Copyright Founder: The Wealth Preservation. Institute. Society. And: Allen Grosnick, CLU, ChFC

IRA/Pension Rescue is a very important topic for millio ons of Americans Helping clients who have the 70-80% tax dilemma is: Helpful to the client Helpful to the heirs Helpful to the advisor (big commissions and client referrals) 2

Qualified deferred Money: Good or Bad? For years those that make significant money have been told to defer as much as possible as a way to save taxes (PSPs, DB and 412(i) ()pa plans). Unfortunately, for clients that are 60-65 and older with estates of $4,000,000, or more, having money in a qualified plan can be a tax trap. IRD = income in respect to decedent, is the worst money a client can have when theree is an estate tax problem. IRD will be taxed with both income and estate taxes at a client s death (55% E.T. in 2011). Main types of IRD assets = IRAs and Pension Plan Money 3

Example Dr. Smith has a $5,000,000 estate, a $1,000,000 IRA and lives in a state with a 5% income tax. Assume Dr. Smith dies after his spouse and with an estate tax problem. What taxes will be due on the IRA? IRA Estate Tax: Income Taxes (State and Fe Total Taxes $1,000,000 ($550,000) ) ($, ) ($800,000) ederal)* ($250,000) TOTAL IRA ASSET AFTER TAX $200,000 *The exact calculation of the income tax due in the above example is quite complicated and the $250,000 000 number used is an approximation. Also, do not forget that the estate tax in 2011 will revert back to 55%. 4

$500,000 Example Now assume you have a client who has $500,000 left in the IRA when the 2 nd spouse dies in a state with a 5% income tax. THIS SLIDE WILL MAKE CLIENTS ILL. The client will be forced to take RMD of $32,679.71 at age 70½ if we assume his wife is the beneficiary and is the same age as the primary IRA owner. Start of Year 6.00% Age Balance Growth 60 $500,000 $30,000 65 $669,113 $40,147 70 $895,424 $53,725 75 $1,198,279 $71,897 80 $1,603,568 $96,214 85 $2,145,935 $128,756 90 $2,871,746 $172,305 95 $3,843,043 $230,583 100 $5,142,859 $308,572 Year End To Heirs After 80% Balance Income & Estate Tax $530,000 $106,000 $709,260 $141,851 $949,149 $189,829 $1,270,176 $254,035 $1,699,782 $339,956956 $2,274,691 $454,938 $3,044,050 $608,810 $4,073,626 $814,725 $5,451,431 $1,090,286 5

What Advice is Typically Given to Avoid the Income & double-tax dilemma? Stretch IRA (good, if no estate tax issues) The sales pitch is great. Client, would you like to turn your $1,000,000 IRA into $16,000,000 when your 30 year old child turns 65 years old? Many clients like this sales pi itch. The problem is it ignores estate taxes. A stretch can delay the incom me taxes due on an IRA s distribution by using a client s child as the measuring life. The problem is that a stretch will not delay estate taxes. If a client with an estate tax problem died with a $1 million in an IRA and passed that to the child via a stretch, where is the child going to find $550,0 000 to pay the estate t taxes on 6 the IRA?

Stretch IRA continued Where will the child get $550,000 to pay the estate taxes on the $1,000,000 IRA? The child will take $500,000 out of the IRA to pay the estate taxes due. What happens when you take money out of an IRA? Income taxes are due. Where does the client get th he money to pay the income taxes on the money taken out of the IRA? The child takes more money out of the IRA to pay those taxes. This creates a vicious cycle and is why stretch IRAs do not work for clients with an estate tax problem. (Unless they buy life insurance to cover the estate taxes due). 7

Liquidate and Leverage L&L is a fancy term for takin g money out of a qualified plan or IRA (at which time taxes are due) and buy life insurance to cover the inevit table income and estate taxes that will be due on the qualified asset. This strategy has a few prob blems. The client then has to gift large premium payments to an ILIT which may make the client use up some of his/her estate tax credit or the client will have a gift tax due. This strategy also creates a situation where the three year look back for gifts comes into play. L&L is not perfect but it s not bad and it s much better than doing nothing. 9

Example Dr. Smith is age 60. He has a $5,000,000 estate ($1,000,000 home, $1,000,000 in rental propert ies, a $2,500,000 000 brokerage account, and $500,000 in his IRA) Assume he is married, has two adult children, and four grandchildren. Dr. Smith earns enough inco ome from his assets that he does not need the IRA money to live on in retirement. Finally, assume Dr. Smith is in the combined 40% income tax bracket (state and federal). Dr. Smith has the double-tax dilemma. 10

