Life Insurance as a Legacy Asset

Transcription

1 Life Insurance as a Legacy Asset This material was prepared to educate participants on the attributes of life insurance products. Lincoln Financial Group affiliates, their distributors, and their perspective employees, representatives, and/or insurance agents do not provide tax, accounting, or legal advice. created by the FPA Symposium Richard Clients Forcht should consult their own independent advisor as to any tax, accounting or legal statements FPA of San made Antonio herein. and South Texas Advanced Sales Tax Cuts and Jobs Act 217 May 9, 218 Lincoln Financial Distributors Insurance products issued by: The Lincoln National Life Insurance Company Lincoln Life & Annuity Company of New York LCN Opportunity Knocks Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates. Not a deposit Not FDIC-insured May go down in value Not insured by any federal government agency Not guaranteed by any bank or savings association Broker / / Dealer use use only only 218 Lincoln National LCN Corporation 1

2 Lincoln LifeElements Level Term (217) 1/23/17, policy form TRM663 and state variations. Not available in NY. Lincoln LifeElements Level Term (214) 3/14/16, policy form TRM565/ICC14TRM565, with endorsement END713 and Conversion Products Amendment AMD 729, and Important state variations; Information TRM565N.2/15 in NY. Lincoln TermAccel Level Term policy form TRM565/ICC15TRM565 with endorsement END713, data pages TA5165, and state variations. Not available in NY. Lincoln This seminar LifeElements is for educational One Year Term purposes policy only. form It LN485 is intended and state to be variations; accurate LLANY485 and authoritative in NY. in regard to the subject matter covered. It is presented with the understanding that I am not engaged in rendering legal or tax advice. Lincoln LifeCurrent UL policy form UL523 and state variations; UL523N in NY. Lincoln LifeGuarantee UL (213) rates as of 9/12/16, Lincoln Financial policy form Group UL6 provides and the state sales variations concepts with we ll optional discuss rider for information ABR 71/ICC15ABR 71. purposes only. While Not this available seminar NY. Lincoln discusses LifeGuarantee general tax aspects SUL (213) of planning policy form with SUL68 insurance, and we state make variations. no representations Not available as in to NY. suitability Lincoln LifePhases for individual UL clients. policy form Interested UL616 parties and state should variations be strongly with encouraged optional rider to form seek ABR 74. separate tax Not and available legal advice in NY. before Lincoln implementing LifeReserve UL a plan policy of form the UL551 type described and state in variations; this presentation. UL551N in NY. LifeReserve Exec UL policy form UL524 and state variations; UL524N in NY. Lincoln InReach UL policy form LN85 (8/5) and state variations; LN85 (5/9) in NY. Illustration numbers are for training purposes only and represent case studies of how to analyze products prior to sale Lincoln to the client. LifeReserve Hypothetical Indexed illustrations, UL Accumulator projected (214) premiums policy form and UL624/ICC14UL624 death benefits are based and state on the variations interest with rate, optional mortality rider form charges ABR 5762; and other UL624N expenses with illustrated optional in rider the form life insurance ABR 5762N policy in NY. used Lincoln in this WealthAdvantage example. They are Indexed not guaranteed. UL policy form UL646/ICC15UL646 and state variations with optional rider form ABR 727/ICC15ABR 727; UL646N with optional rider form This material ABR 727N was in prepared NY. Lincoln to WealthPreserve educate participants Survivorship on the attributes IUL policy of form life SUL635 insurance and products. state variations Lincoln with Financial optional Group rider form affiliates, ICC14ABR 712/ABR 712; their distributors, and SUL635N their perspective with option employees, rider form representatives, ABR 712N in and/or NY. insurance agents do not provide tax, accounting, or legal advice. Lincoln Clients VUL should ONE (214) consult policy their form own LN696 independent and state advisor variations as to with any tax, optional accounting rider form legal ICC15LR631/LR 63. statements made Not herein. available in NY. Lincoln SVUL ONE (216) policy form LN667 and state variations. Not available in NY. Lincoln PreservationEdge SVUL policy form LN699 and state variations; LN699 in NY. Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates. Lincoln AssetEdge VUL (215) policy form LN683 and state variations Broker / Dealer use only LCN

3 Important information This information is provided to help producers evaluate Lincoln s products in relation to competitors products. The competitor information in the following slides is from public sources deemed reliable from peer group companies. Although every attempt has been made to ensure the accuracy of the information provided, it cannot be guaranteed. Product features and benefits, expenses, loads and charges will vary from company to company and will impact the values shown. The product s specific features and the client s use of those features will impact long term policy performance. This comparison is not intended for and cannot be used with the public. Although every attempt has been made to ensure accuracy, it cannot be guaranteed. This information does not include product details. Each product s features and benefits should be weighed against the cost. Information current as of January 15, 218, and must be rechecked after July 15, 218. Source: Competitor software. Broker / Dealer use only LCN

4 Lincoln Protects Available February 12, 218 Lincoln GUL is back! Lincoln simplifies IUL Chronic care options Easier submission Introducing Lincoln LifeGuarantee UL (213) 2/12/18 with improved pricing for level pay scenarios at ages 6+ Introducing Lincoln WealthPreserve IUL, a death benefit focused IUL with a 4 year no lapse 1 and a 1 year guaranteed cap Introducing Lincoln LifeAssure SM ABR 2, a no upfront cost rider provides added flexibility in the event of a permanent chronic illness esubmission for ALL fixed products and term and Forms tool enhancements Broker / Dealer use only LCN

