Prepared For: The Client Family

Transcription

1 Annuity Maximization Estate Planning and Deferred Annuities - Annuitization Prepared For: The Client Family Insurance products are issued by: John Hancock Life Insurance Company (U.S.A.), Boston, MA and securities offered through John Hancock Distributors LLC through other broker/dealers appointed by John Hancock Distributors LLC, 197 Clarendon Street, Boston, MA John Hancock Life Insurance Company, John Hancock Variable Life Insurance Company, Boston, MA and securities offered through Signator Investors, Inc., through other broker/dealers appointed by Signator Investors, Inc., 197 Clarendon Street, Boston, MA Presented By: United Brokerage Services United Brokerage Services 3340 Annapolis Lane N, Ste A Minneapolis, MN

2 Annuity Maximization Annuity Maximization is a planning tool designed to (i) illustrate the income and estate tax impact on a deferred annuity at death, and (ii) provide you with two strategies that may enable you to reposition your deferred annuity to maximize the assets in your estate left for your heirs and minimize the amount passing to the government as estate or income taxes. This presentation is intended as an estate planning option for existing deferred annuities. It is not designed to illustrate the purchase of a single premium immediate annuity to fund the purchase of life insurance. Further, this presentation is not intended as your estate/gifting plan nor is it a specific recommendation for your estate/gifting plan. This presentation is for demonstrative purposes only. This analysis does not constitute a recommendation of a particular option over any other alternative. Other alternatives may be more appropriate or suitable for your particular situation. All planning alternatives should be thoroughly discussed with your legal, tax and accounting advisors prior to your making any investment, gifting or purchase decisions. John Hancock Life Insurance Company (U.S.A.) (John Hancock USA) does not guarantee the accuracy of the Annuity Maximization Analysis system or the output. John Hancock USA will not be liable for any damages arising from the use or misuse of this software or from any errors or omissions in the same. John Hancock USA assumes no duty to update this software or to provide notice of any errors in the software or applicable changes in the law. Annuity Maximization illustrates various estate planning concepts that are based upon assumptions and data provided by you, the client. Your furnishing of accurate data will help enhance the value of this analysis. However, all assumed growth rates for assets are based upon information provided by you and are not a guarantee of the future performance of any asset, including insurance or other financial products. You should also pay special attention to the annuity payment factors and the annuity pay-out rates which are critical to the calculations. The attached inforce annuity illustration should be reviewed for all pertinent annuity information. Surrendering or taking early withdrawals from your existing annuity may result in substantial charges including but not limited to penalties, surrender charges, deferred sales loads, and or income taxes. As a result of these costs some investors who take early withdrawals or surrender their annuities may receive less than their original investment. You should confirm these charges and penalties with your annuity carrier prior to making any decision regarding your deferred annuity. This supplemental illustration assumes that the currently illustrated non-guaranteed elements will continue for all years shown. This is not likely to occur and actual results may be more or less favorable than those shown. The actual consequences of a particular planning alternative will depend on many variables, some of which may not be accounted for or fully described in this presentation. Unless otherwise indicated, the income tax, estate tax and generation-skipping transfer (GST) tax implications of other specific transactions are not reflected in the analysis. Withdrawals from the annuity rely on several growth assumptions and other assets may be necessary to support premium payments. Before you make any investment, estate or tax planning decisions (or change title to any assets or change beneficiary designations) your legal and tax advisors should be consulted to determine (1) the suitability of a particular planning alternative for you, and (2) the precise legal, tax, investment, and accounting consequences of that alternative. John Hancock USA and its agents, employees, and registered representatives do not give legal, tax, accounting or investment advice, and this presentation and any other oral or written communication should not be construed as such. As you explore your planning needs with your legal and tax advisors, we hope that you find this analysis useful. I understand and agree that John Hancock USA assumes no duty to update this software or to notify me of any errors in the software or applicable changes in the law. I have read the above disclosure, and understand and agree to its terms. Client's Signature: Client's Signature: Date: Date: Internal Compliance Number: MLI Page 2 of 12

