Estate Planning. A Guide to Help Families Preserve Significant Assets

Transcription

1 Life Insurance Estate Planning A Guide to Help Families Preserve Significant Assets

2 Life. your way Strive to live your dreams. Discover the flexibility of life insurance protect, accumulate and transfer wealth now and in the future. Be free to live life, your way. 2

3 You ve worked hard to build your wealth. Now that you ve achieved many of your financial goals, you want to be sure that your assets can be transferred to loved ones. estate tax and probate expenses can cost survivors a significant portion of their inheritance. you have options to?preserve your legacy. Why Create an Estate Plan? Use this guide, along with working with your tax, legal and financial professionals, to gain a clear understanding of estate planning. We ve included explanations of basic concepts as well as sophisticated planning options to provide you with a framework to understand the array of tools that may be utilized to help preserve your estate. 1 PROPER, EFFECTIVE PLANNING CAN HELP YOU ENSURE THAT: Asset values are preserved. Transfer taxes and expenses are reduced. lifetime gifts are leveraged and maximum tax exemptions are utilized. assets will be distributed to beneficiaries according to your wishes in an efficient and economical way. assets will be competently managed should you become disabled. 1 This document is designed to provide introductory information on the subject matter. MetLife does not provide tax and legal advice. You should consult your attorney and/or tax advisor before making financial investments or planning decisions. 1

4 The Cost of Wealth Transfer Wealth transfer costs can significantly decrease the value of your estate and the legacy that you leave to loved ones. Careful planning should address these issues, but a basic understanding of the impact these costs may have on your estate is essential. They can include: Income taxes on retirement plan assets and annuities Estate, gift and generation skipping taxes (GST) Professional fees Probate costs AN ESTATE TAXES OVERVIEW Since it can take the largest slice out of an estate, minimizing your federal estate tax is usually a priority when estate planning. WHAT ASSETS ARE INCLUDED FOR ESTATE TAX PURPOSES? Every asset you own at the time of your death constitutes your gross estate. These can include: Cash, bank accounts and CDs Stocks, bonds and mutual funds Notes receivable Real estate Business interests Retirement plan assets and annuities Life insurance automobiles, jewelry and other personal property Assets in your living trust assets that you may have transferred to another but have retained certain rights or interests in Usually, these assets are taxed at their fair market value on the date of death. PLANNING IN THE FACE OF UNCERTAINTY One of the unfortunate realities of recent years has been the frequent changes which have occurred with respect to all aspects of tax law. The federal estate and income tax laws have been a political chess match since the passing of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). Only time will tell if there will ever be permanent estate tax reform. As a result of of this uncertainty, many individuals and families often delay actively planning for the future because the estate tax law in effect at the time of death is what counts. However, this uncertainty does not mean there is no value in planning. There are significant steps which can be taken now to have the following positive benefits: lower the value of the estate through a gifting program. This not only removes the value of the gift from the estate but any future appreciation which may occur. In many cases, it may also enable you to witness the recipient s enjoyment of your gift. incorporate flexibility into the plan. There are many ways your financial, legal and tax professionals can help structure the plan to best meet your goals, regardless of future taxes. 2

