Life Insurance & Securing a Legacy Case Study

Transcription

1 Life Insurance & Securing a Legacy Case Study John Hancock Life Insurance Company Insurance products are issued by: John Hancock Life Insurance Company (U.S.A.), Boston, MA (not licensed in New York) and John Hancock Life Insurance Company of New York, Valhalla, NY John Hancock. All rights reserved. LIFE /18 MLINY

2 Who s interested? Individuals and/or couples who want freedom in retirement to spend their retirement savings without having to worry about legacy/inheritance left for children, grandchildren, etc. RETIREMENT RISKS SEQUENCE OF RETURNS WITHDRAWAL RATE MEDICAL EXPENSES OUTLIVING INCOME TAXES INFLATION 2 of 18 For Agent Use Only. This material may not be used with the public. 2 of 9

3 Case study the Delanos Mike Delano, 42, and Lauren Delano, 38 Married with two children Both practicing attorneys and make combined income of $600k/year Both contribute fully to their employer-sponsored 401(k) and make non-deductible IRA contributions each year, but not saving substantially beyond retirement accounts Have a $2M house with large mortgage, pay for a full-time nanny for young children and plan to send both kids to private school Lauren recently inherited $2M from grandmother Each has $1M group term insurance through employer 3 of 18 For Agent Use Only. This material may not be used with the public. 3 of 9

4 The Delanos: two ways to use inherited assets to fund insurance Outright gift Mike and Lauren each gift $1M outright to a trust created to benefit their spouse and children Trustee will use income return off invested assets to fund life insurance Trust now holds inherited amounts and life insurance outside the estate and protected from creditors, but with access via spousal access provisions Private finance Mike and Lauren will each lend $1M to a trust that benefits their spouse and children Loan Term is 3 Years (Short Term AFR) Trustee will use income return off invested assets to pay interest back to clients and pay premiums Total of $2M will be repaid to couple at the end of 3 years Trust left with funded policy that can provide income-replacement early on and protective inheritance in the future, along with additional living benefits 4 of 18 For Agent Use Only. This material may not be used with the public. 4 of 9

5 Spousal Lifetime Access Trusts (SLAT) Grantor Transfers $$$$ Spousal Lifetime Access Trust (SLAT) $$$ Spouse Children Grandchildren ADVANTAGES Indirect access via Spouse Creditor protection Estate tax protection Dispositive plan protection CONSIDERATIONS Spouse beneficiary dies before grantor Divorce Reciprocal Trust Doctrine 5 of 18 For Agent Use Only. This material may not be used with the public. 5 of 9

6 Outright gift SLAT FBO LAUREN Trustee invests $1M gift and uses income ($70,000 assuming 7% growth) to help purchase life insurance on Mike s life SLAT FBO MIKE Trustee invests $1M gift and uses income ($70,000 assuming 7% growth) to help purchase life insurance on Lauren s life In this case, Trustee pays $51,900 in premium for three years to purchase $1,652,000 of DB Policy includes 2% LTC rider allowing up to $33,000/month for LTC expenses At Age 70, policy has approximately $433k of cash value accessible to the trustee (and beneficiaries) Trust also has $1M asset (plus income) that is appreciating inside the trust In this case, Trustee pays $51,900 in premium for three years to purchase $2,167,000 of DB Policy includes 2% LTC rider allowing up to $43,000/month for LTC expenses At Age 70, policy has approximately $642k of cash value accessible to the trustee (and beneficiaries) Trust also has $1M asset (plus income) that is appreciating inside the trust Examples based on Protection IUL at a rate of 6%- Vitality Gold with 2% LTC rider as Preferred Nonsmoker. This is a supplemental illustration. It assumes a hypothetical rate of return and may not be used to project or predict actual results. Not all benefits and values are guaranteed. The assumptions on which the non-guaranteed elements are based are subject to change by the insurer. Actual results may be more or less favorable. 6 of 18 For Agent Use Only. This material may not be used with the public. 6 of 9

7 Private financing how it works 1 Grantor lends $$$ to trust for term of years TRUST 2 Trustee invests $$ and pays premium via income off assets 3 Loan interest paid annually to grantor (based on AFR) 5 Policy cash value & death benefit 4 Loan balance repaid at end of loan period 6 Trustee can make distributions to spouse/kids during life from cash value and/or upon grantor s death APPLICABLE FEDERAL RATE (AFR) Short: 1.81% Mid: 2.31% Long: 2.66% (FEBRUARY 2018) ADVANTAGES Lock in low interest rates Minimize or eliminate gift tax exposure associated with premiums Bring in new Asset Under Management (AUM) or keep control of AUM 7 of 18 For Agent Use Only. This material may not be used with the public. 7 of 9

8 Private finance the numbers YEAR LOAN BALANCE INTEREST DUE/PAID (1.81%) GROWTH IN TRUST (7%) LOAN REPAYMENT PREMIUM INSURED DEATH BENEFIT LTC BENEFIT CASH Age 70 1 $1,000,000 $18,100 $70,000 - $51,900 Mike Lauren $1,652,000 $2,167,000 $33,000 $43,000 2 $1,000,000 $18,100 $70,000 - $51,900 Mike Lauren $1,652,000 $2,167,000 $33,000 $43,000 3 $1,000,000 $18,100 $70,000 - $51,900 Mike Lauren $1,652,000 $2,167,000 $33,000 $43, $1,000,000 - Mike Lauren $1,652,000 $2,167,000 $33,000 $43,000 Age 70 $433,000 $642,000 The non-insurance data shown is taken from a hypothetical calculation. Example based on Protection IUL at a rate of 6%- Vitality Gold with 2% LTC rider as Preferred Nonsmoker. This is a supplemental illustration. It assumes a hypothetical rate of return and may not be used to project or predict actual results. Not all benefits and values are guaranteed. The assumptions on which the non-guaranteed elements are based are subject to change by the insurer. Actual results may be more or less favorable. 8 of 18 For Agent Use Only. This material may not be used with the public. 8 of 9

9 Disclosures This material does not constitute tax, legal, investment or accounting advice and is not intended for use by a taxpayer for the purposes of avoiding any IRS penalty. Comments on taxation are based on tax law current as of the time we produced the material. All information and materials provided by John Hancock are to support the marketing and sale of our products and services, and are not intended to be impartial advice or recommendations. John Hancock and its representatives will receive compensation from such sales or services. Anyone interested in these transactions or topics may want to seek advice based on his or her particular circumstances from independent advisors. 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 tax). Failure to do so could result in adverse tax treatment of trust proceeds. The Long-Term Care (LTC) rider is an accelerated death benefit rider and may not be considered long-term care insurance in some states. There are additional costs associated with this rider. The Maximum Monthly Benefit Amount is $50,000. When the death benefit is accelerated for long-term care expenses it is reduced dollar for dollar, and the cash value is reduced proportionately. Please go to to verify state availability. Insurance policies and/or associated riders and features may not be available in all states. Vitality is the provider of the John Hancock Vitality Program in connection with policies issued by John Hancock John Hancock. All rights reserved 9 of 18 For Agent Use Only. This material may not be used with the public. 9 of 9