5 Lincoln LifeGuarantee UL MALE FEMALE Results in core market Goal Premium rankings for Lincoln LifeGuarantee UL (213) compared to key competitors, assuming nontobacco, level pay premiums to guarantee a Improve competitiveness in core market: lifetime death benefit of $1,,. level pay, lifetime guarantee, non tobacco classes, ages Preferred Best Preferred Standard Preferred Best Preferred Standard Information is from public sources deemed reliable; its accuracy cannot be guaranteed. Information is valid as of January 15, 218, and should be rechecked for accuracy after July 15, 218. Source: Competitor illustration software. Broker / Dealer use only LCN

6 Protection Alternatives 6 year old standard male, $1M death benefit Lincoln Protection Portfolio Annual Premium Guarantee Duration Coverage Duration Target Symetra UL G $18,162 Lifetime Lifetime $2,885 Lincoln WealthPreserve AG Secure Lifetime GUL 6.3 $18,451 $19,59 Lifetime Age 9 Lifetime $19,24 $22,37 Lincoln LifeGuarantee UL (213) 2/12/18 $19,928 Lifetime Lifetime $2,56 Nationwide YourLife No Lapse GUL $19,933 Lifetime Lifetime $24,586 PennMutual Guaranteed Protection UL $19,934 Lifetime Lifetime $23,74 Protective Advantage Choice UL $2,783 Lifetime Lifetime $18,1 Lincoln VUL ONE (214) $21,372 Lifetime Lifetime $31,11 6 year old standard male, solve for the minimum annual level premium to guarantee or endow a $1,, level death benefit for lifetime. State of Ohio. Broker / Dealer use only LCN

7 Lincoln Protection Portfolio Temporary coverage Lifetime guaranteed death benefit Extended guaranteed DB (1) Lincoln LifeElements Level Term* Lincoln LifeGuarantee UL Lincoln VUL ONE Lincoln WealthPreserve IUL Lincoln TermAccel Lincoln LifeGuarantee SUL Lincoln SVUL ONE Lincoln WealthPreserve SIUL* Cash value potential (1) Lincoln WealthPreserve IUL features a minimum death benefit guarantee period of 4 years or to age 9 whichever occurs first. Broker / Dealer use only LCN

8 Lincoln Protection Portfolio Lincoln LifeGuarantee UL Lincoln VUL ONE Lincoln WealthPreserve IUL Target ages Ages 6+ Ages 35+ Ages Max DB guarantee duration Optimal premium duration Lifetime Lifetime Lifetime Single pay (135x) Short pay Lifetime 4 years up to age 9 Lifetime Cash value Limited Direct market investment Tied to S&P Living benefits LifeEnhance ABR LifeEnhance ABR LifeAssure SM ABR LifeEnhance ABR Broker / Dealer use only LCN

9 Lincoln LifeAssure SM Accelerated Benefits Rider No upfront cost No receipts or reimbursements are required, and funds can be used for anything No waiting period The benefits are designed to be excluded from taxable income Available at issue for no additional cost and no impact on policy unless exercised Available only at issue, subject to certain requirements Convenient No waiting period to receive benefits, once all eligibility conditions have been met Tax efficient Broker / Dealer use only LCN

10 #5 Mega Wealth Strategies Trust Review Have you updated your trust for the new tax law? Broker / Dealer use only LCN

11 #5 Mega Wealth Strategies Dynasty Trust Grantor Male 78 Cadre considering Guaranteed Universal Life Wealthy Patriarch with a cadre of advisors in a Family Office $4,66,692 Lincoln LifeGuarantee UL Loss averse $3, Grantor annual favors premium, stable level death high benefit grade assets $5, Reasonsannual TO buydividend income Reasonsto NOT reinvest to buy Trustee Mortality wants to diversify trust Longevity holdings Guaranteed Return Tax Efficiency Broker / Dealer use only LCN

12 Broker / Dealer use only LCN

13 #5 Mega Wealth Strategies 7 UL (3) IRR at Life Expectancy 4 UL UL Lincoln LifeGuarantee Opt UL (3) 13.46%, 3$1,552,197 DB, level GUL death benefit (3) (1) Opt 3 Opt 3 IRR GUL 3 $3M (1) Opt 1 $5,292,194 Lincoln LifeReserve IUL Accumulator, $615,916 Opt 1 DB, increasing Death Benefit by cash value IUL (2) 2 IUL (2) Lincoln LifeReserve UL, $831,887 Opt 2DB, death benefit increasing DB IRRby premium Actuarial IUL 1 Life Expectancy GUL Longevity (2) (1) Planning Range 5.8% Opt 2 Opt 1 8 AGE AGE 9 (1) Lincoln LifeGuarantee UL (213) 9/12/16 Policy Form UL6, $1,552,197 DB, $1, annual premium, level death benefit (2) Lincoln LifeReserve IUL Accumulator (214) Policy Form UL624, $615,916 DB, $1, annual premium, death benefit (1) increasing $3, by cash annual premiums and current rates. (1/3 At each 1% return policy) and guaranteed rates the policy would lapse in year 15. (3) Lincoln LifeReserve UL (29) Policy Form UL551, $831,887 DB, $1, annual premium, death benefit increasing by premium (4) Life Expectancy based (4) on the 28 Valuation basic table for Standard Non Tobacco rating Broker / Dealer use only LCN Opt 2 $6,167,541 6 $6M $5,292, % Diversified Lincoln 5 $4,416,796 Life Insurance Policy Portfolio 5.8% Combined (1) Portfolio IRR ¼ ½ ¾

