1. National Life Insurance Company ® | Life Insurance Company of the Southwest ® National Life Group is a trade name of National Life Insurance Company, Montpelier, VT, Life Insurance Company of the Southwest (LSW), Addison, TX and their affiliates. Each company of NL Group is solely responsible for its own financial condition and contractual obligations. LSW is not an authorized insurer in New York and does not conduct insurance business in New York. The companies of National Life Group ® and their represntativedo not offer tax or legal advice. For advice concerning your own situation, please consult with your appropriate professional advisor. Please also refer to the IRS Circular 230 disclosure at the end of this presentation. TC88329(0116)3 THE RETAINED EARNINGS TRIFECTA The One For Three Solution

2. C Corporation Owners Share Similar Concerns 2 Managing Increases in Retained Earnings Avoid Unnecessary Tax Costs Provide the Business with Protection Against the Loss of a Key Person Retirement Income Personal Life Insurance Protection

3. Three Key Issues 3 Retained EarningsFuture Personal NeedsLoss of Key Person

4. Consider the Three Key Issues 4 Retained Earnings

5. 5 Net Earnings or Increases in Asset Value

6. Professional C Corporation C Corporation Excess Retained Earnings? 6 $250,000 Retained Earnings Amount in Excess of $250,000 Must be reasonable business need No business purpose need be stated $150,000 Retained Earnings Amount in Excess of $150,000 Must be reasonable business need No business purpose need be stated

7. Accumulated Earnings Tax 7 20% Penalty Tax For additional information on accumulated earnings, select here.

8. Questions About the Accumulation 8 ? Was the Reason for the Accumulation Documented and Was the Program Implemented? Was the Purpose To Avoid Paying Tax? Was the Accumulation Necessary?

9. Business “Reasonable Need” 9 Accrued income tax for the year 1 Working capital needs 2 Business expansion 3 Asset purchases 4 Statutory stock redemption 5 Major litigation (ongoing or anticipated) 6 Long term debt retirement 7 Specifically identifiable business contingencies 8

10. “Unlock” Excess Retained Earnings 10 Key PersonBuy Sell Business Debt Repayment Executive Benefit Arrangements ESOP Repurchase Liability Split Dollar For additional information on a subject, single click on the selection To continue the presentation select here.

11. Key Person Life Insurance 11 Return to Main Page Protect the Business From Losses Due to the Death, Disability or Retirement of a Key Person

12. Buy-Sell Funding 12 Return to Main Page Preparing the Business to Fund a Business Succession Plan

13. Business Debt Repayment 13 Return to Main Page Establishing a Fund to Repay Debt to Third Parties

14. Employee Stock Option Plan 14 Return to Main Page Preparing the Business to Fund Repurchase Liability under an ESOP

15. Split Dollar 15 Return to Main Page An Executive Benefit Arrangement That Allows the Business and Key Person to Share the Benefits and Costs of a Permanent Life Policy

16. Non-Qualified Executive Benefits 16 Return to Main Page Special Benefit Arrangements That May Provide Retirement and Death Benefit Protection to Select Employees of the Business

17. Reasonable Business Needs 17 Key Person Statutory Buy Sell Business Debt Repayment Executive Benefit Arrangements ESOP Repurchase Liability Split Dollar

18. 18 Dividends Consider the Three Key Issues

19. Dividend Distribution 19 Distribution Paid Out As A Dividend

20. Dividend Distribution 20 Double Taxation

21. Consider the Three Key Issues 21 Key Person

22. You Know Who Your Key People Are The Secret Sauce ImaginationThe DealHard Work

23. Key Person Loss 23 Loss of Market Confidence  Key Skill Set Lost  Replacement Costs  Business Debt / Bonding  Staff Defections  Clients Could Go to Competitor  Suppliers Could Require Different Payments  Profits Could be Reduced 

24. Valuing a Key Person 24 Different Methods Available Proportion of Payroll Multiple of ProfitsMultiple of SalaryActual Impact

