Trust-CFO Report: Failed Administration on Life Insurance Trusts cost Estates & Businesses $millions in unnecessary Taxes Trust-CFO.

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1 Trust-CFO Report: Failed Administration on Life Insurance Trusts cost Estates & Businesses $millions in unnecessary Taxes Trust-CFO.com

2 I thought life insurance was tax-free? No one told me it s going to be taxed in my Estate! A most Unnecessary Cost: Estate Tax of 40% on Death Benefits Personal & Business-Owned Policies are included in the Taxable Estate Most high-net worth clients we meet have life insurance owned in their business or personal name to solve business and personal liquidity issues. But we find very few understand that these values are 100% included in their taxable estate. *A quick review & analysis can identify and quarantine this exposure. ILITs are key to Estate Preservation Planning The goal of an Irrevocable Life Insurance Trust (ILIT) is to keep income-tax free life insurance death benefits (proceeds) out of the taxable Estate, and avoid an abusive Estate Tax impact. Intensive Management & Administration The challenge is that there are extensive rules and regulations in order to move money tax-free from your taxable estate to an asset-protected Trust. If not done correctly, the transaction becomes taxable. These rules are intended to be complex to force clients to fail, and default their plan to full IRS scrutiny and taxation. The Ultimate Resource Trust-CFO is an expert Trust administration and risk management firm that is specifically geared to solve life insurance & ILIT Planning, and ensure proper tracking, reporting and communication is in place to ensure tax-free benefits are received

3 One small error pulls 100% of benefit proceeds into taxable Estate A Crummey Letter/Notice is the simple process by which to convert a present interest gift to a future tax-free insurance benefit without incurring a gift-tax. The notices are critical and need to be filed prior to each gift funding to a Trust in order to maintain the exclusion of life insurance proceeds outside a taxable estate. Failure to meet any of the present interest gifts can forfeit the complete future benefit, resulting in the insurance being subject to Estate Tax. Most firms are not structured to be able to accommodate the complete process for ongoing administration. And Clients find this process extremely burdensome and time consuming. The result is most Trust-funding becomes defunct and subject benefits to unnecessary taxation. Chance of IRS Audit? 100% The IRS views failed admin as one of the major weak spots in Estate planning. They audit 100% of all Trust funding, specific to gifting. They re hoping you don t pay attention to these little requirements, and certainly won t warn you. So they play possum, then send your family a 40% tax bill due within 9 months of your death. You ll never know, but your heirs will. These tasks become monumental and no one Advisor seems to have the ability or fortitude to claim accountability and responsibility for the process. Why? The infamous Crummey Letters a major pain in the

4 That wasn t my job! That was someone else s! The Core Issue: Lack of Continuity between Advisors Too many cooks in the kitchen The more Advisors, often the greater the potential gaps in planning. The issue that plagues the industry is the lack of proper administration of a complex business or estate Plan. Adding fuel to the fire is enveloping additional complex products like life insurance, and reporting of benefits. Eventually, there is a communication and skill-set breakdown that exposes the Plan to unnecessary taxation. Dropping the ball While many advisors have great intent with helping their clients, very few have the specific procedures and protocols for advanced estate, trust, business, and insurance administration. Therefore, the likelihood for failure is high. Unfortunately, nowadays there is no room for error - one slight mistake can cost $millions to a client and put all surrounding advisors at risk. Who is liable? Bottom Line: everyone. The Beneficiaries are the ultimate losers. But who do you think they will come after once they have to pay the tax because Plan administration was failed? In these circumstances, usually everyone gets sued. Avoid the exposure, hire a professional Administrator. Trust-CFO seeks to protect our strategic partner Advisors as well as our Clients.

