2015 MDRT Annual Meeting e Handout Material. Advanced Life 2015 Ideas that Thrive

Transcription

1 2015 MDRT Annual Meeting e Handout Material Title: Speaker: Advanced Life 2015 Ideas that Thrive David Szeremet, J.D., CLU Presentation Date: Wednesday, June 17, :30 a.m. 12:30 p.m. The Million Dollar Round Table (MDRT) does not guarantee the accuracy of tax and legal matters and is not liable for errors and omissions. You are urged to check with tax and legal professionals in your state, province or country. MDRT also suggests you consult local insurance and security regulations and your company s compliance department pertaining to the use of any new sales materials with your clients. The information contained in this handout is unedited and errors, omissions and misspellings may exist. Content may be altered during the delivery of this presentation Million Dollar Round Table Million Dollar Round Table 325 West Touhy Ave. Park Ridge, IL USA

2 Liquid ATMs What: Position a portion of income derived from oil or gas rights into cash value life insurance to provide longterm security and tax advantages. Who: Prospects are those who receive an income stream by allowing the mining of natural resources such as oil, gas, coal, minerals, timber or other depleting asset on their property. How: A portion of the income generated through drilling/mining rights is utilized to purchase a permanent life insurance policy. The life policy provides lifetime death benefit protection and can generate a cash value that can be accessed to provide additional income tax-free cash flow via loans. Permanent death benefit protection Safety of principal and liquidity (cash value) Tax-deferred accumulation and tax-advantaged access to policy cash values Potential for disability protection with optional waiver of premium rider Protection from personal creditors (varies by state) Underwriting factors (age/health) will determine whether life insurance is feasible Best for life products that focus on guarantees (during life and at death) Use conservative assumptions (dividends/interest, etc.) and avoid modified endowment contracts (MECs) Due to uncertain revenue stream duration, focus on policy with limited premium payment duration (ten years or less) Premium typically should not exceed 20-25% of annual revenue Client should have ability to pay required premiums from other income sources, if necessary Trading Uncertainty for Protection and Guarantees UNCERTAIN Oil Revenue (rents, royalties, etc.) CERTAIN Life Insurance (including cash value) CASH VALUE Oil drilling revenue used to purchase permanent life insurance Limited premium pay period chosen (10 years) due to uncertain revenue stream Life insurance policy provides lifetime death benefit protection Policy provides access to cash value for future cash flow T

3 Funded Roth Conversion What: Utilize the income tax-free death benefit of life insurance to fund a spouse s conversion of a traditional IRA to a Roth IRA upon the death of the IRA owner. Who: Prospects are married couples with a spouse owning a traditional IRA. Couples should understand the income tax-free distribution benefits of a Roth IRA. They should have adequate retirement savings aside from the IRA. How: Permanent life insurance is purchased on the life of the IRA owner. At death, the income tax-free life insurance death benefit paid to the surviving spouse can be used to pay all or part of the taxes due upon a conversion of the traditional IRA to a Roth IRA. Income tax-free Roth IRA distributions for spouse No Required Minimum Distributions (RMDs) for spouse Income tax-free legacy to heirs Clients should have adequate retirement income without the IRA (IRA is a legacy asset) Underwriting factors (age/health) will determine whether life insurance is affordable Death benefit should equal projected income taxes on Roth conversion Spousal IRA rollover is limited to spouse beneficiaries Converted amount has a five-year holding period Strategy is based on current IRA and Roth IRA conversion rules (and limitations), which are subject to change in the future. How a Funded Roth Conversion Works Traditional IRA Owner Purchases permanent life insurance on his life Uses after-tax IRA distributions to pay insurance premiums At Owner s Death: IRA goes to spouse Life insurance death benefit goes to spouse Spouse Beneficiary of permanent life policy Beneficiary of IRA Desires tax advantages of Roth IRA At Owner s Death, Spouse: Completes IRA rollover Converts rollover IRA to Roth IRA Uses life insurance death benefit to pay conversion tax T

4 SLAT Snapshot What: An irrevocable life insurance trust that includes spousal lifetime access provisions. The access provisions add flexibility by unlocking life insurance cash value for lifetime needs. The life insurance death benefit is removed from the couple s estates. Who: Clients who want to remove life insurance death benefits from their estates but do not want to give up access to life insurance cash values. Those who may or may not have future estate tax exposure depending on the future value of their assets and future estate tax laws. How: Married couple establishes a Spousal Lifetime Access Trust (SLAT). The trust grantor gifts amounts to the trust which, in turn, pays premiums on a permanent life insurance policy on the life of the grantor. The trustee may make distributions of the policy s accumulated cash value for health, education, maintenance, support, etc. The policy and its corresponding values would not be included in the couple s estate for estate tax purposes. Ongoing tax-free gifts Income tax-free and estate tax-free death benefit Lifetime, tax-advantaged access to cash Protection from creditors Privacy and control from the grave Trust creator (grantor) cannot have direct access to cash value Couples should avoid mirror trusts Distributions to spouse should generally be limited to an ascertainable standard (health, education, maintenance, support, etc.) Divorce ends spousal access to cash, so couple should be happily married Predeceased spouse ends lifetime access to cash life insurance on spouse is often recommended Due to adverse income tax consequences, avoid modified endowment contracts How a SLAT Works TRUST DOCUMENT Wife/Grantor Establishes SLAT and gifts premiums to trust to pay life policy premiums. SLAT SLAT is owner and beneficiary of policy. Life Insurance Policy Cash value is accessible by trustee for spouse s benefit. Death benefit goes to trust and should pass to spouse. Husband/Beneficiary Can access life policy cash value for health, education, support and other expenses. Clients should consult with their legal and tax advisors when establishing a Spousal Lifetime Access Trust. T

5 Planning for Individuals with Special Needs What: Individuals with special needs often have a lifelong need for personal care, medical treatment, and financial support. It s a historically underserved life insurance market that is growing dramatically. Who: Individuals or families with a dependent of any age who has special physical, mental or emotional needs are primary prospects. How: Most often, a special needs trust is established and funded with life insurance on the lives of the parents or primary caregiver. At the insured s death, a death benefit is paid to the trust and it coordinates with government benefits to provide financial resources for the care and support of the individual with special needs. Life insurance cash value available for lifetime needs Death benefit protection Continued eligibility for state and federal government benefit programs Proper planning protects individual s continued support, quality of life, and dignity Proper data taking and fact finding is crucial in this market Individual with special needs generally should not be a designated beneficiary of retirement accounts, life insurance, annuity contracts or brokerage accounts Meet with all family members to check current beneficiary designations and estate planning documents When a special needs trust is used, trust beneficiary cannot have direct access to assets trust distributions should be at the trustee s sole discretion Life insurance may be necessary on the lives of the primary caregiver AND primary breadwinner (there is often a liquidity need at both deaths) Encourage clients to seek assistance from an attorney with a background in elder law or estate planning How a Special Needs Trust Works TRUST DOCUMENT Parent/Caregiver Gifts premiums to trust to pay life policy premiums. Special Needs Trust Pays premiums and provides funds to supplement government benefits for beneficiary. Life Insurance Policy Pays death benefit to the trust. Person with Special Needs Clients should consult with their legal and tax advisors when establishing a Special Needs Trust. T