5 Unlimited Marital Deduction Unlimited assets may be transferred to your U.S. citizen spouse without a federal estate tax or gift tax being imposed. Some restrictions apply if your spouse is not a U.S. citizen. The marital deduction can be taken advantage of by making an outright gift or bequest to your spouse or by using a marital trust. A special trust, referred to as the Qualified Terminable Interest Property (QTIP) Trust lets you determine the final trust beneficiaries after your spouse dies. Additional cost saving techniques may be needed since marital deduction property will be included in the spouse s estate when his or her death occurs and may, or may not, benefit from the first spouse s exclusion amounts. 2 Credit Shelter Trust (CST) consider life insurance. Life insurance death benefits are generally received income tax free. If the policy is owned within a properly structured irrevocable trust, the proceeds may also be estate tax free. This may provide your beneficiaries with a source of liquidity to pay any potential taxes due. Life insurance may enable you to enhance the amount of your legacy as well as dictate the parameters under which beneficiaries have access to these assets. MetLife offers several materials which highlight current thresholds, rates and exclusions. It is important to evaluate with your team of financial, legal and tax professionals how current laws may either affect your wealth transfer plan in the future, or potentially provide you with opportunities to better realize your vision by taking action now. A Credit Shelter Trust will allow a couple to take full advantage of each individual s applicable exclusion amount, while providing for both the surviving spouse and children. Each spouse makes provisions in their wills or revocable living trusts, that an amount up to the remaining estate tax applicable exclusion amount will be placed into a credit shelter trust. The deceased spouse s remaining estate is then left to the surviving spouse outright or to a qualified marital trust for the benefit of the surviving spouse. During the life of the surviving spouse, the credit shelter trust may allow the trustee to make income and principal distributions at his or her discretion. Upon the death of the second spouse, the remaining assets in the trust are distributed estate tax free to the trust beneficiaries, normally the children, pursuant to its terms. Consult with your own independent legal and tax advisors for additional details. BASIC ESTATE PLANNING TOOLS AND DOCUMENTS Estate planning can help preserve wealth for your beneficiaries. Tools are available to help both minimize transfer costs and ensure that the estate has the liquidity needed for the payment of any expenses, fees and taxes at the time of death. Your financial professional and legal counsel can help review available planning tools to determine the right approach for your family. 2 historically, if an individual did not utilize their full exemption amount upon their own death, any remaining exemption would be wasted. The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (TRUIRJCA) made any unused exemption amount in 2011 or 2012 portable to the deceased s spouse. TRUIRJCA, however, is scheduled to expire at the end of 2012 unless further legislative action is taken. Be certain to consult with your legal and tax professionals regarding the potential for exemption portability between spouses after

6 OTHER POTENTIAL WEALTH TRANSFER COSTS TO CONSIDER: Annuities, IRAs and Qualified Retirement Accounts are included in your total taxable estate and may be subject to income in respect of a decedent (IRD) tax. IRD is the name given to all types of taxable income earned, but not received, by the deceased during his or her lifetime. It is reportable income for the beneficiaries as they receive it. In combination with estate taxes, these taxes can reduce your account balances by 60% or more. 3 Generation Skipping Transfer (GST) Tax applies when assets are transferred to persons two or more generations below the transferor. This can include certain transfers directly to grandchildren from their grandparents. It can also affect transfers to and distributions from certain trusts. The GST tax is imposed in addition to any applicable estate or gift tax. Legal and Accounting Fees may further deplete your estate. Consider whether your estate will have enough liquid assets to pay these costs as well as provide for your beneficiaries. Additional reasons to consider estate planning may include creditor protection, professional management of assets and equalization of inheritances. Wills specify who should receive assets that you own individually, who are the estate s executors and who should be guardians for minor children. Assets passing under a will need to be transferred through the probate process. Assets held jointly or that have beneficiary designations, such as life insurance, annuities and retirement benefits are not usually affected by the probate process. Living Will/Health Care Proxy A living will goes into effect only when you are not able to make personal medical decisions or cannot express your wishes. If you become terminally ill or permanently unconscious, it lets family and doctors know the type of care you want, or do not want. In some states, you can create a power of attorney for health care, or a health care proxy to appoint another individual to act on your expressed wishes. Durable Power of Attorney This document enables another person to manage your affairs if you are not able to act on financial, legal and administrative matters. It can be instituted in the event of absence or as a result of becoming incompetent to make these decisions yourself. It bypasses probate court and does not require the appointment of a guardian or conservator. 3 Beneficiaries subject to income in respect of a decedent (IRD) tax may be able to take an income tax deduction for estate taxes paid on that IRD asset. 4