Continued Assume for the following charts that the money in the IRA continues to grow at 6% annually. What if Dr. Smith were to take systematic withdrawals of $31,500 from his IRA every year and gift that money to an Irrevocable Life Insur rance Trust, which h would use the money to purchase a large death benefit on his life through a life insurance polic cy? You ll notice that the death benefit from the policy purchased in the ILIT starts at $559,000 and increases to $2,081,000 at age 100. 11

The numbers IRA Start of Year Year End To Heirs Age Balance Balance After 60 $500,000 $490,780 $98,156.0 $559,000 $657,156 65 $448,026 $435,688 $87 7,137.5 $645,000 $732,138 70 $378,473 $361,961 $72,392.3 $762,000 $834,392 75 $285,396 $263,299 299 $52 2,659.9 9 $952,000 $1,004,660 80 $160,837 $131,267 $26,253.4 $1,200,000 $1,226,253 85 $0 $0 90 $0 $0 95 $0 $0 100 $0 $0 Death Benefit IRA After Tax 80% Tax L&L Plus DB $0.1 $1,484,000 $1,484,000 $0.0 $1,705,000 $1,705,000 $0.0 0 $1,904,000 000 $1,904,000 000 12 $0.0 $2,081,000 $2,081,000

Let s compare Now let s compare the do-nothing scenario from the earlier pages to the Liquidate and Leverage scenario on the $500,000 IRA. To Heirs After 80% IRA After Tax Improvement with Age Income & Estate Tax Plus DB Liquidate & Leverage 60 $106,000 $657,156 $551,156 65 $141,852 $732,138 $590,286 70 $189,830 830 $834,392 392 $644,562 75 $254,035 $1,004,660 $750,625 80 $339,956 956 $1,226,253 253 $886,297 85 $454,938 $1,484,000 $1,029,062 90 $608,810 $1,705,000 $1,096,190 95 $814,725 $1,904,000 $1,089,275 100 $1,090,286 $2,081,000 $990,714 13

Traditional/ old school Pension Rescue This was the neatest plan you ever saw. Let s look at an example : Client has $1,000,000 in a qualified plan and an estate tax problem. Assu ume the client does not need the deferred money to live on in retirement. As is 80%+ of fthat tmoney will go to the government via income and estate taxes. 14

The abuses Springing cash value polic cies killed pension rescue because clients were having the policies distributed to themselves personally (at an 80% income tax discount), allowing the surrender charges to evaporate, and then borrowing from the policy. Unfortunately, due to abuses, the IRS acted to kill old school pension rescue with Rev. Proc. 2004-16; and Rev. Ruling 2004-20; and 2004-21. The IRS set a new value of a life policy being rolled out of a pension plan at the premiums paid minus actual costs (not including commissions), plus investment returns. 17

RPM: Retirement Plan Maximizer Prevent the 70% Tax Trap: Strategies & Software to Make the Most of Your Retirement Allen H. Grosnick, CLU, ChFC Technical Advisor to Accountants, Attorneys & Financial Professionals Grosnick Financial 2

Pension Rescue is back! Find a motivated client who: Dislikes paying income taxes Has a total estate of at least $2,000,000 and at least $500,000 in an IRA, 401(k) plan, or other qualified plan that he/she controls Isn t looking for future income from these plans (but this is not a critical factor) 8

The IRS offers more guidance In 2005, the IRS came out with Rev. Proc. 2005-25. They offered a new safe harbor that included a new Average Surrender Factor (ASF) for the valuation of policies that were to be either distributed or purchased by the plan participant from the plan. You could either pay taxes at the safe harbor or use another reasonable method to come up with the FMV (like asking the IRS to fill out your taxes for you, or like taking the standard deduction). This is equivalent to using the Cash Account Value less a percentage discount from that value to equal an adjusted PERC value roughly 70% to 100% of the account value (depends on the policy year). Example: $1,000,000 over five years let s say the CAV is $800,000. we then apply this ASF and in year five it will typically be 20%; therefore, our safe harbor number is $640,000. 000 9

