Code Section 79 Group Term Life Insurance Permanent Benefit Plan

Transcription

1 Code Section 79 Group Term Life Insurance Permanent Benefit Plan PRESENTED BY: Douglas L. Dombey, President Southwest Financial Group, Inc E. Northern Avenue, Suite D-103 Phoenix, Arizona 85028

2 A master Contract and / or A Group of Individual Life Insurance Policies Comprised of ten or more full time employees and / or cover all full time employees

3 Premium for the personally owned Section 79 policy is 100% deductible to the corporation Employees must pay tax on the Economic Benefit of the death benefit above $50,000 based on Table 2-2 rates Employees must pay taxes on the Permanent Cost of the policy as determined by the Deemed Death Benefit Formula (Treas. Reg ((D)(2)(D)(3)) All permanent cost calculations are based on the Safe Harbor Fair Market Valuation provided in Revenue Procedure

4 SUMMARY OF BENEFITS ATTRIBUTES AND BENEFITS OF A SECTION 79 PLAN¹ * Deductible To Corporation * Reduced Taxable Income To Participant * Tax-Deferred Growth * Tax-Free Life Insurance Policy Distributions for Supplemental Retirement Income⁵ * In Some States It Is An Asset Protected Vehicle² Pacific Indexed Performer LT³ ⁴Mr. Client, Age 45, $2,105,000 Death Benefit, $100,000 Annual Contribution For 5 Years Annual Deductible Contribution W-2 to Net Cost in 40% Year Funding By Corporation Executive Tax Bracket 1 100, ,000 62,829 25, , ,000 62,039 24, , ,000 64,969 25, , ,000 66,319 26, , ,000 67,799 27, , , ,582 Annual Income Tax-Free Retirement Distribution⁵ 103,925 Annual Taxable Equivalent* 173,208 (Age 65-84) 20 X Years Total 20-Years Tax-Free Retirement Distributions⁵ 2,078,500 Total 20-Years Taxable Equivalent 3,464,167 *Taxable equivalent from a Qualified Plan in a 40% Tax Bracket Disclosures on Slides 15 & 16 of 17

5 Section 79 Program¹ Take the Money and Invest It Year Age Expendable Income Deductible Corporate Premium Executive Taxable Income Executive After Tax Outlay¹ Life Insurance Accumulation 7.50% Section 79 Life Insurance Expenses Annual Bonus Tax Due on Bonus After Tax Income Executive After Tax Outlay for Section 79 Plan After Tax Amt available for investment in Outside Acct Investment 10.24% Gross* minus Taxes and Fees² Mgmt Fee 1% of acct balance Tax 30% of earnings , ,000 62,829 25,132 60,854 42, ,000 40,000 60,000 25,132 85,132 90, , , ,000 62,039 24, ,734 38, ,000 40,000 60,000 24,816 84, ,003 1,752 5, , ,000 64,969 25, ,449 33, ,000 40,000 60,000 25,988 85, ,765 2,720 8, , ,000 66,319 26, ,474 29, ,000 40,000 60,000 26,528 86, ,439 3,753 11, , ,000 67,799 27, ,973 26, ,000 40,000 60,000 27,120 87, ,505 4,856 14, ,466 18, ,298 5,155 15, ,426 16, ,053 5,473 16, ,708 12, ,889 5,811 17, ,469 10, ,935 6,169 18, ,887 10, ,327 6,549 20, , ,211 6,953 21, , ,740 7,382 22, , ,077 7,837 24, , ,394 8,321 25, , ,877 8,834 27, , ,720 9,379 28, , ,057,131 9,957 30, , ,122,328 10,571 32, ,018,432 1, ,191,547 11,223 34, ,101,719 1, ,265,035 11,915 36, (103,925) 1,083,227 1, (103,925) 1,232,721 11,611 35, (103,925) 1,063,116 1, (103,925) 1,198,414 11,288 34, (103,925) 1,041,254 1, (103,925) 1,161,991 10,945 33, (103,925) 1,017,502 1, (103,925) 1,123,321 10,581 32, (103,925) 991,705 1, (103,925) 1,082,267 10,194 31, (103,925) 956,155 1, (103,925) 1,038,680 9,783 30, (103,925) 917,903 1, (103,925) 992,406 9,348 28, (103,925) 876,801 1, (103,925) 943,277 8,885 27, (103,925) 832,699 1, (103,925) 891,119 8,394 25, (103,925) 785,454 1, (103,925) 835,743 7,872 24, (103,925) 734,927 1, (103,925) 776,953 7,318 22, (103,925) 680,424 1, (103,925) 714,536 6,730 20, (103,925) 621,621 1, (103,925) 648,270 6,106 18, (103,925) 558,169 1, (103,925) 577,917 5,443 16, (103,925) 489,702 2, (103,925) 503,225 4,740 14, (103,925) 415,805 2, (103,925) 423,927 3,993 12, (103,925) 336,033 2, (103,925) 339,738 3,200 9, (103,925) 249,907 3, (103,925) 250,356 2,358 7, (103,925) 156,908 3, (103,925) 155,463 1,464 4, (103,925) 56,472 3, (103,925) 54, ,583 Case studies are for illustrative purposes only. Individual results may vary. Disclosures on Slide 6 of 17

