Estate Planning. Multi-Generation Trust Producer Guide. For agent use only. Not for public distribution.

Transcription

1 Estate Planning Multi-Generation Trust Producer Guide For agent use only. Not for public distribution.

2 Introduction Life insurance can be a versatile, multi-purpose financial asset for grandparents to use to meet their estate planning objectives. One of the best opportunities for selling life insurance in a post-egtrra planning environment is estate planning sales to grandparents for the benefit of children, grandchildren and younger family members. Sales to grandparents have substantial opportunity because: 1. Grandparents are likely to have funds to pay life insurance premiums, 2. Grandparents often have special emotional bonds with grandchildren that make them open to helping them have some financial security, 3. Reliable estate planning strategies are available to grandparents to help them accomplish their objectives for their grandchildren. Life insurance can be a versatile, multi-purpose financial asset for grandparents to use to meet their estate planning objectives. Life insurance has flexibility and potential tax advantages to help it fit well with many objectives that are important to grandparents. Often, it makes sense for a trust to own the life insurance policy or to be the beneficiary of the policy death benefits. These trusts can be structured as multi-generation trusts (MG trusts). MG trusts are designed to benefit more than one generation of family members. An example of a multi-generation trust is one that pays benefits to children and thereafter to grandchildren. These trusts are also known as generation skipping trusts. When MG trusts are drafted to last for the longest time possible under state law, they are called dynasty trusts. Trusts are regulated by the laws of the state in which they are established and those laws can differ significantly from state to state. Some states have laws that permit MG trusts to last forever. This guide will discuss the grandparent market and highlight its different sales opportunities for life insurance sales. 2 For agent use only. Not for public distribution.

3 The Grandparent Market There are two dimensions to the grandparent market: age and money. The 2010 US Census shows that there are over 70 million grandparents in the United States today. That s about one third of the adult population. Some people younger than 40 are grandparents. However, on average people become first time grandparents at age 50.* Of course, once someone becomes a grandparent, they usually remain one for the rest of their lives. In fact, they can even become great grandparents when their grandchildren have children. Demographically, the United States now has two generations of grandparents. Members of the World War II (WWII) generation have had grandchildren for many years. Now many surviving members of this generation have great grandchildren. That s because members of the Baby Boom generation are becoming grandparents. The oldest Baby Boomers are in their 60 s and their children are having children. As a result, the country has more grandparents than ever before. A significant number of grandparents have money. Consider these facts about grandparents:* Ā Ā They control 75% of America s wealth. They have the highest average net worth of any age group ($254,000). They spend $2 trillion every year on consumer goods and services. They account for 42% of all consumer spending on gifts. Ā Ā 55% no longer carry a mortgage. In addition to age and money, another interesting facet of the grandparent market was revealed in the national census. Census figures show that in % of children (7.5 million) in the country live in households that are headed by grandparents.** For many reasons (e.g. a child s premature death, disability, lack of competence, lack of interest, etc.), some grandparents have had to replace their children as the primary caregivers to some of their grandchildren. Finally, it is important to remember the unique relationship between grandparents and their grandchildren. Many grandparents and grandchildren share a close emotional bond. Each receives psychological benefits from the other. It is not uncommon to hear some grandparents say, If I had known how much fun grandchildren would be, I would have had them first! Consider these statistics: 72% of grandparents think that being a grandparent is the single most important and satisfying thing in their lives. 68% think that being a grandparent brings them closer to their adult children. 63% of them say they can do a better job caring for their grandchildren than they did with their own children. 90% of them enjoy talking about their grandkids to just about everyone. Grandparents may have a storehouse of knowledge on how to deal with children. Grandparents and grandchildren share a common enemy the parents. Grandchildren give grandparents a chance to be young again. Because of this unique bond, grandparents will sometimes do things for their grandchildren that they would never dream of doing for their own children. * Grandparents.com, 2013 ** US Census Bureau, Grandparents Day Press Release, 09/09/2012 For agent use only. Not for public distribution. 3