7 The BENEFITS of LifEtime Giving Reducing your estate through a lifetime giving program is another way to potentially limit estate tax liability. Future income and appreciation attributable to assets may be removed from your estate by lifetime gifting. In addition, gifts utilizing the annual exclusion or paid directly to medical or education providers will remove the asset itself from your estate. You will also be able to witness the recipients enjoyment of the gift, which many individuals find appealing. Consider assets that may appreciate in value quickly after gifting, as well as the ones you can give away at a discounted gift tax value. Consult with your advisors about the appropriateness of a lifetime giving program, which assets you might consider gifting and how life insurance can be used to help fulfill your gifting strategy. ANNUAL EXCLUSION GIFTS Currently, individuals can give up to $14,000 in cash or other assets each year to as many individuals as they want without paying a federal gift tax. The gift must be of a present interest (i.e., immediately available to the recipient to be covered by the annual gift tax exclusion). Spouses can combine their annual exclusion so that a married couple can transfer up to $28,000 per year to each recipient. Utilizing this exclusion can significantly reduce your estate tax liability. TRUSTS WITH CRUMMEY POWERS The annual gift tax exclusion also applies to gifts to a trust, if the trust allows the beneficiaries to withdraw gifts for a certain time after the gifts are made. These withdrawal powers are called Crummey powers and make gifts to a trust, which generally represents a future benefit, qualify as present interest gifts. 5 GIFTS PAID DIRECTLY TO MEDICAL OR EDUCATION PROVIDERS If you pay the provider of certain medical or educational expenses directly on behalf of another individual, such as a child or grandchild, those payments do not count against the annual gift tax exclusion or your applicable exemption amount and are not subject to gift tax or GST tax. LIFETIME exemption GIFTS You might also consider making gifts in excess of the annual exclusion amount, utilizing up to the lifetime allowable exemption. Doing so may effectively reduce the estate by removing any future appreciation or income from the estate, but amounts gifted using the lifetime exclusion are usually added back into the estate for determining the estate tax calculation. No gift tax is imposed for lifetime gifts up to the current applicable exemption. The lifetime gift exemption has changed in recent years and also has an uncertain future. While some advocate taking advantage of increased exemption amounts while they are available, others express concern that the IRS may institute claw-backs to recapture amounts over the current exemption in the event the amount is lowered in the future. It is critical to consult with your own tax and legal professionals prior to implementing any strategy where utilizing a portion of the lifetime exemption amounts is being considered. 4 4 In 2011, the lifetime gift exemption amount was increased to $5,000,000 and subsequently indexed to $5,120,000 in However, this increase is scheduled to expire December 31, 2012 and revert to $1,000,000 thereafter unless further legislation is enacted.

8 GIFTING and Life Insurance Life insurance can play an important role in crafting an effective estate plan. Life insurance is an attractive asset for your estate plan because death benefits are generally received income tax free and may be received estate tax free if structured and owned properly. The life insurance death benefit may be used by beneficiaries to help pay taxes and transfer costs, or may even be able to increase the amount your beneficiaries receive. OUTRIGHT GIFTS OF INSURANCE If you currently own policies on your own life, consider gifting the life insurance to eliminate the insurance proceeds from your gross estate. You should be aware that you must outlive the gift by three years or the proceeds will be included in your gross estate. You should also be aware that the gift must eliminate any rights to the policy or its cash value that you currently have, so it is an option that should be considered carefully prior to implementation. IRREVOCABLE LIFE INSURANCE TRUSTS (ILIT) Life insurance is often owned by this type of trust so that the proceeds received will not be subject to estate taxes upon the death of the insured(s). An irrevocable life insurance trust may also offer many non-financial benefits by defining the terms and conditions upon which beneficiaries may receive trust assets. An existing policy can also be transferred to an ILIT. An ILIT can help by: increasing the pool of assets that your beneficiaries receive. providing tax free cash for your beneficiaries to fund other taxes and transfer costs. taking advantage of the annual gift tax exclusion. protecting trust assets from your beneficiaries creditors. defining the terms of asset disbursement after your death. effectively utilizing the GST tax exemption. GENERATION SKIPPING TRANSFER TAX AND THE DYNASTY TRUST A dynasty trust is a type of irrevocable trust designed to utilize the GST tax exemption for trust beneficiaries spanning multiple generations. It offers a dramatic planning opportunity using the current GST tax exemption to eliminate estate and GST taxes on distributions of trust principal and any corresponding growth that occurs while assets are in the trust over the course of many decades. Dynasty trusts may last for several generations and in certain states, the dynasty trust can protect assets from estate, gift and GST taxes for an unlimited time depending on where the trust is domiciled. 6

