Wealth Strategies Core Stories for Life. Accumulate, Protect, Transfer LIFE INSURANCE

Transcription

1 LIFE INSURANCE Wealth Strategies Core Stories for Life Accumulate, Protect, Transfer

2 Core Stories for Life. Life insurance sales strategies to meet your client s needs The Life. your way selling system can take your business to new heights with knowledge building solutions for managing wealth in today s marketplace. These tools help provide knowledge necessary to make life insurance based strategies a productive part of your practice. The selling system also provides consumer approved materials to help you attract, educate and implement strategies with your clients. Our selling system has organized potential solutions to help you serve both individual and business owner clients. We realize that finding a suitable strategy to meet your client s situation can be a challenge. Our interactive profiling tool can help you narrow down potential strategies based on your client s individual needs. The prospecting tool can be found on electronic version of Core Stories for Life. accumulate protect transfer

3 Individuals typically state one of following as ir primary financial concern: 1. Accumulating income for retirement 2. Protecting financial needs of ir loved ones in event of disability or death 3. Providing a legacy for generations to come Business owner clients generally follow same objectives by stating following as ir three primary concerns: 1. Accumulating retirement assets for key employees and mselves 2. Ensuring business continues to generate income in event of disability or death 3. Transferring or selling business MetLife offers a breadth of solutions-based materials designed to help incorporate life insurance into your practice and to better serve your clients. knowledge building solutions. Please note: All concept descriptions are partial and designed to provide introductory information on subject matter. MetLife does not provide tax and legal advice. Clients should consult ir attorney and/or tax advisor before making financial investment or planning decisions. 1

4 2 Page 1 of 1 Untitled Document 8/30/2013 file://z:\electronic Marketing\ _SMRFs\LIR\ .htm you promised to love and protect 1300 Hall Boulevard, 3F Bloomfield, CT metlife.com 1300 Hall Boulevard, 3F Bloomfield, CT metlife.com Success = Preparation + Opportunity Talking to business owners about life insurance can help you achieve greater success For Producer and Broker/Dealer Use Only. Not for Public Distribution. Deferred Compensation Plans Attract and Retain Top Talent LIFE INSURANCE A Complete Selling System Materials for every stage of sale The Core Stories for Life selling system has a broad array of marketing materials to help you share se concepts with your clients. For Consumers For Sales Partners or Your Own Use Brochures: Sales Starters: Fact Finders: Postcards: Seminars: Seminars: s: s: Postcards: Illustrations: Sales Solutions: Flyers/Pamphlets: in. 16 in. 11 in. 5 in. 8.5 in..5 in. RADIUS CORNER 8.5 in..75 in. Live Better, LeaveMore Preparing for transition into retirement and beyond Life insurance products are issued by: Metropolitan Life Insurance Company First MetLife Investors Insurance Company 200 Park Avenue New York, NY metlife.com CLVL22661 L [1214] 2013 METLIFE, INC. MetLife Investors Distribution Company MetLife Investors USA Insurance Company 5 Park Plaza, Suite 1900, Irvine, CA Pursuant to IRS Circular 230, MetLife is providing you with 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 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 appropriateness of any product for any specific taxpayer may vary depending on facts and circumstances. You should consult with and rely on your own independent legal and tax advisers regarding ir particular set of facts and circumstances. MetLife life insurance policies have limitations, exclusions, charges, termination provisions and terms for keeping m in force. Contact your financial professional for costs and complete details. Legacy Advantage Survivorship Universal 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 All product guarantees are subject to financial strength and claims-paying ability of issuing insurance company. Insurance Products: 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 Please work with your financial professional to learn more about MetLife s Core Stories for Life. LIFE InSUrAnCE Sales Starters Business Succession Cross Purchase Agreement Business owners needing a formalized succession plan where surviving owners will purchase interest of a deceased or retiring partner. The business should have very few owners or plan becomes quite complex. The owners may be seeking an orderly succession to business ownership, a fair price for ir interest in business upon retirement or a means to make ir own legacy more equitable to beneficiaries. how this works client solution concern For Producer or Broker/Dealer Use only. Not for Public Distribution. owner A s Estate owner B Step 2 Step 2 Step 3 Step 3 owner A Policy insuring B s interest Policy insuring A s interest Step 1 Business Agreement Business Succession Cross Purchase Plan step 1 The owners enter into an agreement with each or to purchase ir respective shares of business upon occurrence of a specified event such as disability, retirement or death. step 2 To fund agreement, each owner purchases a life insurance policy insuring each of or owners. step 3 Once specified event occurs, life insurance may be used as a source of funds to each remaining owner to buy out departing owner s shares. Life. your way SM To complete this fact finder please work with your financial services representative who can help you determine answers to se questions and provide details on available options. This information will be used to create a life insurance illustration and or reports that are customized to your personal situation. Personal Information Name(s): Address: City, State, Zip Code: Phone: Cell phone: Financial Services Representative