Other Value (FMV) The IRS Rev. Proc. does not preclude plan participants from using another reasonable method to determine FMV. In other words, get a FMV appraisal from a nationally accredited appraisal firm. This method can give a net value of approximately 70 to 80% of premiums actually paid to insurance company (less policy loans). 10

Strategy Retirement t Plan Maximizer Grosnick Financial RPM: Retirement Plan Maximizer 11

Retirement Account Background Contributions to qualified plans are tax deductible Earnings grow tax deferred Money withdrawn is income taxable At death, account value is estate taxable Income in Respect of a Decedent (IRD) Taxes can reach 70% Exit strategy required RPM Grosnick Financial RPM: Retirement Plan Maximizer 13

People Care about Three Things Dependable cash flow during life Asset protection & preservation What family members & charities get Grosnick Financial RPM: Retirement Plan Maximizer 14

The Tax Trap Up to 70% Net Estate Net Estate Grosnick Financial RPM: Retirement Plan Maximizer 15

Pension RPM *Policy often sold at a discount IRA 401(k) Qualified Plan Grantor Trust (IDGT) Changes Sale* Profit Sharing Plan Where Life Insurance Policy is Purchased Grosnick Financial RPM: Retirement Plan Maximizer 16

Plan participant gifts or loans funds* to trust so it can buy policy Pension RPM Profit Sharing Plan Trust Owns New Policy *Personal assets Policy is purchased for its Fair Market Value (FMV) Grosnick Financial RPM: Retirement Plan Maximizer 17

Pension RPM Cash flow from Grantor Trust* Distribution Grantor Trust Loan Note Beneficiaries Grantor or Spouse *Income Tax free (Loan decreases Grantor s estate because of the note payable) Grosnick Financial RPM: Retirement Plan Maximizer 18

RPM Saves Taxes Takes advantage of tax arbitrage Uses specially designed insurance policy Creates an immediate income tax free death benefit Eliminates future income taxes Keeps assets out of estate Saves money Grosnick Financial RPM: Retirement Plan Maximizer 19

Example of Client Benefits

Plan Summary for MRS. NIELSEN Plan Information Insurance Policy Information Profit Sharing Plan Plan Starting Date 6/15/2009 Number of Policies Purchased 1 Beginning Balance $5,000,000 Client Name MRS. NIELSEN Policy 1 Purpose Pension Rescue Age 70 Policy 1 Plan Year of Purchase Policy 1 Face Amount 1 $7,000,000 Spouse Policy 2 Purpose Name Age Policy 2 Plan Year of Purchase Policy 2 Face Amount Policies Purchased Policy 1 Insured MRS. NIELSEN Policy 1 Age 70 Policy 1 Relationship Client Policy 2 Insured Policy 2 Age Policy 2 Relationship Proposed Plan Present Plan Advantage Profit Sharing Proposed Plan Elapsed Cumulative Plan Cash Life Insurance Gifts to Total Cumulative Cash Profit Sharing Plan Gifts to Total less Time Cash Flow After Taxes Benefits Charities Benefits Flow Cash After Taxes Charities Benefits Present Plan 1 Year 118,613 0 4,906,669 4,640,121 9,665,403 118,613 1,850,195 0 1,968,808 7,696,595 20 Years 3,833,294 0 5,500,000 5,514,071 14,847,365 4,622,930 1,858,181 0 6,481,111 8,366,254 Note: These values are net of Estate and Income Taxes. Income Tax Bracket Estate & Gift Taxes Tax Assumptions Average 35% 45%

Total Net Benefits without Other Assets 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 1 Year 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years Proposed Plan Present Plan

Total Net Benefits without Other Assets 18,000,000 16,000,000 14,000,000 4,783,798 3,476,306 12,000,000 5,514,071 5,641,350 10,000,000 5,321,159 8,000,000 4,640,121 4,746,283 6,000,000 11,016,194 12,851,491 4,000,000 6,912,593 7,959,550 9,333,294 2,000,000 5,025,282 4,889,203 0 1 Year 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 0 0 0 0 To Heirs To Charity

Total Net Benefits without Other Assets 16,000,000 14,000,000 12,000,000 5,514,071 10,000,000 8,000,000 6,000,000 0 4,000,000 6,481,111 9,333,294 2,000,000 0 Present Plan After 20 Years Proposed Plan After 20 Years To Heirs To Charity