3 Table of Contents A. Introduction to Estate Planning with Deferred Annuities B. Highlights of Plan C. Current Plan at Life Expectancy Flowchart D. Proposed Plan at Life Expectancy Flowchart E. Comparison Graph at Life Expectancy F. Current Estate Tax Analysis Ledger G. Annuitize Ledger 1 H. Annuitize Ledger 2 I. Comparison Summary Graph J. Proposed Estate Analysis - SPIA Ledger K. Assumptions Page 3 of 12

4 Annuity Maximization Estate Planning and Deferred Annuities Introduction In your income producing years, you invested in tax-favored investments such as deferred annuities as an effective way to supplement your retirement savings. However, as you consider your potential estate tax exposure, you also learn that these tax-favored investments may be unwise to own at your death. Your financial advisor has recommended lifetime estate planning. Deferred annuities may result in double taxation at death, so holding your deferred annuity until death could greatly diminish the amount of wealth that may be passed to your heirs. You also understand your need for liquidity to address your potential estate tax exposure, and your estate planning team has suggested establishing an irrevocable life insurance trust (ILIT) as an excellent estate planning strategy. In reviewing your portfolio, you have concluded that you do not anticipate relying on the deferred annuity for future income, and your annuity appears to be a good source to fund the ILIT's insurance premiums. Your annual exclusion gifts can be leveraged using life insurance in the ILIT to create additional liquidity. Therefore, with Annuity Maximization, you can increase both your liquidity and the net amount of wealth that you pass on to your heirs. Potential Taxes at Death Deferred Life Insurance Annuities in ILIT Federal Estate Tax Yes No Income Tax Yes No Generation Skipping Tax Yes Possible This is a supplemental illustration authorized for distribution only when preceded or accompanied by a basic illustration for the relevant product of John Hancock Life Insurance Company (U.S.A.) (John Hancock USA). Please refer to the basic ledger for guaranteed elements. A valid inforce illustration is required for all annuity values and growth assumptions and must be attached to this presentation. Page 4 of 12

5 Annuity Maximization Estate Planning and Deferred Annuities Highlights 1. Convert your deferred annuity to an immediate annuity with payments ceasing at death or take tax-favored withdrawals. If you annuitize and your interest in the annuity ceases at your death, nothing is left to be included in your taxable estate. If you take tax-favored withdrawals, you can significantly reduce the amount to be included in your taxable estate. 2. Provide liquidity to make annual exclusion gifts. Use the after-tax annuity income or withdrawals to make annual gifts to an irrevocable life insurance trust (ILIT) for your children and other beneficiaries. You may give up to $11,000 per recipient without gift tax ($22,000 if you split gifts with a spouse).* If these gifts are used to purchase life insurance, the benefit to your heirs may be substantially leveraged.** 3. The ILIT trustee uses the annual gifts to purchase life insurance on your life. The ILIT owns the insurance and your heirs are the trust's beneficiaries. A properly drafted and administered ILIT should avoid the death benefit from being included in your gross estate, and your heirs can receive the ILIT distributions without income tax consequences. * In 2005 the annual gift tax exclusion is $11,000 and will be adjusted annually for inflation, rounded to the next lowest multiple of $1,000. ** The beneficiaries need to possess a power to withdraw the contributions (subject to the restrictions of IRC Code Sect. 2514(e)) for a limited period of time. These withdrawal powers are often known as "Crummey Powers" and are used to qualify the gift for the annual gift tax exclusion. Creating and funding an ILIT is a sophisticated estate planning technique and the client's legal and estate planning advisor should be consulted prior to making any estate, tax or investment decisions based on these materials. Page 5 of 12

6 Current Plan Retain Investment Client Gross Estate Today $1,500,000 (Gross Estate at Life Expectancy $2,522,693) Annuity Value Today $200,000 (Annuity Cost Basis = $100,000) Deferred Annuity Value at Life Expectancy $436,575 Estate Tax* $214,829 Income Tax (IRD)** $49,418 Net to The Heirs $172,328 * Portion of federal estate tax attributable to annuity. The Unified Credit amount is $1,500,000 in year 2005, increasing to $3,500,000 in Estate tax shown reflects the use of one unified credit in the calculations (if applicable). ** IRC Code Section 691 provides that income in respect of a decedent (IRD) not included in the decedent's final tax return shall be included in the taxable income of the decedent's estate or as income to the recipient of the IRD assets. The individual taking the IRD into income may receive an income tax deduction for the portion of the federal estate tax attributable to the IRD. Page 6 of 12

