Maximizing Wealth Transfer using Innovative Trust Designs

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1 Maximizing Wealth Transfer using Innovative Trust Designs For For Producer or or Broker/Dealer Use Use Only. Only. Not Not for for Public Distribution.

2 Why Life Insurance? Provides for: Personal family protection Estate planning Business continuation Allows for: Cash accumulation Death benefit protection Leverage

3 Why Life Insurance? Estate Liquidity Policy s death benefit should be more than the cumulative premiums- leverage Liquid funds readily available at death Income tax-free death benefit If structured in an irrevocable life insurance trust (ILIT) tax-free

4 Why Life Insurance? Irrevocable Trust Investment Alternatives Traditional Investments Life Insurance Wealth Transfer Tax Free* Tax Deferred Accumulation Tax Free Rebalance Step-Up in Basis (at death) Immediate Leveraged Wealth Transfer YES NO NO NO NO YES YES YES YES** YES Death Benefit Guarantees Cost of Death Benefit Protection NO NO YES*** YES *Subject to strict adherence to gift tax laws regarding annual exclusion gifts, clients should seek advice from legal and tax advisors before any transfers are made to an irrevocable trust. **While technically not a stepped up basis at death, life insurance death benefits are generally paid income tax free under IRC 101(a) ***Certain life insurance products can contain guarantees.

5 Life insurance design: Accumulation Client: Younger Interested in a tax-deferred vehicle to accumulate wealth Goal: Internal rate of return (IRR) of the cash value Focused on long term investments with income tax benefits

6 Life insurance design: Accumulation cont. Product: Variable Universal Life Premium: Maximum funding Death benefit design: Minimum death benefit Non-Modified Endowment Contract Generally preferred design. May provide future tax-free access to policy cash value* Wealth Management design: Spousal Lifetime Access Trust Dynasty Trust *Loans and withdrawals will decrease the cash value and death benefit.

7 Life insurance design: Leverage Client: Interested in maximizing the amount passing to beneficiaries Usually older in relatively good health Goal: IRR of the death benefit Focused on guarantees, or Focused on long term investments with income tax benefits

8 Life insurance design: Leverage cont. Product: Universal Life or Joint and Survivor Universal Life Variable Universal Life Whole Life Premium Options: Single pay or short funding Guaranteed premium (available on certain types of life insurance policies Can structure with death benefit design: Maximum death benefit May be classified as a Modified Endowment Contract Generally not used for cash value accumulation or access Wealth Management design: Leveraged Credit Shelter Trust Dynasty Trust

9 Agenda Dynasty Trust Spousal Lifetime Access Trust(SLAT) Leveraged Credit Shelter Trust

10 Dynasty Trust

11 Dynasty Trust: Client Profile Wealthy (wealth is relative) Have children with potentially taxable estates Have grandchildren Want control of provisions that specify how assets are received by beneficiaries *This material is designed to provide introductory information on the subject matter. MetLife Investors does not provide tax and legal advice. Clients should consult their attorney and/or tax advisor before making financial investment or planning decisions.

12 Dynasty Trust: Client Concerns Tax issues Income, capital gains and income in respect of a decedent (IRD) Estate, gift and generation-skipping Multiple taxes, multiple generations *This material is designed to provide introductory information on the subject matter. MetLife Investors does not provide tax and legal advice. Clients should consult their attorney and/or tax advisor before making financial investment or planning decisions.

13 Client Concerns Tax Issues-Example $2,000,000 Client (NET OF INCOME TAX) (700,000) IRS * 1,300,000 Children (455,000) IRS* 845,000 Grandchildren (295,750) IRS* 549,250 Great grandchildren *This example is hypothetical, actual results will vary. Assumes 35% Estate Tax Bracket, the maximum estate and gift tax rate for 2011 and 2012 is 35%. Beginning 2013, the federal estate tax will be reinstated with a maximum tax rate of 55%, unless Congress enacts further legislation.