Total Benefits without Other Assets (After Taxes) - Comparison PROPOSED PLAN PRESENT PLAN Plan Year Calendar Year Age of Client (EOY) Total Death Benefits Accumulated Cash Flow Total Gifts to Charities and Foundations Total Benefits Total Death Benefits Accumulated Cash Flow Total Gifts to Charities and Foundations Total Benefits 1 2009 71 4,906,669 118,613 4,640,121 9,665,403 1,850,195 118,613 0 1,968,808 2 2010 72 6,977,889 241,447 4,248,376 11,467,712 3,477,689 245,556 0 3,723,245 3 2011 73 4,238,262 369,668 3,820,726 8,428,656 1,615,724 381,403 0 1,997,127 4 2012 74 4,140,940 503,448 3,354,374 7,998,762 1,665,517 526,767 0 2,192,284 5 2013 75 4,246,215 642,988 4,746,283 9,635,486 1,705,816 682,302 0 2,388,118 6 2014 76 5,500,000 777,708 4,873,635 11,151,343 1,743,202 848,707 0 2,591,909 7 2015 77 5,500,000 921,702 4,995,697 11,417,399 1,778,516 1,026,567 0 2,805,083 8 2016 78 5,500,000 1,074,872 5,112,248 11,687,120 1,811,678 1,215,761 0 3,027,439 9 2017 79 5,500,000 1,238,565 5,220,826 11,959,391 1,841,834 1,417,952 0 3,259,786 10 2018 80 5,500,000 1,412,593 5,321,159 12,233,752 1,868,889 1,632,909 0 3,501,798 11 2019 81 5,500,000 1,597,553 5,411,747 12,509,300 1,892,325 1,861,370 0 3,753,695 12 2020 82 5,500,000 1,794,069 5,490,943 12,785,012 1,911,574 2,104,104 0 4,015,678 13 2021 83 5,500,000 2,002,789 5,556,946 13,059,735 1,926,150 2,361,912 0 4,288,062 14 2022 84 5,500,000 2,224,385 5,607,794 13,332,179 1,935,600 2,635,625 0 4,571,225 15 2023 85 5,500,000 2,459,550 5,641,350 13,600,900 1,939,228 2,926,099 0 4,865,327 16 2024 86 5,500,000 2,707,312 5,657,893 13,865,205 1,937,113 3,232,131 0 5,169,244 17 2025 87 5,500,000 2,968,137 5,655,505 14,123,642 1,928,627 3,554,299 0 5,482,926 18 2026 88 5,500,000 3,242,471 5,632,165 14,374,636 1,913,109 3,893,153 0 5,806,262 19 2027 89 5,500,000 3,530,732 5,585,755 14,616,487 1,889,867 4,249,209 0 6,139,076 20 2028 90 5,500,000 3,833,294 5,514,071 14,847,365 1,858,181 4,622,930 0 6,481,111 21 2029 91 5,500,000 4,147,693 5,419,123 15,066,816 1,818,682 5,011,272 0 6,829,954 22 2030 92 5,500,000 4,473,844 5,299,400 15,273,244 1,770,873 5,414,130 0 7,185,003 23 2031 93 5,500,000 4,811,551 5,153,459 15,465,010 1,714,274 5,831,262 0 7,545,536 24 2032 94 5,500,000 5,160,483 4,979,959 15,640,442 1,648,440 6,262,259 0 7,910,699 25 2033 95 5,500,000 5,516,194 4,783,798 15,799,992 1,574,929 6,701,630 0 8,276,559 26 2034 96 5,500,000 5,877,760 4,564,800 15,942,560 1,493,669 7,148,232 0 8,641,901 27 2035 97 5,500,000 6,244,071 4,323,062 16,067,133 1,404,673 7,600,695 0 9,005,368 28 2036 98 5,500,000 6,613,807 4,059,014 16,172,821 1,308,063 8,057,388 0 9,365,451 29 2037 99 5,500,000 6,985,407 3,773,482 16,258,889 1,211,850 8,516,384 0 9,728,234 30 2038 100 5,500,000 7,351,491 3,476,306 16,327,797 1,116,413 8,968,567 0 10,084,980