4 Emotional Reasons Why Grandparents Will Make Transfers To Benefit Grandchildren It is well known that people make buying decisions based on emotions. Then they try to justify those decisions with logic. Thus, understanding buyers emotions is critical to effective selling. There are several emotional reasons why grandparents will take action to transfer money or property directly to their grandchildren or to trusts for their benefit. Alert financial professionals will be on the lookout for these emotions and structure their sales presentations and selling interviews accordingly. Here are some of the most powerful emotions to keep in mind: Love Many grandparents truly love their grandchildren and would do many things to make their lives easier and more productive. Immortality Some grandparents want to make sure they are remembered fondly by their grandchildren and future generations. Perpetuate Their Values Some grandparents want to provide positive guidance to help their grandchildren lead productive lives. Hate Some grandparents will make these transfers because they have had a falling out with a child or because they hate paying taxes to the IRS. Control Some grandparents want to have control from the grave; a MG trust may give them an opportunity to have abundant control or influence over younger family members long after their deaths. Worry Some grandparents worry that their children will not be able to provide for their own children or they worry that their grandchildren may not have the skills or drive to make it in today s world; they may be willing to help them out. Life Insurance Sales Strategies Selling life insurance to grandparents for the benefit of their children, grandchildren and younger generations is not difficult when the financial professional has a good understanding of what grandparents want. The sales process usually involves two simple steps. The steps must be dealt with in this order: Step 1 Why should a grandparent use a MG Trust? Step 2 Why should life insurance be used to deliver all or part of the trust s benefits? 4 For agent use only. Not for public distribution.

5 Step One Why should the grandparent use a MG trust? Can a grandparent transfer money directly to a grandchild? Technically they can. However, in most cases a direct transfer to a grandchild won t accomplish the grandparent s objectives. Multi-generation (MG) trusts give grandparents the opportunity to meet a number of objectives that can t be met through personal ownership: Ability to pay benefits to both children and grandchildren Trust distributions can first go to children and what s left can be paid to grandchildren. Protection from claims of creditors The creditors of children and grandchildren may not be able to reach assets held in trust. Ability to avoid transfer taxes The trust assets can be estate tax and generation skipping tax free for several generations. Protection from divorce settlements Trust assets generally aren t subject to divorce settlements and decrees. Ability to allow children and grandchildren the use of assets without ownership. Opportunity to control the future of assets while they remain in the trust. Opportunity to influence the behavior of children and grandchildren for many years. Ability to secure professional management services to administer the trust. Step Two Why use life insurance to deliver all or part of the trust s benefits? Life insurance coverage on a grandparent may add significant value to a MG trust. It can be one of several assets in the trust or it can be the trust s only asset. In either case life insurance can improve the trust s ability to protect family wealth and efficiently pass on its benefits to younger generations: It can reduce or eliminate the cost and inconvenience of transferring tangible assets to the trust; with life insurance, only cash needs to be put into the trust. Death benefits are put on reserve as soon as the trustee purchases the policy; the annual premiums are the installments that pay for the death benefits. Policy death benefits nearly always exceed the premiums paid. Life insurance has the potential to provide these tax benefits: 1. Policy death benefits are income tax free* 2. Policy death benefits can be estate tax free* 3. Gifts of cash to the trust have the potential to be gift tax free (if they qualify as present interests for the gift tax annual exclusion) 4. Policy death benefits can be generation skipping transfer (GST) tax free. Life insurance can help grandparents who want to increase the amount of income, estate and GST taxfree wealth they can transfer to future generations. It can be used to leverage the value of the GST tax exemption. Life insurance can be a simple and useful way for grandparents to create a legacy for their children and grandchildren without repositioning their other assets. * Proceeds from an insurance policy are generally income tax free and if properly structured, may also be free from estate tax. For agent use only. Not for public distribution. 5