14 Dynasty Trust: Overview Irrevocable Trust Can benefit multiple generations Provides wealth protection Creditors and/or divorce

15 How it Works Assets Dynasty Trust Grantor $5,000,000 ( applicable exclusion) $13,000+ (annual exclusion) Allocate GSTT using $1MM of the exclusion Children Grandchildren Great Grandchildren (The federal estate and GST tax exemption amount is scheduled to return to their 2001 amounts on January 1, 2013 unless Congress enacts legislation.)

16 Using Life Insurance In addition to the need for life insurance death benefit, the decision to use life insurance as an asset is based on economics. Is the cost of tax more or less than the cost of insurance? Designing policy to meet client objectives Maximum IRR on Cash Value Maximum IRR on Death Benefit

17 Dynasty Trust: Benefits Maximizes use of Generation Skipping Transfer Tax exclusion Provides greater inheritance for multiple generations Can help preserve family values Protects assets from creditors/divorces No estate taxation upon children s death

18 Case Study Leveraged Gift -Example (60/60 Std NS Guaranteed DB, LASUL) $2,000,000 Client (NET OF INCOME TAX) (0) IRS $10,033,564 Children (0) IRS $10,033,564 Grandchildren (0) IRS $10,033,564 Great grandchildren This example is hypothetical, while the premium estimate is based on MetLife's Legacy Advantage Survivorship Universal Life product, the figures do not represent the potential death benefit under any specific product. Also assumes that all income earned in the trust is distributed annually to the beneficiaries. Actual results will vary.

19 Comparison Standard Estate Disposition Client: $2,000,000 Child: $1,300,000 Grandchild: $845,000 Great Grandchild: $549,250 Dynasty Trust Client: $2,000,000 Child: $10,033,564 Grandchild: $10,033,564 Great Grandchild: $10,033,564 This example is hypothetical, actual results will vary.

20 Dynasty Trust: Issues State law controls Laws differ from state to state Trust is irrevocable Need to draft flexibility Spousal Lifetime Access Trust (SLAT) Loans and withdrawals of the policy s cash value* *Tax-free distribution assumes that the life insurance policy is properly structured and not classified as a Modified Endowment Contract (MEC). Withdrawals are made up to the cost basis and policy loans thereafter. If the policy is a MEC, cash value is taxable upon withdrawal and if withdrawn before age 59½, a 10% federal income tax penalty may apply. If a policy should lapse or be surrendered prior to the death of the insured, there may be significant tax consequences. Loans and withdrawals will decrease the cash value and death benefit.

21 Spousal Lifetime Access Trust (SLAT)

22 SLAT: Client Profile Married Younger 30 s-50 s Wealthy Can afford to make gifts Interested in estate planning, but want provisions that allow spousal access if circumstances change unexpectedly

23 SLAT: Client Goals Income Replacement Wealth Transfer Helps maximize inheritance for the next generation Estate tax liquidity Minimize estate taxes Access to irrevocable trust assets Win-Win

24 SLAT: Overview Irrevocable Life Insurance Trust (ILIT) With Special Provisions Spouse is one of the trust s beneficiaries of principal during and after insured s lifetime

25 SLAT: How it Works Non-Grantor income Tax Free Death Benefits Grantor Gift SLAT premiums death benefit Life Insurance Tax Free Death Benefits Beneficiaries

26 SLAT: When to use?... Married Couple Estate Tax Liquidity Needs Premiums less than annual exclusions or applicable exclusion Desired access to cash values

27 SLAT: Benefits Provides needed liquidity Spousal access to cash values No estate inclusion upon donor s death* No estate inclusion upon non-donor spouse s death* *Assuming the trust is properly drafted.

28 SLAT: Issues How is access to cash value obtained? How much access is there? Are there other issues to consider? What happens upon death or divorce? Can I use a second-to-die policy?

