Client investment changes to reduce impact of 3.8% surtax  Consider whether to convert from flow-thru entity to C Corporation  Especially if follow-thru on campaign promises to reduce corporate income taxes  Lower corporate tax rate to 28%  Lower corporate rate on manufacturing to 25%  For short-term cash flow needs, consider low interest corporate loans rather than payment of compensation

27. For Producer And Professional Advisor Use Only. Not For Use With The Public. 27 2013 Planning Opportunities  Estate Planning  Gifting/Dynasty Trust planning remains vibrant for very wealthy  Leverage gifts with discounts  Leverage with low interest rate planning  Don’t forget about State Estate taxes and planning  No Portability for state law purposes  Use it or lose it – Some key planning techniques may be at risk  Life Insurance  Greater opportunities to hold personally rather than need to transfer to irrevocable trust  Life insurance in Qualified Plans* may become more popular  Less concern that death benefit is includable in estate  Pay premiums with pre-tax dollars  In situations where premium is in excess of annual exclusions, consider a part-gift, part-loan arrangement *Due to the complexity involved in this process, individuals are advised to consult with their tax adviser about the tax consequences associated with the purchase of life insurance in a qualified plan and to determine the proper methodology to use in executing such a plan.

28. For Producer And Professional Advisor Use Only. Not For Use With The Public. 28 Planning for 3.8% Medicare Tax  Tax on investment income – dividends, interest, capital gains, distributions from annuities, rental income, passive business income  Does not apply to retirement plan distributions (including IRAs) although this income does impact MAGI and potential application of tax  Does not apply to interest from municipal bonds  Does not apply to life insurance loans and non-taxable distributions  Applies to trusts  Early planning strategies:  Did I mention Life Insurance?  Non-taxable investments may become more popular than ever  Although -Tax expenditure item possibly in play to help pay for tax cuts  Dividend paying stocks less popular?  Tax efficient investments (low turnover and low dividends)  Tax deferred investments (annuities)  Nondeductible IRAs – the wallflower no more

29. For Producer And Professional Advisor Use Only. Not For Use With The Public. 29 Low Interest Rate Planning Opportunities Applicable Federal Rates Rate Comparison Nov. 2007 Dec. 2008 March 2013  Short-term AFR 4.11% 1.36%.22% up to 3 year term loans & demand loans (see note below)  Mid-term AFR (3+ to 9 years) 4.39% 2.85% 1.09%  Long-term AFR (9+ years) 4.89% 4.45% 2.66%  7520 Rate 5.20% 3.40% 1.40%  Demand Loans - Annual Demand Loan rate is published by the IRS each year. IRS calculates rate by adding 50% of short-term January rate and 50% of short-term July rate.  For example, in 2012, the January rate was.19% and the July rate was.24%. The average of.215% was rounded to.22%. Here are blended rates over past few years:  2012 -.22%  2011 -.40%  2010 -.59%  2009 -.82%  2008 - 2.80%  2007 - 4.92%

30. For Producer And Professional Advisor Use Only. Not For Use With The Public. 30 Gifting Still Beneficial: Gifts to Trust Rather than Outright Why gifts into trust?  Trust assets can continue to be available for grantor’s family through a spouse or children named as eligible beneficiaries  Protection from creditors and predators  Grantor can borrow from trust, paying reasonable interest rate  Grantor can retain right to substitute assets of equal value  Grantor’s spouse can be given testamentary power of appointment to change distribution terms of trust at her death  Trust can appoint a “trust protector” with power to change trust terms in event of change in family circumstances or tax laws  Trust assets remain outside of taxable estate of beneficiaries  Grantor can retain power to remove and replace trustee

31. For Producer And Professional Advisor Use Only. Not For Use With The Public. 31 Gifts into Trust (cont.) Grantor trust rules can further enhance flexibility and ability of trust to appreciate in value  Grantor is taxed on all trust assets as if still owned by grantor  Transactions between trust and grantor are not recognized for income tax purposes  No gain recognized on transactions between grantor and trust  No interest required to be reported on loan transactions  Grantor’s payment of taxes on trust income is not considered a gift to trust  Trust is permitted to grow tax free, while grantor’s assets (which are subject to creditors and estate taxes) are depleted

