Give the Gift That Truly Matters A Gift Towards a Child s Retirement

Transcription

1 Give the Gift That Truly Matters A Gift Towards a Child s Retirement

2 When you create a RIC-E Trust, you contribute as little as $5,000, and you designate a child or grandchild to receive the money when he or she reaches retirement age. 2

3 Introducing the Retirement InCome for Everyone Trust When it comes to children and savings, most people think only about college costs. College is worthwhile, of course. But what s the real purpose of sending a youngster to college? It s to get an education so your child can get a good job. Then, with a good job, they can earn a good income so they can save for retirement and, hopefully, live comfortably in their elder years. Why not help them by setting aside some money for their retirement while they re still young? The idea is exciting, but you must overcome two challenges. First, there s the annual tax liability due on an investment s annual earnings. Second, money you set aside for a child becomes accessible when he or she reaches age 18 meaning the child might spend the money before he or she ever reaches retirement. The RIC-E Trust addresses both these issues for you, helping you provide a more secure retirement for your children and grandchildren. What is the Retirement InCome for Everyone Trust? The Retirement InCome for Everyone Trust (called the RIC-E Trust for short, pronounced RICKY) is a way for parents, grandparents and others to help a child they love enjoy a more financially secure retirement. The idea is to let you set aside money that grows without taxes until the child reaches retirement age. The account also grows outside of the donor s estate. Who can establish a RIC-E Trust? Anyone can establish a RIC-E Trust for any child, regardless of the child s age. You can create a RIC-E Trust for a newborn, or for adult children, including those in college or newly married, as well as for those much older. Parents and grandparents, of course, can establish a RIC-E Trust for the important children in their lives and so can aunts, uncles, godparents and family friends. Indeed, you can establish a RIC-E Trust for anyone; you do not have to be related. 3

4 RIC-E Trust The Investment Let s talk about the investment that will be used for the money you place into the Trust. The Polaris Platinum III Variable Annuity, issued by the American General Life Insurance Company 1, will be the investment vehicle for the RIC-E Trust. Like all annuities, Polaris is an insurance contract. Since the Trust is being established for a child s retirement, a variable annuity offers the features needed for this long-term investment. Under current tax law, money placed in an annuity grows tax-deferred, meaning taxes are not paid on earnings until money is withdrawn. Thus, there are no income taxes during the life of the Trust, except for limited circumstances as previously discussed. By postponing taxes on earnings, money grows faster than a comparable investment that is taxed annually. Please note that changes in tax rates, or the tax treatment on investment earnings or annuities may impact results. Investment Features Variable annuities can be purchased with a single payment or multiple payments. Most variable annuities let you choose from, and move money among, a variety of sub-accounts without paying sales charges or taxes. The sub-accounts invest in stocks, bonds, money market accounts or a combination of the three. The variable annuity prospectus provides detailed information on all the sub-account investment choices offered. Sub-account values and returns fluctuate with the performance of the underlying investments hence the word variable in the product s name. Therefore, when you make a withdrawal, the value of the account might be worth more or less than the original investment. Amounts allocated to the sub-accounts are subject to market risk, including the possible loss of principal. Future payments are based on the performance of the investment portfolio. Tax Features Under current tax law, profits earned from variable annuities are not taxed until withdrawn. This means money can be transferred from one investment option to another within a variable annuity without any tax implication. Withdrawals are subject to taxes at ordinary income tax rates. Also, withdrawals prior to age 59½ are subject to a 10% IRS penalty. (To avoid the risk of incurring this penalty, the Trust does not permit withdrawals prior to age 59½ except in the event of death, disability or the payment of trustee fees.) Please note that changes in tax rates, or the tax treatment on investment earnings or annuities may impact results. 4 1 In all states except New York, where they are issued by the United States Life Insurance Company in the City of New York.