14 Deduct: Vacation home Charity (business positioning) (CLAT, etc) Oil & Gas, other Partnerships Family Director Fees Real Estate Loss ESOP Contributions LTC (C Corp especially) Defer: Roth Sale to ESOP w/ 142 Nonqualified Compensation 131, K, Qualified Profit Sharing Life Insurance for Q Plan conversion to Roth Elect Cash Basis of Accounting Split dollar compensation arrangements Defer down to new tax tables Business Building Revenue Streams for Advisors Starting a new business People at work #4 Business Capitalization Versus Capital Divert: Income to kids Gifts of Business Interests IRA, etc at work Payroll to family Life Insurance as supplemental Retirement Income Gift appreciated assets TCJA Tax Planning Opportunities for Business Owners Convert: Buy sell via Cross Purchase Life Insurance (trust) Life Insurance (Business Funding) Roth 529 Plans CRT Tax Reduction Strategies Muni Bonds Capital Gains Grandparent pay for education Broker / Dealer use only LCN

15 #4 Business Capitalization Pyramid of Business Owner Planning Broker / Dealer use only LCN

16 #4 Business Capitalization How have you re structured your business? Sole Proprietor Partnership QBIPT Corporation (2) Partnership Proprietorship Incorporates Pre TCJA 39.6% 39.6% Max Rates (1) 39.6% 35% TCJA (1) 37% 37% 29.6% (3) 21% New Capital 2.6% 2.6% New Working Capital 1.% +18.6% 14% 1) Tax Cuts and Jobs Act of 217 (TCJA) rates, 1%, 12%, 22%, 24%, 32%, 35%, and 37%. Pre TCJA rates 1%, 15%, 25%, 28%, 33%, 35%, 39.6% 2) A Qualifying Business Income Pass Through (QBIPT) is an entity that can qualify for a 2% deduction on the non wage portions of pass through income. if the pass through income for a married couple is $315, or less ($157,5 for single filers), then the 2% deduction is limited to 5% of the W 2 wages, or in the case of a business that requires capital (a non personal service business) 25% of W 2 wages plus 2.5% of the adjusted cost basis of the assets. 3) https;// 12/26/17 making sense of the new 2 qualified business income deduction Broker / Dealer use only LCN

17 #3 Capital at Work Making capital work for the owner Are you working more in your business than on your business? Owner Compensation Creating Owner Equity Equity Creditor Protection Business Succession Attracting Key Employees Retaining Key Employees Sharing the Wealth Broker / Dealer use only LCN

18 #3 Capital at Work Entity Planning? Formula for Valuation? Adequately capitalized? Debt levels? What & why entity type (C, S, LLC, etc.) How to balance growth and preservation? How address leader and capital succession? Employee Benefits? Executive Compensation? Special compensation for owner group? What incentives to create talent magnet? Retention via contracts, golden handcuffs Which mix of True equity, synthetic equity, LT cash awards? Which, Why? How tax efficient Executive Comp plans? Business Succession? What group benefits? 41(k); Health, LTD, LTC What education is offered? Priorities? Can key execs save enough for retirement? Voluntary deferral plans like NQDC > 41K? When benefits last benchmarked? (Performance, fees, admin, compliance?) Exit strategy? Which preferred exit paths? Bench Strength for internal succession? Last time life insurance policies reviewed? Who guarantees bus debt if internal transfer? What are key value drivers? Broker / Dealer use only LCN

19 #3 Capital at Work Multiple Multiple Entity Participants Entity Insurance Plans Corporation Natural Person Partnership Trust Split $ Insurance Plans Rev. Rul , CB 11 Endorsement Assignment Natural Person Non Split $ Plans Trust Compensation Gift Corporation Loan Dividend Partnership Broker / Dealer use only LCN

20 #3 Capital at Work What is the evolving role of life Insurance? Life Insurance Portfolio Accumulation Portfolio as Life a Core Insurance Asset Distribution Portfolio an Alternative Asset Low Correlation Absolute Returns Longevity Mortality Hedge Tax Efficiency Cash Flow Management Long Term Care Funding Legacy Multi Purpose Assets Broker / Dealer use only LCN

21 $25, Lincoln LifeElements (1) 3 year Level Term Male 5 Std NT #3 Capital at Work Value of $2,4 annually for 3 years 7% 21, ,4266% 5% 242,575 $25, Lincoln WealthAdvantage (2) IUL Male 5 Std NT $24 annual Premium / 3 years $72, Cost of Insurance $72, $24 X 3 Years Premium Load $57,829 Expense & Admin Charges Total Policy Expenses Cost of Insurance (1) Lincoln LifeElements Level Term 3 (11/14) Policy Form TRM565, $25, DB, $24 annual premium, Male 5 Std NT (2) Lincoln WealthAdvantage IUL Policy Form UL646, $25, DB, $24 annual premium, level death benefit, Male 5 Std 3.5% Assuming 1% return and curr charges policy will lapse in yr 33. Assuming guar min return and max charges policy lapses yr 11 Broker / Dealer use only LCN