32. For Producer And Professional Advisor Use Only. Not For Use With The Public. 32 Part Gift / Part Split Dollar Loan  Life insurance premiums may exceed gifting capability, but rather than doing a Split Dollar arrangement, grantor decides to lend shortfall to irrevocable trust  Example, Gil, age 50 desires to purchase a MassMutual Whole Life Legacy 65 policy (Select Preferred Non- Tobacco) with $200,000 annual premium in ILIT  Available annual exclusions total $78,000  Gil will loan remaining premium to trust  Premium loan will have same loan options that we’ve already discussed:  Demand loan with annualized short term rate used to measure required interest  Term loans using mid-term rate or long term rate  Remember that each new premium is a new term loan

33. For Producer And Professional Advisor Use Only. Not For Use With The Public. 33 Part Gift / Part Split Dollar Loan – Assume 15 yrs policy premiums of $200,000  Let’s take a look at our example assuming 2.66% (March ‘13 long term) interest rate over life of loan (over long term a higher rate may be required) AnnualCumulative YearOutlayGiftLoanInterest*Loan Y/E 1 200,000 82,000 118,000 3,139 121,139 2 200,000 82,000 118,000 6,361 245,500 3 200,000 82,000 118,000 9,669 373,169 4 200,000 82,000 118,000 13,065 504,234 5 200,000 82,000 118,000 16,551 638,786 10 200,000 82,000 118,000 35,424 1,367,171 11 200,000 82,000 118,000 39,506 1,524,677 12 200,000 82,000 118,000 43,695 1,686,372 15 200,000 82,000 118,000 56,945 2,197,725 16 82,000 56,278 2,172,003 17 82,000 55,594 2,145,597 20 82,000 53,430 2,062,090 25 82,000 49,423 1,907,430 *Loan interest Accrued

34. For Producer And Professional Advisor Use Only. Not For Use With The Public. 34 Part Gift / Part Split Dollar Loan – Assume 15 yrs policy premiums  Age 50, Select Preferred, Non-Tobacco, Whole Life Legacy 65  Initial Death Benefit $5,344,828, Premium of $200,000 CumulativeNon-Guaranteed YearLoan Y/EPolicy CV*Death Benefit* 1 121,139 12,186 5,378,559 2 245,500 163,620 5,414,488 3 373,169 358,667 5,455,216 4 504,234 562,429 5,501,042 5 638,786 775,568 5,553,446 10 1,367,171 2,067,266 6,051,907 11 1,524,677 2,336,980 6,198,567 12 1,686,372 2,693,875 6,364,245 15 2,197,725 3,808,802 6,983,375 16 2,172,003 4,041,276 7,223,401 17 2,145,597 4,286,189 7,472,435 20 2,062,090 5,098,327 8,265,503 25 1,907,430 6,748,130 9,783,018 *These values are not guaranteed. They include dividends that are neither estimates nor guaranteed, but are based on the 2013 dividend scale. Dividends in future years may be higher or lower depending on the company’s experience.

35. For Producer And Professional Advisor Use Only. Not For Use With The Public. 35 Part Gift / Part Split Dollar Loan – Case Study cont.  Benefits of Arrangement:  Funding of life policy premiums with no current gift tax impact  Payments on outstanding loan can be used to supplement Grantor’s retirement income  Other Considerations:  Calculations on prior slide assume a demand or term loan arrangement using the March 2013 long term rate of 2.66%  2012 Annualized demand loan rate was.22% (March 2013 -.22%)  Parties can convert demand loan to term loan at any time to lock in a low interest rate for a period of time  Higher future interest rates may require an increase in amount of interest charged  Future annual exclusion increases will help to offset some interest increases  Outstanding loan balance will be includable in Grantor’s taxable estate

36. For Producer And Professional Advisor Use Only. Not For Use With The Public. 36 For Producer And Professional Advisor Use Only. Not For Use With The Public. Typically estate planning trusts are designed to terminate upon last to die of grantor and spouse. At that time trust would be distributed to children of grantor. If a child had predeceased, trust may continue until deceased child’s heirs attained a certain age or maturity. A Generation Skipping Trust is designed to continue to hold trust assets beyond the children’s generation for the benefit of grandchildren, great grandchildren or longer. A “Dynasty Trust” is designed to continue indefinitely, or at least as last as long as state law allows. Generation Skipping Opportunities in Trust

37. For Producer And Professional Advisor Use Only. Not For Use With The Public. 37  Assets in trust are not includable in taxable estate of beneficiaries  Creditor protection  Trust assets not subject to creditors of trust beneficiaries  Helps to ensure that inheritance your clients provide to their descendants does not end up in the hands of ex-spouses  Flexibility in distributions  Trust can be structured as a “Family Bank”  Protection and Preservation of family wealth  Retention of control over asset disposition Generation Skipping Opportunities in Trust - Benefits