6 How Are Multi-Generation Trusts Designed? MG trusts are complex legal documents. They must meet both the requirements of state law to operate as a trust and the requirements of federal tax law to avoid gift, estate and generation skipping taxes. Some trusts are designed to provide benefits solely to the grantor s grandchildren. These trusts are technically not MG trusts because they provide benefits to only one generation. More often, MG trusts are established to provide benefits to members of several generations. Several generations can benefit from a trust when it is designed to have younger generations succeed the older ones in sequence. For example, suppose the grantor s spouse is the first potential beneficiary. After the spouse dies, benefits become available to children who are still living. After the children have died, benefits become payable to their children (the grantor s grandchildren). After they have died, benefits may be paid to great grandchildren, and so on. For federal estate tax purposes, it is important that the assets remain under the ownership of the trust and not become the property of any beneficiary. As soon as trust assets are distributed and become the property of a beneficiary, they can be subject to federal estate taxes when that beneficiary dies. They can also be reached by the beneficiary s creditors. The challenge of the trust is to give beneficiaries the opportunity to benefit from the property in the trust without giving them an ownership interest. These provisions are often written into MG trusts to give beneficiaries some of the benefits of ownership without the risks: Trustee s Discretion to Distribute Income The trust can give the trustee the ability to distribute any or all of the trust s annual income to any beneficiary. As long as the trustee is not required to distribute income in any amount or percentage, the beneficiaries do not have a right in the trust that will cause any trust assets to be subject to income or estate taxes. Trustee s Discretion to Distribute Principal The trust can give the trustee the ability to distribute any trust assets to any beneficiary to provide for that beneficiary s health, education, support or maintenance. This is known as ascertainable standard distribution power. The trustee is not required to make any distributions under this power, but may do so if it is warranted. Trustee s Discretion to Allow Beneficiaries to Use Trust Assets The trust may permit the trustee to use his/her/its discretion to allow a beneficiary to use particular trust assets. This use can be under a lease or rental agreement or it may be rent-free. A Beneficiary s Special Power of Appointment The trust can give selected beneficiaries the right to appoint (direct the trustee to transfer) some or all of the trust assets to others. A transfer under a special power of appointment to someone else should not be a taxable transfer by the beneficiary. While a beneficiary may not appoint trust assets to him/herself, the beneficiary has de facto control over the future of an asset by having the ability to force the trustee to transfer it to persons the beneficiary may choose. When these four provisions are included in the trust, the trustee has substantial power to direct assets to any of the beneficiaries at any time and the trustee has the ability to decide who should enjoy and control the property in the future. Taken as a group, this package of rights is similar to ownership of the trust assets. If the trustee is open to the beneficiaries needs and desires, access to assets in a MG trust could be better for the beneficiaries than actual ownership of the assets. This is because the trust agreement may insulate all the assets from the claims of beneficiaries creditors and prevent the assets from being subject to estate taxes as the beneficiaries die. If GST exemption is allocated to contributions used to fund the trust, the trust assets can be exempt from both estate taxes and generation skipping taxes. Thus, transfer taxes may not reduce the amount of trust assets available to future generations. 6 For agent use only. Not for public distribution.

