1. For producer use only. Not for presentation to the public. OLA 1886 T 1008 Advanced Charitable Legacy Planning Strategies 2-Hour CE Seminar | October 2008

2. 2For producer use only. Not for presentation to the public. 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. 3For producer use only. Not for presentation to the public. Identifying the Client’s Legacy  Family  Charity  Leveraging a gift  Benefiting a particular charity or cause  Attracting key talent  Split-interest gifts

4. 4For producer use only. Not for presentation to the public. Charitable Tax Deductions  Income deduction percentage limits of donor’s AGI  50%  30%  20%  5-year carry-forward  Some deductions limited to basis  Charitable estate tax deduction

5. 5For producer use only. Not for presentation to the public. Identifying the Client’s Legacy Family Charitable Asset Based Family Dynamics Legacy Planning Flexibility Home Business Highly Appreciated Assets Values/Ethics Generations Disabilities Blended Families A Survey of Concepts Leveraging gifts Benefiting a cause Split-interest gifts Attracting key talent

6. 6For producer use only. Not for presentation to the public. Charitable Legacy Life Insurance Planning “I have an old policy that I no longer need. Can I give it to charity?” “I would like to leave something to a charitable cause or my alma mater. How can I leave a significant bequest to charity without depleting the legacy I leave for my loved ones?”  Designating charity as policy’s beneficiary  Gifting old policy to charity  Purchasing life insurance policy by a charity

7. 7For producer use only. Not for presentation to the public. Identifying the Client’s Legacy Family Charitable Asset Based Family Dynamics Legacy Planning Flexibility Home Business Highly Appreciated Assets Values/Ethics Generations Disabilities Blended Families Leveraging gifts Benefiting a cause Split-interest gifts Attracting key talent A Survey of Concepts

8. 8For producer use only. Not for presentation to the public. Private Foundations “I want to do more than just give to a charity. How do I create a charitable entity that my loved ones can carry on after I pass away?” “I want to benefit a charity, but I do not want to lose control over the money I donate and the ability to decide what charitable causes it will benefit.”  Created as either a corporation or trust  Run by family members  Deductions depend upon property given and whether given during life or at death

9. 9For producer use only. Not for presentation to the public. Advantages of Private Foundations  Control for donor and his/her family  Focused charitable giving and activities  Long-term charitable giving  Tax deductions  Exposure and community influence

10. 10For producer use only. Not for presentation to the public. Disadvantages of Private Foundations  Administration and compliance—time-consuming, costly  Excise taxes  Self-dealing  Failure to distribute minimum of income  Excess business holdings  Net investment income  Investments that jeopardize charitable purpose  Legislative activities

11. 11For producer use only. Not for presentation to the public. Donor-Advised Funds  Contribution to a fund run by a charity  Donor makes recommendations as to distributions  Less administrative cost and exposure to excise taxes for donor  Income tax deduction similar to contributions to public charities “I want to retain some control over the assets I donate, but private foundations are too complicated.”

12. 12For producer use only. Not for presentation to the public. Identifying the Client’s Legacy Family Charitable Asset Based Family Dynamics Legacy Planning Flexibility Home Business Highly Appreciated Assets Values/Ethics Generations Disabilities Blended Families Leveraging gifts Benefiting a cause Split-interest gifts Attracting key talent A Survey of Concepts

13. 13For producer use only. Not for presentation to the public. Executive Legacy: A Rewarding Way to Attract Key Personnel  Company’s top executives play vital role in business’s operations  Challenge to find benefit programs to attract and retain qualified employees  Company can pay premiums on life insurance policy for executives to use as generous charitable donation  May also work to attract individuals to serve as directors “How can I attract and retain top talent to serve as executives and directors of my company?”