5 Insurance Features Because variable annuities are issued by insurance companies, these products often have insurance features. The annuity used by the trust includes a Guaranteed Death Benefit which states that, if the child dies, the child s estate will receive the greater of: (a) value of the account or (b) the amount that was invested (minus withdrawals). This guarantee is based on the claims-paying ability of the insurance company. Expenses of the Variable Annuity Investing in a variable annuity incurs several expenses, such as: Contingent Deferred Sales Charge: After eight years, the Polaris annuity permits withdrawals without restriction. During the first eight years, free withdrawals are permitted only up to 10% of the account s value each year. This restriction is irrelevant for the RIC-E Trust because the withdrawals are prohibited until the child reaches the age of distribution. If a withdrawal were to occur during the first seven years, the fee on amounts beyond 10% per year (called a Contingent Deferred Sales Charge) would be as shown below: 8 and Year beyond Fee 8% 7% 6% 5% 4% 3% 2% 0% Insurance Separate Account Expense: The annuity charges a maximum annual fee of 1.55%, debited on a pro-rata basis daily, for the insurance benefits offered by the variable annuity. Annual Contract Fee: None. Although the Polaris annuity normally charges an annual contract fee of $50, this fee is waived for all RIC-E Trusts. Sub-Account Expense: The sub-accounts offered by the Polaris annuity are managed by mutual fund companies. Each fund charges an annual fee, called the expense ratio, which is debited daily just like the separate account fee. The total sub-account expense will vary based on the funds selected. The minimum annual sub account expense is.72% and the maximum annual subaccount fee is 1.48%. Complete details for each fund can be found in the prospectus. Commission: Your Financial Advisor receives initial compensation of 1% based on the value of the investment, and.25% quarterly based on the value of the investment beginning in month 15. This is paid to your Financial Advisor from the invested assets. Important Note Not FDIC Insured May Lose Value No Bank or Credit Union Guarantee Not a Deposit Not Insured by any Federal Government Agency Variable annuities are subject to risk, including the loss of principal. The contract, when redeemed, may be worth more or less than the total amount invested. Variable annuities are offered by prospectus only. The prospectus contains complete details on features, benefits, risks, fees and expenses. You should consider the investment objectives, risks, charges and expenses of the annuity before investing. Please contact us or consult your Financial Advisor for a copy of the product prospectus for this and other information. You should read the prospectus carefully prior to investing or sending money. 5

6 What might the RIC-E Trust be worth when the child retires? Investment results will vary, of course. We cannot predict the future. What is the tax liability when investing in a RIC-E Trust? If the trust and its assets are managed as designed, there is no annual income tax, no tax filing and no trustee fee during the life of the trust. (It is possible the Trust could incur fees for Trustee services if you choose a trustee who charges a fee. Any distributions made to pay Trustee fees would necessitate the filing of a trust tax return and create the obligation for income taxes and a 10% IRS penalty if the child is under age 59½.) When the child receives distributions from the RIC-E Trust in retirement, he or she will owe income taxes based on his or her income tax rate at that time. The child will choose when to receive this income. Please note that changes in tax rates, the tax treatment of investment earnings, or the tax treatment of annuities may impact results. What happens if there are changes in tax law? Tax-deferred investments are long-established retirement planning tools, but it is always possible that Congress might do away with them. If that were to happen, the Financial Advisor you select for the Trust could offer recommendations to respond to any tax law changes. Please note that changes in tax rates, the tax treatment of investment earnings, or the tax treatment of annuities may impact results. 6

7 How do I obtain a RIC-E Trust? It s easy to establish a RIC-E Trust. Just complete a RIC-E Trust Enrollment Form and send it to Edelman Business Services, LLC along with a check for the one-time set up fee of $200. This fee is waived for clients of Edelman Financial Services who are invested in the Edelman Managed Asset Program. EBS will then prepare a template trust and send it to you for review. Please note that the RIC-E Trust is a legal document and only a qualified attorney can provide legal advice to consumers. We encourage you to review the Trust with your estate planning attorney. If you receive legal services, an attorney will likely charge a legal fee. Who serves as the Trustee? You can name anyone you wish, except yourself. You can also name a successor Trustee if the initial Trustee becomes unable or unwilling to serve. Furthermore, the child (or the child s guardian if the child is a minor) can replace the Trustee at any time. If you want to name yourself, your spouse or the child s spouse as Trustee, we recommend you talk to an estate attorney. How much work is required for the Trustee? Very little. Essentially, the Trustee s function is to make sure the money in the Trust is invested as you instruct when you established the RIC-E Trust, and that the money remains invested until the child reaches retirement age. When the child reaches that age, the Trustee will make sure the Trust s assets are given to the child. Because you will probably name a family member or close family friend to serve as Trustee, he or she will probably agree to serve as Trustee at no cost. However, the Trust does permit the Trustee to receive compensation, so discuss this with the person you plan to appoint as Trustee. If you select a corporate Trustee, such as a bank or trust company, the Trust will incur fees for such services. Distributions made to pay trustee fees will be taxable to the Trust and will necessitate the filing of a trust tax return. (You and the child or the child s guardian can replace the Trustee at any time, for any reason.) To make it even easier for the Trustee to carry out his or her duties, you ll name a Financial Advisor to assist him or her. Tell me more about the Financial Advisor. The Financial Advisor for your RIC-E Trust will be one of Ric Edelman s colleagues at Edelman Financial unless you select a different Financial Advisor. You will receive investment recommendations that are appropriate for the child, and the money will be invested accordingly. 7