Information Name: Company: Address: Phone: Fax: Existing Life Insurance Information Date of birth: General health: Good Average Poor Smoker? N Y Date of birth: General health: Good Average Poor Smoker? N Y What type of coverage should be considered? single life coverage insuring your life single life coverage insuring your spouse s/partner s life survivorship coverage insuring both lives What type of product? How much death benefit is needed? $ level increasing Do you want to consider: Death benefit guarantees? N Y Or product guarantees? N Y How will premiums be paid? level premiums for life level premiums for minimum years possible level premiums for years or (please describe ) Dynasty Trust Fact Finder This is a supplemental illustration designed solely to illustrate a concept and is not valid unless preceded or accompanied by a basic compliance illustration for life insurance policy described. NOT VALID WITHOUT ALL PAGES. Supplemental Illustration Prepared for: Prepared by: Insurance Products: 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 Supplemental Income Strategy Using Promise Whole Life 120 Valued Client MetLife Agent Financial Services Representative 200 Park Ave. New York, NY Concept Supplement Page 1 of 9 Date Prepared: June 7, 2013 L [exp0514][All States][DC] July 2012 The Wait and See Life Exchange Tip Scale and Watch Clients Take Action From a transfer tax perspective, an historic window of opportunity remains open for those wishing to efficiently convey ir wealth to next generation. Under law in effect on date this article was written, $5,120,000 federal lifetime gift tax exclusion is scheduled to remain in effect only for remainder of Absent a change in law, this exclusion is scheduled to decrease to $1,000,000 on January 1, It may seem self-evident that affluent clients should capitalize on this unique moment in time to efficiently transfer ir assets while leveraging life insurance as part of ir legacy plan. However, it is equally evident many affluent clients are sitting on proverbial fence, hesitant to take action. The rationale for this reticence is as varied as manner y acquired ir wealth but it boils down to a combination of uncertainty about future and reservations regarding ir own financial flexibility. The origin of this hesitancy revolves around idea that future personal net worth or shifting tax law may preclude need for current personal planning. This inflexibility is furr exasperated by perceived and real restrictions regarding traditional irrevocable life insurance trust arrangements. What is required for an affluent but hesitant client is a nuanced and subtle solution to tip scales in favor of action. The Wait and See Life Exchange technique may provide such a counterweight. New IRS Ruling Adds Flexibility A recently published IRS Revenue Ruling known as may be game changer that adds significant flexibility to arrangements involving irrevocable life insurance trusts (ILIT s) designed as grantor trusts. 1 The substance of this ruling is that in certain circumstances, a life insurance policy in an irrevocable trust is not included in grantor s estate for estate tax purposes despite fact grantor retains right to substitute policy with assets of equivalent value. This alone should spark planning ideas in mind of astute financial professional who interacts with affluent clients. First, however, a firm grasp of specifics of this IRS pronouncement is necessary. To conform with this ruling, an ILIT must be drafted by legal counsel such that insured grantor is precluded from serving as trustee. The insured may n retain power to substitute nontrust assets of equal value for an insurance policy held within trust without inclusion of death proceeds in grantor s gross estate under Internal Revenue Code This is core of Treasury pronouncement. It is important to note however, ruling specifies three furr interrelated requirements that must be met to prevent estate inclusion. First, insured grantor s power to substitute assets must be held in a nonfiduciary capacity. A fiduciary is loosely defined as someone who has a duty to manage and protect assets. Under Ruling, this duty remains with trustee at all times and may not be shifted to insured grantor. The actual or implicit exercise of any fiduciary power by grantor may cause immediate inclusion of trust assets in gross taxable estate upon death. Second, trustee must have a fiduciary obligation (under local law or trust instrument) to ensure grantor s compliance with terms of power by satisfying itself that properties acquired and substituted by grantor are in fact of equivalent value. The assets need not be of same type, but rar of same value. This means real estate, stock or cash may be exchanged for trust assets so long as this equivalency test is met. Lastly, substitution power may not shift benefits among trust beneficiaries. At first glance this may seem an overly nuanced requirement so long as previous more practical requirements are met. However, consider a scenario where grantor could reacquire income producing property by substituting non-income producing property of equal value. This may give grantor power to control portion allocated to an income beneficiary s share that would trigger gross estate inclusion. The Ruling indicates that a substitution power cannot be exercised in a manner that can shift benefits if: (a) trustee has both power (under local law or trust instrument) to reinvest trust corpus and a duty of impartiality with respect to trust beneficiaries; or (b) nature of trust s investments or level of income produced by any or all of trust s investments does not impact respective interests of beneficiaries, such as when trust is administered as a unitrust (under local law or trust instrument) or when distributions from trust are limited to discretionary distributions of principal and income. Estate Planning designing legacy you envision LIFE INSURANCE A_CLVL21782.indd 1 10/12/11 7:14 PM Sales Starters Key Person Insurance Closely held business owners whose business is dependent on a small number of key employees for financial success. These clients are concerned that if a key employee dies, becomes disabled or resigns unexpectedly, business could suffer financially. how this works step 1 Identify a key person and determine economic value to business. step 2 With employee s permission, 1 business applies for and pays premiums for a life insurance policy on life of employee. The business is policy owner and beneficiary. (The employee will be subject to normal underwriting application and approval process of issuing company.) step 3 Permanent policies will have a cash value which accumulates tax deferred, and if needed, may be accessed by business through withdrawals and loans. 