6 Year Age Program Expenses Section 79¹ Outside Investments² Comparison Disclosures: Tax Due on Funding Management Fee Tax Expense Tax Due on Funding ,785 25, ,615 40, ,121 24,816 1,752 5,382 40, ,285 25,988 2,720 8,355 40, ,975 26,528 3,753 11,528 40, ,502 27,120 4,856 14,915 40, ,772-5,155 15, ,814-5,473 16, ,845-5,811 17, ,985-6,169 18, ,875-6,549 20, ,953 21, ,382 22, ,837 24, ,321 25, ,834 27, ,379 28, ,957 30, ,571 32, ,070-11,223 34, ,192-11,915 36, ,281-11,611 35, ,362-11,288 34, ,439-10,945 33, ,512-10,581 32, ,582-10,194 31, ,711-9,783 30, ,745-9,348 28, ,728-8,885 27, ,648-8,394 25, ,490-7,872 24, ,238-7,318 22, ,418-6,730 20,674-1 This example is based on the purchase of a Pacific Life Insurance Company's Pacific Indexed Performer LT ((Form #P11PIP / ICC11 P11PIP) form number based on product and state in which policy is issued), Indexed Universal life insurance product with 100% of the accumulated value allocated to the Fixed indexed account in year 1, then 100% reallocated to the High Par 5 Year indexed account from years 2-5, and lastly 100% reallocated to the 1 Year High Par years 6+. An annual premium of $100,000 for 5 years and a $2,105,000 death benefit for a Male age 45 in the Preferred Non-Smoker underwriting class with an assumed crediting rate of 4.90% (guaranteed rate 2%) in year 1, 7.50% (guaranteed rate 0%) in years 2-5, and 7.50% (guaranteed rate 0%) in years 6+. Death Benefit Option B years 1-5, Option A years 6+. Policy distributions start at insured age 65 and continue to age The Outside Investment assumes total fees of 1% and a 30% long term / short term capital gain tax rate. Over time, the policy's actual non-guaranteed elements, and perhaps your actual use of the policy's options, are likely to vary from the assumptions used in the illustration. For these reasons, actual policy performance will either be more or less favorable than shown in this illustration. Please refer to the Basic illustration for guaranteed values and other important information. Pacific Life Insurance Company is licensed to issue insurance products in all states except New York. Product availability and features may vary by state. Insurance products and their guarantees, including optional benefits and any fixed subaccount crediting rates, are backed by the financial strength and claims-paying ability of the issuing insurance company. Look to the strength of the life insurance company with regard to such guarantees as these guarantees are not backed by the broker-dealer, insurance agency or their affiliates from which products are purchased. Neither these entities nor their representatives make any representation or assurance regarding the claims-paying ability of the life insurance company. Pacific Life Insurance Company's Home Office is located in Newport Beach, CA. Indexed universal life insurance products do not directly participate in any stock or equity investment. Indexed universal life insurance generally requires additional premium payments after initial premium. If either no premiums are paid, or subsequent premiums are insufficient to continue coverage, it is possible that coverage will expire. Non-guaranteed elements are not guaranteed by definition. As such, Pacific Life Insurance Company reserves the right to change or modify any non-guaranteed element. This right to change non-guaranteed elements is not limited to a specific time or reason. Southwest Financial Group, Inc. is a Third Party Administrator and is not an affiliated company of Pacific Life Insurance Company ,622-6,106 18,756 - Outside Section 79¹ ,852-5,443 16,721 - Investments² This material is not intended to be used, nor can it be used by any taxpayer, for the purpose of avoiding U.S. federal, state or local tax ,097-4,740 14,560 - Total Total penalties. This material is written to support promotion or marketing of the ,381 - Expenses 3,993 12,266 - Expenses transaction(s) or matter(s) addressed by this material. Pacific Life , ,937 3,200 9,830-1,324,744 Insurance Company, its distributors and their respective representatives , yr annual 2,358 7, yr annual do not provide tax, accounting or legal advise. Any taxpayer should seek ,455 - average 1,464 4,498 - average advice based on the taxpayer's particular circumstances from an ,900-10, ,583-33,119 independent tax advisor. Sub Total(s): 287, , , , ,000