14. 14For producer use only. Not for presentation to the public. How the Executive Legacy Works  Company agrees to pay life insurance policy premiums on lives of its key executives  Executives advise company as to which charity will be applicant for and owner of policy, and beneficiary of policy’s death benefit  Company pays premiums directly to insurance carrier, or to charity that then pays premiums  At executive’s death, charity receives death benefit income tax–free

15. 15For producer use only. Not for presentation to the public. Benefits of Life Insurance in Charitable Legacy Planning  Individuals gain satisfaction of benefiting favorite charities  Employers attract and retain key executives and/or directors  Charities receive higher donation from executive/director

16. 16For producer use only. Not for presentation to the public. Family Charitable Asset Based Family Dynamics Legacy Planning Flexibility Home Business Highly Appreciated Assets Values/Ethics Generations Disabilities Blended Families Leveraging gifts Benefiting a cause Split-interest gifts Attracting key talent Identifying the Client’s Legacy A Survey of Concepts

17. 17For producer use only. Not for presentation to the public. Split-Interest Gifts “I want to benefit a charity, but I am not ready or able to part with the entire asset.” Donor Irrevocable Gift of Assets to Trust Remaining Trust Principal Trust Income Payments  Split ownership of asset into two parts:  Income interest  Remainder interest  Gift to charity of one interest

18. 18For producer use only. Not for presentation to the public. Conservation Easements  Easements on developable land permanently restrict aspects of usage to protect conservation resources  Ownership, enjoyment of land remains with donor  30% AGI income tax deduction  Estate exclusion up to 40% of property value  Life insurance replaces lost value for loved ones “This farm has been in our family for generations. How can I ensure it remains in the family and that the land won’t be developed?”

19. 19For producer use only. Not for presentation to the public. Understanding the Different Types of Charitable Remainder Trusts (CRTs)  Charitable Remainder Annuity Trust (CRAT)  Charitable Remainder Unitrust (CRUT)  Net Income Charitable Remainder Unitrust (NICRUT)  Net Income Make-up Charitable Remainder Unitrust (NIMCRUT) “I would like to donate an asset to charity, but I need a stream of income from the asset during my life.” “I have an asset with a low basis. How can I sell the asset and minimize the tax consequences?”

20. 20For producer use only. Not for presentation to the public. Charitable Remainder Annuity Trust  Established and funded with single contribution  One-time valuation of trust – initial fair market value  Specified annuity benefit paid at least annually  Fixed amount, or  Fixed percentage based on initial fair market value  Annuity must be between 5% and 50% of the trust’s initial fair market value  5% probability test

21. 21For producer use only. Not for presentation to the public. Charitable Remainder Annuity Trust (continued)  Income payout will not vary with trust investment performance  Must make payments to beneficiaries whether or not there is enough trust income  Trustee can deplete trust principal to make income payments to income beneficiaries  Payout period not to exceed 20 years or life/lives of income beneficiary(ies)  At trust term, remaining trust principal passes to charity(ies)

22. 22For producer use only. Not for presentation to the public. Charitable Remainder Unitrust Types  Standard  Net income  Net income with make-up

23. 23For producer use only. Not for presentation to the public. General CRUT Features  Can accept multiple contributions  Trust valued annually  Pays specified fixed percentage of trust value based on annual valuation of trust  Payout must be between 5% and 50% of trust value

24. 24For producer use only. Not for presentation to the public. Net Income Charitable Remainder Unitrust  Operates like standard CRUT, but income payments can only be made from current trust earnings  If trust income in given year exceeds payout rate specified in trust document, beneficiary(ies) can only receive specified amount  If trust income in given year is less than payout rate, beneficiary(ies) can only receive income trust earned in that year  Trustee cannot deplete trust principal to make income payments to income beneficiaries

25. 25For producer use only. Not for presentation to the public. Net Income Make-up Charitable Remainder Unitrust  Follows same payout rules as NICRUT, plus:  If trust income exceeds stated payout rate, can pay income beneficiary more to make up for years in which payments did not meet trust-defined rate  Trustee must distribute greater payments in years when current income exceeds trust rate to make up for those in years when payments did not equal trust rate

26. 26For producer use only. Not for presentation to the public. NIMCRUT Example YearValue of Trust Asset Income Current PayoutPayout Owed 1$10 million0% 6% 2$10.5 million0% 12% 3$12.6 million5% 13% 4$13.6 million15% 4% 5$15.6 million15%10%none 6$15.8 million1% 5%  Trust payout rate to income beneficiary = 6% annually