Death Benefits Without Other Assets (After Taxes) - Comparison PROPOSED PLAN PRESENT PLAN Plan Year Calendar Year Age of Client (EOY) Life Insurance Benefits In the Estate Life Insurance and Cash Benefits In the Trust Value of the Profit Sharing Plan Total Death Benefits Value of the Profit Sharing Plan Total Death Benefits 1 2009 71 4,854,669 52,000 0 4,906,669 1,850,195 1,850,195 2 2010 72 6,871,289 106,600 0 6,977,889 3,477,689 3,477,689 3 2011 73 4,074,332 163,930 0 4,238,262 1,615,724 1,615,724 4 2012 74 3,916,813 224,127 0 4,140,940 1,665,517 1,665,517 5 2013 75 3,958,882 287,333 0 4,246,215 1,705,816 1,705,816 6 2014 76 0 5,500,000 0 5,500,000 1,743,202 1,743,202 7 2015 77 0 5,500,000 0 5,500,000 1,778,516 1,778,516 8 2016 78 0 5,500,000 0 5,500,000 1,811,678 1,811,678 9 2017 79 0 5,500,000 0 5,500,000 1,841,834 1,841,834 10 2018 80 0 5,500,000 0 5,500,000 1,868,889 1,868,889 11 2019 81 0 5,500,000 0 5,500,000 1,892,325 1,892,325 12 2020 82 0 5,500,000 0 5,500,000 1,911,574 1,911,574 13 2021 83 0 5,500,000 0 5,500,000 1,926,150 1,926,150 14 2022 84 0 5,500,000 0 5,500,000 1,935,600 1,935,600 15 2023 85 0 5,500,000 0 5,500,000 1,939,228 1,939,228 16 2024 86 0 5,500,000 0 5,500,000 1,937,113 1,937,113 17 2025 87 0 5,500,000 0 5,500,000 1,928,627 1,928,627 18 2026 88 0 5,500,000 0 5,500,000 1,913,109 1,913,109 19 2027 89 0 5,500,000 0 5,500,000 1,889,867 1,889,867 20 2028 90 0 5,500,000 0 5,500,000 1,858,181 1,858,181 21 2029 91 0 5,500,000 0 5,500,000 1,818,682 1,818,682 22 2030 92 0 5,500,000 0 5,500,000 1,770,873 1,770,873 23 2031 93 0 5,500,000 0 5,500,000 1,714,274 1,714,274 24 2032 94 0 5,500,000 0 5,500,000 1,648,440 1,648,440 25 2033 95 0 5,500,000 0 5,500,000 1,574,929 1,574,929 26 2034 96 0 5,500,000 0 5,500,000 1,493,669 1,493,669 27 2035 97 0 5,500,000 0 5,500,000 1,404,673 1,404,673 28 2036 98 0 5,500,000 0 5,500,000 1,308,063 1,308,063 29 2037 99 0 5,500,000 0 5,500,000 1,211,850 1,211,850 30 2038 100 0 5,500,000 0 5,500,000 1,116,413 1,116,413

Cash Flow (After Taxes) - Comparison PROPOSED PLAN PRESENT PLAN Plan Year Calendar Year Payments from Trust Withdrawals from Profit Sharing Plan Total Cash Flow Accumulated Cash Flow Withdrawals from Profit Sharing Plan Total Cash Flow Accumulated Cash Flow 1 2009 0 118,613 118,613 118,613 118,613 118,613 118,613 2 2010 0 122,834 122,834 241,447 126,943 126,943 245,556 3 2011 0 128,221 128,221 369,668 135,847 135,847 381,403 4 2012 0 133,780 133,780 503,448 145,364 145,364 526,767 5 2013 0 139,540 139,540 642,988 155,535 155,535 682,302 6 2014 0 134,720 134,720 777,708 166,405 166,405 848,707 7 2015 0 143,994 143,994 921,702 177,860 177,860 1,026,567 8 2016 0 153,170 153,170 1,074,872 189,194 189,194 1,215,761 9 2017 0 163,693 163,693 1,238,565 202,191 202,191 1,417,952 10 2018 0 174,028 174,028 1,412,593 214,957 214,957 1,632,909 11 2019 0 184,960 184,960 1,597,553 228,461 228,461 1,861,370 12 2020 0 196,516 196,516 1,794,069 242,734 242,734 2,104,104 13 2021 0 208,720 208,720 2,002,789 257,808 257,808 2,361,912 14 2022 0 221,596 221,596 2,224,385 273,713 273,713 2,635,625 15 2023 0 235,165 235,165 2,459,550 290,474 290,474 2,926,099 16 2024 0 247,762 247,762 2,707,312 306,032 306,032 3,232,131 17 2025 0 260,825 260,825 2,968,137 322,168 322,168 3,554,299 18 2026 0 274,334 274,334 3,242,471 338,854 338,854 3,893,153 19 2027 0 288,261 288,261 3,530,732 356,056 356,056 4,249,209 20 2028 0 302,562 302,562 3,833,294 373,721 373,721 4,622,930 21 2029 0 314,399 314,399 4,147,693 388,342 388,342 5,011,272 22 2030 0 326,151 326,151 4,473,844 402,858 402,858 5,414,130 23 2031 0 337,707 337,707 4,811,551 417,132 417,132 5,831,262 24 2032 0 348,932 348,932 5,160,483 430,997 430,997 6,262,259 25 2033 0 355,711 355,711 5,516,194 439,371 439,371 6,701,630 26 2034 0 361,566 361,566 5,877,760 446,602 446,602 7,148,232 27 2035 0 366,311 366,311 6,244,071 452,463 452,463 7,600,695 28 2036 0 369,736 369,736 6,613,807 456,693 456,693 8,057,388 29 2037 0 371,600 371,600 6,985,407 458,996 458,996 8,516,384 30 2038 0 366,084 366,084 7,351,491 452,183 452,183 8,968,567