9 1. Defer Distributions Spreading asset distributions over the longest possible period of time may be wise, because retirement assets grow tax deferred. In theory, this approach will provide the assets the most time to grow without being subject to taxation. Generally, you must begin required minimum distributions (RMDs) from qualified plans or IRAs when you reach age The balance remaining at your death may be subject to estate and income taxes. Deferred annuity distributions are not required by law during your lifetime, 6 but are required to begin within one year from the owner s date of death. Your beneficiaries may then be able to spread distributions over their remaining life expectancy. 2. Start Distributions Prior to Age FACTORING ANNUITIES, IRAS AND QUALIFIED PLAN ASSETS INTO THE ESTATE PLAN Because the earnings grow on a tax deferred basis, annuities and retirement plans can be robust tools to help save for retirement. They are generally not subject to income tax until they are distributed. The advantage of tax deferral can increase if your income tax bracket decreases prior to beginning distributions, which may allow you to receive a greater percentage of the account balance after income taxes. There are, however, severe taxes applied to some retirement assets as well as complicated rules governing their distribution to your beneficiaries. Because this type of asset often represents a large portion of most individual s total portfolio, it s important to consider with respect to your estate plan. Both estate tax and income tax may apply to these assets, making the potential combination of taxes as much as 60% or more of the final balance in this type of account. COORDINATION OF RETIREMENT ASSETS AND ESTATE PLAN Your choices for handling distributions and beneficiary designations will depend on your asset structure, income needs, goals and other variables. You should discuss the following options with your financial professional: Distributions may begin after age without penalty. There is ordinarily a 10% penalty for distributions taken from an annuity or retirement account before the age of Beginning distributions early limits the future tax deferred growth potential of the account s holdings for later retirement years or your legacy. 3. Purchase Life Insurance in an Irrevocable Trust Consider gifting part of your distributions to an irrevocable life insurance trust which can use those gifts to purchase single life or survivorship life insurance. This strategy can help: reduce your taxable estate (as opposed to reinvesting proceeds in a taxable account in your name). create an estate and income tax free death benefit for your beneficiaries. pay estate and income taxes on other assets within your portfolio. replace the value of an asset designated to be gifted to charity. balance the values of assets received by multiple beneficiaries when the estate holds one or more large or illiquid assets. 5 Roth IRAs are not subject to RMD rules. Check with your financial professional to get additional details on the rules pertaining to your particular retirement account. 6 Certain income riders which are common on deferred annuity contracts issued after the mid 1990s require periodic distributions or the policy owner may forfeit valuable benefits. Be sure to consult with your financial professional regarding your specific contract details. 7 Early distribution penalty has certain exceptions. 7

10 Flexible Options in ESTATE PLANNING For many people, planning their estate becomes quite complex as soon as they begin to realize everything that could happen between the planning phase and the time of their death. Estate value, beneficiaries, marital status and taxes are just a few of the factors which may significantly impact the desired effects of the plan. For these reasons, flexibility is extremely important in estate planning. The following types of common trusts may provide your plan with necessary structure while containing provisions which can preserve flexibility. A note about life insurance distributions: Distributions are generally treated first as a tax free recovery of basis and then as taxable income, assuming the policy is not a Modified Endowment Contract (MEC). However, different rules apply in the first 15 policy years, when distributions accompanied by benefit reductions may be taxable prior to basis recovery. Non-MEC loans are generally not subject to tax but may be taxable when the policy lapses, is surrendered, exchanged or otherwise terminated. In the case of a MEC, loans and withdrawals are taxable to the extent of policy gain and a 10% penalty may apply if taken prior to age 59 1 /2. Always confirm the status of a particular loan or withdrawal with a qualified tax advisor. Cash value accumulation may not be guaranteed depending the type of product selected. Investments in variable life insurance are subject to market risk, including loss of principal. SPOUSAL LIFETIME ACCESS TRUST (SLAT) This is a specially designed irrevocable life insurance trust for married couples which may be funded with life insurance. The goal is for the trust to keep the life insurance death benefit outside of both spouses estates for estate tax purposes and allow an independent trustee to access the policy s cash value and death benefit, or other assets within the trust, for the benefit of the non-donor spouse. Set up with either a single life or survivorship life insurance policy, a spousal ILIT or SLAT can be a good way to: Gain estate tax benefits. Hedge against the possibility of tax law changes by providing financial security, flexibility and access to the insurance policy. provide emergency cash to the non-donor spouse. Supplement retirement income. There are several key components that you should discuss with your legal advisors when structuring these trusts. 1. only one spouse may fund the trust. It may be possible for one spouse to make contributions on behalf of the couple, but care should be taken when considering this option and professional legal and tax advisors should be consulted. 8