2 client solution concern Premium Payments Identify Key Person Policy Death Benefits Policy Cash Values Employee insurance Company SteP 1 SteP 2 SteP 3 Business 1 To ensure that death proceeds of an employer-owned policy retain income tax favorable characterization, it is essential to comply with requirements of Internal Revenue Code 101(j). 2 Distributions are generally treated first as a tax-free recovery of basis and n as taxable income, assuming policy is not a Modified Endowment Contract (MEC). However, different rules apply in first fifteen policy years, when distributions accompanied by benefit reductions may be taxable when policy lapses, is surrendered, exchanged or orwise terminated. In case of a MEC, loans and withdrawals are taxable to extent of policy gain and a 10% penalty may apply if taken prior to age 59½. Always confirm status of a particular loan or withdrawal with a qualified tax advisor. Cash value accumulation may not be guaranteed depending on type of product selected. Investments in variable life insurance are subject to market risk, including loss of principal. Life. your way SM Please work with your financial professional to complete this fact finder. Your advisor can help you determine answers to se questions and provide additional details on different options that are available. This information will be used to create a life insurance illustration and or reports that are customized to your personal situation. NOTE: The annuity funded life strategy is dependent upon having an existing annuity which will not be needed for retirement income for you or your spouse, and instead is intended to create a legacy. If you anticipate using annuity for retirement income, this concept is probably not suitable for your situation. Client Information Name(s): Address: City, State, Zip Code: Phone: Cell Phone: Advisor Name: Advisor Company: Advisor Address: Advisor Advisor Phone: Advisor Fax: Life Insurance Information Date of Birth: General Health: Good Average Poor Smoker? N Y Date of Birth: General Health: Good Average Poor Smoker? N Y What type of coverage is required? Survivorship one policy insuring two lives Single life coverage insuring your life Single life coverage insuring your spouse s life Annuity Funded Life Insurance Fact Finder Business Succession Planning Can your business survive without you? Live Better, Leave More SM Improve your clients retirement outlook today & enhance ir wealth transfer tomorrow Protecting Income For ones you love The Ten Questions You Need to Ask Business Owners A Sensible Approach to Planning Your Estate Spousal Lifetime Access Trusts Transferring Wealth and Retaining Spousal Access Page 1 of 1 Untitled Document 8/30/2013 file://z:\electronic Marketing\ _SMRFs\Capital_Needs\ .htm Page 1 of 1 Untitled Document 8/30/2013 file://z:\electronic Marketing\ _SMRFs\keyperson\keyperson.html 1300 Hall Boulevard, 3F Bloomfield, CT metlife.com Wondering if you really need life insurance? 1300 Hall Boulevard, 3F Bloomfield, CT metlife.com Help your clients protect ir business most important assets with Key Person Life Insurance For Producer or Broker/Dealer Use Only. Not For Public Distribution Hall Boulevard, 3F Bloomfield, CT Even with all planning you do Life Happens. For Producer and Broker/Dealer Use Only. Not For Public Distribution. MetLife Investors Distribution Company 1300 Hall Boulevard, 3rd Floor Bloomfield, CT MetLife Offers Life Solutions for Your Business Owner Clients. This is a supplemental illustration designed solely to illustrate a concept and is not valid unless preceded or accompanied by a basic compliance illustration for life insurance policy described. NOT VALID WITHOUT ALL PAGES. Supplemental Illustration Prepared for: Prepared by: Insurance Products: 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 Live Better, Leave More Strategy Using Promise Whole Life 120 Valued Client MetLife Agent MetLife Investors 1300 Hall Blvd Bloomfield, CT Concept Supplement Page 1 of 16 Date Prepared: June 7, 2013 L [exp0315] RevISeD ApRIL 2013 The irrevocable life insurance trust (ILIT) has long been a traditional estate planning tool. It can be an effective way to own life insurance that provides liquidity at death while keeping death benefit out of estate of decedent. ILITs can also be used to leverage lifetime gift and generation-skipping transfer tax exemptions. While ILITs can be a very efficient method of owning life insurance, re are various considerations specific to ILITs of which one should be aware. In certain situations, re are alternative options to ILIT clients should discuss with ir legal and tax counsel, including using business entities as owner of life insurance. ILITs Generally In order to exclude life insurance proceeds from estate, insured cannot have any incidents of ownership in policy. Therefore, ILIT is drafted as an irrevocable trust and insured/grantor has virtually no control over policy owned in trust. The ILIT can be drafted to provide some flexibility, such as providing a spouse or domestic partner access to trust principal and income, or by allowing trust to make arms length collateralized loans to grantor. But, generally, grantor is giving up direct access to policy in exchange for estate exclusion. Crummey notices must be used in order to