22 #3 Capital at Work 25 1,25, 1,, 75, Increasing Option $25, UL (2) $14,4 Annual Level Premium Benefit 2,4 Base Premium plus Life Insurance (1) 12, Additional Premium 5, 25, $2,4 Annual Premiums $25, Specified Amount DB Policy Cash Value Age (1) Lincoln WealthAdvantage IUL Policy Form UL646, $25, DB, $24 annual premium, level death benefit, Male 5 Std NT (2) Lincoln WealthAdvantage IUL Policy Form UL646, $25, DB, $14,4 annual premium, lncreasing death benefit, Male 5 Std NT Surrender Value at age 8 : w/current charges, w/current charges and w/guaranteed charges. Broker / Dealer use only LCN

23 Inter generational Family Planning Options Death Flexible Potential (1) Cash Value Year Age Tax deferred Premium growth Benefit LifeElements Premium Cash Value IRR 1 51 Tax advantaged 3 2,4 Year 25, $25, 12, 11,857 No <.4> Distributions 2 52 Level 2,4 Term 25, Death Benefit 12, Benefits 24, % 3 53 No $2,4/ additional year tax 25, 12, 37, % 4 54for early 2,4 withdrawals 25, 12, 52, % ,4 25, 12, 67, % Will WealthAdvantage not increase tax ,4 25, 12, Indexed UL $25, Cash 83,29 Value 4.9% expenses, Social Security 7 57taxation, 2,4 or Medicare 25, 12, 99,932 and 4.34% $2,4/ year Death Benefit ,4 25, 12, Residual 117,849DB 4.54% 9 59 Income 2,4 tax free 25, 12, 136, % 1 6 death 2,4 benefit 25, 12, 156, % 15 Father Mother Child Child Life Male 5 SNT Beneficiary Owner with fully funded policy cash values Features Insurance Distributions are (1) taken Potential through Cash loans Value and of withdrawals Lincoln WealthAdvantage which reduce a Indexed policy s UL, cash $23, surrender Option value 2 death and benefit current and charges may assuming cause the Male policy 5 to Std lapse. NT. Loans are not considered income and At 1% are returns tax free. and Withdrawals guaranteed and maximum surrenders charges, are tax free the policy up lapses to the in cost year basis, 45 with provided no distributions. the policy not a modified endowment contract (MEC). 65 2,4 25, 12, 286, % Broker / Dealer use only LCN

24 Inter generational Family Planning Options Death Flexible Potential (1) Cash Value Year Age Premium Benefit Premium Cash Value IRR Variable ,4 25, 12, 11,857 <.4> Payments ,4 25, 12, % ,4 25, 24, 37,14 Make up 2.52% ,4 25, 12, 51,251 Payments 3.26% ,4 25, 54, % ,4 25, 6, 63, % ,4 25, < 3,4> 97,175 Withdrawls4.34% ,4 25, 12, 114, % ,4 25, < 12,> 133,744 Loans 4.7% 1 6 2,4 25, 12, 153, % 15 Father Male 5 SNT Mother Beneficiary Child Owner with partially funded policy cash values Distributions are (1) taken Potential through withdrawals Cash Value and of Lincoln loans which WealthAdvantage reduce a policy s Indexed cash surrender UL, $23, value and Option death 2 and and may current cause charges. the policy Assuming to lapse. Loans Male are 5 Std not NT. considered income and At are 1% tax returns free. Withdrawals and guaranteed and surrenders maximum are charges, tax-free the up to policy the cost lapses basis, in provided year 45 the with policy no distributions. not a modified endowment contract (MEC). 65 2,4 25, 12, 281, % Broker / Dealer use only LCN

25 Inter generational Family Planning Options Father Male 5 SNT 2,4 2,4 2,4 2,4 2,4 2,4 2,4 2,4 2,4 2,4 Mother Beneficiary 25, 25, 25, 25, 25, 25, 25, 25, 25, 25, Child Owner waits to fund policy death benefits Death Flexible Death (1) Death Benefit Year Age Premium Benefit Premium Benefit IRR (1) Potential Death Benefit of Lincoln WealthAdvantage Indexed UL, $25, Option and current charges assuming Male 5 Std NT. (1) Potential At 1% returns Cash Value and guaranteed of Lincoln WealthAdvantage maximum charges, Indexed the policy UL, lapses $25, in year Option 11 with no distributions. and current charges. 65 2,4 25, Broker / Dealer use only LCN % 25 Probability of Death 51.57% 73.34% 55.84% 77.51% 6.2% 81.43% 64.61% 85.1% 69.2% 88.18% 73.34% 9.87% 77.51% 93.11% 81.43% 94.92% 85.1% 96.36% 88.18% 97.48% 9.87% 94 92%