11 if the grantor retains certain powers or interests in the trust or the trust s property. With current trust income tax rates reaching top levels much more quickly than for individuals, this situation is often preferred. For purposes of federal estate taxes, recall that one s estate includes the value of all property interests held at the time of death including certain interests in trusts. For example, grantors should not, in most cases, retain rights to income or other beneficial use of the property transferred to the trust. Grantors should also generally not serve as a trustee and they should not retain the power to revoke the trust or alter its terms. Typically, any of these features may risk the inclusion of the trust assets in the grantor s taxable estate. 2. in community property states, only the donor spouse s separate property should be contributed to the trust. 3. consider policy provisions. Access to policy cash value is only available to the trust beneficiaries. Policy funding scenarios should be carefully considered with your financial professional prior to implementing this strategy in the event of either spouse s death. 4. the benefits of this planning technique will be reduced in the event of divorce or the death of the beneficiary spouse. 5. the trust needs to be carefully structured and funded to avoid inadvertent inclusion in either spouse s taxable estate. Neither the insured nor the beneficiary spouse should be named as trustee to help avoid estate inclusion. INTENTIONALLY DEFECTIVE IRREVOCABLE TRUSTS (IDIT) An intentionally defective irrevocable trust can be an effective estate planning tool. When properly structured and utilized this type of trust can successfully accomplish a variety of objectives. An intentionally defective irrevocable trust is a form of grantor trust. Grantor trusts require the donor (grantor) to be treated as the trust owner for income tax purposes A defective trust enables the donor to be treated as the trust owner for income tax purposes but not for estate tax purposes. Intentionally drafting a trust which violates the grantor trust rules may create a number of favorable tax consequences. This type of trust must be carefully drawn by professional legal counsel to achieve the desired benefits. Other benefits of the IDIT: permits the grantor to sell appreciating or incomeproducing assets to the trust without immediately having to recognize capital gains. enables the trust assets to appreciate more quickly because the taxes which result from any growth are paid by the grantor instead of the trust. allows the grantor to effectively make tax free gifts to the trust (by paying trust income tax liability) without utilizing any exemption amounts or paying gift taxes. As with any other irrevocable trust, the primary drawback is that the grantor loses access to the assets. The grantor may also not derive any enjoyment from trust property, such as living on a piece of real estate that has been donated to the trust. The grantor also should not act as the trustee. With regard to sales of assets to and from the trust, a professional valuation should always be obtained to protect against claims of a sale for less than fair value. 9

