Client Profile: 66-year-old single uninsurable woman with a long-term care (LTC) concern and $2M of investable assets

Transcription

1 GFI Supplements LTC Client Profile: 66-year-old single uninsurable woman with a long-term care (LTC) concern and $2M of investable assets Client Goal: To provide a future income stream to cover a long-term care event The advisor came to AIS with a client who is uninsurable and is very concerned about paying for a possible LTC event in the future. AIS and the advisor determined the current cost of full-time care is $230/day in the client s area with a 5% increase assumption for the cost of care. In order to provide full-time care at age 85, $230 today would be equivalent to $580 in 19 years. AIS then helped the advisor solve for $580/day or $17,400 per month using a GFI contract. The total premium needed for a Life with Cash Refund option would be approximately $580k today for income starting at age 85. The client liquidates some of her portfolio to fund a GFI contract thereby giving up access and control to those assets. However, she has created a guaranteed lifetime income stream to provide coverage in the event of a long term stay in the future or an additional income stream starting at age 85. In the event the client dies prematurely during the deferral period, her heirs receive 100% of her premium. If the client dies during the distribution phase, her heirs receive 100% of the premium less withdrawals. Additionally, the client has taken the potential LTC cost out of her future planning equation and is free to invest her remaining investments as she pleases. Result: The advisor was thrilled with the strategy and is presenting to the client this week. Additionally, she has three more cases that are similar which could lead to another $1.5M in GFI sales. New York Life and its subsidiaries do not provide tax, legal or accounting advice, clients should consult with their own tax, legal or accounting professional regarding their specific situation. The case study may refer to the New York Life Guaranteed Lifetime Income Annuity II(GLI), New York Life Guaranteed Period Income Annuity II (GPI), or New York Life Guaranteed Future Income Annuity II (GFI) where applicable. GLI, GPI and GFI are issued by New York Life Insurance and Annuity Corporation (NYLIAC), A Delaware Corporation, a wholly-owned subsidiary of New York Life Insurance Company, 51 Madison Avenue, New York, NY Products and features may not be available in all jurisdictions. These products may be suitable for individuals who seek guaranteed income now or in the future and do not have any cash surrender value which may be a key difference between these products and if applicable, the competitor s accumulation product described in the case study. GLI and GFI contracts in which a Life Only payout option is selected do not

2 provide a death benefit either prior to, or after, the designated income start date. All guarantees are subject to contract terms, exclusions and limitations, and the claims-paying ability of NYLIAC. Additionally, the GFI contract does not permit withdrawals prior to the income start date. GLI and GFI guarantee income payments at least as long as the annuitant is living, provided the annuitant is alive on the designated income start date. Please refer to the respective product fact sheet for additional information (5/10/2013)

3 New York Life Lifetime Income Annuity (GLI) Leveraged to Maintain Current Tax Bracket Client Profile: 70-year old couple with a tax sensitive income need. They currently need an additional $32k in annual income, but are concerned this income would bump them into the 25% federal income tax bracket* Client Goal: To provide sufficient annual retirement income to maintain their lifestyle without increasing their income tax exposure. The clients have approximately $300k in qualified assets and $350k in non-qualified (NQ) investable assets plus a healthy cash reserve for opportunities or emergencies. AIS recommended that the clients fund a $350k joint NQ GLI contract, which would not only maximize the client s income compared to other guaranteed income strategies, but also minimize their tax exposure as the exclusion ratio** would limit the amount of reportable taxable income. o At the prevailing payout rate, GLI would provide roughly $25k per year with $18k tax free during their expected lifetime, once the exclusion amount is exhausted the entire payment will be taxable. The taxable portion of this additional income (during their expected lifetime) would not bump them into the 25% tax bracket. o AIS also recommended supplementing the client s income need with systematic withdrawals from their qualified assets. The clients give up access to the assets in their portfolio used to fund GLI. However, they have maximized their income without increasing their tax exposure. Result: The advisor was very impressed with our analysis and is currently scheduled to speak with the client when their 2011 taxes are completed. *Based on 2012 tax brackets, married filing jointly, $70,700 - $142,700 AGI = 25% bracket. ** The exclusion ratio represents the portion of each payment that is a return of the non qualified premium. New York Life and its subsidiaries do not provide tax, legal or accounting advice, clients should consult with their own tax, legal or accounting professional regarding their specific situation. The case study may refer to the New York Life Lifetime Income Annuity (GLI), New York Life Fixed Period Annuity (FPA), or New York Life Guaranteed Future Income Annuity II (GFI) where applicable. GLI, FPA and GFI are issued by New York Life Insurance and Annuity Corporation (NYLIAC), A Delaware Corporation, a wholly-owned subsidiary of New York Life Insurance Company, 51 Madison Avenue, New York, NY Products and features may not be available in all jurisdictions. These products may be suitable for individuals who seek guaranteed income now or in the future and do not have any cash surrender value which may be a key difference between these products and if applicable, the competitor s accumulation product described in the case study. GLI and GFI contracts in which a Life Only payout option is selected do not provide a death benefit either prior to, or after, the designated income start date. All guarantees are subject to contract terms, exclusions and limitations, and the claims-paying ability of NYLIAC. Additionally, the GFI contract does not permit withdrawals prior to the income start date. GLI and GFI guarantee income payments at least as long as the annuitant is living, provided the annuitant is alive on the designated income start date. Please refer to the respective product fact sheet for additional information (5/7/12)