qualify any transfers or gifts to ILIT for gift tax annual exclusion. Since a gift to an irrevocable trust that does not immediately provide benefits to beneficiaries is not considered a gift of a present interest, those gifts do not qualify for gift tax annual exclusion. Consequently, beneficiaries must be given, via written notification, a right to withdraw gifts for a short window of time. This can pose problems with funding of policy if beneficiaries actually exercise ir rights to withdraw gifts. In situations where re are concerns about spendthrift beneficiaries, annual exclusion gifts may not be desired and gift exemption will be applied or gift taxes paid instead. In addition, re are some concerns about IRS position on Crummey gifts. Specifically, IRS may challenge wher se gifts qualify for annual exclusion if re is an implied agreement that withdrawal rights will not be exercised. Finally, in most situations, purchasing life insurance in an ILIT requires cash gifts. Using a client s gift exemption and annual exclusions for cash gifts may not be as beneficial as gifting or types of assets, like business interests where estate freeze techniques and valuation discounts can make gifts more effective. 1 While all of issues outlined above certainly do not offset benefits of an ILIT, re may be alternatives to ILIT that might be more effective in certain situations. Entity Owned Life Insurance For clients who have ownership interests in operating business entities, those entities may provide a possible alternative to ILIT. The entity would be applicant, owner and beneficiary of policy. Upon death of insured, proceeds are paid to business entity and can n be used to purchase client s business interest, make distributions to owners or fund or objectives such as key person replacement, stay bonuses or executive benefits to heirs in business. By using death proceeds to fund a redemption of client s business interest, estate liquidity can be provided in a manner similar to that of an ILIT. Benefits of Entity Owned Life Insurance Business entities such as C corporations, S corporations, limited and general partnerships and LLCs can all be purchasers of life insurance instead of an irrevocable trust. Using a business entity to purchase life insurance can provide following possible benefits over an ILIT: Having a business entity purchase insurance may provide more flexibility and control for client than using an ILIT. Having entity purchase insurance may eliminate need for Crummey notices. Gifting ownership interests in business entity to trust instead of cash for life insurance premiums may leverage gifts by removing appreciation of entity from estate as well as offer possible valuation discounts for lack of marketability and/or control. With increase and reunification of gift, estate and generation skipping exemptions under American Taxpayer Relief Act of 2012 (ATRA), substantial amounts of business interests can be gifted without paying a gift tax. The Business Owned Life Insurance Alternative 1 Use of discounts, though legitimate where appropriate, is often subject of IRS scrutiny. Valuation should be determined by a qualified appraiser. It is important to confer with your independent tax and legal advisors regarding use of this technique. Annuity Funded Life Insurance Tax-deferred investment products, such as tax-deferred annuities, can be an effective way to accumulate wealth. In fact, you may find that you have accumulated more than you need for retirement in se products. If so, you may be planning to leave a portion of se products to your beneficiaries. Life. your way SM 1 Withdrawals of taxable amounts from an annuity are subject to income tax, and withdrawals prior to age 59 1 /2 may be subject to a 10% federal penalty tax. Loans or withdrawals will decrease cash value and death benefit and any living benefit riders. Using proceeds from an annuity to purchase a life insurance policy may be considered a replacement. Additional paperwork may be required, and in cases where both contracts are issued by MetLife or an affiliate, certain restrictions may apply. Taxes can be a major obstacle to achieving your financial objectives. In fact, combined effect of estate and income taxes can significantly diminish value of your annuity when it is ultimately transferred to your beneficiaries. The Annuity Funded Life Approach The annuity funded life strategy involves use of existing annuity contracts to fund a life insurance policy. It is a strategy you may want to consider if you wish to pass on your retirement assets to beneficiaries in a more tax-advantaged manner. The strategy works as follows: Begin taking payouts from your annuity through annuitization or withdrawals. 1 Annuitization allows an annuity owner to receive a payment stream, eir for life or a set period of time. The amount and duration of payments will differ with each type of annuity and will be outlined in annuity contract. Some annuities pay out for remainder of your lifetime and some pay out for a set number of years continuing to pay out even beyond your lifetime if you die during set number of years. Your beneficiaries would n receive remainder of payouts. Withdrawals are or option for receiving payouts from annuity. Your annuity contract will specify extent to which you can withdraw funds. If you choose this option, your annuity stays intact and can be passed on to beneficiaries, keeping in mind that withdrawals will reduce any death benefit of policy. If you don t take distributions or partial withdrawals and end up passing annuity s full value to your beneficiaries at your death, y could be left with an estate tax liability due on annuity or on annuity s death benefit. Use Distributions to Purchase Life Insurance Once you choose your approach for taking payouts from annuity, you can use net payments received to make gifts to an irrevocable life insurance trust (ILIT) or some or third party, such as your children, who own a life insurance policy insuring your life. The owner of life