7 SECTION 79 REGULATION REQUIREMENTS FOR GROUPS OF 10 + FULL TIME EMPLOYEES Must cover at least 10 employees Group must be comprised of 85% non-key employees or cover 70% of all full time employees Death benefit must be based on a formula that precludes individual selection and on something related to employment years of service, income, job description, location, etc. All life insurance applications are fully underwritten Can have up to 3 year waiting period for eligibility Case studies are for illustrative purposes only. Individual results may vary.

8 SECTION 79 REGULATION REQUIREMENTS FOR GROUPS OF LESS THAN 10 FULL TIME EMPLOYEES Coverage must be offered to all full time employees with 6 months or more of service; and coverage must be provided as a multiple of income or a flat death benefit amount All underwriting is based on a non-medical questionnaire only. Pacific Life Insurance Company can issue up to $2,750,000 of death benefit for Doctors and Dentists through age 60, up to $2,250,000 for all other occupations through age 60, and $1,250,000 for ages 61-65, for Section 79 only, on a non-medical questionnaire only. All non-medical underwriting policies will be issued as standard with a small non commissionable flat extra to age 65.

9 Employee Age Annual Salary Maximum Death Benefit In Addition to $50k Group Term All full-time employees, between 21 & 65, with 6 months of service are eligible to receive a death benefit of 10x their annual income in addition to $50,000 of coverage provided through a group term policy. Full Permanent Insurance Corporate Premium Total Employee W-2 Taxable Income Full Term Insurance Corporate Premium Table 2-2 $50,000 Group Term Corporate Premium Mr. Client 45 $210,500 $2,105,000 $100,000 $62,829 $4,785 $3,789 $120 Dennis 30 $59,000 $590,000 $20,060 $13,606 $566 $567 $120 Shannon 35 $25,000 $250,000 $8,573 $5,842 $260 $270 $120 Ryan 40 $34,000 $340,000 $16,153 $10,908 $532 $408 $120 Amanda 45 $17,680 $176,800 $8,430 $5,798 $378 $319 $120 Sylvia 44 $21,000 $210,000 $9,698 $6,556 $411 $252 $120 Kirk 32 $20,000 $200,000 $7,268 $4,916 $246 $192 $120 Meaghan 49 $40,000 $400,000 $21,640 $14,786 $1,067 $720 $120 Ariel 23 $15,000 $150,000 $3,446 $2,330 $121 $90 $120 Curtis 54 $36,000 $360,000 $26,777 $18,399 $1,859 $994 $120 $222,044 $10,225 $1,200 Disclosures on Slide 17 of 17

10 DUE TO 2% BENEFIT LIMITATION RULES, THE CORPORATION MUST BE TAXED AS A C IF +2% OWNERS WISH TO PARTICIPATE TREAS. REG ; REV. RULE 91-26, (B) 184

11 ESTABLISHING A C CORPORATION WITH A PASS-THROUGH ENTITY Must have a legitimate business purpose: management services, sales, marketing, billing, collections, Asset Protection etc. Is subject to the Affiliated Service and Control Group Rules as defined in IRC Code Section 414 W2 compensation for key people must be received from the C corporation Section 79 Plan premium must be paid out of the C corporation Must provide coverage to at least 10 employees If less than 10 employees in all companies you must cover all employees

12 S Corporation Colorado Surgical Group Four Surgeons 20 employees Provides Staff Collections Administration 401(k) Other employee benefit plans The S- Corporation pays each Surgeon for services performed Each Surgeon has their own C Corporation Each Surgeons C Corporation is responsible for: Asset Protection Section 79 Plan Disability coverage Long Term Care 125 Plan And all allocated expenses The S Corporation and C Corps are a Controlled and Affiliated Service Group Employees of all Corporations are included in all Qualified and Employee Benefit Plans

13 Pre Sale Consultation Point of Sale Conference Calls Conference Calls with Advisors Plan Design Proposals Annual Taxable Income Report for CPA Enrollment of Employees Ongoing Administration, Including Annual Compliance Checks No Administration Fee