4 GFI Helps Fund Legacy and Provides Additional Income for Retirement Client Profile: 67 year old male, 62 year old female, with $3M investable assets and currently retired. Client Goal: To securely fund their life insurance policy inside an Irrevocable Life Insurance Trust (ILIT) while reducing the taxable estate value and providing a legacy for their children using assets from an existing IRA. They also wanted to maximize the income potential of the husband s IRA assets subject to RMDs beginning in 3 years. The clients were looking for the most efficient means to fund a permanent life insurance policy with $48k in annual premiums. AIS suggested the following strategy: - Place $700K from the husband s IRA into a Guaranteed Future Income Annuity (GFI) with a 3 year deferral (to coincide with the start of RMDs at age 70 ½). The clients are able to fund the insurance policy in the first three years with other assets. o At the prevailing payout rate, a GFI with Life with Cash Refund generates $53k annually in lifetime income starting in 3 years, which is more than enough to fund the ILIT. The lifetime income payments include interest and return of premium, plus provide the additional income they were seeking. This income will also satisfy RMDs for this asset. - A Required Yield analysis was produced, confirming that an alternative investment would need to grow at an annualized 7.49% during the GFI 3 year deferral period to accumulate enough money to purchase GLI in 3 years, matching the future income of GFI purchased today. - Purchase additional life insurance on the lives of their children o Allows for an extension of legacy at a lower cost than increasing the face value of their existing policy. o Also allows the couple s children to establish their own legacy for their future heirs. - Consider Mainstay funds or New York Life deferred annuities to manage the remaining investable asset of $2.3M, depending on the clients risk tolerance. By using an income annuity to fund life insurance, the clients lose access to the funds in the annuity contract. The clients benefit from the convenience and peace of mind that comes with a guaranteed lifetime income to fund their insurance premiums. Result: The rep and clients recognized that a guaranteed 7.49% annualized return during the next 3 years is unlikely given the current market environment. This addressed their concern about transferring the entire $700K balance. They also requested additional analysis on RMDs to ensure that GFI would meet IRS requirements. The case closed with a $700k GFI ticket. New York Life and its subsidiaries do not provide tax, legal or accounting advice, clients should consult with their own tax, legal or accounting professional regarding their specific situation. The case study may refer to the New York Life Lifetime Income Annuity (GLI), New York Life Fixed Period Annuity (FPA), or New York Life Guaranteed Future Income Annuity II (GFI) where applicable. GLI, FPA and GFI are issued by New York Life Insurance and Annuity Corporation (NYLIAC), A Delaware Corporation, a wholly-owned subsidiary of New York Life Insurance Company, 51

5 Madison Avenue, New York, NY Products and features may not be available in all jurisdictions. These products may be suitable for individuals who seek guaranteed income now or in the future and do not have any cash surrender value which may be a key difference between these products and if applicable, the competitor s accumulation product described in the case study. GLI and GFI contracts in which a Life Only payout option is selected do not provide a death benefit either prior to, or after, the designated income start date. All guarantees are subject to contract terms, exclusions and limitations, and the claims-paying ability of NYLIAC. Additionally, the GFI contract does not permit withdrawals prior to the income start date. GLI and GFI guarantee income payments at least as long as the annuitant is living, provided the annuitant is alive on the designated income start date. Please refer to the respective product fact sheet for additional information (5/7/12)