insurance policy (eir trust or anor third party) can n use your gifts to pay annual premiums on a life insurance policy. ANNUITIES COUPLED WITH life insurance MAY HELP YOU PASS ON more assets TO YOUR benef iciaries in. 16 in. 11 in. 5 in. 8.5 in..5 in. RADIUS CORNER 8.5 in..75 in. Spousal Lifetime Access Trust Transferring wealth and retaining spousal access Life insurance products are issued by: Metropolitan Life Insurance Company First MetLife Investors Insurance Company 5 Park Plaza, Suite 1900 Irvine, CA metlife.com CLVL23056 L [0415] 2013 METLIFE, INC. And in NY by: Metropolitan Life Insurance Company First MetLife Investors Insurance Company 200 Park Avenue New York, NY Equity Advantage Variable Universal Life is offered by prospectus only, which is available from your registered representative. You should carefully read product prospectus and consider product s features, risks, charges and expenses, and investment objectives, risks and policies of underlying portfolios, as well as or information about underlying funding choices. This and or information is available in product prospectus and in prospectuses for underlying funding choices, which you should read carefully before investing. Product availability and features may vary by state. All product guarantees are subject to financial strength and claims-paying ability of issuing insurance company. Policy cash value allocated to variable investment options is subject to market fluctuations so that, when withdrawn, it may be worth more or less than amount of premiums paid. There is no guarantee that any of variable investment options will meet its stated goals or objectives. Pursuant to IRS Circular 230, MetLife is providing you with 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 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 appropriateness of any product for any specific taxpayer may vary depending on facts and circumstances. You should consult with and rely on your own independent legal and tax advisers regarding ir particular set of facts and circumstances. MetLife life insurance policies have limitations, exclusions, charges, termination provisions and terms for keeping m in force. Contact your financial professional for costs and complete details. Equity Advantage Variable Universal 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-1. Variable products are distributed by MetLife Investors Distribution Company (member FINRA). All are MetLife companies. Life Insurance Products: 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 Please work with your financial professional to learn more about MetLife s Core Stories for Life. LIFE INSURANCE Sales Starters IRA Funded Life This client has done a great job of accumulating a significant IRA balance. Now in retirement y have determined, with assistance of ir financial professional, y will not need IRA for retirement income. Their income needs are met with or assets. They would like to preserve ir IRA asset for ir beneficiaries. During wealth management process, y have learned that passing IRA to beneficiaries may be impacted by income and estate taxes. They would like to pass IRA as tax efficiently as possible to ir beneficiaries. How this works step 1 Client takes withdrawals or Required Minimum Distributions from IRA. step 2 Income taxes will be due on se distributions. 1 step 3 Gifts would n be made of after-tax amounts to a properly structured Irrevocable Life Insurance Trust (ILIT). 2 step 4 The Trust would use proceeds of gifts to pay premiums on a life insurance policy, typically on life of client or couple. step 5 Upon death of insured, life insurance proceeds will be received free of income taxes and estate taxes. client solution concern Client takes withdrawals or Required Minimum Distributions Client makes gifts of after-tax amount ilit ira Client Beneficiaries Balance of IRA (if any) after estate and income taxes go to beneficiaries Life insurance proceeds go to trust beneficiaries For Producer or Broker/Dealer Use only. Not for Public Distribution. Step 1 & 2 Step 3 & 4 Step 5 LiFE insurance Client Information Name(s): Address: City, State, Zip code: Phone: Cell phone: Advisor Name Advisor Name: Advisor Company: Advisor Office address: Advisor Phone: Advisor Life Insurance Information Client s Birthdate: General health: Good Average Poor Smoker: Yes No Spouse s Birthdate: General health: Good Average Poor Smoker: Yes No What type of coverage is required? Survivorship coverage insuring both lives Single life coverage insuring client s life Single life coverage insuring spouse s life Type/Name of Product? If Variable Universal Life (VUL), what hypotical gross rate? % (Cannot be higher than 10%) How much coverage is required? $ level increasing Do you want death benefit guarantees? Yes No How will premiums be paid? level premiums for life level premiums for years level premiums for minimum years possible or (please describe) Irrevocable Life Insurance Trust Fact Finder Life. your way SM Please work with your financial professional to complete this fact finder. Your advisor can help you determine answers to se questions and provide additional details on different options that are available. Having a complete picture of your financial assets and objectives is a critical step to helping achieve your goals. (Name Product, or state type, e.g. universal life, variable life) Page 1 of 1 Untitled Document 8/30/2013 file://z:\electronic Marketing\ _SMRFs\Ira_funded_life\ .html Supplemental Illustration Prepared for: This is a supplemental illustration designed solely to illustrate a concept and is not valid unless preceded or accompanied by a basic compliance illustration for life insurance policy described. NOT VALID WITHOUT ALL PAGES. Prepared by: Insurance Products: 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 Annuity Funded Life Using Promise Whole Life 120 Valued Client MetLife Agent MetLife Investors 1300 Hall Blvd Bloomfield, CT Concept Supplement Page 1 of 12 Date Prepared: June 7, 2013 L [exp0315] An