29 SLAT: Access to Cash Value Grantor Gift SLAT Direct Access as Beneficiary Non- Grantor Indirect Access

30 SLAT: How much access is there? Depends on who the trustee is: An independent party should be trustee Distributions to the spouse beneficiary is in full discretion of trustee

31 SLAT: Gifting Issues Donor Separate Property Transfers Only SLAT Prevents estate inclusion for Non-Donor Spouse Spouse Can Still Gift Split

32 SLAT: What happens upon death or divorce? Non-donor spouse is removed as beneficiary Grantor loses indirect access Access may be regained upon remarriage

33 SLAT: Can a Second-to-die policy be used? YES

34 SLAT: How it Works Non-Grantor income Tax Free Death Benefits Grantor Gift SLAT premiums death benefit Life Insurance Tax Free Death Benefits Beneficiaries

35 Second-to-die policy: Issues Neither spouse can be trustee All other issues are the same

36 Leveraged Credit Shelter Trust

37 LCST: Client Profile Widow/widower Credit Shelter Trust Want to maximize the inheritance for future generations

38 LCST: Client Goals Wealth Transfer (including estate tax liquidity) Minimize estate taxes

39 LCST: Overview Using Assets of Credit Shelter Trust Created by Deceased Spouse to Purchase Life Insurance on Surviving Spouse

40 LCST: How it works Insured income Tax Free Death Benefits potential income per trust Deceased Trust established upon first spouse's death LCST Tax Free Death Benefits premiums death benefit Life Insurance Beneficiaries

41 LCST: Benefits Available Source of Funds ($5,000,000 in 2011 and 2012) Excellent Leveraging Opportunity Avoids Crummey Notices Credit Shelter Trust Not Included in Spouses Estate No Need for Additional ILIT

42 LCST: Issues Trust must qualify

43 LCST: How does the trust qualify? Trust Must be able to Purchase Insurance Spouse Cannot Be Trustee No Power of Appointment

44 LCST: Can the trust purchase life insurance? Review trust for trust language Can be: Specific Implied: Uniform Prudent Investor Act

45 LCST: If serving as trustee Spouse Must Resign Before Policy is Purchased OR Special Trustee Provision

46 LCST: If Spouse Has Power of Appointment? General: Disclaim within 9 months of death Limited: Release before life insurance is purchased

47 Important Information Pursuant to IRS Circular 230, MetLife is providing you with the following notification: The information contained in this document is not intended (and cannot) be used by anyone to avoid IRS penalties. This document supports the promotion and marketing of insurance products. You should seek advice based on your particular circumstances from an independent tax advisor. MetLife, its agents, and representatives may not give legal or tax advice. Any discussion of taxes herein or related to this material is for general information purposes only and does not purport to be complete or cover every situation. Tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the facts and circumstances. You should consult with and rely on your own independent legal and tax advisors regarding your particular set of facts and circumstances. Prospectuses for Equity Advantage Variable Universal Life, and for the investment portfolios offered thereunder, are available from MetLife. The policy prospectus contains information about the policies features, risks, charges and expenses. Investors should consider the investment objectives, risks, charges and expenses of the investment company carefully before investing. The investment objectives, risks and policies of the investment options, as well as other information about the investment options, are described in their respective prospectuses. Clients should read the prospectuses and consider this information carefully before investing. Product availability and features may vary by state. MetLife life insurance policies have limitations, exclusions, charges, termination provisions and terms for keeping them in force. There is no guarantee that any of the variable investment options in this product will meet its stated goals or objectives. The cash value is subject to market fluctuations so that, when withdrawn, it may be worth more or less than its original value. Guarantees are subject to the claims paying ability and financial strength of the issuing insurance company. Life insurance products are issued by MetLife Investors USA Insurance Company, Irvine, CA, Metropolitan Life Insurance Company, New York, NY, and in New York only by First MetLife Investors Insurance Company, New York, NY. All guarantees are subject to the claims-paying ability and financial strength of the issuing insurance company. Variable products are distributed by MetLife Investors Distribution Company, Irvine, CA. All are MetLife companies. May 2011 PEANUTS 2011 Peanuts Worldwide L [exp0612] Not A Deposit Not FDIC-Insured Insurance Products are not Insured By Any Federal Government Agency Not Guaranteed By Any Bank Or Credit Union May Go Down In Value

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