8 The Trustee is also permitted to delegate certain tasks to Edelman Financial Services, such as issuing notices as required by law. Thus, the Trustee will have very little work to do. The Trustee will oversee the Financial Advisor s activities for the benefit of the child. (Because it is not intended that withdrawals will be made prior to retirement, the Financial Advisor will not be responsible for filing trust tax returns should any pre-retirement withdrawals necessitate them.) The advisors of Edelman Financial Services are also Registered Representatives of EF Legacy Securities, LLC an affiliated broker-dealer, member FINRA/SIPC, and are acting in their capacity as Registered Representatives of EF Legacy Securities, LLC when offering the RIC-E Trust and any related securities. You and the child (if the child is a minor, then his or her guardian) can fire the Financial Advisor at any time and hire a different Financial Advisor. What are the fees of the Financial Advisor? If you allow Edelman Financial Services to serve as the Financial Advisor for the RIC-E Trust, there will be no administrative or investment advisory fees, other than the onetime $200 set up fee (which is waived for clients of Edelman Financial Services who are invested in the Edelman Managed Asset Program). Be aware that the investment vehicle used for the RIC-E Trust will incur fees and expenses annually. to you or the Trust for the services provided. Be aware that the investment vehicle used for the RIC-E Trust will incur fees and expenses annually. These fees are described in the Expenses of the Variable Annuity section on page 5 of this brochure. In addition, the investment vehicle used for the RIC-E Trust pays compensation to the Financial Advisor. This compensation is paid from the invested assets. 8

9 Where will the money be invested? The money will be invested in a proposed tax-deferred investment. For more information turn to pages 4-5. Be aware that because the Trust assets are invested in this manner, withdrawals made for any purpose, including paying fees, are currently subject to income taxes and a 10% penalty if such withdrawals are made before the child reaches age 59½. Does the investment charge any fees? There are fees and charges incurred by the proposed tax-deferred investment. Please refer to the Expenses of the Variable Annuity section on page 5 of this brochure. A detailed description of fees can also be found in the prospectus. You should read the prospectus carefully before you invest or send money on behalf of the Trust. What is the minimum needed to establish the RIC-E Trust? When you establish a RIC-E Trust, you must fund it with at least $5,000. You can contribute more if you wish. Once the Trust is established, you may make additional contributions at any time, in amounts of $500 or more. You are never required to do so. You raise them. You nurture them. You protect them. Now you can help secure their retirement, too. Because you love them. 9