12 Business Planning Issues Many business owners wish to pass their ownership to family members when they retire or in the event of their death. This is often problematic because of inadequate or nonexistent succession plans, additionally, there are several financial and tax implications. Coordinating your estate and business planning is essential. PLAN FOR YOUR SUCCESSOR Who will run your business in the future? It is not unusual for a closely held or family business to comprise the majority of assets within an estate. If you are a business owner this is an important aspect of your estate planning process. CONSIDER THE FUTURE Each business is as unique as the owner who founded it. That is why it is important to consider the future of the business in the event of several potential outcomes. do you have partners who expect to purchase your share of the business? Upon what circumstances will this purchase occur disability, retirement, death or at some other predetermined time? Do these partners have the financial means to complete the sale on short notice? do you expect a child or children to inherit the business? Do they all have equal desire or aptitude to meet this challenge? What will happen in the event they do not share this goal? Will the business have to be sold to provide each an inheritance of similar value? is the business of a professional nature where it would most likely be sold to a third party or competitor? Has a buyer been arranged so that loved ones aren t forced to sell the business quickly for less than full market value? In an ideal situation, all partners and their beneficiaries would be in agreement concerning the future plans for the business. If an agreement cannot be reached and implemented, the business may need to be sold below market value to pay estate taxes or satisfy beneficiary interests. Even in cases where the business may be saved, the uncertainty surrounding the business future may result in lost customers and sales. Implementing a plan for the succession of your business is the best method to ensure a fair and orderly transition. PLAN FOR ESTATE TAXES Do you know how much your business is worth and how your estate will pay any estate taxes due? Since many estates don t have enough liquid assets to pay estate taxes, selling assets to pay them can decimate a business. Your advisors can help determine how to minimize your estate tax liability and pay for any taxes that remain. 10

13 ADVANCED Planning Options Specialized advanced planning strategies can help meet the needs of families where a large portion of the estate is comprised of a single asset such as a business or real estate. FAMILY LIMITED PARTNERSHIPS (FLP) A family limited partnership is simply a limited partnership in which the partners are closely related. A limited partnership has at least one general partner with unlimited liability and at least one limited partner with limited liability. In a limited partnership, only the general partner(s) may manage the business and act on behalf of the partnership. Limited partnership interests are normally given away or sold over time to children, grandchildren or other interests. Limited partners are essentially passive investors. A limited partner, or other family members, are not legally allowed to manage the business or act on behalf of the partnership. The FLP may be used to transfer a portfolio of: Real estate Securities Business interests Appreciating assets FLPs are attractive entities because it is typically challenging to divide a valuable asset into small enough portions for traditional gifting arrangements. FLPs are fairly simple to establish and flexible enough to use as a wealth transfer vehicle. Apart from the agreement (which requires the services of a skilled professional), the assets merely need to be deeded to the FLP. Once the assets are owned by the FLP, the general partner has the discretion to amend the partnership at any time to increase the limited partners ownership interest by any amount. Another feature which may make FLPs attractive wealth transfer vehicles is the potential to discount the value of the assets transferred. Remember that limited partners have virtually no control over how the underlying assets are managed or when any distributions might be made to the partners. This lack of control would make it unlikely an unaffiliated buyer would pay as much as liquidation value for the interest. Under current law, it may be possible to obtain one or more significant gift tax valuation discounts when a limited interest in a partnership is transferred due to the interest s lack of control or marketability. While significant discounts may be obtained as long as they are reasonable, the services of an independent, qualified appraiser are essential every time a partnership interest is gifted or sold as valuation discounts are frequently identified for audit. Families considering a FLP must also be aware that the partnership will require the services of legal and tax professionals on a regular basis from set up through termination making it a fairly costly option for wealth transfer from an administrative standpoint. GRANTOR RETAINED ANNUITY TRUSTS AND QUALIFIED PERSONAL RESIDENCE TRUSTS To help reduce gift and estate taxes, you may consider utilizing a grantor retained annuity trust (GRAT) or qualified personal residence trust (QPRT). With a GRAT, you establish the trust for a certain period of time, after which the assets pass to trust beneficiaries. It is an irrevocable trust into which you transfer assets, such as stock, and retain the right to receive a fixed dollar amount from the trust each year. The difference in a QPRT is that the asset you transfer is a personal residence or vacation home. You retain the right to live in the residence for a specified period of time. After the end of the trust term, if you survive, the residence passes to trust beneficiaries free of estate tax. Because you retain an interest in the trust assets with both the GRAT and QPRT, there is a significant gift tax discount on the original transfer. Appreciation on the trust assets during the trust term also passes to the trust beneficiaries free of estate or gift taxes. In these trusts, some or all of the value will be included in the gross estate for estate tax purposes if the donor dies before the end of the trust term. Life insurance can help prepare for taxes which may result from the potential estate inclusion. 11