27. 27For producer use only. Not for presentation to the public. Asset Replacement: Life Insurance and CRTs  What is asset replacement?  Gifts to a CRT are irrevocable  Heirs do not have claim to donated assets  Life insurance provides way to “replace” what loved ones would have received  Benefits of using life insurance  Potential payment of insurance premiums with CRT income distributions  Removal of life insurance death benefit from donor’s estate  Estate tax liquidity for heirs  Death benefits generally received income tax-free by policy’s beneficiaries

28. 28For producer use only. Not for presentation to the public. Taxation of CRT Income “Four-tiered” tax system  Ordinary income  Capital gains  Tax-free income  Return of cost basis, which is also tax-free income

29. 29For producer use only. Not for presentation to the public. CRT Tax Implications  Income tax deduction based on:  Trust’s payout terms  Payout rate, payment frequency, and duration  Initial value of assets contributed to trust  Federal midterm rate, declared monthly  Capital gains tax – deferred until distributions  Estate tax  Donated assets removed from donor’s taxable estate  Future growth/appreciation outside of estate  Gift tax – may be due if income stream is payable to person other than donor

30. 30For producer use only. Not for presentation to the public. CRUT Example – Background Facts  John Startup  47 years old, spouse is 45  Two children, ages 13 and 11  Owns stock of his company  John is ready to sell his business  Started business with $100,000 investment 10 years ago  Approximate current value is $5 million

31. 31For producer use only. Not for presentation to the public. CRUT Example – Goals  Capital gains would be recognized on sale of company by John  John does not need immediate income from sale of business  Wants to invest sale proceeds to fund future income needs

32. 32For producer use only. Not for presentation to the public. How a CRUT Works 3. Annual income from trust goes to pay premiums 1.John contributes $5 million business to CRT 2. John receives tax deduction of $1.2 million and an annual income stream equal to 5% of the trust’s value 4. Upon John’s death, trust remainder goes to charity Charity Life Insurance Donor CRUT

33. 33For producer use only. Not for presentation to the public. CRUT Example – Accomplishments How did the CRUT help John?  Delays recognition of capital gains tax on $4.9 million of proceeds  Gives John immediate income tax deduction  John receives stream of income  Portion of income used to purchase life insurance – to replace asset for loved ones

34. 34For producer use only. Not for presentation to the public. Pooled Income Fund (PIF) “I don’t have enough assets to set up a CRT, however I would still like to contribute an asset to charity, but retain a stream of income.” PIF Assets Annual Payments Income Tax Deduction Donor Charity

35. 35For producer use only. Not for presentation to the public. PIF Tax Consequences  Gift tax due if income to beneficiary other than donor  Donor’s estate usually smaller without asset, less estate tax  No capital gain tax to PIF on sale of asset  Income tax deduction to donor for value of remainder interest

36. 36For producer use only. Not for presentation to the public. Charitable Gift Annuity “I don’t have enough assets to set up a CRT, however I would still like to contribute an asset to charity, but retain a stream of income.” Assets Annual Payments Income Tax Deduction Donor Charity

37. 37For producer use only. Not for presentation to the public. Charitable Lead Trusts “I would like to benefit a charity, but I want my loved ones to receive the asset.” “I don’t need the income from this asset. Can I give the income to charity but keep the rest for my loved ones?”  CLT – opposite of CRT  Charity receives stream of income  Grantor’s loved ones get remainder interest  Two types:  CLAT – fixed dollar amount  CLUT – percentage of trust value

38. 38For producer use only. Not for presentation to the public. Tax Consequences of CLTs  Gift taxes – only on remainder interest  Income tax deduction – Two types of trusts:  Grantor Trust:  Charitable income tax deduction at creation  Trust income taxable to grantor  Non-Grantor Trust:  No charitable income tax deduction  Non-taxable trust income