26 LE 2,4 25, Inter generational Family Planning Options 25, Business Year 4 Age 9 Premium , 25, % Mother 1, 25, Child % Beneficiary Owner waits to fund policy death benefits 11, 25, 158.2% Death Flexible 12, Death 25, Death 9.39% Benefit Benefit Premium 13, Benefit 25, 58.9% IRR 14, 15, 15, 16, 16, 16, 16, 16, 16, 16, 25, 25, 25, 25, 25, 25, 25, 25, 25, 25, 41.11% 29.83% 22.2% 16.67% 12.58% 9.47% 7.4% 5.11% 3.55% 2.28% (1) Potential Death Benefit of Lincoln WealthAdvantage Indexed UL, $25, Option and current charges assuming Male 5 Std NT. At 1% returns and guaranteed maximum charges, the policy lapses in year 11 with no distributions. Broker / Dealer use only LCN

27 #3 Capital at Work Business Year Age Premium 2,4 2,4 2,4 2,4 2,4 2,4 2,4 2,4 2,4 2,4 Spouse Beneficiary Death Flexible Potential (1) Cash Value Benefit Premium Cash Value IRR 25, 25, 25, 25, 25, 25, 25, 25, 25, 25, Employee Owner with fully funded policy cash values 12, 12, 12, 12, 12, 12, 12, 12, 12, 12, 11,857 24,459 37,848 52,39 67,83 83,29 99, , , ,973 <.4> 1.27% 2.52% 3.26% 3.74% 4.9% 4.34% 4.54% 4.7% 4.83% 15 (1) Potential Cash Value of Lincoln WealthAdvantage Indexed UL, $23, Option and current charges assuming Male 5 Std NT. At 1% returns and guaranteed maximum charges, the policy lapses in year 45 with no distributions. 2,4 25, 12, 286, % Broker / Dealer use only LCN

28 #3 Capital at Work ,4 2,4 2,4 2,4 2,4 2,4 2,4 2,4 2,4 2,4 Business Death Flexible Potential (1) Cash Value Year Age Premium Benefit Premium Cash Value IRR 25, 25, 25, 25, 25, 25, 25, 25, 25, 25, Employee Owner with fully funded policy cash values 12, 12, 12, 12, 12, 12, 12, 12, 12, 12, 11,857 24,459 37,848 52,39 67,83 83,29 99, , , ,973 <.4> 1.27% 2.52% 3.26% 3.74% 4.9% 4.34% 4.54% 4.7% 4.83% (1) Potential Cash Value of Lincoln WealthAdvantage Indexed UL, $23, Option and current charges assuming Male 5 Std NT. At 1% returns and guaranteed maximum charges, the policy lapses in year 45 with no distributions. 2,4 25, 12, 286, % Broker / Dealer use only LCN

29 #3 Capital at Work ,4 2,4 2,4 2,4 2,4 2,4 2,4 2,4 2,4 2,4 Business Death Flexible Potential (1) Cash Value Year Age Premium Benefit Premium Cash Value IRR 25, 25, 25, 25, 25, 25, 25, 25, 25, 25, Trust Owner with funded policy cash values 12, 12, 12, 12, 12, 12, 12, 12, 12, 12, 11,857 24,459 37,848 52,39 67,83 83,29 99, , , ,973 <.4> 1.27% 2.52% 3.26% 3.74% 4.9% 4.34% 4.54% 4.7% 4.83% (1) Potential Cash Value of Lincoln WealthAdvantage Indexed UL, $23, Option and current charges assuming Male 5 Std NT. At 1% returns and guaranteed maximum charges, the policy lapses in year 45 with no distributions. 2,4 25, 12, 286, % Broker / Dealer use only LCN

30 #3 Capital at Work Most Common Multiple Entity Plans The Documentation Business Achilles heal of multiple with Designs a legal entity agreement arrangements Co Owned Some administration Key Person iscompanies Split $ provide Bonus fill in the blanks documents. Plan Administration Some also provide Legacy Designs Accounting Memorandums Private Business Estate Year End Reports Private Access Annual Reviews Broker / Dealer use only LCN

31 #3 Capital at Work The Lincoln LifeComp Suite U.S. Patent No. 7,877,33. System for tracking relevant interest of The Parties to an insurance policy. An Illustration and Administration System Offering a Variety of Business and Estate Plans Plan Documentation Full LifeComp Plan Administration DollarFlex Fill in the blanks, company form, Accounting LifeComp completed Memorandums Private LifeComp Estate Solution at the time of the application DuoFlex Business Year End Reports Only LifeComp legal LifeComp agreement needed to Annual establish Reviews FlexKey Private Plan Value the Access plan LifeComp ExecBonus Broker / Dealer use only LCN

32 #2 Exit Planning for Business Owners The Exit Planning Marketplace (1) 9% Never 12% > 1 yrs 33% < 3yrs 22% 6 1 yrs 24% 3 5 yrs 1/3 8% of of owners owners plan believe to exit that their a businesses successful exit in the will next result 3 years from planning and action items they More implement. than 1/2 plan to exit their businesses 17% of business the owners next 5 years have created a written exit plan. 8 out of 1 owners plan to exit their businesses within 1 years 1) BEI 216 Business Owner Survey Broker / Dealer use only LCN