14 Charitable Giving Options An unlimited amount of assets may be transferred to a qualified charity during your lifetime or at death without any estate or gift tax imposed. OUTRIGHT GIFTS TO CHARITY Generally, gifts made directly to a qualified charity during your lifetime are eligible for an income tax deduction. The amount of deduction is limited in a single tax year depending upon the type of charity and type of asset donated, but you may be able to carryover the excess for up to five additional tax years. CHARITABLE REMAINDER TRUST (CRT) A charitable remainder trust is a method by which assets can be donated to a trust for the ultimate benefit of one or more charities. Because the gift to the trust is irrevocable, the value is permanently removed from the estate and an immediate income tax deduction is available to the donor. The donor also names one or more income beneficiaries who will receive income for the trust duration. The amount or percentage of income which will be paid annually is specified in the trust document. At the end of the trust term, the remainder of trust assets pass to the charitable beneficiary. HOW THE CRT WORKS 1. The trust is drafted by professional legal counsel defining the income beneficiaries, charitable beneficiaries and duration of the trust. The duration may be the income beneficiary s lifetime, or combination of lifetimes, or a defined time period of twenty years or less. 2. the donor gifts assets to the trust. The CRT is a tax exempt trust, so highly appreciated assets are commonly donated. Once within the trust, the assets can be sold without recognizing capital gains and reinvested to meet the income needs of the trust or provide greater asset diversification. 12

15 3. the donor is eligible for an income tax deduction for the gift to the trust. The deduction is determined by actuarial calculations based on the projected future value of the amount remaining for the charity. The donor may only use the deduction to offset a specified portion of their income based on the type of charitable beneficiary and asset donated. Any remaining deduction may be carried forward for up to five additional years. 4. income beneficiaries receive distributions from the trust as defined in the trust document until the end of the trust s term. 5. upon conclusion of the trust s term, any remaining assets are distributed to the CRT s charitable beneficiaries. 6. the donor often establishes an additional, separate irrevocable life insurance trust designed to replace the value of the gift for their personal beneficiaries. CRTs can be attractive wealth transfer tools for those who are certain they wish to make a significant gift to charity in the future, but would like to receive the various benefits of the gift much sooner. Professional legal and tax advisors should be consulted to ensure the trust is drafted correctly and transactions are properly reported for tax purposes.the full amount of the deduction may not always be utilized depending on the donor s personal income. If the return on the trust s assets is lower than expected, it is possible for distributions to the income beneficiaries to reduce over time or even for the trust to run out of funds altogether. CHARITABLE LEAD TRUST This vehicle allows gifts of earnings or interest payments to be made to a charity during your lifetime, or for a certain period of time. When the term ends, remaining assets in the trust pass to the donor or beneficiaries named in the trust. A charitable lead trust can be an attractive tool for those wishing to make charitable donations as well as limit the potential growth of assets within their estate. PRIVATE FOUNDATIONS Another alternative is to create a private foundation, which can be funded with appreciated assets, life insurance or cash. Donations to private foundations are still eligible for charitable income tax deductions, but the deduction is typically a lower percentage of the gift s value than gifts to public charities. Foundations can last for several generations and are required to pay out a percentage of their income each year to accomplish charitable purposes. The management of the foundation and selection of charities may be handled in part by family members. Private foundations, particularly those managed by family members, may be subject to increased scrutiny to verify their classification as a charitable organization. 13