Cumulative Cash Flow without Other Assets 10,000,000 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 1 Year 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years Proposed Plan Present Plan

Profit Sharing - Present Plan Plan Year Calendar Year Age of Client (EOY) Beginning Balance (Taxable) (BOY) Contributions (BOY) Withdrawal (Taxable) (BOY) Tax-Deferred Interest (EOY) Gifts to Charity or Foundation [While Living] (EOY) Additional Withdrawal Needed to Meet RMD (EOY) Balance (EOY) 1 2009 71 5,000,000 5,000 0 352,853 0 182,482 5,175,371 2 2010 72 5,175,371 5,000 0 365,216 0 195,297 5,350,290 3 2011 73 5,350,290 5,000 0 377,548 0 208,996 5,523,842 4 2012 74 5,523,842 5,000 0 389,783 0 223,637 5,694,988 5 2013 75 5,694,988 5,000 0 401,849 0 239,285 5,862,552 6 2014 76 5,862,552 0 0 413,310 0 256,007 6,019,855 7 2015 77 6,019,855 0 0 424,400 0 273,630 6,170,625 8 2016 78 6,170,625 0 0 435,029 0 291,067 6,314,587 9 2017 79 6,314,587 0 0 445,178 0 311,063 6,448,702 10 2018 80 6,448,702 0 0 454,633 0 330,703 6,572,632 11 2019 81 6,572,632 0 0 463,371 0 351,478 6,684,525 12 2020 82 6,684,525 0 0 471,259 0 373,437 6,782,347 13 2021 83 6,782,347 0 0 478,155 0 396,628 6,863,874 14 2022 84 6,863,874 0 0 483,903 0 421,097 6,926,680 15 2023 85 6,926,680 0 0 488,331 0 446,883 6,968,128 16 2024 86 6,968,128 0 0 491,253 0 470,819 6,988,562 17 2025 87 6,988,562 0 0 492,694 0 495,643 6,985,613 18 2026 88 6,985,613 0 0 492,486 0 521,314 6,956,785 19 2027 89 6,956,785 0 0 490,453 0 547,778 6,899,460 20 2028 90 6,899,460 0 0 486,412 0 574,955 6,810,917 21 2029 91 6,810,917 0 0 480,170 0 597,449 6,693,638 22 2030 92 6,693,638 0 0 471,901 0 619,781 6,545,758 23 2031 93 6,545,758 0 0 461,476 0 641,741 6,365,493 24 2032 94 6,365,493 0 0 448,767 0 663,072 6,151,188 25 2033 95 6,151,188 0 0 433,659 0 675,955 5,908,892 26 2034 96 5,908,892 0 0 416,577 0 687,080 5,638,389 27 2035 97 5,638,389 0 0 397,506 0 696,097 5,339,798 28 2036 98 5,339,798 0 0 376,456 0 702,605 5,013,649 29 2037 99 5,013,649 0 0 353,462 0 706,148 4,660,963 30 2038 100 4,660,963 0 0 328,598 0 695,666 4,293,895