7 MG Trusts and Federal Transfer Taxes Congress has established a series of potential taxes on transfers of assets from one person to another. Transfers made while a donor is alive are subject to the gift tax rules. Transfers made after death are subject to the estate tax rules. Transfers made to a person who is a grandchild, great grandchild or to someone who is more than years younger than the grantor are potentially subject to a generation skipping transfer (GST) tax. When a grandparent establishes an irrevocable life insurance trust (ILIT) and the trustee purchases a life insurance policy, income, gift, estate and GST taxes all have the potential to be avoided. Avoiding these taxes is an important part of estate planning. When a grandparent is both the owner and the insured in a life insurance policy, he/she has an incident of ownership that will cause the life insurance death benefits to be included in his/her taxable estate. If the total value of the other estate assets isn t enough to cause estate taxes, the addition of the life insurance death benefits to the total can tip the balance and cause estate taxes to be due. If an estate tax problem existed before the policy was purchased, the policy s death benefits can make the tax problem worse. If there is a potential estate tax problem in a grandparent s estate, personal ownership of the policy may have the same practical tax effect as naming the IRS as a partial beneficiary of the policy death benefits. This would be a tax disaster. ILIT ownership of the policy can avoid estate taxes. Congress has decided it wants to collect an estate tax every time wealth passes down from parents to children (either during life or at death). Some wealthy parents avoided estate taxes by passing their property in trust so it skipped over the children and passed on to grandchildren and great grandchildren. Congress created the generation skipping transfer (GST) tax to prevent people from avoiding estate taxes in this way. However, as part of the law Congress did create a lifetime exemption ($5,250,000 in 2013 indexed annually for inflation) that can be used to shelter transfers from the GST tax. Grandparents can apply part of their exemptions to shelter gifts to ILITs from GST taxes. If the GST exemption is applied to all funds going into the trust, the benefits it pays out to grandchildren or younger family members should be GST tax free. Generally, MG ILIT trusts should be created with the understanding that the grandparent creating it will allocate part of his/her lifetime GST exemption to every transfer of property that goes into the trust. That is probably the best way to assure that the GST taxes will not be due on distributions to beneficiaries. The lifetime GST tax exemption is potentially a very valuable estate tax planning tax break. Because the marginal rate applied in the calculation of the estate tax is 40%, the GST exemption s ability to shelter growth in the estate from future transfer taxes can be very important. The impact on family wealth is remarkable when estate taxes are levied at the death of each generation. The ability to avoid significant amounts of estate tax for several future generations can be extremely valuable. There is great opportunity for financial professionals here because the lifetime GST exemption is seldom used. Clients can be happily surprised to see how much the GST exemption can benefit younger family members when it is used properly. For agent use only. Not for public distribution. 7

8 Two Tiers to the Grandparent Market From a sales perspective, there are two general types of grandparent prospects. Level One The Rockefellers This is the upper level of wealthy grandparents. They often want to design their estate plans to maximize the benefits passed on younger family members. This can include generations beyond their grandchildren. For simplicity, we ll call grandparents like this the Rockefellers. Generally, they have large net worths and are likely to have estate tax problems. They want to insulate their wealth from potential losses from estate taxes and from claims of potential creditors; they want to create an environment in which their wealth will grow as much as possible over time. Long term, leveraged MG trust strategies often will be of real interest to these families. Life insurance may be attractive to the Rockefellers as a tool to leverage family wealth while avoiding income, estate and generation skipping taxes. Level Two The Smiths This is the lower level of the grandparent market. These are well-to-do grandparents who have more money than they will need for the balance of their lives. They are well off financially, but they are not wealthy. Generally, their net worths are at least $1,000,000 and they may not have estate tax problems. They want to leave their extra money to their children and grandchildren to enhance their financial security and to leave a long-term legacy. Rockefeller Life Insurance Sales Opportunities Rockefeller-type clients want to maximize family wealth over several future generations. They are willing to use all legal tools at their disposal to maximize family wealth. They may be excited to see how they can combine a MG trust, life insurance and their GST lifetime exemptions to increase their family s net worth and financial security. Consider explaining these opportunities to parents and grandparents who are Rockefellers : 1. A MG ILIT Funded with Lifetime Gifts of the GST Exemption 2. A MG ILIT Structured as a Cristofani Trust 3. A MG Incentive ILIT to Encourage Positive Values in Grandchildren 4. A MG ILIT with Premiums Paid by the Family Corporation in a Split Dollar Arrangement 1. A MG ILIT Funded with Lifetime Gifts of the GST Exemption - A grandparent creates an ILIT to leverage his/her (and perhaps also the spouse s) GST exemptions. This can be done either of two ways. (1) Both grandparents make annual exclusion gifts to the ILIT that will cumulatively equal their combined GST exemption amounts, or (2) both grandparents make lifetime transfers of $5,250,000 to the ILIT in lump sum gifts (or they split gift a $10,500,000 gift from one of them) between husband and wife and make additional annual exclusion gifts to use the balance of their GST exemptions. Both grandparents allocate their GST exemptions to these gifts. Split gifting is possible if a gift tax return (form 709) is filed. All gifts are used to pay life insurance premiums. The MG ILIT purchases a second to die policy insuring both grandparents and paying death benefits at the survivor s death. 2. A MG ILIT Structured as a Cristofani Trust - In 1991 Mrs. Cristofani defeated the IRS in an important case involving the gift tax annual exclusion (Cristofani v. Commissioner 97-TC 5 (1991)). Mrs. Cristofani set up a trust to benefit her children. She used her gift tax annual exclusions to fund the trust. The trust gave temporary withdrawal powers (Crummey powers) to both her children and her grandchildren. The IRS challenged her ability to use the gift tax annual exclusion for the gifts to her grandchildren because the grandchildren had no right to get anything else from the trust. Outside of the temporary withdrawal power, they couldn t get any money from the trust unless their parent died before them. In other words, they had to live past their parent s death in order to receive a share of the trust. The IRS has lost other cases in the Tax Court on this issue: Estate of Kohlsaat, TC Memo (1997) and Estate of Holland, TC Memo (1997). The IRS continues to challenge taxpayers using this strategy, but has yet to be successful. 8 For agent use only. Not for public distribution.