intentionally defective irrevocable trust (IDIT) can be an effective estate planning tool. Properly used, y can enable clients to accomplish a variety of objectives. They can be particularly effective in managing transfer tax issues associated with large premium life insurance cases. This article will explore general use of IDITs and how y can be used in conjunction with life insurance. Income Taxation of Trusts In General It may be helpful to begin with a brief overview of trust taxation principles. A trust is a distinct legal entity that can own and manage property in same way individuals and corporate entities can. Like ir individual and corporate counterparts, trusts are subject to income tax on income realized in any given tax year. Taxable income generally consists of gross income for year minus deductions. Gross income for a trust is broadly defined, as it is for individuals income from whatever source derived. If an item would represent income in hands of an individual, it will be considered income to trust. Similarly, a trust may generally claim deductions that would orwise be allowed to an individual, though re are certain exceptions and additions. One additional deduction unique to trusts is ability to deduct from income distributions of taxable income made to beneficiaries of trust during year. Where that occurs beneficiaries pay tax on income distributed to m. Generally speaking n, with trusts, whoever receives income, pays tax. The Grantor Trust Rules The general rules outlined above do not apply to grantor trusts. Grantor trusts do not have income taxable to trust. Rar, trust income is taxable to grantor as owner of trust for income tax purposes. The grantor trust rules were established to prevent wealthy taxpayers from reducing ir income taxes by transferring income producing property into trusts over which y retained significant control, but which would be taxed at rates lower than grantor s. Under grantor trust rules a person who transfers property to a trust ( grantor) is treated as owner of trust for income tax purposes if grantor retains certain powers or interests in trust or trust property. As owner of trust grantor is taxed on income earned by trust (to extent of his or her ownership interest). Those powers or interests which result in Grantor trust status are outlined in Internal Revenue Code (IRC) They include (but are not limited to) following: Certain reversions of trust property to grantor (if value of reversion exceeds 5% of value of trust) ( 673) Retaining certain powers to control beneficial enjoyment of trust property or income ( 674) Retaining certain administrative powers ( 675): To deal with trust funds for less than full and adequate consideration To borrow without adequate interest or security To exchange property of equal value Retaining power to revoke trust ( 676) Trust income distributed or held for benefit of grantor ( 677): Income used to pay life insurance premiums on life of grantor or grantor s spouse Income used to discharge a legal obligation of grantor Today, income tax brackets for trusts are compressed when compared to those for individuals. In 2011, for example, highest marginal bracket of 35% is imposed on every dollar of income over $11,650. By comparison, for married taxpayers, filing jointly 35% bracket does not apply until taxable income exceeds $388,350. These compressed tax brackets are one reason why it is often preferable to treat grantor as owner and tax income to grantor rar than to trust. Estate Planning with Intentionally Defective Irrevocable Trusts Please note: This document is designed to provide introductory information on subject matter. MetLife does not provide tax and legal advice. Clients should consult ir attorney and /or tax advisor before making financial investment or planning decisions. See Important Note on page 3. Executive Bonus Plans Attract, Retain & Reward Top Talent LIFE INSURANCE MetLife also has sales and marketing professional resources to help you utilize se materials to develop a custom approach to your business. Contact us today for how we can help you incorporate Core Stories for Life into your practice. A Complete Selling System

5 Life Insurance Review Life insurance reviews are a critical component to meeting your client s needs, wher y are individuals or business owners. Just like or consumer products, life insurance evolves over time. Pricing changes, underwriting updates and new riders and/or features may enable clients to purchase additional coverage for same cost or continue ir existing coverage at a reduced cost. More often, however, your client experiences changes that necessitate a life insurance review to ensure existing coverage still meets ir needs. A life insurance review confirms: The coverage amount is sufficient to meet ir needs The beneficiary designations are up to date The policy is properly owned for estate planning purposes The right type of coverage is owned Your clients' life insurance should be reviewed when: Their marital status changes Children or grandchildren come into family They purchase a new home They stop working Their business changes owners The value of ir business changes The business has one or more employees changes. vital to its success life 3

6 Accumulation & Protection Accumulation Life insurance products are designed primarily to provide an income tax free death benefit, but permanent life insurance policies also have a cash value, which if variable, is subject to additional asset management fees. Even though life insurance is not considered an investment product, cash value portion of permanent life insurance products has investment-like attributes. The cash value has tax deferred growth potential and may even be accessed on an income tax free basis through loans and withdrawals. Supplemental Income strategies are appropriate for clients who have a need for life insurance protection and may have contributed maximum to traditional IRAs or employer qualified plans. By contributing more than minimum premium due on policy, cash value should accumulate to build a reserve which can be accessed on a tax free basis to supplement retirement or or income needs later in life. (Please see: A Note About Life Insurance Distributions) Spousal Lifetime Access Trusts enable married clients to create a wealth transfer plan while preserving ability for non-donor spouse to access income for remainder of his or her lifetime. 1 accumulation. 1 SLATs should be drafted with care to avoid unintended tax consequences. It is important for clients to confer with ir independent tax and legal advisors regarding use of this technique. 4

