Minimize Taxes, Maximize Your Legacy Using Life Insurance

Transcription

1 Minimize Taxes, Maximize Your Legacy Using Life Insurance A Supplemental Illustration Prepared for Valued Client Prepared by Premier Producer Premier Brokerage 1 Sales Drive Anytown, USA Life insurance is issued by Symetra Life Insurance Company, th Ave NE, Suite 1200, Bellevue, WA Products are not available in all U.S. states or any U.S. territory. Symetra UL-G is a flexible premium universal life insurance policy. LIM-1090/NT 4/18

2 Important Information About This Supplemental Illustration This analysis compares the federal income and estate tax impact on a nonqualified deferred annuity versus using all or a portion of your current nonqualified annuity's value for the purchase of life insurance. The purpose of this analysis is to offer you an alternative strategy that may increase the percentage of your estate that passes to your beneficiaries. It is intended as an estate planning option for an existing deferred annuity and is not a recommendation to purchase an immediate annuity to fund the purchase of life insurance. This supplemental illustration is not intended as investment, accounting, legal or tax advice and Symetra Life Insurance Company does not give investment, accounting, legal or tax advice. This supplemental illustration does not attempt to provide more than general U.S. tax information associated with life insurance policies. This information is written to support the promotion or marketing of life insurance issued by Symetra Life Insurance Company. You should seek advice based on your particular circumstances from an independent tax advisor. Illustrated annuity growth rates are purely hypothetical and do not imply consistency with actual earnings rates and growth rates. The various estate planning alternatives illustrated are based on the assumptions and data provided by you, the client. The accuracy of this data will be enhanced by assumptions that correctly reflect your situation. This analysis illustrates a hypothetical annuity payout to fund premiums on a life insurance policy. This is not an annuity payment based on a Symetra Life Insurance Company quote or based on a Symetra Life Insurance Company annuity product. Your actual payment may be more or less than illustrated. Since most annuity payout choices are irrevocable, you should consult with your legal, tax, and accounting advisors before you annuitize. Withdrawals from annuity contracts are taxable events and, unless meeting an exception, withdrawals made prior to age 59½ are subject to an additional 10% penalty. This analysis does not illustrate the effect of an additional tax. The estate tax calculations are based on the input of current net worth and the assumed estate growth rate; the calculation of the estate tax is based on federal estate tax law in effect on 1/1/2018. Annuity contract fees, including potential surrender charges, are not reflected in this illustration. Page 2 of 9

3 You've spent a lifetime building wealth. Not only has your hard work and well-reasoned financial decisions ensured a comfortable retirement for yourself, you now have the means to gift retirement assets you no longer expect to use to loved ones. Now that your financial goals have changed, it may be time to consider strategies that can help minimize taxes so that more of your legacy dollars pass to future generations. The Potential Tax Impact of Annuities Nonqualified annuities can be effective tools for saving money and generating income. Unfortunately, the same benefits that made an annuity a great choice for you - tax-deferred growth, guaranteed lifelong income and no required minimum distributions at age 70½ - can make it an inefficient tool for transferring wealth to your beneficiaries. An Example of Annuity Value Transferring to Beneficiaries in Year 15 Assumptions Future Annuity Value: $900,470 Current Net Worth (Excluding Annuity): $2,650,000 Annuity Cost Basis: $200,000 Assumed Estate Growth Rate: 2% Assumed Annuity Growth Rate: 4% Assumed Income Tax Rate: 32% The Result Estate Tax Attributable to Annuity: 1 $0 Income Tax Attributable to Annuity: 2 $224,150 Total Taxes Due on Annuity: $224,150 Balance of Annuity Left to Beneficiaries: $676,320 Percent Lost to Taxes: 25% Income Taxes 25% Estate Taxes 0% Left to Beneficiaries 75% 1 The applicable federal estate tax exclusion (indexed for inflation) is $11.2 million per individual in The estate tax is unified with federal gift tax and generation-skipping transfer tax such that in 2018 the lifetime gift tax exemption and generation-skipping transfer tax exemption (indexed for inflation) is $11.2 million per person and the maximum tax rate for both of these taxes will also be 40%. The estate and gift tax exemptions are set to expire on 12/31/2025 and revert back to $5.6 million per person increased by inflation. (Source: "Frequently Asked Questions on Gift Taxes," IRS, accessed November December 2017: For current information and/or assessment of your particular situation, please consult with your tax professional. 2 Income taxes are reduced by Income in Respect of a Decedent (IRD) at the beneficiary's federal income tax rate and reflect the IRD deduction, IRC Section 691(a). Page 3 of 9