16 Life Insurance Options Life insurance can help you plan for the future, whether it is used for personal, business or charitable reasons. The advantage to your legacy is that the life insurance death benefit is income tax free when paid to the policy beneficiaries. Life insurance may also provide leverage to your legacy assets because premiums are often quite low in comparison to the death benefit provided, especially in the policy s early years. Having the policy purchased or owned by a properly structured irrevocable life insurance trust may enable the policy death benefit to be received free of estate taxes. The trust can also be drafted to include additional benefits such as language dictating how the funds will be distributed and/or some protection from creditors, judgments and ex-spouses. PERSONAL USES OF LIFE INSURANCE an income source for surviving family members money to pay mortgages and other expenses after death cash to pay estate taxes an estate for your beneficiaries to equalize inheritance for children efficient use of your annual gift tax exclusion, applicable exclusion amount and GST tax exemption 14 LIFE INSURANCE AND BUSINESS PLANNING business succession planning fund executive benefit plans replace lost revenue due to loss of a key employee death benefits for families of employees LIFE INSURANCE AND CHARITABLE GIVING enables a substantial gift to a favorite charity replaces assets used for charitable giving LIFE INSURANCE REVIEW Review your estate plan periodically with your advisors to be sure it still meets your goals. Some changes that warrant a closer look at your plan include: marital status birth, marriage, death within your immediate family business arrangements tax law changes change in state of residence change in the amount or type of assets owned BUILDING YOUR TEAM OF Professionals: Effective wealth transfer strategies almost always require the expertise of a professional and trusted team of advisors. Be sure your advisors understand your estate planning goals and review the plan on a regular basis. attorney financial or Insurance Professional accountant trust Officer

17 Why Choose MetLife? Integrity, strength and stability. When buying life insurance, it is important to choose a financially strong company with a legacy of stability and leadership in the industry. FOR MORE INFORAMATION ABOUT METLIFE, CONTACT YOUR FINANCIAL PROFESSIONAL OR VISIT A LEGACY OF INTEGRITY MetLife has a history of integrity dating back to its founding in 1868, when it began helping people build financial security. 8 Source: Supporting Country and Community 9 Source: Robert H. Benmosche, MetLife, Inc., Chairman & CEO, July 1998 to March 2006, Public Statement 9/14/ March 2012 We are proud that we paid claims during the Great Depression, while banks were closing their doors. 8 And proud that our leadership held true on September 11, 2001, when MetLife responded quickly and decisively to that tragedy paying the first claim on September 14, A RESPECTED LEADER Today, MetLife is one of the most respected companies in the industry, serving 90 million customers in over 50 countries

18 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 policy s 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. Pursuant to IRS Circular 230, MetLife is providing you with the following notification: The information contained in this document is not intended to (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 document 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. Guarantee Advantage Universal Life is issued by MetLife Investors USA Insurance Company on Policy Form Series 5E and in New York, only by Metropolitan Life Insurance Company on Policy Form Series 1E NY. Legacy Advantage Survivorship Universal Life is issued by MetLife Investors USA Insurance Company on Policy Form Series 5E and in New York only by Metropolitan Life Insurance Company on Policy Form Series 1E NY. Equity Advantage Variable Universal Life is issued by MetLife Investors USA Insurance Company on Policy Form Series 5E and in New York only by Metropolitan Life Insurance Company on Policy Form Series 1E NY-1. MetLife Promise Whole Life is issued by MetLife Investors USA Insurance Company on Policy Form 5E and in New York only by Metropolitan Life Insurance Company on Policy Form 1E NY. MetLife Promise Whole Life 120 is generally issued by MetLife Investors USA Insurance Company on Policy Form 5E and in New York only by Metropolitan Life Insurance Company on Policy Form 1E NY-A. Guaranteed Level Term is issued by MetLife Investors USA Insurance Company on Policy Form Series 5E and in New York only by First MetLife Investors Insurance Company on Policy Form Series 5E NY. All are MetLife companies. 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. Variable products are offered through MetLife Securities, Inc. and New England Securities Corporation; both at 1095 Avenue of the Americas, New York, NY (member FINRA/SIPC). September 2012 Insurance Products Are: Not A Deposit Not FDIC-Insured Not Insured By Any Federal Government Agency Not Guaranteed By Any Bank Or Credit Union May Go Down In Value Metropolitan Life Insurance Company First MetLife Investors Insurance Company 200 Park Avenue New York, NY metlife.com MetLife Investors Distribution Company MetLife Investors USA Insurance Company 5 Park Plaza, Suite 1900, Irvine, CA CLVL22515 L [1114] 2014 METLIFE, INC. PEANUTS 2014 Peanuts Worldwide LLC