33 41% 32% 3% 25% 17% 15% 1% 9% #2 Exit Planning for Business Owners Have you ever visited with an exit planning specialist? 18% of business owners have talked to someone whom they considered to have training or expertise in exit planning. (1) 78% 48% Spouse/ Significant other Child CPA Another Business Owner Financial Advisor Business Lawyer 1) BEI 216 Business Owner Survey Business Consultant Estate Lawyer Banker Insurance Agent Broker / Dealer use only LCN

34 #2 Exit Planning for Business Owners Types of Business Owners Best Strategies Financial Readiness Low High Wealthy and Enjoy Work 82% MBO, Gift, ESOP Rich and Ready To Go of all business owners MBO, showed 3 rd Party Sale low mental or financial readiness to exit their business (1). Stay and Grow ESOP, Recapitalization, Grow & Save $ Gift, Charity, ESOP, Get Me Out Now 3 rd Party Sale Low High Mental Readiness 1) 216 Pinnacle Equity Survey of Business Exit Readiness Broker / Dealer use only LCN

35 #2 Exit Planning for Business Owners Personal Readiness Business Readiness Market Readiness Mentally Ready Financially Ready What comes next? Entity Planning Executive Compensation Leadership Succession / ODI Company Value Drivers Retirement & Benefits Planning Contingency Planning Exit Planning Transfer Options Market Conditions Broker / Dealer use only LCN

36 #2 Exit Planning for Business Owners What is your value gap? This is a key indicator of how ready the owner is and what preparation path he/she will need to take. Current Assets / Investments $ Financial Independence Value Gap $ Capital Needed $ Often, significant equity from the business is necessary for financial independence. Broker / Dealer use only LCN

37 #2 Exit Planning for Business Owners The Five Exit Pathways Exit Paths 1. Family 2. Co Owners Transfer Method Gifts, Bequests, Private Annuities, GRATs & IDITs Buy Sell Living Buyout Owner Desire Exit Paths 3. Employees MBO/LBO ESOP 4. Outsiders 3 rd Party Sale Recapitalization Merger 5. Public IPO Going Private Broker / Dealer use only LCN

38 #2 Exit Planning for Business Owners Bob age 55 is a 47% owner of a real estate business Married with two adult children Their daughter Belle works in the business and is a 2% owner Bob wants to provide for his wife if he predeceases her Bob wants Belle to take over his business interest when he retires, or if he dies before retirement. Bob wants to equalize his estate settlement with children Broker / Dealer use only LCN

39 #2 Exit Planning for Business Owners Bob establishes a Grantor Trust for Heirs Bob sells his business interest to the Grantor Trust utilizing an interest (1) only promissory note principal payable at Bob s death Bob s Estate Bob s Grantor Trust Business Equity Lifetime Income Note Annual Interest Principal at death Trust Income Loan Interest Life Insurance (1) Applicable Federal Rates (AFR) under section 1274(d) of Internal Revenue Code Broker / Dealer use only LCN

40 #2 Exit Planning for Business Owners Interest Rates: Applicable Federal Rates IRC 1274(d) Short Term Rate = 3 years or less Mid Term Rate = more than 3, but not more than 9 years Long Term Rate = maturities more than 9 years Principal Valuation Methods: Market Method, Income Method & Net Asset Value Broker / Dealer use only LCN

41 #2 Exit Planning for Business Owners Sample Corporation $1,, 1 shares $1, Per share $1,, Earnings $1, EPS Bill 51% 5,1, Bob 47% 4,7, Belle 2% 2, Broker / Dealer use only LCN

42 #2 Exit Planning for Business Owners Common Valuation Discounts Lack of Marketability Lack of Control Built In Gains Taxes (DLOM) 18% 59% (1),(2) (DLOC) 9% 47% (3),(4) (BIG) 1% of Tax (5) (1) Valuation Advisors Lack of Marketability Discount Study, Willamette Management Associates (2) Temple v. United States (123F.Supp.2d 65,622 (26), Holman v. Commissioner (13 TC no.12 (28) (3) Jelke v. Commissioner (TC Memo (25) (4) Astleford v. Commissioner (TC Memo (28) (5) Dunn v. Commissioner (31 F.3d 339 (5 th Cir. 22)) Broker / Dealer use only LCN

43 #2 Exit Planning for Business Owners Bob sells 47 shares of Hypothetical Inc. with $47, annual income to IDIT for $3,29, (1) due at death and $9,475 annual loan interest (IDIT owned Minority Shares of Hypothetical Inc. RoE = 14.28%, AFR loan interest= 2.75% ) Outstanding Interest Insurance Trust Business Life Year Loan Balance on Loan Premium (2) Income (3) Value (4) Insurance (2) 1 3,29, 9, , 5,21 3,388,7 21,72, ,29, 9, , 288,743 3,814,12 21,72, ,29, 9, , 693,72 4,421,485 21,72, ,29, 9, , 2,58,373 5,942,16 21,72, ,29, 9, , 4,742,852 7,985,694 21,72,973 (1) Valuation assumes 2% DLOM, 1% DLOC (2) $21,72,973 Lincoln LifeGuarantee UL (213) on Male 55 Std NT rates (3) Assumes $46,925 excess annual income 7% (4) Assumes Business growth of 3% annually $33,81,519 Broker / Dealer use only LCN