7 Proposed Plan Annuitization Client Gross Estate Today $1,500,000 (Gross Estate at Life Expectancy $2,086,118) Annuity Value Today $200,000 (Annuity Cost Basis = $100,000) Annuitize Deferred Annuity* Annual Income $15,241 Gift income to ILIT and take advantage of the leverage of life insurance in an ILIT. Irrevocable Life Insurance Trust** $536,719 Net to The Heirs $536,719 * Assumes life only annuity with no refund features. Annual income is net of income tax consequences and the gifts to the ILIT are assumed to qualify as annual exclusion gifts. ** Heirs are assumed to be beneficiaries. If grandchildren are also beneficiaries of the trust, the donor should discuss the generationskipping transfer (GST) tax implications with his or her legal and tax advisors. Page 7 of 12

8 Comparison of Net to Heirs at Life Expectancy Keep Annuity vs. Annuitize and Purchase Life Insurance Current Plan $172,328 $214,829 $49,418 Estate Taxes IRD Net to Heirs Proposed Plan With Planning Net to Heirs $536,719 This is a supplemental illustration authorized for distribution only when preceded or accompanied by a basic illustration for the relevant product of John Hancock Life Insurance Company (U.S.A.) (John Hancock USA). Please refer to the basic ledger for guaranteed elements. A valid inforce illustration is required for all annuity values and growth assumptions and must be attached to this presentation. Page 8 of 12

9 Year Age Retain Deferred Annuity vs. Annuitize & Purchase Life Insurance Estate Tax Rates - Current Law End of Year Annuity Value Current Plan Retain Deferred Annuity Estate Taxes Income Taxes (IRD) Net to Heirs Life Insurance Death Benefit Estate Taxes Proposed Plan Gifting to ILIT Income Taxes (IRD) ILIT Side 3% Remaining Annuity Value 5% Net to Heirs Additional Inheritance With Planning $210,000 $22,050 $26,209 $161,742 $536,719 $0 $0 $0 $0 $536,719 $374, $220,500 $44,852 $30,125 $145,524 $536,719 $0 $0 $0 $0 $536,719 $391, $231,525 $0 $32,881 $198,644 $536,719 $0 $0 $0 $0 $536,719 $338, $243,101 $0 $35,775 $207,326 $536,719 $0 $0 $0 $0 $536,719 $329, $255,256 $0 $38,814 $216,442 $536,719 $0 $0 $0 $0 $536,719 $320, $268,019 $0 $42,005 $226,014 $536,719 $0 $0 $0 $0 $536,719 $310, $281,420 $0 $45,355 $236,065 $536,719 $0 $0 $0 $0 $536,719 $300, $295,491 $132,971 $30,399 $132,121 $536,719 $0 $0 $0 $0 $536,719 $404, $310,266 $139,878 $32,632 $137,756 $536,719 $0 $0 $0 $0 $536,719 $398, $325,779 $149,515 $34,380 $141,884 $536,719 $0 $0 $0 $0 $536,719 $394, $342,068 $159,593 $36,309 $146,165 $536,719 $0 $0 $0 $0 $536,719 $390, $359,171 $170,133 $38,400 $150,638 $536,719 $0 $0 $0 $0 $536,719 $386, $377,130 $181,157 $40,695 $155,278 $536,719 $0 $0 $0 $0 $536,719 $381, $395,986 $192,688 $43,591 $159,708 $536,719 $0 $0 $0 $0 $536,719 $377, $415,786 $203,735 $46,578 $165,472 $536,719 $0 $0 $0 $0 $536,719 $371, $436,575 $214,829 $49,418 $172,328 $536,719 $0 $0 $0 $0 $536,719 $364, Version: This is a supplemental illustration and must be accompanied by a basic illustration of UNIVERSAL LIFE - G 2004 from the John Hancock Life Insurance Company (U.S.A.) (John Hancock USA) which contains guaranteed elements and other important information. Any non-guaranteed elements illustrated are subject to change and can be either higher or lower. John Hancock USA or any of its agents, employees, or registered representatives, do not give legal, investment, or accounting advice. The information given here is merely a summary of our understanding of the current laws and regulations. Prospective purchasers should consult their tax advisor. Page 9 of 12