9 3. A MG Incentive ILIT to Encourage Positive Values in Grandchildren - Some grandparents are reluctant to take full advantage of their GST exemptions. They may fear that they may be making too much money available to younger family members at too early an age. As a result, they re afraid their grandchildren s drive to work hard and make their own success may be compromised. Fortunately, a MG ILIT can be structured to avoid spoiling its beneficiaries. The grandparents can design the ILIT so that distributions are contingent rather than automatic. That means that the beneficiaries don t have to be guaranteed money from the ILIT. The trustee can be instructed to pay out funds to beneficiaries who have earned distributions. In the trust agreement, grandparents establish the guidelines that beneficiaries will have to satisfy before the trustee can distribute trust funds to them. By deciding which actions of beneficiaries to reward with distributions, the grandparents may have the ability to influence the behavioral and lifestyle choices the beneficiaries make. The opportunity to receive money from the trust can guide them toward the actions, activities and beliefs the grandparents want to encourage. 4. A MG ILIT with Premiums Paid for by the Family Corporation in a Split Dollar Arrangement - Many wealthy people like the concept of a MG ILIT. What they object to is paying for it. That may be an easy problem to solve for grandparents that have an ownership interest in a family corporation. They can create an ILIT and have the corporation use its cash to pay the life insurance premiums under a split dollar arrangement. The arrangement can be either a non-equity collateral assignment split dollar or an endorsement split dollar (not advisable if the grandparent is a majority owner of the corporation). In both types of split dollar arrangements, the corporation recovers the greater of the cash values or the premiums it has paid. The ILIT gets the rest of the death benefit. These death benefits should be income and estate tax free. The real key to using split dollar to pay the premiums is for the ILIT to purchase a second to die policy. There are significant potential income, gift and GST tax advantages to be gained with a second to die policy. The policy premiums paid by the corporation don t control the annual income, gift and GST tax costs. Instead, the economic benefit value of the ILIT s portion of the policy death benefit controls those tax costs. In a survivorship policy that annual value will be based on the likelihood that both insureds will die in the current tax year. This value is likely to be extremely low while both insureds are alive. After the first death, the parties may want to end the split dollar arrangement through a rollout. That s because the economic benefit value rises greatly after the first insured s death. Split dollar with a second to die policy offers excellent potential to leverage the GST lifetime exemption. The economic benefit to which GST exemption is allocated can be leveraged into much larger income, gift, estate, and GST tax-free death benefits at the second spouse s death. For agent use only. Not for public distribution. 9