39. 39For producer use only. Not for presentation to the public. How the CLT Works Mr. Johns CLAT Assets Remainder Interest Tax Deduction s Annual Payout Beneficiaries Mr. Johns, age 72 $1 million contribution to CLAT 5% payout to charity § 7520 rate = 3.8% Trust asset growth rate 7.5% Charitable gift tax deduction = $466,480 Gift taxable amount = $533,520 After 15 years, Charity received $750,000 Loved ones receive $1.65 million Charity

40. 40For producer use only. Not for presentation to the public. Enhanced Charitable Trust “I don’t need this asset and I would like to receive a charitable income tax deduction for my gift. Can I leverage this asset to provide a benefit to a charity and my loved ones?”  Deferred Charitable Lead Annuity Trust (CLAT)  Small annual lead payout to charity  Enhanced final payout to charity and trust beneficiary through use of life insurance

41. 41For producer use only. Not for presentation to the public. Enhanced Charitable Trust: A New Approach to an Old Challenge  Challenge  Provide client with income tax deduction to offset significant non-recurring taxable event  Large bonus or commission  Sale of real estate  Sale of business  Opportunity  Leverage donated assets through purchase of life insurance policy  Provide current income tax deduction  Make meaningful contribution to charity  Pass on significant wealth to loved ones

42. 42For producer use only. Not for presentation to the public. How the Enhanced Charitable Trust Works  Individual has large non-recurring taxable item and makes gift to CLAT  Donor receives charitable deduction to help offset income taxes due  CLAT uses majority of gift to purchase life insurance  Upon death of insured, a portion of death benefit is paid to charitable trust beneficiary  Remainder of death benefit paid to non-charitable trust beneficiary (subject to gift tax)  Gift tax based on original gift amount less charitable income tax deduction

43. 43For producer use only. Not for presentation to the public. How the Enhanced Charitable Trust Works (continued)  CLAT also purchases fixed income vehicle to provide annual income to charity  Grantor trust: grantor is subject to income tax on its earnings paid to charity  Muni-bonds viable option for lead payment to charity  Small annual lead payment to charity  Generally 10-15% of donated assets goes towards purchase of income producing product  Majority of charitable contribution stems from life insurance proceeds  Non-charitable trust beneficiary receives remaining trust assets, in addition to a portion of life insurance proceeds

44. 44For producer use only. Not for presentation to the public. How the Enhanced Charitable Trust Works (continued) Non-recurring Taxable Item CLAT (2) Grantor receives charitable deduction to help offset income taxes due * Gift tax based on original gift amount less charitable income tax deduction Charitable Deduction (1) Individual has large non-recurring taxable item and gifts to CLAT (3) CLAT uses donated asset to purchase life insurance Life Insurance (4a) Upon death of insured, a portion of death benefit is paid to charity (4b) Remainder of death benefit paid to non-charitable trust beneficiary (subject to gift tax*), plus remaining trust assets Charity Beneficiaries

45. 45For producer use only. Not for presentation to the public. How the Enhanced Charitable Trust Works CLAT Charity Majority of contribution to the charity stems from the life insurance proceeds Small annual lead payments to charity CLAT purchases fixed income vehicle to provide annual income to charity Life Insurance Policy Fixed Income Option (Municipal Bonds)

46. 46For producer use only. Not for presentation to the public. Client Profile  Individual with significant taxable non-recurring income  Considerable commission or bonus  Sale of business or real estate  Highly appreciated asset with no/low basis (IRA or annuity)  Aged 60 or older  Desires large tax deduction  Wants to create legacy for spouse or future generation  Charitably inclined

47. 47For producer use only. Not for presentation to the public. Who May Fit the Profile?  Business professionals  Attorneys  Stock brokers  Executives  Business owners  Real estate investors  High net–worth retirees  Large IRA, qualified plan, annuity balance

48. 48For producer use only. Not for presentation to the public. Hypothetical Example  60-year-old male business owner:  Considering selling business valued at $5,000,000  Goals:  Maximize wealth transfer to loved ones  Minimize impact of taxes due to sale of business  Provide benefit to charity  Current and future tax implications:  45% income tax rate  55% estate tax rate  3.8% Section 7520 rate

49. 49 $4,250,000 For producer use only. Not for presentation to the public. Option 1: No Planning In 20 Years… $11,276,515 $5,000,000 sale of business Immediately reduced by 15% capital gains tax Assuming 5% after-tax growth...