14 Douglas L. Dombey President Doug graduated from Arizona State University with a Bachelor of Science degree and has been in the financial field since Doug is a past Board Member of the United Way Volunteer Bureau; past President of the Christ Lutheran School Board; Past President of the Arizona Family Business Alliance; and Board member of the Steamboat Springs Winter Sports Club Foundation. Doug has been the featured speaker at a number of industry conventions and national meetings, to name a few: The National Glass Convention in Orlando Florida In Lausanne, Switzerland he spoke to Liberty Life Insurance Company s top sales people at their national convention regarding Succession Planning for the Family Owned Business A Featured speaker at the Arizona State Bar Association annual meeting, presenting The Dynamics of a Successful Family Business. The Pacific Life University has featured Mr. Dombey on several occasions presenting :The History, Structuring and Benefits of a Section 79 Permanent Benefit Plan ; as well at several Pacific Life Symposiums In addition to public speaking, Mr. Dombey taught at the Arizona State University Center for Executive Development on the uses of insurance in successful estate, succession and business planning. Rick A. Jaye Director of Sales, Eastern Rick@southwestfg.com Rick A. Jaye has been in the financial services industry for 27 years providing financial services to high Net Worth business owners through his affiliation with several national planning and investment advisory organizations. Mr. Jaye served as a Chief Financial Strategist for Advanced Equities, A national recognized broker dealer. Rick also serves on the Board of Directors of Doctors Bank, LLC, a bank holding company in Manhattan Beach, CA. Mr. Jaye earned an economics degree from the University of California, San Diego. Sharon Parrish Vice President of Operations x302 sharon@southwestfg.com Alexis Soto Sr. Case Manager x303 alexis@southwestfg.com Sara Turner Case Manager x300 sara@southwestfg.com Kyle Fouse Case Manager x307 kyle@southwestfg.com

15 DISCLOSURES FROM SLIDE 4, ¹ Tax-free income assumes, among other things; (1) withdrawals do not exceed tax basis (generally, premiums paid less prior withdrawals); (2) policy remains in force until death; (3) withdrawals taken during the first 15 policy years do not occur at the time of, or during the two years prior to, any reduction in benefits; and (4) the policy does not become a modified endowment contract. See IRC 7702(f)(7)(B), 7702A. And policy withdrawals, loans and interest will reduce policy values and may reduce benefits. ² State law may provide life insurance and annuities with certain asset protection benefits. As a general rule, a debtor may not transfer property with the intent to avoid debt due to his creditors. The laws governing asset protection, however, are complex and the consequences of poor planning may be both civil and criminal penalties. Anyone contemplating an asset protection plan should not undertake such without the advice of legal counsel. Pacific Life Insurance Company is licensed to issue insurance products in all states except New York. Product availability and features may vary by state. Insurance products and their guarantees, including optional benefits and any fixed subaccount crediting rates, are backed by the financial strength and claims-paying ability of the issuing insurance company. Look to the strength of the life insurance company with regard to such guarantees as these guarantees are not backed by the broker-dealer, insurance agency or their affiliates from which this product is purchased. Neither these entities nor their representatives make any representation or assurance regarding the claims-paying ability of the life insurance company. Pacific Life Insurance Company's Home Office is located in Newport Beach, CA. Southwest Financial Group, Inc. is a Third Party Administrator and is not an affiliated company of Pacific Life Insurance Company. Over time, the policy's actual non-guaranteed elements and perhaps your actual use of the policy's options, are likely to vary from the assumptions used in this illustration. For these reasons, actual policy performance will either be more or less favorable than shown in this illustration. Please refer to the Basic Illustration for guaranteed values and other important information. This material is not intended to be used, nor can it be used by any taxpayer, for the purpose of avoiding U.S. federal, state or local tax penalties. This material is written to support the promotion or marketing of the transaction(s) or matter(s) addressed by this material. Pacific Life, its distributors and their respective representatives do not provide tax, accounting or legal advice. Any taxpayer should seek advice based on the taxpayer s particular circumstances from an independent tax advisor.