44 #2 Exit Planning for Business Owners Summary of Business sale to IDIT Bob receives a lifetime income from trust. When Bob dies only the value of the promissory note with a face amount of $3,29, remains in his estate. The Trustee will use trust assets to retire debt and the remaining assets will be managed and distributed to Bob s heirs according to the grantor s trust directives. When Bob dies there will be at least $25 million in the trust for spousal maintenance, business transfer and estate equalization. Broker / Dealer use only LCN

45 #1 Intergenerational planning 1 Billion Seconds = Your big opportunity may be right where you are now. 1 Trillion Seconds = Napoleon Hill 1 Million Seconds = $592 Billion 7,+ 12 days $66 Billion 32 years 32, years Social Security people Life die everyday Insurance Retirement in the US Benefits Benefits (1) (2) $12,342,15,,, US Individual Life Insurance in Force $12 Trillion+ (1) (1) NAIC data 216 (2) ssa.gov 216 (1) Source : life insurance policies in force Broker / Dealer use only LCN

46 #1 Intergenerational planning Individual US Life Insurance Ownership 45% 65,, ages 5 to 65 (1) 16% 22% Baby Boomers 32% Will Inherit $8,4,,,, (2) Millennials Gen X Boomers Seniors (1) US Department Source: life insurance policies in force/ of Commerce Bureau of the Census (2) Baby Boomers Generation Fast Facts CNN Library 11/6/13 Broker / Dealer use only LCN

47 #1 Intergenerational planning Male 55 Inherits $1,, from Wife s Life Insurance Proceeds are currently in local bank paying 1% on time deposits Wants to buy life Insurance for two daughters Wants some of assets in the market and some in safe returns Wants penalty free liquidity in the event of an opportunity Wants tax free returns Broker / Dealer use only LCN

48 Year Proceeds Annual (1) Earned Available Tax Lincoln on Account Premium Balance Interest (2) Balance (3) Interest Premium Deposit Fund $1,, 14, ,463 8,955 94,418 2,149 Client decides 14,537 to retain 799,881 control of money 7,999in local 87,88 bank 1,92 and systematically 14,537 draw 73,343 down balance 7,33 over 171,377 years 1,688 to pay life 14,537 insurance premiums. 65,84 6,58 611,898 1,454 57,362 5,74 512,435 1,218 Creates 14,537local liquidity 47,899and flexibility 4,79 411, Funds 14,537 life insurance 37,441 policy premiums 3,74 31, Avoids 14,537 MEC policy 25,979 status 2,6 28, ,537 14,537 13,52 1,35 14, (1) Client uses death benefit proceeds to fund policy premiums of $14,537 for years 1 1 (2) Assumes hypothetical 1% return. (3) Residual balance assuming 1% return. (4) Federal Income Tax assuming 24% rate. #1 Intergenerational planning Broker / Dealer use only LCN

49 Lincoln AssetEdge VUL 215 A Hypothetical Life Insurance Illustration Flexible Premium Variable Life Insurance Policy Presented by: Any Representative Current Charges/Hypothetical Rate of Return For: Client Initial Death Benefit $1,5, Age: 55 Initial Death Benefit Opt: Increasing by Cash Value Sex: Male Payment Mode: Combined Annual Class: Standard Non Tobacco Riders: ABR Liquid This section shows how the specific premium and benefit design are illustrated to perform hypothetically using non guaranteed Values (1) assumptions. The hypothetical benefits and values shown below are not guaranteed. The hypothetical values shown below are based on 917,13 the assumed rates of return, cost of insurance rates, charges for M & E risk and administrative expenses. The assumptions on which 918,941 they are based are subject to change and actual results may be more or less favorable. For additional information about assumptions see the Understanding Your Illustration section.. 925, ,116 Current Charges Premium Allocation / Rate of Return 1% Indexed Account / # Weighted 6.% 954,34 976,612 End Annual Net 5.% 5.19% 1,5,243 of Premium Accum. Surrender SV IRR DB Death IRR 1,4,317 1,81,14 Year Age Outlay Value Value Benefit 1,128, ,537 84,922 12,712 1,725, Assuming 1% return (1) Combined 2 with guarantee Liquid Values 57 charges, includes the 14,537 accumulation the residual value value of insurance death proceeds plus the Surrender Value of the AssetEdge VUL policy. 181,66 111,61 1,725, in year 1 is $721,246 and in year 3 is $496, , ,98 215,165 1,782,98 Broker / Dealer use only LCN

50 #1 Intergenerational planning Male 55 Wants to buy life Insurance for children $75, + life Insurance inheritance for each child Wants some of assets in the market and some in safe returns Choice of over 8 equity accounts plus 3 market indexed accounts, and guaranteed fixed account Wants penalty free liquidity in the event of an opportunity Minimum $917,13 penalty free liquidity Wants tax free returns Pays only tax on client earnings 28%) Broker / Dealer use only LCN

51 #1 Intergenerational planning $72, Inheritance M&F age 6 Excellent Health Exposed to Downside Market Risk? Subject to Annual Income Taxes? Total Tax loss over 3 years? Taxed to Children at Death? Total Net after death in 3 years? Non Qualified Yes Yes $776,553 $2,335,246 Variable Annuity Yes No $467,49 $1,868,197 Assumes 6% returns, 2% Federal Income Tax and both deaths at age 9 1% annual fee on nonqualified account, 2% annual fee on variable annuity Broker / Dealer use only LCN

