Wealth Transfer Planning with Social Security

Transcription

1 Wealth Transfer Planning with Social Security Estate Planning and Social Security PRESENTED BY PREPARED FOR Sample Agent John Hancock Financial Services 197 Clarendon St. Boston, MA Tel.: (617) Fax: (617) License: 0 Percival Dartie & Holly Dartie Insurance products are issued by John Hancock Life Insurance Company (U.S.A.), Boston, MA and securities offered through John Hancock Insurance products LLC through are issued other by: broker/dealers John Hancock that Life have Insurance a selling agreement with John Hancock Distributors LLC, 197 Clarendon Street, Boston, Company of New York, Valhalla NY Securities Products distributed by John Insurance January 26, 2016 MA Hancock 02116Distributors products are LLC issued through by: John other Hancock broker/dealers Life Insurance appointed Company by John of (U.S.A.), New Hancock York, Boston, Distributors Valhalla MA NY LLC, Clarendon Street, Boston, MA 02116

2 Wealth Transfer Planning with Social Security The Concern You have been successful enough that you do not need your social security income to meet your basic living needs. You would like to know if there is some way to use this money to create an inheritance for your heirs. The Solution You can use your social security income to fund a life insurance policy. The death benefit of a life insurance policy is generally income-tax free, and may increase the amount left to your heirs. Also, if purchased within an ILIT, the life insurance proceeds are generally estate tax free as well. Benefits Considerations Prepared for Percival Dartie & Holly Dartie Presented by Sample Agent Potential Leverage Purchasing life insurance can potentially increase the amount left for your heirs. Income Tax Advantages In general, life insurance proceeds are received by your family income-tax free.¹ Estate Tax Advantages If the life insurance is purchased in a properly drafted Irrevocable Life Insurance Trust (ILIT), the proceeds are generally received by your family estate tax free.² Irrevocable Gift if Using an ILIT Once you make gifts to the family trust they become irrevocable and they may not be returned to you without adverse tax consequences. Insurance Eligibility Life insurance eligibility will be based on financial and medical underwriting. Additional Costs Life insurance policies have charges associated with them such as the cost of insurance and potential surrender charges. Please consult the attached basic illustration for more information. There may be costs associated with creating an ILIT. Long-Term Care Riders If you are considering creating a policy with a longterm care rider where the owner is not the insured, there may be adverse consequences - both tax and contractual in nature. You should review the particulars of your intended ownership arrangement with your legal and tax counsels in light of the income, gift, and estate tax provisions of the Internal Revenue Code. How Does It Work? You purchase a life insurance policy on your life which can be owned either by you, or an Irrevocable Life Insurance Trust (ILIT) created by you. In general, life insurance proceeds are income tax free, and if the policy is owned by a properly drafted ILIT, the proceeds may avoid estate taxes as well. You can then use your social security income to pay the premiums on the life insurance policy. Planning Options The following pages graphically illustrate a projected net amount transferred to your heirs upon your death based on the following scenarios: 1. Your current situation in which you keep social security income and it accumulates within your estate. 2. Using the income from your social security to fund the purchase of a life insurance policy. Please see the attached Glossary of Ledger Terms for a definition of key terms used in this proposal. Page 2 of 8 January 26, 2016

3 Benefit Summary Prepared for Percival Dartie & Holly Dartie Prepared by: Sample Agent Policy Details Summary Product: Protection SUL 13 Initial Premium: $19,500 Insured(s): Percival Dartie & Holly Dartie Initial Death Benefit: $1,814,448 Male Age 67, Preferred NonSmoker/Female Age 63, Preferred NonSmoker Initial Annual SSI Benefit: $30,000 Initial A/T SSI Benefit: $19,500 Comparison of Values in Year 29 Do Nothing Gift to a Trust and Buy Life Insurance (ILIT) Estate Today 10,000 10,000 Prior Taxable Gifts Made 2,500,000 2,000,000 1,500,000 1,000, ,000 0 NET TO HEIRS Joint Life Expectancy is 29 years Total Premiums Paid by Year ,285 Current Proposed Cumulative New Gifts by Year ,285 New Gift Taxes Paid by Yr 29 Total Estate in Year ,831 Estate Taxes Credit Shelter Trust + 636,743 17,410 Other Assets in Trust in Year Death Benefit in Year ,814,448 Net to Heirs in Year 29 = 1,514,574 1,831,858 Potential Gain Due from Planning 317,284 Notes All values are shown as of end of year, unless otherwise indicated. Estate tax calculations are based on Current Extended. Life expectancy calculation based on the Valuation Basic Table (VBT) 2008 Estate tax calculations assume the use of the applicable exclusion at the first death. Long-Term Care Rider Initial Long-Term Care Benefit: Monthly Long-Term Care Benefit (2%): This is a supplemental illustration authorized for distribution only when preceded or accompanied by a basic illustration from the issuer. Benefits and values may not be guaranteed; the assumptions on which they are based are subject to change by the insurer. Actual results may be more or less favorable. Refer to the basic illustration for guaranteed elements and other important information. This illustration is not intended to be accounting, legal, or tax advice. Clients should consult their accounting, legal, and tax advisors about their particular circumstances before implementing any recommendations. Insurance policies and/or associated riders and features may not be available in all states. Page 3 of 8 January 26, 2016