10 Can I set up a RIC-E Trust for a child of any age? Yes. The child simply needs a Social Security Number and a U.S. address. Is there a limit to the amount that can be placed in a RIC-E Trust? From an economic perspective, no, because the more you contribute, the more the child will have when in retirement. However, there is an IRS limitation on gifts. For 2016, if you alone contribute to the RIC-E Trust, a gift tax might be incurred if you contribute more than $14,000 to the child (either directly or through the Trust). If you and another person (such as your spouse) together act as co-contributors, then the limit is $28,000 per child per year. For more information about the tax implications of gifts and current limits, you should consult a financial or tax advisor. For administrative questions regarding the RIC-E Trust, contact us at 888-PLAN-RIC ( ) ext Can I add money to the RIC-E Trust over time? Yes. RIC-E Trusts can accept additional contributions at any time, from any person, in amounts of $500 or more. What if I have more than one child? Must I open a separate RIC-E Trust for each child? Yes. Each RIC-E Trust is designed to benefit one child. I want to establish a RIC-E Trust for a child, but I am not the child s parent. Should I coordinate with the parents before I proceed? Yes, if the child is a minor. When creating a RIC-E Trust for a child under age 18, the child s parent or legal guardian needs to sign some of the paperwork so the IRS will regard the gift as received (for tax purposes) by the child. So it s best to explain this to the child s parent or guardian in advance, and we can join you in that conversation if you wish. The parents or guardian will be reassured to know that, under current tax law, the RIC-E Trust does not create any tax liability for the child or the child s parents during the life of the trust, nor does it interfere with the child s ability to qualify for college financial aid. Of course, tax law could change, so we encourage you to consult with a tax and legal advisor. 10

11 I have several children in mind. How much should I give to each child s RIC-E Trust? Although the minimum to establish a RIC-E Trust is $5,000, you can contribute different amounts to different RIC-E Trusts. When establishing multiple trusts, some people give more to older children than to younger ones, because the older ones are closer to retirement and have less time for the money to grow. Others prefer to fund each Trust with identical amounts. If I establish a RIC-E Trust, can I later change my mind? No. The RIC-E Trust is irrevocable. Once you establish the Trust and make a contribution to it on behalf of the child, you cannot take the money back or undo any aspect of the Trust. When is the child able to receive money from the Trust? When establishing a RIC-E Trust, you decide the age for the child to receive the money (the earliest you can select is age 59½). What happens if the child becomes disabled? If the child becomes disabled, as defined in the RIC-E Trust, the Trustee will be able to distribute the money from the Trust, even if the child has not yet reached retirement age. Distributions may be subject to income taxes and a 10% IRS penalty. Consult a tax advisor for further details. When the child reaches the age I ve designated, is the money given to him or her all at once? When the child reaches the retirement age you designated, the assets in the RIC-E Trust will be transferred from the Trust to the child. The child will have the option of leaving the money in the account as-is (to continue deferring taxes), or, if the child prefers, he or she can receive some or all of the money immediately. 11

12 What happens if the child needs the money before retirement? The RIC-E Trust is designed to help solve the child s future retirement needs, not to be used for other financial concerns that may occur before then. Therefore, aside from disability, the money is not available prior to the retirement age that you select when establishing the RIC-E Trust. What happens if the child dies before retirement? The Trustee will distribute the Trust s assets to the child s probate estate. From there, the money will be distributed in accordance with the child s estate plan and the law. This process can be more fully explained by a financial advisor or estate attorney. Who will be kept informed of the RIC-E Trust s status? Quarterly statements will be sent to the Trustee. What do I do next? Just complete the RIC-E Trust Enrollment Form for each child and send it to Edelman Business Services, LLC. We ll commence your enrollment right away. Get started on page

13 To Enroll, Follow These 10 Easy Steps 1 You are the Grantor, meaning you are the person establishing the Trust, so enter your contact information. We will notify you when it is time to send the contribution check. 2 3 If a second person is joining you in establishing the Trust, provide his or her contact information as well. For each Trust you want to establish, enter the full name of the child; his or her relationship to you; and the child s address, date of birth and Social Security number. Enter the age for the child to be eligible to receive the Trust s assets (must be age 59½ or older). The minimum contribution is $5,000. You may contribute as much as you wish. Due to gift tax laws, we recommend you talk to a Financial Advisor, tax advisor or estate attorney if you plan to contribute more than $14,000. If you wish to create a RIC-E Trust for more than three children, please complete a separate Enrollment Form Each Trust must have a Trustee. Tell us who you are designating. Tell us who you wish to designate as Successor Trustee, if any. Tell us how you are funding the Trust by filling out the Transaction Disclosure (must be completed regardless of source of funds) OPTIONAL: Complete this section only if you wish to name a Financial Advisor different from Edelman Financial Services, LLC. Acknowledge the important disclosures and additional information Be sure to sign the Enrollment Form ( sign now portion) before mailing. Please do not send the contribution check until we contact you to do so. Mail the forms to: Edelman Business Services, LLC, 4000 Legato Road, 9th Floor, Fairfax, VA Enclose the enrollment fee of $200 per child payable to Edelman Business Services, LLC. If you are a client of Edelman Financial Services and have an account in the Edelman Managed Asset Program, the enrollment fee is waived. 13