7 Protection Almost 75% of Americans agree that life insurance is best way to protect survivors against financial implications of premature death of a primary wage earner. According to same respondents, life insurance surpassed all or sources of financial assets or income that Americans expect to use to help pay bills and to maintain ir lifestyle if a primary wage earner dies. 2 However, same study revealed that 50% of all U.S. households eir don t own life insurance and believe y should, or do own life insurance and believe y need more. 2 Is Future Bright for Individual Life Insurance. LIMRA 2011 A Note About Life Insurance Distributions: Loans and withdrawals will decrease cash value and death benefit. If policy does not perform as expected it may be necessary to reduce or stop distributions, and/or premium payments may need to be resumed to avoid a policy lapse. There may be tax consequences if policy lapses or is surrendered prior to death of insured. Distributions are generally treated first as tax free recovery of basis and n as taxable income, assuming policy is not a Modified Endowment Contract (MEC). However, different rules apply in first fifteen 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 to extent of policy gain and an additional 10% tax may apply if taken prior to age 59½. Always confirm status of a particular loan or withdrawal with a qualified tax advisor. Cash value accumulation may not be guaranteed depending on type of product selected. Investments in variable life insurance are subject to market risk, including loss of principal. 5

8 A Capital Needs Analysis is one of most critical things a financial professional can do to help clients obtain coverage y need. The first step of a capital needs analysis is to determine income gap which would need to be replaced in event of a client s premature death. This includes annual amount of money that would be required to maintain family s standard of living as well as any one time expenses such as mortgage payoff, final expenses or anticipated education expenses for children. Once family s financial needs have been determined, it is important to consider how life insurance death benefit, in conjunction with or household assets, will meet family s needs for an anticipated number of years. Do clients anticipate only living off earnings or spending a portion of principal each year? How y anticipate spending ir assets will be an important factor in determining amount of death benefit to purchase. A Capital Needs Calculator is available on electronic version of Core Stories for Life. This calculator can estimate appropriate amount of coverage for your clients. protection. 6

9 Wealth Transfer Repositioning Assets The financial products clients use to accumulate assets for retirement are not always most practical when it comes to transferring wealth. Many times creating a wealth transfer strategy is as simple as evaluating a client s current portfolio for assets that will not be needed for retirement income and finding opportunities to transfer those assets more efficiently to ir beneficiaries with regard to taxes. Live Better Leave More SM is a strategy that may help clients resolve internal conflict which often exists between leaving a legacy and enjoying benefits of a lifetime of hard work and good savings habits. Too often, clients feel obligated to sacrifice ir personal desires in an effort to enhance ir legacy. This strategy begins by evaluating options to more efficiently transfer wealth to loved ones. It looks at potentially repositioning excess assets within a client s portfolio into a life insurance policy to guarantee legacy and potentially allow clients to leave more to ir beneficiaries after taxes. 3 IRA Funded Life addresses asset which is often largest in your client s portfolio, and refore most likely to be earmarked for ir legacy. Unfortunately, depending on size of client s estate, IRA (or or qualified retirement plan assets) may be subject to both income and estate taxes. The combined effect of se taxes on IRA may reduce amount distributed to beneficiaries by 50% or more. Repositioning some of IRA assets into life insurance may allow clients to increase potential wealth transferred to beneficiaries. Annuity Funded Life is a strategy for clients who do not anticipate spending all of ir annuity assets during ir own retirement. Growth on annuity will be subject to income taxes and entire annuity value is considered part of client s estate, in many cases making this an inefficient asset for wealth transfer. Repositioning a portion of annuity into life insurance may allow clients to increase net amount beneficiaries receive. wealth transfer. 3 Guarantees are based on claims-paying ability of issuing insurance company. 7