4 Do Nothing Detail Analysis Prepared for Percival Dartie & Holly Dartie Presented by Sample Agent (1) (1) (2) (2) (3) (3) (4) (5) (5) (6) (6) (7) (7) (8) (8) Year Attained Age Total Estate Total Estate (BOY) (BOY) Annual Annual SSI SSI Benefit Benefit (BOY) (BOY) A/T SSI Benefit Estate 2.00% Total Estate Total Estate (EOY) (EOY) Estate Taxes* Credit Shelter Trust Net Net To To Heirs (1+3)x2.00% /64 10,000 30,000 19, , , /65 30,090 30,300 19, , , /66 50,781 30,603 19,892 1,413 72, , /67 72,086 30,909 20,091 1,844 94, , /68 94,021 31,218 20,292 2, , , /69 116,599 31,530 20,495 2, , , /70 139,836 31,846 20,700 3, , , /71 163,747 32,164 20,907 3, , , /72 188,347 32,486 21,116 4, , , /73 213,652 32,811 21,327 4, , , /78 351,336 34,484 22,415 7, , , /83 509,240 36,243 23,558 10, , , ,684 38,092 24,760 13, , ,252 1,300, ,853 39,639 25,765 17, , ,743 1,514, ,831 40,035 26,023 18, , ,478 1,571, ,110,063 42,077 27,350 22,748 1,160, ,076 1,877, ,373,652 44,224 28,745 28,048 1,430, ,710 2,222, ,672,227 46,480 30,212 34,049 1,736, ,112 2,610, ,009,817 48,850 31,753 40,831 2,082, ,090 3,047,491 *Estate tax calculations are based on Current Extended and assume the use of the applicable exclusion at the first death. See attached Glossary of Ledger Terms. The data shown is taken from a hypothetical calculation. It assumes a hypothetical rate of return and may not be used to Page 4 of 8 January 26, 2016