4 Maximizing the Value of Your Annuity Dollars After careful consideration, you ve concluded that you have sufficient retirement assets and do not anticipate relying on a nonqualified annuity for future income needs. After discussing your plans to gift the annuity to your beneficiaries, your advisor explains that repositioning those annuity assets with a life insurance policy may be an effective solution for maximizing the assets that transfer to your beneficiaries. Repositioning Annuity Assets Using Life Insurance The annuity owner works with his/her advisor, applies for and owns a recommended amount of Life Insurance. The owner begins annual distributions from the nonqualified annuity, net of taxes. 3 Each year, the annuity owner uses some or all of the annual distribution to fund the life insurance premiums. At death, the life insurance proceeds will bypass probate and pass to beneficiaries free of federal income taxes. The Result: More efficient and cost effective way to pass on value from your annuity minimizing potential taxes and maximizing your legacy. 3 Annuity income consists of principal and interest and a portion of each payment will be income taxable. The taxable portion of the annuity is determined by the applicable annuity exclusion percentage. Excess annuity payments above the exclusion percentage are considered ordinary income. Annuity carriers offer specific rules and should be contacted for more information regarding distributions. Page 4 of 9

5 How could you benefit? Repositioning nonqualified annuity assets using life insurance may help: Maximize your legacy. Although taking distributions from your nonqualified annuity will trigger a taxable event, those dollars can potentially purchase a significant life insurance death benefit for your beneficiaries. Minimize taxes. Life insurance proceeds bypass probate, swiftly transferring to your beneficiaries free of federal income taxes. Or, if properly structured in a trust that exists outside the taxable estate, the death benefit proceeds are paid to the trust free of federal income and estate taxes. 4 Access to money. The life insurance death benefit can help equalize the inheritance received by your beneficiaries, and provide them with the money they may need to pay off a mortgage, replace income, and pay estate, income and capital gains taxes. Collect additional retirement income. Rather than letting nonqualified annuity assets sit unused, this strategy may allow you to enjoy the difference between your annuity s distributions and the life insurance premiums. The following assumptions are used in this analysis to demonstrate how distributions or annuity payments from your deferred annuity could work to provide the payments for the proposed Symetra Life Insurance Company life insurance policy described in the accompanying illustration: 5 Plan Assumptions Current Annuity Value: $500,000 Annuity Cost Basis: $200,000 Hypothetical Annuity Growth Rate: 6 4% Annuitization (Life Only - gross annual income): $37,500 Assumed Federal Income Tax Rate: 32% 4 The annual gift tax exclusion applies to gifts to each donee. The owner may gift up to $15,000 per year, per recipient in Source: "What's New - Estate and Gift Taxes, IRS, accessed December 2017: Employed/Whats-New-Estate-and-Gift-Tax. 5 Annuity contract fees, including potential surrender charges, are not reflected in this illustration. 6 Annuity growth rates shown are purely hypothetical. Page 5 of 9