Profit Sharing - Proposed Plan Plan Year Calendar Year Age of Client (EOY) Beginning Balance (Taxable) (BOY) Premium for SPIA (BOY) Contributions (BOY) Premiums for Insurance (BOY) Withdrawal Above RMD (Taxable) (BOY) Tax-Deferred Interest (EOY) Additional Withdrawal Needed to Meet RMD (EOY) Gifts to Charity or Foundation [While Living] (EOY) Proceeds from Insurance Policy Loans (EOY) Income from Sale of Insurance Policies (EOY) Balance (Taxable) (EOY) 1 2009 71 5,000,000 0 5,000 500,000 0 317,603 182,482 0 0 0 4,640,121 2 2010 72 4,640,121 0 5,000 500,000 0 292,231 188,976 0 0 0 4,248,376 3 2011 73 4,248,376 0 5,000 500,000 0 264,613 197,263 0 0 0 3,820,726 4 2012 74 3,820,726 0 5,000 500,000 0 234,464 205,816 0 0 0 3,354,374 5 2013 75 3,354,374 0 5,000 500,000 0 201,586 214,677 0 0 1,900,000 4,746,283 6 2014 76 4,746,283 0 0 0 0 334,613 207,261 0 0 0 4,873,635 7 2015 77 4,873,635 0 0 0 0 343,591 221,529 0 0 0 4,995,697 8 2016 78 4,995,697 0 0 0 0 352,197 235,646 0 0 0 5,112,248 9 2017 79 5,112,248 0 0 0 0 360,413 251,835 0 0 0 5,220,826 10 2018 80 5,220,826 0 0 0 0 368,068 267,735 0 0 0 5,321,159 11 2019 81 5,321,159 0 0 0 0 375,142 284,554 0 0 0 5,411,747 12 2020 82 5,411,747 0 0 0 0 381,528 302,332 0 0 0 5,490,943 13 2021 83 5,490,943 0 0 0 0 387,111 321,108 0 0 0 5,556,946 14 2022 84 5,556,946 0 0 0 0 391,765 340,917 0 0 0 5,607,794 15 2023 85 5,607,794 0 0 0 0 395,349 361,793 0 0 0 5,641,350 16 2024 86 5,641,350 0 0 0 0 397,715 381,172 0 0 0 5,657,893 17 2025 87 5,657,893 0 0 0 0 398,881 401,269 0 0 0 5,655,505 18 2026 88 5,655,505 0 0 0 0 398,713 422,053 0 0 0 5,632,165 19 2027 89 5,632,165 0 0 0 0 397,068 443,478 0 0 0 5,585,755 20 2028 90 5,585,755 0 0 0 0 393,796 465,480 0 0 0 5,514,071 21 2029 91 5,514,071 0 0 0 0 388,742 483,690 0 0 0 5,419,123 22 2030 92 5,419,123 0 0 0 0 382,048 501,771 0 0 0 5,299,400 23 2031 93 5,299,400 0 0 0 0 373,608 519,549 0 0 0 5,153,459 24 2032 94 5,153,459 0 0 0 0 363,319 536,819 0 0 0 4,979,959 25 2033 95 4,979,959 0 0 0 0 351,087 547,248 0 0 0 4,783,798 26 2034 96 4,783,798 0 0 0 0 337,258 556,256 0 0 0 4,564,800 27 2035 97 4,564,800 0 0 0 0 321,818 563,556 0 0 0 4,323,062 28 2036 98 4,323,062 0 0 0 0 304,776 568,824 0 0 0 4,059,014 29 2037 99 4,059,014 0 0 0 0 286,160 571,692 0 0 0 3,773,482 30 2038 100 3,773,482 0 0 0 0 266,030 563,206 0 0 0 3,476,306

Death Benefits without Other Assets 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 1 Year 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years Proposed Plan Present Plan