10 Smith Life Insurance Sales Opportunities The Smiths are symbolic of grandparents who are well-to-do, but not wealthy. They aren t worried about maximizing their tax breaks and getting maximum leverage out of their assets. Nor are they interested in long-term dynasty strategies that will last for generations. They love their grandchildren, but they love their children, too. They are more likely to implement strategies designed to benefit both their children and their grandchildren. MG ILITs can be designed to assist both generations in ways that appeal to grandparents. Here are some examples: 1. The Family Safety Net 2. The Family Education Fund 3. The Standby MG Trust 4. Passing On the GST Exemption at a Discount 1. The Family Safety Net - Grandparents understand that today s world is very different from the world they grew up in. They understand that today there is global competition and that jobs often don t last for a working lifetime. They ve seen people get laid off and they ve seen benefits, pensions and health insurance cut back and discontinued. They know that unexpected accidents, injuries and illnesses can turn the financial security of bright, successful people upside down. They ve seen financial devastation in their friends families and perhaps even in their own. What can they do to increase their children s and grandchildren s financial security? They can create a financial safety net that may be able to help out any family member who needs temporary financial assistance. A family safety net can be structured as a MG ILIT that owns life insurance on either or both grandparents. The death benefits are paid to the ILIT income, estate and GST tax free. The trustee can be directed to pay out funds to children or grandchildren as needed for their health, education, support or maintenance. Benefits can be limited to a period of time (e.g. three years) or to a maximum amount. Such limits can prevent one branch of the family or one family member from receiving a disproportionate share of the trust. Example: Jane Wilson wants to create a family safety net to protect her children and grandchildren. She sets up an ILIT. The trustee purchases a $1,000,000 policy on her life. She gifts the annual $20,000 premium to the ILIT each year and allocates part of her GST exemption to each gift. At her death $1,000,000 will be delivered to the trustee income, estate and GST tax free. The trustee will be able to distribute the $1,000,000 as needed over time to her children and grandchildren for their health, education, support and maintenance. The hypothetical investment results are for illustrative purposes only and should not be deemed a representation of past performance or future results. This example does not represent any specific product, nor does it reflect sales charges or other expenses that may be required for some investments. 10 For agent use only. Not for public distribution.

11 2. The Family Education Fund - Many well-to-do grandparents believe that in today s world education brings the best hope for financial security. They may believe it is very important for their children and grandchildren to have college degrees and perhaps even graduate degrees. They also know that the cost of college and graduate school is high and rising annually. They may want to create a fund that will last for many years after they are gone to help grandchildren who are interested in obtaining additional education. How can they build an education fund for their grandchildren and great grandchildren? They can create a MG ILIT that will purchase a life insurance policy on either or both of their lives. They will make gifts to the ILIT that will qualify for the gift tax annual exclusion and the trustee will use those gifts to pay the policy premiums. They will allocate part of their GST exemptions to each gift. At the death of the last insured grandparent, the trustee will receive the death benefits income, estate and GST tax free. The trustee will use them as directed in the trust to pay all or part of grandchild s qualifying education expenses or reimburse the grandchild or his parents for any qualified expenses they have been paid. The ILIT can have a maximum benefit limit per grandchild or a maximum dollar limit for each branch of the family. 3. The Standby MG Trust - Some grandparents are anxious to help children and grandchildren with financial security, but may not feel they can afford to make any substantial gifts. They fear they may need the money themselves some day. They may be willing to purchase life insurance if they don t have to put it away in a trust where they can t get at it. They want the flexibility to change their minds if they decide they need the money for themselves. The Standby Trust strategy may work perfectly for grandparents in this situation. This is a strategy for the personal ownership of a life insurance policy that can provide both personal and estate planning benefits. It requires two people (usually spouses) to implement. The strategy has four steps: 1. The spouse most likely to die first (the oldest or least healthy) is the owner and beneficiary of a single life policy insuring the other spouse or a second to die policy insuring them both. This spouse pays the premiums out of personal funds. As the policy owner, he/she can access policy values as needed. 2. The policy owner creates a trust to serve as the policy s owner after his/her death. This trust is designated as the contingent owner of the policy. It stands by to receive the policy when the owner dies. This trust can be created while the owner is alive or it can be created in his/her will. The unified credit shelter trusts that many clients have in their wills can be used. 3. If the policy owner dies first, the standby trust becomes the policy owner and beneficiary. 4. When the surviving spouse dies, the death benefits are paid to the standby trust free of income and estate taxes. This strategy gives the policy owner access to all policy values for as long as he/she lives. Since he/she owns the policy, no gifts are made. At death, the policy s cash values are included in his/her taxable estate; however, the policy death benefits are not because the last insured hasn t died. Grandchildren can benefit from the policy if they are named as beneficiaries of the standby trust. Distributions from the trust to grandchildren can be GST tax free if the owner s GST exemption is allocated to the policy cash values at the time of death. If this is done, the entire death benefit should be GST tax free. For agent use only. Not for public distribution. 11