10 Retain Deferred Annuity vs. Annuitize & Purchase Life Insurance Retain Deferred Annuity Annuitize & Purchase Life Insurance in ILIT $600,000 A m o u n t t o H e i r s $500,000 $400,000 $300,000 $200,000 $100,000 $ Age This is a supplemental illustration authorized for distribution only when preceded or accompanied by a basic illustration for the relevant product of John Hancock Life Insurance Company (U.S.A.) (John Hancock USA). Please refer to the basic ledger for guaranteed elements. A valid inforce illustration is required for all annuity values and growth assumptions and must be attached to this presentation. Page 10 of 12

11 Assumptions Client Information Family Name Client Name Age 1 Plan Information Explanation Name of family to whom the Annuity Client Maximization is proposed. Special Given name of the first parent 70 Age of the first parent (required) Explanation Heirs' Names The Heirs Names of the heirs (usually the children) Total Estate Value $1,500,000 Total estate value A/T Growth of Estate Assets 3.00% A/T Growth Rate of ILIT Assets 3.00% Client Life Expectancy 16 Joint Life Expectancy 16 Joint life expectancy Proposal Year 2004 Proposal year Income Tax Bracket 25.00% Income tax bracket (State & Federal) IRD Tax Bracket 25.00% Income in respect of a decedent tax bracket Presenter Information Presenter's Name Presenter's Broker/Dealer Other Estate Information CPI Rate Number of Annual Exclusions per Client Post-76 Taxable Gifts Prior Gift Taxes Paid Use Applicable Exclusion Amount at First Death? Excess A/T Annuity Income Retained in Estate Type Explanation United Brokerage Name of presenter Services United Brokerage Presenter's company Services Explanation 0.00% Consumer Price Index rate 2 $0 Amount of post-1976 taxable gifts $0 Amount of prior gift taxes paid No Yes or No. Retained in Estate Gifted to ILIT or retained in estate Consumed Consumed or saved Note: Clients should carefully review all client inputs, as summaries based upon inaccurate assumptions may greatly impact the analysis results. All growth rates are hypothetical and are not guaranteed. Page 11 of 12

12 Assumptions (Cont'd) Annuity Information Proposal Type Current Annuity Value Cost Basis Accumulation Rate After Expenses Single Premium Immediate Annuity (SPIA) SPIA Type Calculate generic annuity quote? Income Payment Mode Annualized SPIA Gross Income Exclusion Ratio (% exempt) Net After Tax Income from SPIA Insurance Information Type of Policy Insurance Product Name Insurance Face Amount Insurance Premium Years to Pay Insurance Premium* Explanation Withdrawals from annuity or annuitize from Annuitize from Annuity annuity $200,000 Current value of deferred annuity Cost basis of investment (total premiums paid $100,000 for annuity) Net rate of return on annuity (see attached inforce 5.00% illustration) Life Only Life Only or Annuity Certain (Fixed Period) Yes Yes or No Monthly Annually, Quarterly, Semi-Annually or Monthly $18,238 Gross Income from SPIA (Annualized) Portion of payment excludable from gross 34.27% income $15,241 Annual taxable income (taxable gain portion) Explanation Single Life Survivorship or Single Life UNIVERSAL LIFE - G 2004 $536,719 Insurance face amount Funds available for insurance premium (SPIA or $15,240 withdrawals) 30 Years to pay insurance premium The single premium immediate annuity rates used in this concept illustration are hypothetical rates based on an average of the rates offered by several similar products available as of Dec 31st, These rates are not guaranteed by John Hancock USA or any other product provider. * Years to pay premium is a hypothetical calculation. Premium payments are the responsibility of the policy owner and are always payable for the life of the policy. However, the policy's cash values may, depending on future performance, grow to a level where the premium payments due may be paid from the policy's cash values. The policy's cash values are not guaranteed. Actual growth may be more or less favorable. Failure to pay premiums when due could cause the policy in question to lapse. Page 12 of 12