5 Are you kidding me? Income Tax AND Estate Tax on my life insurance? Add-in the Double-Tax Employer-Owned Life Insurance What is EOLI? Employer Owned Life Insurance (EOLI) is the IRS s attempt to include tax-free death benefits of life insurance as taxable income to businesses, if certain basic reporting-recordkeeping is not maintained, under IRC 101j. Violating IRC 101j In simple terms, once you ve violated one filing of 101j, you have included 100% of the insurance benefits as a taxable event to the business. Sound unfair? It is. But who said the IRS was fair? Further, there is no way to correct the situation because all filings are required prior to the issuance of the policies and due each and every year prior to payment(s). So how do you fix this problem? Rescue Options The only clean way to recapture these lost benefits, is either (1) to cancel the policy and establish a new one, but then you still are subject to ongoing 101j rules OR (2) transfer the business-owned life insurance contract to a special type of irrevocable Life Insurance & Exemption Trust (ILIET). By changing the Owner from a business to a Trust, the 101j liability is stripped away, and not only can the income tax-free benefits be preserved, but Estate Taxes can be avoided as well. Again, Administration is required Note there may be a transfer tax exposure if not transferred correctly. Please seek a professional administrator to guide you through these reporting issues.

6 I m growing value in my Trust insurance policies, but I can t use it. Is there a better option? Cash Flow is King One of the biggest challenges in strategic wealth planning for business owners is lost opportunity cost the dilemma of paying insurance premiums to an irrevocable Trust, which routes critically needed capital away from a productive business. We encounter this conflict with EVERY business owner client we meet. What if an Owner or Executive could fund their Estate liquidity needs, but also leverage their Trust to maintain or even improve business growth? The Active ILIET Solution An Active ILIET is a holistic Trust that has business purpose. The Trust is able to use its tax-free cash values to provide arm s length Trust loans to a productive business. There are extensive capital and wealth preservation benefits: - Solves Business Transition needs exempt from 101j rules (Income Tax) - Solves Estate Planning liquidity exempt from Estate Tax - Captures business growth and supports cash flows - Compounds tax-fee values to enhance overall returns and net benefits Proper Administration is Critical The more complex the planning design the more critical the need for compliance and proper administration. Trust-CFO is an expert in the design, implementation, management, and administration of both passive and Active ILIETs. To explore these creative yet proven planning opportunities, please call us for a comprehensive Report Planning Opportunity for Owners: The Active ILIET

7 The Ultimate Solution: A Proven Administration System Implementation - Plan Administration Timeline We are architects of administration we build a map and a project timeline in which to target and reach key milestones. This proven process identifies tasks and holds planning partners accountable and responsible for the Plan success. Tracking, Reporting & Communication: After a Plan is implemented, results must be tracked and reported, and then communicated to required parties. Reporting to IRS, DOL, and State Agencies Reporting & Communication to Professional Advisors: CPAs & Attorneys & Investment Advisors Reporting & Communication to Grantors (Settlors), Trustees and Beneficiaries Plan Management - Trust-CFO Client Portal Our attention to detail leveraged with our unparalleled technology platform helps to honor Trust integrity, enforce advisor performance, and assure planning success to all parties.

8 Life Problems? - Life Solutions! ILIT Administration during Lifetime We offer our comprehensive skill sets to assist the estate owner in asset protection and maintaining capital benefits during lifetime, and then effectively transferring 100% of Trust assets undisturbed from intervention by outside parties, including the IRS. Proper Trust administration is our service, comfort and peace of mind is our goal. ILIT Administration for your extended Life The whole purpose of Estate planning is to continue on your wishes beyond your life and to others you care about. We continue on our obligation of Trust administration by assisting in the transition of Estate assets to beneficiaries and heirs, enhancing their own estates and protecting Trust corpus from unwanted creditors and predators. Our clients are not only clients for life, but for generations. Next Steps Trust-CFO is your Trust-Insurance Administration Expert. Call us today to review your circumstance and create a summary report on how to fix your Plan, before it s too late.

9 References & Endorsements Marcum, LLP San Francisco Barbara Bond, CPA Tax Partner Marcum, LLP Southern California Phil Wilson, CPA Tax Partner Burton Law Firm Jeb Burton, JD Business & Tax David Kelly, Esq. Estate Planning Scott & Baldwin, CPAs Mark Scott, CPA Perennial Pension & Wealth Bob Krieger, CFP, CRPC, AIF Retirement Administration, Inc. Dan Harding, President Dustin I. Nichols, Esq. Author: Asset Protection Strategies & Forms Caritas Trust Mark Ziebold, Esq. - Professional Trustee & Executor Bob Matthews, President