16 DISCLOSURES FROM SLIDE 4, ¹Taxable income to participants in a Sec. 79 Permanent Benefit plan is comprised of two parts: (1) the life insurance benefit; and (2) the permanent benefit. Calculation of taxable income is not performed by Pacific Life, and is not a part of any sales material or illustration prepared by Pacific Life. Taxable income calculations are typically performed by independent third party administrators based on their understanding of the Sec. 79 regulations. Pacific Life makes no representation as to the appropriateness of these taxable income calculations. You should obtain whatever advice you deem necessary and appropriate form your independent tax and legal counsel as to the reasonableness of those calculations performed by such third parties. ²This example is based on the purchase of a Pacific Life Insurance Company's Pacific Indexed Performer LT (Form #P11PIP / ICC11 P11PIP), Indexed Universal life insurance product with 100% of the accumulated value allocated to the Fixed indexed account in year 1, then 100% reallocated to the High Par 5 Year indexed account from years 2-5, and lastly 100% reallocated to the 1 Year High Par. An annual premium of $100,000 for 5 years and a $2,105,000 death benefit (with the initial Base of $1,471,825 and ARTR of $633,175) for a Male age 45 in the Preferred Non-Smoker underwriting class with an assumed crediting rate of 4.90% (guaranteed rate 2%) in year 1, 7.50% (guaranteed rate 0%) in years 2-5, and 7.50% (guaranteed rate 0%) in years 6+. Death Benefit Option B years 1-5, Option A years 6+. Policy distributions start at insured age 65 and continue to age 84. Premier Living Benefits Rider (Form # R12CII or ICC12 R12CII) has been purchased with the policy - known in the contract as the Accelerated Living Death Benefit Rider. Form number based on state in which policy is issued. Clients should be shown policy illustrations with and without rider to help show the rider's impact on the policy's value. Non-guaranteed elements are not guaranteed by definition. As such, Pacific Life Insurance Company reserves the right to change or modify any non-guaranteed element. This right to change nonguaranteed elements is not limited to a specific time or reason. Indexed universal life insurance does not directly participate in any stock or equity investments. Indexed Universal Life Insurance generally requires additional premium payments after the initial premium. If either no premiums are paid, or subsequent premiums are insufficient to continue coverage, it is possible that coverage will expire. Overloan Protection Rider (Form #R08OLP) has been purchased with the policy. Riders will likely incur additional charges and are subject to state availability, restrictions and limitations. ³Any discussion of tax free policy distributions assumes the following: (1) withdrawals do not exceed basis (generally, premiums paid less prior withdrawals); (2) policy remains in force until death; (3) withdrawals taken during the first 15 policy years do not occur at the time of, or during the two years prior to, any reduction in benefits; and (4) the policy does not become a modified endowment contract. See IRC Section 7702A. Any policy withdrawals, loans and loan interest will reduce policy values and may reduce benefits. In the case of a Section 79 plan, basis may be less than premiums paid and generally be limited to amounts that were included in income during the period the life insurance was under the Section 79 Plan plus premiums paid if any after the policy is no longer under the Section 79 Plan. This would result in greater amounts of income as a result of distributions from the policy in excess of this lower basis.

17 DISCLOSURES FROM SLIDE 7, Taxable income to participants in a Section 79 Permanent Benefit plan is comprised of two parts: (1) the life insurance benefit; and (2) the permanent benefit. Calculation of taxable income is not performed by Pacific Life, and is not a part of any sales material or illustration prepared by Pacific Life. Taxable income calculations are typically performed by independent third party administrators based on their understanding of the Section 79 regulations. Pacific Life makes no representation as to the appropriateness of these taxable income calculations. You should obtain whatever advice you deem necessary and appropriate from your independent tax and legal counsel as to the reasonableness of those calculations performed by such third parties. *Corporate Premium represents the amount to be paid by the Corporation. Safe Harbor Permanent Benefit represents the economic benefit for the permanent portion of the policy to be placed on the employees W-2 as additional income. Table 2-2 represents the economic benefit for the death benefit above $50,000 to be placed on the employees W-2 as additional income, per Treasury Regulation Permanent Policies will be provided through Pacific Life Insurance Company's Pacific Indexed Performer LT (Form #P11PIP / ICC11 P11PIP) Full Term Insurance coverage will be provided by another carrier. The first $50,000 of group term insurance will be provided through Lincoln Financial. Over time, the policy's actual non-guaranteed elements, and perhaps your actual use of the policy's options, are likely to vary from the assumptions used in the illustration. For these reasons, actual policy performance will either be more or less favorable than shown in this illustration. Please refer to the Basic Illustration for guaranteed values and other important information. ALL NUMBERS ARE APPROXIMATE, EXACT NUMBERS WILL BE PROVIDED UPON COMPLETE CENSUS AT TIME OF ENROLLMENT.