5 Prepared for Percival Dartie & Holly Dartie Presented by Sample Agent Use Social Security Income to Purchase Life Insurance Year Attained Age ESTATE VALUES ILIT AT DEATH (1) (2) (2) (3) (3) (4) (4) (5) (5) (6) (6) (7) (8) (8) (9) (10) (11) (12) (13) (14) (15) Total Estate (BOY) Annual Annual SSI SSI Gift Estate Annual Gift Life Other Trust Total Trust Credit Annual Gift to Gift Taxes Total Estate Benefit After-Tax to Trust Insurance Life Insurance Assets Assets at Shelter Estate Trust (BOY) Paid 2.00% (EOY) (BOY) SSI Benefit (BOY) Premium Death Death Trust Taxes Net to Heirs #REF! ( )x2.00% (8-9)x(1+2.00%) (EOY) (EOY) /64 10,000 30,000 19,500 19, ,200 19,500 19,500 1,814, ,814, ,824, /65 10,200 30,300 19,695 19, ,404 19,695 19,695 1,814, ,814, ,824, /66 10,404 30,603 19,892 19, ,612 19,892 19,892 1,814, ,814, ,825, /67 10,612 30,909 20,091 20, ,824 20,091 20,091 1,814, ,814, ,825, /68 10,824 31,218 20,292 20, ,041 20,292 20,292 1,814, ,814, ,825, /69 11,041 31,530 20,495 20, ,262 20,495 20,495 1,814, ,814, ,825, /70 11,262 31,846 20,700 20, ,487 20,700 20,700 1,814, ,814, ,825, /71 11,487 32,164 20,907 20, ,717 20,907 20,907 1,814, ,814, ,826, /72 11,717 32,486 21,116 21, ,951 21,116 21,116 1,814, ,814, ,826, /73 11,951 32,811 21,327 21, ,190 21,327 21,327 1,814, ,814, ,826, /78 13,195 34,484 22,415 22, ,458 22,415 22,415 1,814, ,814, ,827, /83 14,568 36,243 23,558 23, ,859 23,558 23,558 1,814, ,814, ,829, ,092 24,760 24, ,760 24,760 1,814, ,814,448 16, ,830, ,639 25,765 25, ,765 25,765 1,814, ,814,448 17, ,831, ,035 26,023 26, ,023 26,023 1,814, ,814,448 17, ,832, ,077 27,350 27, ,350 27,350 1,814, ,814,448 19, ,834, ,224 28,745 28, ,745 28,745 1,814, ,814,448 21, ,836, ,480 30,212 30, ,212 30,212 1,814, ,814,448 23, ,838, ,850 31,753 31, ,753 31,753 1,814, ,814,448 26, ,840,836 This is a supplemental illustration authorized for distribution only when preceded or accompanied by a basic illustration from the issuer. Benefits and values may not be guaranteed; the assumptions on which they are based are subject to change by the insurer. Actual results may be more or less favorable. Refer to the basic illustration for guaranteed elements and other important information. This illustration is not intended to be accounting, legal, or tax advice. Clients should consult their accounting, legal, and tax advisors about their particular circumstances before implementing any recommendations. Insurance policies and/or associated riders and features may not be available in all states. Page 5 of 8 January 26, 2016

6 Wealth Transfer Planning with Social Security Income Prepared for Percival Dartie & Holly Dartie Presented by Sample Agent Assumptions CLIENT INFORMATION Value Explanation ESTATE TAX OPTION Value Explanation Family Name Dartie Name of family Estate Tax Option Current Extended without Clawback Estate tax rates based on the selected option Client Name Percival Given name of the first client LIFE INSURANCE Age 67 Age of the first client Type of Policy Survivorship Survivorship or Single Life Sex Male Sex of the first client Policy Name Protection SUL 13 Smoking Status Preferred NonSmoker Underwriting class of the first client (required) State Michigan Initial Policy Death Benefit $1,814,448 Total death benefit Spouse's Name Holly Given name of the second client Policy Premium $19, Monthly Age 63 Age of the second client Years for Premiums 58 Number of years to pay premiums Sex Female Sex of the second client Smoking Status Preferred NonSmoker Underwriting class of the second client Current Crediting Rate 5.05% Policy's crediting rate PLAN INFORMATION Estimated Monthly SSI Benefit $2,500 Estimated Monthly SSI Benefit Is Benefit Taxable? Yes Will the benefit be subject to income taxes? Tax Bracket 35.00% Tax bracket to use on SSI Benefit CPI Rate 1.00% Consumer Price Index Rate; ie the rate at EXISTING INSURANCE which the monthly benefit will be indexed. Existing Life Ins. Death Benefit $0 Heirs' Names The Heirs Names of the heirs Annual Premium $0 Total Estate Value $10,000 Total estate value Premium Years 0 After Tax Growth Rate of Estate Assets 2.00% After tax (income) growth rate for Current Cash Value $0 Estate Assets 1035 Existing Policy? No Will you 1035 Exchange Existing Number of Annual Exclusions Gifts 99 Number of annual exclusions per client Policy for a new one? Post-76 Taxable Gifts $0 Amount of taxable gifts made after Gifts are assumed to be split equally PRESENTER INFORMATION between spouses. Presenter's Name Sample Agent Name of presenter Gift Taxes Paid in Past Three Years Agency Name John Hancock Financial Services Gift Taxes Paid in 2016 $0 Gift Taxes Paid in 2016 Address 197 Clarendon St. Gift Taxes Paid in 2015 $0 Gift Taxes Paid in 2015 City, State ZIP Boston, MA Gift Taxes Paid in 2014 $0 Gift Taxes Paid in 2014 Telephone (617) Use Unified Credit at First Death? Yes Use Unified Credit at first death? Fax (617) INITIAL GIFT ASSUMPTIONS Address hansel@jhancock.com Initial Gift Amount $0 Initial Gift Amount RESULTS ANNUAL GIFT ASSUMPTIONS Focus Year 1 29 Focus year Gifting Option Gift Exactly SSI Income Gifting option chosen Print Years 54 TRUST OPTIONS Existing Trust Assets $0 Trust Growth Rate 2.00% 1. The focus year refers to the year that has been chosen by you. The values in the focus year are highlighted, can be changed and are for your convenience only. The year may be life expectancy, a random year, or a year that coincides with your personal planning goals. This is a supplemental illustration authorized for distribution only when preceded or accompanied by a basic illustration from the issuer. Benefits and values may not be guaranteed; the assumptions on which they are based are subject to change by the insurer. Actual results may be more or less favorable. Refer to the basic illustration for guaranteed elements and other important information. This illustration is not intended to be accounting, legal, or tax advice. Clients should consult their accounting, legal, and tax advisors about their particular Page 6 of 8 January 26, 2016