25. Considering the Three Key Issues 25 Future Personal Needs

26. 26 Death Benefit Protection  Potential Retirement Accumulations  Living Benefits  The ability of a life insurance contract to accumulate sufficient cash value to provide retirement income will be dependent upon the amount of extra premium paid into the policy, and the performance of the policy, and is not guaranteed. Policy loans and withdrawals reduce the policy’s cash value and death benefit and may result in a taxable event. If remaining policy values and scheduled premiums are insufficient, additional out-of-pocket payments may be needed to keep the policy inforce. Surrender charges may reduce the policy's cash value in early years. Living Benefits are provided by no additional premium Accelerated Benefit Riders. Payment of Accelerated Benefits will reduce the Cash Value and Death Benefit otherwise payable under the policy. Receipt of Accelerated Benefits may be a taxable event and may affect your eligibility for public assistance programs. Please consult your personal tax advisor to determine the tax status of any benefits paid under this rider and with social service agencies concerning how receipt of such a payment will affect you. Riders are supplemental benefits that can be added to a life insurance policy and are not suitable unless you also have a need for life insurance. Riders are optional, may require additional premium and may not be available in all states or on all products. This is not a solicitation of any specific insurance policy.

27. The Retained Earnings Trifecta 27 Specially Designed Business Owned Life Insurance

28. The One For Three Solution 28 Retained Earnings And Dividends Key Person Future Personal Needs

29. How it Works 29 Transferred to insured-employee Fair market value included as income or a dividend Fund identifiable need Cash account is reduced. Cash value is an asset. Business purchases life insurance Policy transferred once business no longer needs the policy Right to exercise riders (if any); use of cash value (if any) Additional premium payments may or may not be needed The new policy owner owns all rights and benefits of the policy

30. 1 – Reduce Retained Earnings and Dividends 30

31. 2 – Key Person 31 Income Tax Free Death Benefit  Provides Financial Cushion  Replacement and Recruiting Costs 

32. Two – Business Owned Insurance Protects Against Loss of Key Person 32

33. Two – Business Owned Insurance Protects Against Loss of Key Person – At Death 33 Income Tax Free Death Benefit* Increase in Retained Earnings With Reason for the Accumulation * Must have complied with the requirements of IRC Section 101(j)

34. Three – When Business Needs Change 34 Transfer the Policy to the Insured Income or Dividend Personally Enjoy the Benefits of the Policy

35. Transfer Policy to the Insured 35 Include Fair Market Value as Income or Dividend

36. Retained Earnings Reduced 36

37. Personally Owned Permanent Policy 37

38. Is This Concept Right for You? 38 C Corporation with excess retained earnings 1 Business need for life insurance such as key person protection 2 Desire to reduce exposure to Accumulated Earnings Tax 3 Potential future personal desire for benefits of permanent life insurance 4

39. Results 39 Business has life insurance coverage on key personPossible reduction of Retained Earnings Possible reduced exposure to Accumulated Earnings Tax Repurpose insurance to personally owned

40. Next Steps 40 Understand your current business situation, goals and objectives 1 Analyze information 2 Review options and opportunities 3 Implement an appropriate strategy 4

41. IRS Circular 230 Disclosure 41 IRS CIRCULAR 230 REQUIRES US TO INFORM YOU THAT THE ABOVE INFORMATION IS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED, BY ANY PERSON FOR THE PURPOSES OF AVOIDING ANY PENALTY THAT MAY BE IMPOSED BY THE INTERNAL REVENUE SERVICE. In the event the advice is also considered to be a “marketed opinion” within the meaning of the IRS guidance, then as required by the IRS, please be further advised of the following: THE ABOVE ADVICE WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERS ADDRESSED BY THE WRITTEN ADVICE AND, BASED ON THE PARTICULAR CIRCUMSTANCES, YOU SHOULD SEEK ADVICE FROM AN INDEPENDENT TAX ADVISOR.