14 1 Grantor Name First Name RIC-E TRUST ENROLLMENT Middle Initial Last Name Date of Birth Social Security Number Home Street Address Primary Telephone Number Annual Income 2 City State ZIP Code Address Net Worth Co-Grantor Name Middle Initial Last Name Date of Birth Social Security Number First Name Home Street Address Primary Telephone Number Annual Income 3 City State ZIP Code Full Legal Name of Child #1 First Name Street Address Middle Initial Last Name Relation to Grantor Address Relation to Co-Grantor Net Worth Amount of Contribution Date of Birth Social Security Number Age of Distribution (Earliest Distribution is age 59 1/2) City State ZIP Code Address Full Legal Name of Child #2 First Name Middle Initial Last Name Relation to Grantor Relation to Co-Grantor Amount of Contribution Street Address City State ZIP Code Address Date of Birth Social Security Number Age of Distribution (Earliest Distribution is age 59 1/2) Full Legal Name of Child #3 First Name Middle Initial Last Name Relation to Grantor Relation to Co-Grantor Amount of Contribution Street Address City State ZIP Code Address Date of Birth Social Security Number Age of Distribution (Earliest Distribution is age 59 1/2) 4 Trustee Information First Name Home Street Address If you would like to include more children, complete an additional enrollment form. Middle Initial Last Name Date of Birth Social Security Number Primary Telephone Number City State ZIP Code Address Mailing Address (if different from above) Relation to Child 1 Relation to Child 2 Relation to Child 3 City State ZIP Code 5 Successor Trustee #1 (optional) Middle Initial Last Name Successor Trustee #2 (optional) First Name First Name Middle Initial Last Name Home Street Address Home Street Address 6 7 Primary Telephone Number Address Transaction Disclosure (must be completed regardless of source of funds) Primary Telephone Number Address If you are liquidating more than one account (i.e. mutual fund, annuity, life insurance, stocks, bonds, etc.) to reinvest into an annuity, you must include all transactions. A. Is this purchase made with the proceeds of any of the following liquidations? Checking/Savings Mutual Fund Redemption Share class: A B C Other: The contingent deferred sales charge on the mutual fund redemption is: $ or % Life Insurance (all policies with cash values) Stock, Bonds, Unit Investment Trusts Money Market, CD The termination and/or closing fee on the existing account is: $ or % Annuity Surrender or Exchange Fixed Index Variable The termination charge on the existing (old) annuity contract is: $ or % Other: Financial Advisor Broker/Dealer Name Edelman Financial Services LLC will serve as Financial Advisor unless you designate another Financial Advisor. Rep Name Rep # Optional: Complete if you would like to designate a different Financial Advisor. I understand that if I select a principal or associate of Edelman Financial Services LLC (EFS) Address to serve as Financial Advisor, EFS will issue notices and perform other duties on behalf of the Trustee, and will do so at no cost for as long as a principal or associate of EFS serves as City State Zip Code Phone Number Financial Advisor. I understand that another Financial Advisor might not provide the services provided by EFS, or might assess fees to the trust for doing so, which would result in tax and other costs to the trust. I further understand that EFS will not provide legal advice to me, the Retirement Beneficiary or the Trustee. I have received and read a prospectus for the proposed investment to be used by the trust. The Financial Advisor, whether through EFS or another firm, will be compensated through his or her broker/dealer for the sale of the proposed investment to the trust. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account. When you open an account, we will ask for your name, address, date of birth and other information that will allow us to identify you. We may also ask to copy your driver's license or other identifying documents. Securities offered by EF Legacy Securities, LLC, an affiliated broker-dealer, member FINRA/SIPC.