50. 50For producer use only. Not for presentation to the public. Option 2: CRT Current income tax deduction: $1,656,350 Assumes  Annual CRT payout of 5%  7520 rate of 3.8% CRT Business valued at $5,000,000 $112,500 income taxes $250,000 annual income to grantor $8,632,000 life insurance death benefit ® Remaining proceeds of $137,500 purchase a universal life insurance policy Grantor pays taxes on CRT income of 45% Annual 5% payout Business gifted to CRT

51. 51For producer use only. Not for presentation to the public. Option 3: Enhanced CLAT Current charitable income tax deduction: $2,721,879 $20,000 annual income generated for charity Upon grantor’s death Charity receives $5,000,000 *$2,278,121 subject to gift tax Charity CRT Municipal bonds earning 4% $5,000,000 Business Non-charitable trust beneficiaries $5M business gifted to CLAT* Universal life insurance policy $19,005,000 death benefit ® $500,000 purchases muni bonds Upon grantor’s death non-charitable trust beneficiaries receive $14,005,000* $4,500,000 purchases single premium universal life insurance policy

52. 52For producer use only. Not for presentation to the public. Comparing the Three Options…Maximizing Wealth to Loved Ones–20 Years Later $0 No Planning $14,005,000$8,632,000 Amount to loved ones $5,000,000 $5,000,000 (assuming 5% annual return) Amount to charity $2,721,879$0*$10,276,515 Subject to gift/estate tax $0$250,000$0 Annual income to grantor $20,000$0 Annual income to charity $2,721,879$1,656,350$0 Income tax deduction $19,005,000 universal life insurance policy $13,632,000 (includes universal life insurance policy in ILIT) $11,276,515 Value of asset With ECLATWith CRT $5,624,431 *Assumes no gift taxes due to Crummey powers

53. 53 For producer use only. Not for presentation to the public. Comparing the Three Options…Maximizing Gift to Charity – 20 Years Later $0 No Planning $8,650,000$8,632,000 Amount to loved ones $10,355,000 $5,000,000 (assuming 5% annual return) Amount to charity $551,736$0*$10,276,515 Subject to gift/estate tax $0$250,000$0 Annual income to grantor $20,000$0 Annual income to charity $4,448,264$1,656,350$0 Income tax deduction $19,005,000 universal life insurance policy $13,632,000 (includes universal life insurance policy in ILIT) $11,276,515 Value of asset With ECLATWith CRT $5,624,431 *Assumes no gift taxes due to Crummey powers

54. 54For producer use only. Not for presentation to the public. Flexible Design  Ability to customize a strategy tailored to meet client’s specific goals/needs  Amount passed on to charity  Amount passed on to loved ones (subject to gift tax)  Amount of income tax deduction desired Charity/ Deduction Loved Ones Charity/ Deduction

55. 55For producer use only. Not for presentation to the public. Benefits of Charitable Legacy Planning  Support a cause or charity one believes in  Advantageous tax planning  Charitable income tax deduction  Reduce one’s estate taxes  Pass on values to future generations  Share one’s wealth with family or others  Can help an employer attract and retain key talent

56. 56For producer use only. Not for presentation to the public. Transamerica Insurance & Investment Group (“Transamerica”) and its 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 be urged to consult with and rely solely upon their own independent advisors regarding their particular situation and the concepts presented here. 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 Transamerica’s 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 Octobrt 2008. Transamerica Insurance & Investment Group is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be addressed to the National Registry of CPE Sponsors, 150 Fourth Avenue North, Suite 700, Nashville, TN 37219-2417. Web site: www.nasba.org. In the state of New York, Transamerica Life Insurance Company is an approved provider of continuing education courses (Provider Organization Approval Number NYPO-100366).

57. For producer use only. Not for presentation to the public. OLA 1886 T 1008 2-Hour CE Seminar | October 2008 Advanced Charitable Legacy Planning Strategies