7 Glossary The following terms and phrases may be helpful to you as you consider this presentation. Annual Gift To Trust This column illustrates the total gifts made by you to the trust, including those made to cover the annual insurance premiums, as well as those that are deposited into the trust s side fund to be invested separately from the insurance. Applicable Exclusion Amount The full amount of assets that at death can pass to heirs free of estate taxes. A/T After-tax A/T SSI Benefit The amount of Social Security Income left after income taxes. In this instance, after-tax refers to after the application of income taxes only. BOY Values at the beginning of the year. Credit Shelter Trust If you are married, at the death of the first spouse, a credit shelter trust can be funded with the applicable estate tax exemption that you may have available. This column illustrates the use of a Credit Shelter Trust to calculate estate taxes in an assumed year of the first death. Prepared for Percival Dartie & Holly Dartie Presented by Sample Agent EOY Values at the end of the year. Gift Taxes Paid If you use an ILIT and the annual gifts you make to the trust result in gift taxes due, this column reflects the gift taxes and pays them from the estate assets. If the annual gifts you make to a life insurance trust are less than the life insurance premium, this column also reflects the difference coming from estate assets. Other Trust Assets If you use an ILIT, this column illustrates the current value of assets, in any given year, in an irrevocable trust or irrevocable life insurance trust, separate from any existing or new life insurance proceeds. These assets grow at an assumed growth rate and include all gifts, net of any premiums due, made in prior years. SSI Social Security Income. SSI Side Fund The amount of Social Security Income that you, the client, have specified was not needed for living expenses, accumulated at a rate specified by you, the client. Unspent A/T SSI Benefit The amount of after-tax Social Security Income that you, the client, believe will not be necessary for living expenses and which would otherwise remain in your estate and earning interest. Page 7 of 8 January 26, 2016