12 Example: Ann and Don Lehman want to create a fund to benefit their children and grandchildren, but they aren t willing to make any gifts. They fear that some future accident or illness might force them to use all their assets. They like the strategy because they don t have to make any gifts or even tell their family that they have created this arrangement. Don purchases a $500,000 second to die policy insuring both he and Ann. He pays the $14,000 annual premium and uses cash values as he desires for the remainder of his life. At his death the policy passes to his standby trust (actually, he will use the credit shelter trust that is already part of his will) as the contingent owner. His executor allocates GST exemption in the amount of the policy s cash values at the time of his death. Ann is a discretionary beneficiary of this trust and is not the trustee. At her death the trustee receives the $500,000 in death benefits income, estate and GST tax free. Benefits are paid out to the children as needed for health, education, support and maintenance. At their deaths, the remaining trust assets are divided among the grandchildren. The hypothetical investment results are for illustrative purposes only and should not be deemed a representation of past performance or future results. This example does not represent any specific product, nor does it reflect sales charges or other expenses that may be required for some investments. 4. Passing On the GST Exemption at a Discount - The GST exemption is $5,250,000 in Some well-to-do grandparents may be willing to create a fund for their grandchildren, but they may not be able to transfer this much money. Instead, show them how they can transfer $5,250,000 at a discount. Explain to them how the death benefits from a life insurance policy in a MG trust can provide the full $5,250,000. However, rather than transferring this sum into the trust, only the policy premiums need to be contributed. These policy premiums will likely total substantially less than the GST exemption amount. That s the discount. 12 For agent use only. Not for public distribution.

13 Special Situation Sales Opportunities Disabled Child or Grandchild Some grandparents may have children or grandchildren with physical or mental disabilities that will make it very difficult for them. These grandparents see their children s families struggling with the financial and emotional aspects of the disability and may want to help. They can provide short-term assistance with gifts and loans, but they are afraid of what will happen to the family financially in the long term after they (the grandparents) have passed on. They may be open to seeing how life insurance on their lives can provide an income and estate tax free sum of money that will add stability to their children s finances. Example: Bill Baker s son s teenage child Andy was badly hurt in an auto accident. Andy has brain damage and likely won t be able to hold any long-term employment at a level other than a day laborer or custodian. Andy lives at home and needs ongoing medical assistance. Bill sets up a trust in his will for Andy. He takes out a $500,000 policy on his own life and names the trust as beneficiary. The trust is designed as a special needs trust. That means it is structured so that it can supplement any benefits Andy gets from governmental programs (e.g. Medicare and medical assistance) without reducing any of the benefits available under those programs. The trustee will have the ability to use the funds to make Andy s life better and to give his parents the opportunity to save some money for themselves and enjoy their own lives without having to pour all their financial resources into Andy s care. The trust can be written broadly so it may also provide benefits to other family members who may become disabled later. The hypothetical investment results are for illustrative purposes only and should not be deemed a representation of past performance or future results. This example does not represent any specific product, nor does it reflect sales charges or other expenses that may be required for some investments. Parents with disabled/challenged children often insure themselves as a means to provide funds for the child to live on after they are gone. But while this financial assistance may help the disabled child, it may come too late to benefit the parents. If a grandparent is insured, death benefits will likely be delivered sooner. The family s financial picture can change well before the parent s death and the parents may receive some extra financial security while they are alive. Ask your grandparent clients if they have any grandchildren who suffer from long-term mental or physical disabilities. A valuable sales opportunity may result. Grandparents Raising Their Own Grandchildren As noted on page 3, there are a number of grandparents today who are responsible for raising their own grandchildren. When you encounter situations like this, you have located a good sales opportunity. It is common for parents to purchase life insurance to provide financial security for their spouses and children in the event the parent dies prematurely. Grandparents who have taken on the responsibility of taking care of their grandchildren should consider doing the same thing. These grandchildren need life insurance death benefits to have some degree of financial security in the event of the grandparent s death. Actually, when a grandparent is raising a grandchild, the life insurance need may be greater than in the normal family situation. The need may be greater because the odds of the grandparent dying on any given day are greater than the odds of the natural parent dying. Because the grandchild may not have any other potential financial support, the premature death of the grandparent could be devastating. Without life insurance on the grandparent, the grandchild may find him/herself all alone in the world with no financial resources. Grandparents who are raising their own grandchildren should consider owning life insurance. For agent use only. Not for public distribution. 13