52 Lincoln WealthPreserve Survivorship IUL A Life Insurance Illustration Flexible Premium Adjustable life Insurance Presented by: Any Representative For: Mr. Wealth Transfer Mrs. Wealth Transfer Initial Death Benefit $5,, Age: 6 6 Initial Death Benefit Opt: Level Sex: Male Female Initial Payment Mode: Annual Class: Preferred Non Tobacco Preferred Non Tobacco Riders: ABR , , ,496 Guaranteed Charges Current Charges Guaranteed Interest: All Accounts 1.% Assumed Interest: Weighted Allocations: 6.% Account Allocation: 1% Indexed Account, % Fixed Account End Net Net Net Net of Annual Policy Surrender Death Annual Policy Surrender Death Year Age Outlay Value Value Benefit Outlay Value Value Benefit $72, Non Qualified Transferred Annuity Balance over 3 years Surr Value Life Insurance Cash Value 2,335,246 1,557,69 1,246,87 1,868,197 2,32,216 1,64, ,22 5,27 63, ,24 61, , ,71 565, ,687 52,499 22,72 289,27 434,778 44,14 443, , , , , ,699 5,, 5,, 5,, 5,, 5,, 5,, 5,, 5,, 5,, 5,, 276, , , , ,689 75, , , , , ,638 96, ,381 Summary Values 35, ,689 59, , , , ,87 742, , ,581 5,, 5,, 5,, 5,, 5,, 5,, 5,, 5,, 5,, 5,, Life Insurance Death Benefit 5,, Broker / Dealer use only LCN

53 #1 Intergenerational planning $72, Inheritance M&F age 6 Excellent Health Non Qualified Variable Annuity Exposed to Downside Market Risk? Yes Yes Life Insurance No Subject to Annual Income Taxes? Yes No No Total Tax loss over 3 years? $776,553 Taxed to Children at Death? $467,49 Total Net after death in 3 years? $2,22,51 $1,83,672 $5,, Assumes 6% returns, 2% Federal Income Tax and both deaths at age 9. 1% annual fee on nonqualified account, 2% annual fee on variable annuity Lincoln WealthPreserve Survivorsip Indexed UL policy Form SUL635 Assuming 1% return and guaranteed charges the policy will lapse in year 19. Broker / Dealer use only LCN

54 Life Insurance as a Legacy Asset A sub allocation of the Asset Portfolio Harmonized to Match Risk Liabilities Absolute Returns Mortality Hedge Correlation Management Personally Evolving Cash Value Reservoir of Wealth Cash Flow Management Tax Loss Management Inflation Management Longevity Quality Hedge Specific Legacy Long Term Care Leverage Wealth Management Broker / Dealer use only LCN

55 Life Insurance as a Legacy Asset 56% of Financial Advisors don t discuss life insurance. (1) Client death is the greatest liquidity event for advisors. (2) 7% of widows change advisors within 1 year 84% of children change advisors within 6 months More than 7, Americans die every day. (3) Baby Boomers will inherit $8,4,,, (4) (1) Saybrus Partners 212 Survey of Advisors (2) Fidelity 212 Assets Under Management Survey (3) US Center for Disease Control and Prevention (4) Baby Boomers Generation Fast Facts CNN Library 11/6/13 Broker / Dealer use only LCN

56 Unique Attributes Most Versatile of Life Insurance Un taxed Least Managed by Government Life Insurance Asset THANK YOU FOR YOUR LINCOLN BUSINESS! Un touched Most Complex by Creditors On time Most Regulated when needed Broker / Dealer use only LCN

57 Important information Lincoln Financial Group affiliates, their distributors, and their respective employees, representatives and/or insurance agents do not provide tax, accounting or legal advice. Please consult an independent advisor as to any tax, accounting or legal statements made herein. Issuers: The Lincoln National Life Insurance Company, Fort Wayne, IN Lincoln Life & Annuity Company of New York, Syracuse, NY Distributor: Lincoln Financial Distributors, Inc., Radnor, PA, a broker dealer Certain products used with the strategies discussed may carry risks including possible loss of principal. Products, riders and features are subject to state availability. Limitations and exclusions may apply. The Lincoln National Life Insurance Company does not solicit business in the state of New York, nor is it authorized to do so. All guarantees and benefits of the insurance policy are subject to the claims paying ability of the issuing insurance company. They are not backed by the broker dealer and/or insurance agency selling the policy, or any affiliates of those entities other than the issuing company affiliates, and none makes any representations or guarantees regarding the claims paying ability of the issuer. Broker / Dealer use only LCN

58 Your Lincoln Resources Advanced Sales Your source for customized solutions, strategies, coaching, case design and advice to address your client s needs Estate and business planning Executive compensation Specialty markets Wealth transfer Tax planning AdvanceSales@lfg.com Competitive Services Group Your source for best practices, sales ideas, and case design in the life insurance and long term care marketplace Pulse on the industry Comprehensive case analysis Policy audits Alternative designs/ considerations Sales concepts Competition@lfg.com Broker / Dealer use only LCN

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