8 Disclosure Prepared for Percival Dartie & Holly Dartie Presented by Sample Agent SSI Maximization is a planning tool designed to toassist you in inexploring potential estate planning options through the use useof of life life insurance. However, this this presentation is not isintended not intended as your as your estate/gifting plan nor nor is it isa specific it a specific recommendation recommendation for your for estate/gifting your estate/gifting plan. This plan. This presentation is is for for demonstrative purposes purposes only. This only. analysis This does analysis not constitute does not a constitute a recommendation of a aparticular option over over any any other other planning planning alternative. Other Other alternatives alternatives may be more appropriate or orsuitable for for your your particular situation and and should should be discussed be with with your legal, tax, and accounting advisors prior to your making any gifting or purchase decisions. John Hancock does Newnot York guarantee does nothe guarantee accuracy the of accuracy the SSI Maximization of the SSI Maximization system or the system output. or the John output. Hancock John Hancock will not be will liable not be for liable any damages for any arising damages from arising the use from or misuse the of orthis misuse software this or software from any or errors from any or omissions errors or omissions in the same. in the Comments same. Comments on taxation on are taxation based on arejohn based on John Hancock s understanding of current tax law, which is issubject to tochange. John Hancock assumes no duty to toupdate this software or or to to provide notice notice of any of any errors errors in the in the software software or applicable or applicable changes in the law. Figures used in inthis program illustrate various benefit/retirement planning concepts, which which are are based upon both assumptions and data provided by byou, you, the the client. Your Your furnishing of accurate of data will help enhance the thevalue of of this this analysis. However, all all assumed growth growth rates rates for assets for assets are based upon information provided and assumed by byou youand and are are not not a guarantee a of the of the future future performance of the life lifeinsurance policy. Please Please review review the the assumptions page page for accuracy for accuracy of of information. This supplemental illustration assumes that the currently illustrated non-guaranteed elements will continue for all years shown. This is is not not likely to toccur occur and and actual actual results results may may be more be more less or less favorable than those shown. The The actual consequences of a ofparticular a planning planning alternative alternative will will depend on many variables, some of of which may may not not be be accounted for for fully or fully described described in this in this presentation. Unless otherwise indicated, the the income income tax, tax, estate estate tax, and tax, generation-skipping and transfer (GST) tax implications of of other other specific transactions are are not not reflected reflected in the inanalysis. the analysis. Before you make any investment, estate or tax planning decisions (or change title to any assets or change beneficiary designations), your legal and andtax taxadvisors should be be consulted to determine to (1) the suitability of of a particular a planning alternative for you, for you, and (2) and the (2) precise the precise legal, tax, legal, tax, investment, and accounting consequences of that alternative. This material is authorized for distribution only when accompanied preceded or by accompanied the basic illustration by a current and prospectus the client guide for the forillustrated the relevant product. issued by John Hancock Life NewInsurance York, andcompany for John (U.S.A.), Hancock Trust. and forthe John prospectus Hancockcontains Trust. complete The prospectus details oncontains investment complete objectives, details risk, onfees, investment charges and objectives, Thisexpenses material risk, does asfees, well not charges as constitute otherand information tax, expenses legalor or as about accounting wellthe as other investment advice information andcompany neither about John which the Hancock investment shouldnew nor be carefully company York of nor itsany considered. which agents, of itsshould employees agents, Please be employees or carefully read registered or the registered considered. prospectus representatives representatives Please carefully read in are the containing the business the prospectus business this of offering and carefully offering other such information containing such advice. advice. It was this on Itnot was product and intended not other intended and or information written the underlying written use onfor and the portfolios use cannot product and cannot beand used consider be the byused any underlying taxpayer by these anyfactors taxpayer portfolios for the carefully purpose forand the before consider purpose of avoiding investing. ofthese avoiding anyfactors IRSThis penalty. carefully IRS material penalty. It was before iswritten It not was investing. intended to written support toas Product the support investment marketing the and/or marketing of advice. product the transactions of the features Product transactions ormay topics and/or not it product be topics addresses. available it addresses. features Anyone in allmay states. interested Anyone notin be interested addition available these transactions to in in these all prospectus, transactions states. or topics Inthis addition or should material topics seek should the must advice prospectus, beseek accompanied based advice this on his based material by or the her on must basic his particular orbe illustration her accompanied particular circumstances andcircumstances the by client from the basic independent guide illustration from forindependent theprofessional relevant and theprofessional product. client advisors. guide advisors. for the relevant product. Variable universal life insurance has annual fees and expenses associated with it in addition to life insurance related charges (which differ with the product chosen), including surrender charges and investment management fees. Variable universal life insurance products are long-term contracts and are sold by prospectus. They are subject to market risk due to the underlying sub-accounts, and are unsuitable as a short term savings vehicle. The primary purpose of variable universal life insurance is to provide lifetime protection against economic loss due to the death of the insured person. Cash values are not guaranteed if the client is invested in the investment accounts. There are risks associated with each investment option, and the policy may lose value. This material is does fornot informational constitute tax, purposes legal or only. accounting Although advice manyand of neither topics Johnpresented Hancockmay nor involve any of its legal, agents, tax, accounting, employees or registered other issues, representatives neither Johnare Hancock in thenew business York, ofjohn offering Hancock such Distributors advice. It was LLC not intended nor any or of written their agents, for useemployees, and cannot be registered used byrepresentatives any taxpayer for orthe registered purpose representatives of avoiding anyaffiliated IRS penalty. through It was a selling written agreement to support the are marketing the business of theof transactions offering such or topics advice it on addresses. these issues. Anyone You interested should consult in thesewith transactions your professional or topics should advisorseek on advice the legal, based tax, on accounting, his or her or particular financial circumstances planning aspects fromof independent the topics presented. professional advisors. Footnotes 1. See IRC 2503(b) 2. Trusts should be drafted by an attorney familiar with such matters in order to take into account income and estate tax laws (including the generation-skipping transfer tax). Failure to do so could result in adverse tax treatment of trust proceeds. Internal Compliance Number: MLI Page 8 of 8 January 26, 2016