6 Analysis of Current Annuity Upon Death Based on current assumptions. Not guaranteed. It is assumed that your annuity has no payouts and a hypothetical growth rate of 4%. Tax calculations assume death occurs at the end of the indicated year. This supplemental illustration assumes that the annuity death benefit equals the contract value of the annuity. Annual Income Estate Beginning Ending Taxes Taxes Net to Year Age Balance 4.00% Balance Due* Due Beneficiaries 1 70 $500,000 $20,000 $520,000 $102,400 $0 $417, $520,000 $20,800 $540,800 $109,056 $0 $431, $540,800 $21,632 $562,432 $115,978 $0 $446, $562,432 $22,497 $584,929 $123,177 $0 $461, $584,929 $23,397 $608,326 $130,664 $0 $477, $608,326 $24,333 $632,659 $138,451 $0 $494, $632,659 $25,306 $657,965 $146,549 $0 $511, $657,965 $26,319 $684,284 $154,971 $0 $529, $684,284 $27,371 $711,655 $163,730 $0 $547, $711,655 $28,466 $740,121 $172,839 $0 $567, $740,121 $29,605 $769,726 $182,312 $0 $587, $769,726 $30,789 $800,515 $192,165 $0 $608, $800,515 $32,021 $832,536 $202,412 $0 $630, $832,536 $33,301 $865,837 $213,068 $0 $652, $865,837 $34,633 $900,470 $224,150 $0 $676, $900,470 $36,019 $936,489 $235,676 $0 $700, $936,489 $37,460 $973,949 $247,664 $0 $726, $973,949 $38,958 $1,012,907 $260,130 $0 $752, $1,012,907 $40,516 $1,053,423 $273,095 $0 $780, $1,053,423 $42,137 $1,095,560 $286,579 $0 $808, $1,095,560 $43,822 $1,139,382 $300,602 $0 $838, $1,139,382 $45,575 $1,184,957 $315,186 $0 $869, $1,184,957 $47,398 $1,232,355 $330,354 $0 $902, $1,232,355 $49,294 $1,281,649 $346,128 $0 $935, $1,281,649 $51,266 $1,332,915 $362,533 $0 $970, $1,332,915 $53,317 $1,386,232 $379,594 $0 $1,006, $1,386,232 $55,449 $1,441,681 $397,338 $0 $1,044, $1,441,681 $57,667 $1,499,348 $415,791 $0 $1,083, $1,499,348 $59,974 $1,559,322 $434,983 $0 $1,124, $1,559,322 $62,373 $1,621,695 $454,942 $0 $1,166,753 The purpose of this supplemental illustration is to show how the performance of the underlying deferred annuity could effect its value and death benefit. This supplemental illustration is hypothetical and is not intended to serve as a projection. Annuity contract fees, including potential surrender charges, are not reflected in this supplemental illustration. *Income taxes reflect deduction for the Income in Respect of a Decedent (the "IRD" deduction). Page 6 of 9

