Client Profile. Platinum Financial

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1 Client Profile CA Mr. Smith is 62 and Mrs. Smith is 61 Their annual income is $300,000 Their total net worth is $5 M which includes $1 M of IRA and some rental properties and brokerage account They have 3 children and 2 grandchildren 1

2 Typical Scenario Smiths did estate planning with Living Trust Smiths used Unified Credit of $1M each Smiths take RMD at age 70.5 and pay tax on the RMD income and reinvest the money in CD or Money Market and pay tax again along the way At death, the estate consists of $5M including growth of CD/ Money market account back to $1M Smiths estate pays 55% estate tax on $3M equals $1.65M 2

3 Popular Charitable Plan Smiths establish CRT with $1M of assets Smiths receive a tax deduction of $300,000 usable over total of 6 of AGI Smiths also receive annual income from of the donation equals approximately $50,000 per year for 20 years Total income tax saving over 4 years of $ 120,000*(@ 40% Combined Tax) They now gift tax savings per year to purchase $1.50 M of second to die life insurance in ILIT They also have $10,000 of more spendable income for 20 years They replaced an estate taxable asset with $1.50 M of cash outside the estate to heirs They lowered their estate tax of 55% and saved $550,000 of estate tax * Tax savings is higher in states with state income tax 3

4 Advanced Charitable Planning Smiths gift same asset to a Private Foundation instead of to a CRT Smiths donates $1M of asset to their own Private Foundation and receive a tax deduction of $1M Smiths will of their AGI which is $90,000 per year for 6 years Smiths will save $216,000 in income tax over 6 years* They will repeat above in year seven with same amount of contribution to Private Foundation Smiths will buy $3M of second to die life insurance in ILIT using $432,000 of tax savings over the 12 year period Smiths will lower their estate by $1 M saving $550,000 estate tax 4

5 Advanced Planning with IRA Rollout Platinum Financial Smiths will donate initially $780,000 to their Private Foundation Smiths will roll out $130,000 of IRA and will increase their AGI to $430,000 Smiths will get 30% of $430,000 towards tax deduction for donation to PF Smiths will roll out $780,000 of IRA in 6 years with no tax consequence Smiths will donate $220,000 in year 7 to their Private Foundation Smiths will roll out $220,000 of IRA in 2 years with no tax consequence Smiths will invest non-ira money of $500,000 in a non-qualified annuity ($65,000 per year over 6 years plus $55,000 per year for 2 years (7 & 8) Smiths will buy a second to die life insurance policy of $5M with annual premium of $65,000 for 6 years then $55,000 for two years (7 & 8) Smiths will accumulate $2,700,000 in non-qualified annuity in 30 years Smiths will save estate tax on $1M which equals $550,000 5

6 Affluent Market Client Mr. Jones is 62 and Mrs. Jones is 61 Jones have annual income of $500,000 Jones current net worth is $15 M to $20M includes IRA, rental properties and brokerage accounts Jones are concerned about planning for future growth of estate to $30M Jones have an IRA of $1M Jones have 3 children and 2 grand-children Mr. Jones is an entrepreneur and earns high returns on his investment or in his business Jones have done typical estate planning 6

7 Advanced Planning for Affluent Client Jones set up their Private Foundation Jones will donate $1M of their asset to the private foundation Jones will roll out $200,000 of IRA over 5 years without any tax liability Jones will receive tax deduction of $200,000 for 5 of AGI Jones will invest $150,000 in a non-qualified annuity for 5 years Jones will buy second to die life insurance of $7M using $50,000 for 5 years and $75,000 per year for 10 years out of withdrawals from nonqualified annuity Jones will reduce the estate by $1M and save $550,000 of estate tax Jones will have $1M of asset in private foundation which is growing Jones will have $7M in ILIT to help pay estate taxes Jones will have $ 1.78 M in non-qualified annuity at the end of 30 years 7

8 Advanced Planning for Affluent Client Using Leveraging Jones concern of future growth of estate to $30M need help in their ability to pay future estate tax Future estate tax could be $15M Jones are also worried about increasing tax rates in future Jones do not like the future possibility of paying higher income tax and or capital gains tax on assets to set aside enough to pay future estate tax Even using the advanced planning as shown in previous slide with $7M of insurance in ILIT, they will fall short of estate tax liability Solution for Jones -- Premium financed life insurance of higher face value 8

9 Premium Financing for Affluent Market Jones will invest one time $112,000 from their CD or Money Market account into non-qualified annuity Jones will invest $200,000 from IRA roll out in year 1 and $122,000 from year 2 thru year 5 into non-qualified annuity Jones will buy second to die life insurance of $15M with a financing arrangement where they pay only interest for 19 years of $78,000 per year Typically, Jones would have paid $175,000 per year forever to buy $15M policy Jones will pay $78,000 of interest per year for 4 years out of tax-free withdrawals of IRA and then penalty-free withdrawals from nonqualified annuity for 15 years Jones being entrepreneur would like to invest the difference between the annual insurance premium and interest only into the investment of their choice to earn higher return of 5% net per year Jones still have $ 1.35 M remaining in Non-Qualified Reproduction Without annuity Permission in 30 years. 9