Insurance Policy 1 Values Policy Year Premiums Net Cash Value Net Death Benefit Tax-Free Loan from Policy to Trust 1 500,000 0 7,000,000 0 2 500,000 367,745 7,000,000 0 3 500,000 801,549 7,000,000 0 4 500,000 1,262,927 7,000,000 0 5 500,000 1,754,930 7,000,000 0 6 0 1,784,928 5,500,000 0 7 0 1,812,083 5,500,000 0 8 0 1,836,194 5,500,000 0 9 0 1,857,033 5,500,000 0 10 0 1,888,195 5,500,000 0 11 0 1,951,560 5,500,000 0 12 0 2,015,458 5,500,000 0 13 0 2,080,034 5,500,000 0 14 0 2,145,447 5,500,000 0 15 0 2,211,874 5,500,000 0 16 0 2,279,508 5,500,000 0 17 0 2,318,089 5,500,000 0 18 0 2,353,595 5,500,000 0 19 0 2,385,221 5,500,000 0 20 0 2,412,051 5,500,000 0 21 0 2,432,377 5,500,000 0 22 0 2,436,202 5,500,000 0 23 0 2,418,897 5,500,000 0 24 0 2,374,422 5,500,000 0 25 0 2,294,714 5,500,000 0 26 0 2,141,091 5,500,000 0 27 0 1,911,882 5,500,000 0 28 0 1,582,289 5,500,000 0 29 0 1,156,368 5,500,000 0 30 0 579,908 5,500,000 0

RPM: Retirement Plan Maximizer Issues & Answers Grosnick Financial RPM: Retirement Plan Maximizer 21

RPM Concluding Thought An invasion of armies can be resisted, but not an idea whose time has come. Victor Hugo 1852 Grosnick Financial RPM: Retirement Plan Maximizer 22

Allen H. Grosnick, CLU, ChFC Chartered Financial Consultant with 39 years of experience Board of Directors Western Massachusetts Chapter of the Society of Financial Service Professionals Member of the Estate Planning Council of Hampden County Lecturer on tax arbitrage to many professional groups Member of Rotary International Paul Harris Fellow Advisor to Philanthropic Organizations and Foundations Planning Strategist for the Financial Planning Community Technical Advisor to Accountants Attorneys Financial Professionals Grosnick Financial RPM: Retirement Plan Maximizer 23

RPM: Retirement Plan Maximizer Appendix Grosnick Financial RPM: Retirement Plan Maximizer 25

REFERENCES Purchasing Life Insurance In Profit Sharing Plans Treas. Regulation Section 1. 401-1(b)(1) Rev. Ruling 60-83 Rev. Ruling 61-164 (Money in PS Plan for at least 2 years can be distributed, i.e. - used to buy life insurance without limit) Rev. Ruling 68-24 (Any PS Plan more than 5 years old can buy life insurance without limit even with money that has been in plan for less than 2 years.) Rev. Ruling 71-295 7/30/2009 Allen 26H. Grosnick CLU

REFERENCES Rolling IRA and other qualified monies over to PS Plan and then Purchasing Life Insurance Without Limit Rev. Ruling 94-76 Rev. Ruling 2004-12 7/30/2009 27 Allen H. Grosnick CLU

REFERENCES Income Tax Consequences of Selling a Policy to a Trust A Grantor Trust is treated as the grantor for income tax purposes, typically under IRC Sec. 677(a). The sale of the policy will be treated as an exception to the transfer for value rule under IRC Sec. 101(a)(2)(b), ) and the full death benefit will be income tax free. See Swanson v. Commissioner, 75-2 USTC Para. 9528 (1975), and Revenue Ruling 2007-13, 2007-1 IRB 68, citing Revenue Ruling 85-13, 1985-1 CB 184. 7/30/2009 28 Allen H. Grosnick CLU

REFERENCES Determination of policy Fair Market Value if SOLD by the qualified plan to a Trust (or if the policy is DISTRIBUTED to the participant) Revenue Procedure 2004-16, superceded by Rev. Proc. 2005-25 Under Rev. Proc. 2005-25, 25 a safe harbor value is the greater of a PERC value multiplied by an average surrender factor or the interpolated terminal reserve. Rev. Proc 2005-25 refers to Rev. Rul 59-195, 1959-1 CB 18, dealing with policy value in general sales situations, ti Treas. Reg. Sec. 25.2512-6(a), 2512 dealing with policy value for gift situations, and Revenue Notice 89-25, 1989-1 CB 662, Q&A 10 dealing with policy sales or distributions ib ti from qualified plans. 7/30/2009 Allen 29H. Grosnick CLU

Since these valuation standards are defined in Rev. Proc 2005-2525 as a safe harbor that t may be chosen by the taxpayer to apply (presumably without challenge), the IRS is admitting to the possibility of a valid lower valuation by an independent appraisal by using some of the valuation methodologies of Revenue Ruling 59-60, 1959-1 CB 237. 7/30/2009 30 Allen H. Grosnick CLU