7 Repositioning Nonqualified Annuity Assets Using Life Insurance Based on current assumptions. Not guaranteed. Tax Gross on Net Insurance Net Insurance Total Annuity Annuity Annuity Premium Spendable Death to Year Age Payout Payout 4 Payout Outlay Income Benefit Beneficiaries 1 70 $37,500 $8,000 $29,500 $29,500 $0 $985,366 $985, $37,500 $8,000 $29,500 $29,500 $0 $985,366 $985, $37,500 $8,000 $29,500 $29,500 $0 $985,366 $985, $37,500 $8,000 $29,500 $29,500 $0 $985,366 $985, $37,500 $8,000 $29,500 $29,500 $0 $985,366 $985, $37,500 $8,000 $29,500 $29,500 $0 $985,366 $985, $37,500 $8,000 $29,500 $29,500 $0 $985,366 $985, $37,500 $8,000 $29,500 $29,500 $0 $985,366 $985, $37,500 $8,000 $29,500 $29,500 $0 $985,366 $985, $37,500 $8,000 $29,500 $29,500 $0 $985,366 $985, $37,500 $8,000 $29,500 $29,500 $0 $985,366 $985, $37,500 $8,000 $29,500 $29,500 $0 $985,366 $985, $37,500 $8,000 $29,500 $29,500 $0 $985,366 $985, $37,500 $8,000 $29,500 $29,500 $0 $985,366 $985, $37,500 $8,000 $29,500 $29,500 $0 $985,366 $985, $37,500 $8,000 $29,500 $29,500 $0 $985,366 $985, $37,500 $12,000 $25,500 $25,500 $0 $985,366 $985, $37,500 $12,000 $25,500 $25,500 $0 $985,366 $985, $37,500 $12,000 $25,500 $25,500 $0 $985,366 $985, $37,500 $12,000 $25,500 $25,500 $0 $985,366 $985, $37,500 $12,000 $25,500 $25,500 $0 $985,366 $985, $37,500 $12,000 $25,500 $25,500 $0 $985,366 $985, $37,500 $12,000 $25,500 $25,500 $0 $985,366 $985, $37,500 $12,000 $25,500 $25,500 $0 $985,366 $985, $37,500 $12,000 $25,500 $25,500 $0 $985,366 $985, $37,500 $12,000 $25,500 $25,500 $0 $985,366 $985, $37,500 $12,000 $25,500 $25,500 $0 $985,366 $985, $37,500 $12,000 $25,500 $25,500 $0 $985,366 $985, $37,500 $12,000 $25,500 $25,500 $0 $985,366 $985, $37,500 $12,000 $25,500 $25,500 $0 $985,366 $985,366 4 Refer to footnote 3 for more information. The purpose of this supplemental illustration is to show how the systematic use of proceeds from a nonqualified annuity, net of income taxes, can be used to purchase life insurance. In addition, it shows the amount left to heirs/beneficiaries including the life insurance death benefit and any remaining proceeds from the annuity reduced by estate and income taxes. This supplemental illustration is hypothetical and is not intended to serve as a projection. Annuity contract fees, including potential surrender charges, are not reflected in this supplemental illustration. Page 7 of 9

8 Comparison of After Tax Proceeds Left to Beneficiaries Based on current assumptions. Not guaranteed. Repositioning Current Annuity Annuity New Proceeds to Proceeds to Approach Year Age Beneficiaries Beneficiaries Advantage 1 70 $985,366 $417,600 $567, $985,366 $431,744 $553, $985,366 $446,454 $538, $985,366 $461,752 $523, $985,366 $477,662 $507, $985,366 $494,208 $491, $985,366 $511,416 $473, $985,366 $529,313 $456, $985,366 $547,925 $437, $985,366 $567,282 $418, $985,366 $587,414 $397, $985,366 $608,350 $377, $985,366 $630,124 $355, $985,366 $652,769 $332, $985,366 $676,320 $309, $985,366 $700,813 $284, $985,366 $726,285 $259, $985,366 $752,777 $232, $985,366 $780,328 $205, $985,366 $808,981 $176, $985,366 $838,780 $146, $985,366 $869,771 $115, $985,366 $902,001 $83, $985,366 $935,521 $49, $985,366 $970,382 $14, $985,366 $1,006,638 -$21, $985,366 $1,044,343 -$58, $985,366 $1,083,557 -$98, $985,366 $1,124,339 -$138, $985,366 $1,166,753 -$181,387 This analysis compares the potential federal estate and income tax impact of maintaining a nonqualified deferred annuity versus using all or a portion of your current annuity's contract value for the purchase of life insurance. Please refer to the basic illustrations for more information regarding the specifics of the illustration, including guaranteed elements. Non-guaranteed elements are not guaranteed and actual results may be more or less favorable. Page 8 of 9

9 Comparison of After Tax Proceeds Left to Beneficiaries Based on current assumptions. Not guaranteed. 0 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $ Year of Death Current Annuity Repositioning Annuity This analysis compares the potential federal estate and income tax impact of maintaining a nonqualified deferred annuity versus using all or a portion of your current annuity's contract value for the purchase of life insurance. Please refer to the basic illustrations for more information regarding the specifics of the illustration, including guaranteed elements. Non-guaranteed elements are not guaranteed and actual results may be more or less favorable. Page 9 of 9