10 Life Insurance and Trusts When your clients consider ir legacy, re are many factors that may influence ir decision to implement a formal plan. Clearly potential for estate taxes may be one of those factors. Or considerations may include creating certain incentives for beneficiaries to receive proceeds and/or protecting ir legacy against judgments, 4 family divorce or beneficiaries with potential to misuse assets. A properly structured irrevocable trust not only enables assets to pass from one generation to next free of estate taxes, but may also place limitations on distributions to help alleviate client concerns about transfer of wealth. Dynasty Trusts are specific types of irrevocable trusts designed to provide distributions to trust beneficiaries for several generations, while keeping remaining trust assets outside beneficiaries respective taxable estates. The trusts typically utilize client s Generation Skipping Transfer Tax (GSTT) exemption to gift assets to grandchildren and or skip persons free of this tax. Life insurance may provide important leverage to se gifts. Leveraged Credit Shelter Trust is a strategy which utilizes basic estate planning technique of Credit Shelter Trusts, also known as B Trusts or By-Pass Trusts. Funding Credit Shelter Trust (CST) with life insurance purchased on life of widow or widower may provide immediate leverage and may also help mitigate higher trust tax rates assessed on income not distributed to beneficiaries. While trust may aim to last forever, many states have developed Rules Against Perpetuities to limit duration of this type of trust. Qualified legal advisors should be consulted to ensure trust is drafted according to your client(s) wishes. trust. 4 Creditor protection laws vary dependent upon governing federal and state law. The applicability of such laws also depends on terms of trust. Consumers should be sure to confer with ir independent tax and legal advisors prior to establishing a trust for this purpose.. 8

11 Business Owners Business Development Stages In addition to concerns that individuals face, business owners have additional needs to protect long term viability and success of business. To best serve needs of your business owner clients, it is important to recognize developmental stage of business. 1Start-Up Businesses are generally in a somewhat precarious survival mode. These owners are typically investing great amounts of time and resources to ensure business viability. Protecting business against unanticipated losses is critical in this ownership phase. Key Person Insurance is critical protection for start-up businesses whose financial success or survival is dependent on a few key employees. A key person life insurance policy may provide immediate liquidity in event of a key employee s unexpected death. The policy may also be able to provide business with tax-advantaged access to policy cash values in times of need, such as if employee resigns or becomes disabled. 9

12 2Profitable Businesses are stable and profitable enough to financially support owners and employees. In this phase, business owner becomes concerned with how to utilize business to save for his own retirement. The owner also begins to contemplate providing benefits to his employees for increased loyalty and retention purposes. Executive Bonus Arrangements are a popular way to offer nonqualified benefits to selected employees with generally little to no restriction on who may be chosen or excluded. In this arrangement, employer pays a bonus or salary increase to selected employees, subject to reasonable compensation guidelines. In turn, employee can use bonus proceeds to purchase life insurance. Employers do not have control over policy cash values since employee is policy owner, but employer may elect to restrict executive s access to cash values through a restrictive agreement. Cash value access would refore be restricted and subject to employer s consent until employee satisfies specific requirements 5 which typically relate to tenure. Life Insurance in a Qualified Plan involves purchasing life insurance within a defined benefit or defined contribution qualified plan and can help purchase coverage while providing appropriate income tax deductions. Life insurance provides instant protection in event of premature death, even if only one premium payment has been paid. For small business owners such as doctors, attorneys, accountants and trade professionals whose business value may decline substantially without ir continued contribution, policy's death benefit may help replace this lost value for beneficiaries. Furrmore, a properly designed strategy to remove policy from plan at some point in future can help business owners meet personal estate planning goals. Nonqualified Deferred Compensation Plans are an executive benefit often informally funded with cash value life insurance to provide key employee benefits upon attainment of specified performance requirements. executive benefits. 5 With respect to a 162 Executive Bonus Plan, employer should consult with and rely on independent legal and tax advisors regarding wher any executive bonus plan may be considered to be a welfare benefit plan under ERISA and if so, what requirements must be met. 10

13 3Established Businesses have proven ir staying power and profitability. Once this stage begins, it is important that owner consider what will happen to business when owner no longer desires, or has ability, to maintain such an active role. In an ideal situation, all partners and ir beneficiaries would be in agreement about future for business and have plans in place to ensure it can happen. Good planning avoids being forced to sell business quickly, and potentially below fair market value, to pay estate taxes or satisfy beneficiary interests. Unfortunately, such situations rarely occur organically, which can result in periods of business uncertainty that can include lost customers, sales and profitability. Implementing a plan for business succession is best way to ensure a fair and orderly transition. Business Succession Planning encompasses several different strategies to arrange a transition plan which will satisfy owner, any partners and ir beneficiaries. Life insurance is commonly used to fund business succession strategies because of its flexibility. The premiums are typically moderate compared to total amount of money that would have to be raised if a death did occur. In addition, permanent life insurance has a cash value component that may be accessed through withdrawals and loans in event an owner becomes disabled or retires. (Please see: A Note About Life Insurance Distributions on page 5) business succession. 11