6 Fixed Period Annuity (FPA) Helps Fund a Life Insurance and Estate Tax Reduction Strategy Client Profile: A 72 year old male and 71 year old female couple wants to help minimize estate tax liability for their heirs by leveraging their life insurance policy, a $700k single owned permanent life insurance policy with a current cash value of $300k. The clients are retired, have adequate income, a decreased need for death benefit protection, and don t currently have any other planning needs. Client Goal: Minimize Future Estate Taxes and Maximize Legacy Option 1: Transfer ownership of their existing life insurance policy to an Irrevocable Life Insurance Trust (ILIT), which removes the policy from the estate. Option 2: Execute a 1035 exchange and transfer the current cash value of the existing life insurance policy into a single premium income annuity (SPIA) to fund a new second-to-die (V2D) permanent joint policy owned by an ILIT. Option 3: Execute a 1035 exchange and transfer the current cash value of the existing life insurance into a Fixed Period Annuity (FPA) with a benefit period that matches the premium period on the V2D policy owned by an ILIT. Ex: If the policy was structured as a 10-pay, the FPA would be a 10 year payout. As our SPIA/FPA payouts were compared to those of our competitors, AIS also ran a financial strength comparison and highlighted the pros/cons of each. Once the 1035 exchange from the existing life insurance policy to FPA/SPIA is completed, the client will lose access to the life insurance cash value and will only receive income payments. However, since the client does not need liquidity, this is not a major concern. If the current life insurance policy was simply transferred to the ILIT, it would pay on the first death which is not an optimal estate tax strategy. Result: Since we were the first to bring this idea to the advisor with competitive rates, the advisor presented our FPA solution (Option 3) to the client. The advisor did not advise the client to transfer ownership of their existing life insurance policy to the trust as that is not an optimal estate tax strategy. The advisor also chose not to use the SPIA strategy (Option 2) as the FPA solution could more effectively leverage the current cash value to obtain a higher face amount of V2D insurance, which helps maximize their legacy. New York Life and its subsidiaries do not provide tax, legal or accounting advice, clients should consult with their own tax, legal or accounting professional regarding their specific situation. The case study may refer to the New York Life Lifetime Income Annuity (GLI), New York Life Fixed Period Annuity (FPA), or New York Life Guaranteed Future Income Annuity II (GFI) where applicable. GLI, FPA and GFI are issued by New York Life Insurance

7 and Annuity Corporation (NYLIAC), A Delaware Corporation, a wholly-owned subsidiary of New York Life Insurance Company, 51 Madison Avenue, New York, NY Products and features may not be available in all jurisdictions. These products may be suitable for individuals who seek guaranteed income now or in the future and do not have any cash surrender value which may be a key difference between these products and if applicable, the competitor s accumulation product described in the case study. GLI and GFI contracts in which a Life Only payout option is selected do not provide a death benefit either prior to, or after, the designated income start date. All guarantees are subject to contract terms, exclusions and limitations, and the claims-paying ability of NYLIAC. Additionally, the GFI contract does not permit withdrawals prior to the income start date. GLI and GFI guarantee income payments at least as long as the annuitant is living, provided the annuitant is alive on the designated income start date. Please refer to the respective product fact sheet for additional information (5/7/12)

8 Generous Grandparent and GFI Client Profile: 75-year-old woman with a $500k fixed annuity with a low cost basis. She has no income need and a legacy desire. Client Goal: Maximize legacy for her grandchildren that begins when they reach age 65 and they cannot outlive nor readily access until age 65 Option 1: Use the $500k to fund a single premium life insurance policy with her grandchildren as beneficiaries. Option 2: Use a 1035 exchange from the $500k annuity to fund a 10 year FPA policy and direct the proceeds to fund a 10-pay life insurance policy with her grandchildren as beneficiaries. Option 3: Use the $500k to fund a GLI policy and divert the proceeds to fund individual GFI contracts for her grandchildren with identical income streams beginning at age 65 for each child. Note, the $500k from the fixed annuity could not be 1035 exchanged into the GFI policies because the owner and annuitant of the GFI policies are different than the fixed deferred annuity. In addition, GLI would provide the longest income stream to fund the GFI contract on a recurring basis and a higher payout than FPA. Option 1: The client liquidates her fixed annuity and buys a life insurance contract, giving up some access to those assets and pays taxes on her gains up front. However, she has turned a potential taxable legacy into one that is tax free for her heirs. Option 2: The client loses access to her funds, but guarantees the life insurance policy would be paid in full over time instead of paid up front and spreads the tax liability over 10 years. In the event she dies prematurely, the children would receive the life insurance proceeds in addition the remaining payments of the FPA. Option 3: The client loses access to her funds with GLI. However, by purchasing GLI, she spreads her tax liability over her lifetime and funds her grandchildren s GFI contracts. In the event she dies prematurely, her grandchildren receive the balance of the contract in a lump sum. (Payout option quoted was Life with Cash Refund. At death, the beneficiaries receive the premium less withdrawals.) Result: Initially, the advisor liked the insurance concepts, however, given the client s advanced age, the advisor felt the client would be uninsurable or offered a substandard policy with higher premiums. The advisor then chose to use the $500k to fund GLI and is in the process of initiating the GFI contracts with Cash Refund option. New York Life and its subsidiaries do not provide tax, legal or accounting advice, clients should consult with their own tax, legal or accounting professional regarding their specific situation.