38. For Producer And Professional Advisor Use Only. Not For Use With The Public. 38  Leverage GSTT Exemption  GSTT Exemption allocated against gifts to pay premiums, significantly increasing ultimate exempt transfer  Death benefit substantially increases value of trust at death of grantor or grantors, providing trust beneficiaries with enhanced Gift and Generation Skipping tax leverage  Policy cash values*, and other trust assets, can be used to benefit trust beneficiaries prior to death of grantor/Insured Generation Skipping Trusts – Why Life Insurance? *Distributions under the policy (including cash dividends and partial/full surrenders) are not subject to taxation up to the amount paid into the policy (cost basis). If the policy is a Modified Endowment Contract, policy loans and/or distributions are taxable to the extent of gain and are subject to a 10% tax penalty. Access to cash values through borrowing or partial surrenders will reduce the policy’s cash value and death benefit, increase the chance the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured.

39. For Producer And Professional Advisor Use Only. Not For Use With The Public. 39 Leveraging Gifts  Minority interests in closely-held businesses will generally be discounted for lack of control, lack of marketability, lack of diversity, etc.  Limited partnership interests (holding real estate, securities, etc.) are generally discounted as a result of prohibition on owner’s participation in management activities  Life insurance can be an excellent way to leverage gifts for kids, grandkids and future generations

40. For Producer And Professional Advisor Use Only. Not For Use With The Public. 40 Low Interest Rate Planning - Gift Loans  Loans to Trust or Kids to purchase assets from Donor/Lender  Loans to purchase life insurance  Arbitrage loans – Earnings can help pay life premiums  Example: Grantor lends $20 million to irrevocable trust  Trust pays interest of $218,000 annually for 9 years at 1.09% (March)  If trust earns 5% on its investments, that’s $1 million, resulting in net annual cash flow to trust of $782,000  Over 9 years, over $7 million of gift tax free cash flows into trust  Grantor pays any income taxes on trust’s investment earnings under grantor trust rules  At end of loan term, loan could automatically renew for anther 9 year period, but at current interest rate  Term could be longer (20, 30, 40 years) at Long Term Rate (2.66%)  Important: Trust should contain “seed money” equal to 10% of amount loaned to trust – this can be gifted prior to loan transaction

41. For Producer And Professional Advisor Use Only. Not For Use With The Public. 41 Low Interest Rate Planning Installment Sale of Discounted Assets to Grantor ILIT Installment Sale of Discounted Entity Assets to Grantor Trust (Intentionally Defective Irrevocable Trust-”IDIT”)  Step 1: Trust should be “seeded” with gift of at least 10% of value of assets involved in installment sale  IRS will disregard sale arrangement if trust looks solely to assets sold as the source to repay note and interest  Step 2: Grantor sells business interests to trust  Sale price of minority interest eligible to be discounted  Sale in exchange for promissory note for term of years  Requires interest of at least AFR (Sec. 7872 rate)  Results:  Under Grantor trust rules, no reportable gain on sale and no taxation on trust interest payments  Income generated on assets in trust taxable to Grantor  Sale of Discounted Assets at Low Interest Rate may work as an effective Estate Freeze technique

42. For Producer And Professional Advisor Use Only. Not For Use With The Public. 42 Act Now Before it Goes Away Window of opportunity may be closing for many of these planning options: Congress is looking at many different options to raise revenues in order to cut federal deficits and to spare some of scheduled sunset changes Included among options being considered by Congress:  Eliminating ability to create an irrevocable “grantor trust” that is not includable in grantor’s taxable estate  Creating a 90 year rule against perpetuities for generation skipping trusts – meaning that after 90 years, a generation skipping tax will be imposed on the assets in a generation skipping trust  Eliminating discounts on transfers of non-business property  Requiring a minimum 10% taxable gift on transfers into a GRAT  Requiring that GRATs must last for a minimum of 10 years  Restricting Crummey withdrawal rights as creating annual exclusion gifts

43. For Producer And Professional Advisor Use Only. Not For Use With The Public. Illustration 43

44. For Producer And Professional Advisor Use Only. Not For Use With The Public. 44 ©2013 Massachusetts Mutual Life Insurance Company, Springfield, MA. All rights reserved. www.massmutual.com. MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliated companies and sales representativeswww.massmutual.com ® Whole Life Legacy 65 (WL-2007 and WL-NC-2007) is a level-premium, participating, permanent life insurance policy issued by Massachusetts Mutual Life Insurance Company, Springfield, MA 01111-0001