15 8 What is this? RIC-E TRUST VARIABLE ANNUITY DISCLOSURE The Retirement InCome - for Everyone Trust (called the RIC-E Trust for short, pronounced RICKY) is a way for parents, grandparents and others to help a child they love enjoy a more financially secure retirement. The idea is to let you set aside money and have that money grow without taxes until the child reaches retirement age. IMPORTANT DISCLOSURES I understand that I am purchasing a deferred variable annuity policy issued by an insurance company. I understand that variable annuities are long-term investments and are generally not suitable for meeting short-term financial goals because substantial taxes and insurance company charges may apply if the funds are withdrawn early. Variable annuities contain various fees and charges, including separate account charges, which are described in the contract prospectus. The financial advisor receives compensation based on the value of the investment. Variable annuities may be subject to market fluctuation, and upon withdrawal the value may be more or less than my original contribution. State and Local government taxes may apply, which may impact the return on this contract. Please refer to the prospectus/contract for details. The Trustee can change the investment allocation. To achieve this, you are creating an irrevocable trust. Under the tax code, tax deferral can be obtained by utilizing a variable annuity as the investment vehicle within the trust. Income taxes may be payable upon withdrawal. Annuity withdrawals from non-qualified annuities are considered interest first before any tax-free basis is recovered, resulting in Last-In-First-Out (LIFO) tax treatment. In addition, a 10% tax penalty may be imposed on withdrawls prior to age 59½. I have been encouraged to seek a tax professional regarding tax consequences of withdrawals from an annuity. The Trustee has a minimum of 10 days ( a free-look period ) in which I may surrender the contract without incurring any surrender charges. However, in a variable annuity and where permitted by State law, the value received may be more or less than my original contribution because of market fluctuations. I understand and acknowledge that when opening a Ric-E Trust account I am creating an irrevocable trust and that none of Edelman Financial Services, LLC, or Edelman Business Services, LLC, nor any of their affiliates, employees, or representatives are providing me with legal advice in relation to such Ric-E Trust account or the related irrevocable trust. I understand and acknowledge that I have been advised to and given the opportunity to consult with an attorney of my choosing before electing to open a Ric-E Trust account or creating the related irrevocable trust. AFFIRMATION - The intended use of this annuity is to provide a more secure retirement for the annuitant. ACKNOWLEDGEMENTS I acknowledge that the information on this form has been explained to my satisfaction. The signature below confirms that I fully understand the charges, fees and features of the proposed recommendation. I have received and reviewed the prospectus and all applicable sales materials. Investing in a variable annuity incurs several expenses, as follows: Surrender Schedule Separate Account Fees Subaccount Expenses Annual Maint. Fee Total Expenses Year and beyond Fee 8% 7% 6% 5% 4% 3% 2% 0% 1.30% 1% (approx.) $50 (waived for RIC-E Trust ) 2.30% (approx.) 9 Variable annuities are subject to risk, including the loss of principal. The contract, when redeemed, may be worth more or less than the total amount invested. Variable annuities are offered by prospectus only. The prospectus contains complete details on features, benefits, risks, fees and expenses. You should consider the investment objectives, risks, charges and expenses of the annuity before investing. You should read the prospectus carefully prior to investing or sending money. Sign Now Grantor: Date: 10 Co-Grantor: Mail Forms Date: Edelman Business Services LLC 4000 Legato Road, 9th Floor Fairfax, VA Enclose the one-time enrollment fee of $200 per child payable to Edelman Business Services LLC. If you are a client of Edelman Financial Services and have an account in the Edelman Managed Asset Program, the enrollment fee is waived. Sign Later Trustee: Investment Professional: Designated Principal: Date: Date: Date: Securities offered by EF Legacy Securities, LLC, an affiliated broker-dealer, member FINRA/SIPC.

16 Edelman Business Services, LLC ( EBS ) is the marketer and licensor of the RIC-E Trust and an affiliate of Edelman Financial Services, LLC ( EFS ), a Registered Investment Advisor. The advisors of Edelman Financial Services are also Registered Representatives of EF Legacy Securities, LLC, ( EFLS ) an affiliated broker-dealer, member FINRA/SIPC, and are acting in their capacity as Registered Representatives of EF Legacy Securities, LLC when offering the RIC-E Trust and any related securities. EFLS, EFS and EBS are affiliated companies. Other financial advisors not associated with EFS, but who may be selected by the client, are individual Registered Representatives with other broker-dealers Legato Road, 9th Floor, Fairfax, VA ricetrust.com 14 mc-ebs-ricetrust