9 The case study may refer to the New York Life Lifetime Income Annuity (GLI), New York Life Fixed Period Annuity (FPA), or New York Life Guaranteed Future Income Annuity II (GFI) where applicable. GLI, FPA and GFI are issued by New York Life Insurance and Annuity Corporation (NYLIAC), A Delaware Corporation, a wholly-owned subsidiary of New York Life Insurance Company, 51 Madison Avenue, New York, NY Products and features may not be available in all jurisdictions. These products may be suitable for individuals who seek guaranteed income now or in the future and do not have any cash surrender value which may be a key difference between these products and if applicable, the competitor s accumulation product described in the case study. GLI and GFI contracts in which a Life Only payout option is selected do not provide a death benefit either prior to, or after, the designated income start date. All guarantees are subject to contract terms, exclusions and limitations, and the claims-paying ability of NYLIAC. Additionally, the GFI contract does not permit withdrawals prior to the income start date. GLI and GFI guarantee income payments at least as long as the annuitant is living, provided the annuitant is alive on the designated income start date. Please refer to the respective product fact sheet for additional information (07/08/2012)

10 GFI and GLI to Meet Legacy and Retirement Goals Client Profile: The client is a 64 year-old financial advisor and is selling his business. He wants to use the proceeds from the sale of the business to create an income stream for himself and a legacy for his grandchildren. Client Goal: Fund a future retirement income stream as well as a legacy for his six grandchildren. The client would prefer an option that limits the grandchildren s access to the money and ensures that they will not outlive it. Option 1: AIS recommended that the client solve for his basic expenses in retirement with GLI. Option 2: AIS also recommended that the client establish and fund six individual UTMA (Uniform Transfers to Minors Act) accounts for his grandchildren, with the parents of each child as custodians. The client would buy a GFI contract for each grandchild with the funds from the UTMA account and name the grandchild as owner, annuitant, and payee. AIS recommended that the custodians (parents) initially structure the contract to start income at a specific age and then, if necessary, the custodians can change the start date to a later age before the minor reaches the age of majority (because the flexible income start date feature can only be exercised once, with certain limitations and restrictions). Option 1: The client loses access to his dollars by purchasing income annuities, but in return has a guaranteed lifetime income stream to cover his basic expenses and establishes a legacy for each grandchild. Option 2: Since the grandchild is the owner and the parents are custodians, they avoid the cost and potential tax complications of establishing and maintaining a trust with GFI. Result: The advisor liked the unique ideas and is completing the valuation of his business before he sells. He intends to implement both options presented once the transaction is complete. New York Life and its subsidiaries do not provide tax, legal or accounting advice, clients should consult with their own tax, legal or accounting professional regarding their specific situation. The case The case study may refer to the New York Life Lifetime Income Annuity (GLI), New York Life Fixed Period Annuity (FPA), or New York Life Guaranteed Future Income Annuity II (GFI) where applicable. GLI, FPA and GFI are issued by New York Life Insurance and Annuity Corporation (NYLIAC), A Delaware Corporation, a wholly-owned subsidiary of New York Life Insurance Company, 51 Madison Avenue, New York, NY Products and features may not be available in all jurisdictions. These products may be suitable for individuals who seek guaranteed income now or in the future and do not have any cash surrender value which may be a key difference between these products and if applicable, the competitor s accumulation product described in the case study. GLI and GFI contracts in which a Life Only payout option is selected do not provide a death benefit either prior to, or after, the designated income start date. All guarantees are subject to contract terms, exclusions and limitations, and the claims-paying ability of NYLIAC. Additionally, the GFI contract does not permit withdrawals prior to the income start date. GLI and GFI guarantee income payments at least as long as the annuitant is living, provided the annuitant is alive on the designated income start date. Please refer to the respective product fact sheet for additional information (7/08/12)