14 Starting The Discussion What s the best way to start a conversation with grandparents that may lead to a life insurance sale? Once you have a general idea about the financial status of a prospect, you might want to ask some of these questions: Rockefellers Smiths How many grandchildren do you have? Tell me about them. Explore the relationships: How often do you see them? How old are they? Where do they live? How do you feel about them? Do/did you babysit them, go to games/activities? Do/did you teach them important skills (driving, reading, computers, etc.)? Do/did you travel with them or take them on vacations? Have you enjoyed the experience of being a grandparent? Why? Have you set up a trust for your grandchildren in your estate plan? Tell me about it. Has your attorney or CPA ever discussed a dynasty trust with you? Have your tax advisors told you how you can pass on some of your wealth so that it will be estate tax free for generations? Are you using your generation skipping tax exemption with your annual gifts? Tell me how. Has your attorney or CPA told you how much GST exemption you have left? Has he/she discussed different alternatives for making the most of your GST exemption? Are you supporting them or helping them out? How? Do you wish you could do more? How many grandchildren do you have? Tell me about them. Have you enjoyed the experience of being a grandparent? Why? Explore the relationships: How often do you see them? How old are they? Where do they live? How do you feel about them? Do/did you babysit them, go to games/activities? Do/did you teach them important skills (driving, reading, etc.)? Do/did you travel with them or take them on vacations? Are you worried about them? In what ways? What are your hopes for them? Are they workers or watchers? Are they good in school? Are they getting a good education? Do they need to go back to school to become qualified for better jobs? Are you supporting them in any way? Do you wish you could do more? 14 For agent use only. Not for public distribution.

15 Conclusion The Voya Life Companies have developed sales materials to help you explain the concept of multi-generation trusts to parents and grandparents. They can be found on our website at voyaprofessionals.com. If you have specific questions about multigeneration ILITS, standby trusts, special needs trusts, generation skipping sales ideas or Voya Life Companies insurance products, please call your Voya Life Companies representative or Voya Advanced Sales at , Option 4. For agent use only. Not for public distribution. 15

16 Log in to Voya for Professionals at voyaprofessionals.com These materials are not intended to and cannot be used to avoid tax penalties and they were prepared to support the promotion or marketing of the matters addressed in this document. Each taxpayer should seek advice from an independent tax advisor. The Voya Life Companies and their agents and representatives do not give tax or legal advice. This information is general in nature and not comprehensive, the applicable laws change frequently and the strategies suggested may not be suitable for everyone. Clients should seek advice from their tax and legal advisors regarding their individual situation. Life insurance products are issued by ReliaStar Life Insurance Company (Minneapolis, MN), ReliaStar Life Insurance Company of New York (Woodbury, NY) and Security Life of Denver Insurance Company (Denver, CO). Within the state of New York, only ReliaStar Life Insurance Company of New York is admitted and its products issued. All are members of the Voya family of companies. Not FDIC/NCUA Insured Not A Deposit Of A Bank Not Bank Guaranteed May Lose Value Not Insured By Any Federal Government Agency For agent use only. Not for public distribution Voya Services Company. All rights reserved. CN /01/2014 Voya.com