ACCESS TRUSTS Using life insurance to accumulate, access and transfer wealth
For transferring wealth, permanent life insurance can be an appealing strategy because it: Provides liquidity through a death benefit that may be significantly greater than the cumulative premiums paid, depending on age and health upon purchase Is typically received income-tax free Can also be estate-tax free if ownership is properly structured within an Irrevocable Life Insurance Trust (ILIT) Features a cash value with tax-advantaged accumulation potential that can be accessed through withdrawals and loans at any time, for any reason However, the dilemma people like you face is that removing the death benefit from your federally-taxable estate through the use of an ILIT usually restricts your flexibility by making the policy cash value inaccessible. Employing an Access Trust strategy can help. WHO ARE ACCESS TRUSTS FOR? THE CHALLENGE OF PLANNING A LEGACY WHILE MAINTAINING FLEXIBILITY A financial legacy is important to you. You want to be sure that your loved ones ultimately receive your wealth without an accompanying tax burden. Experience, however, has taught you that the only safe prediction is that life is unpredictable. You need a strategy that s flexible, so you can maintain access to your assets in life. You may be ideally suited for an Access Trust if you: Are 55 to 85 years old Are married May have an estate value subject to federal estate tax Want to maximize the benefits of annual federal gift tax exclusions Want to reduce the income and estate tax consequences of transferring assets to beneficiaries Are reluctant to create an estate plan for fear of losing control and needing access to assets during life Are concerned about exhausting lifetime assets
The Economic Growth and Tax Relief Reconciliation Act of 2001 (the Act ) repealed the federal estate tax and replaced it with a carryover basis regime effective for estates of decedents dying after December 31, 2009. The Act also repealed the generation skipping transfer tax, but not the gift tax for transfers made after December 31, 2009. The Act contains a sunset provision, which essentially returns the federal estate, gift and generation skipping transfer taxes to their pre-act form, beginning in 2011. WHAT IS AN ACCESS TRUST? An Access Trust is a specially drafted ILIT for married couples who want to: Keep life insurance proceeds outside of their estate Allow one spouse indirect access to the trust s life insurance policy values through the trustee Typically in an Access Trust, one spouse is the grantor and the other is not. Using gifts from the grantor, the trust purchases either a single-life policy insuring the grantor or a second-to-die policy insuring both spouses. The non-grantor spouse will retain the ability to access the life insurance policy values through the trustee, because the non-grantor spouse is a beneficiary of the trust. This benefit can persist throughout the non-grantor spouse s lifetime. A risk with such a strategy is that the non-grantor spouse dies first. If that happens, access to the policy values is lost, as the grantor is unable to realize that benefit directly. In summary, Access Trusts are a way for you to: Create an ILIT Allow you or your spouse indirect access to policy cash values, and Keep death benefit proceeds free from income and estate tax for beneficiaries Life insurance policies contain fees and expenses, including cost of insurance, administrative fees and premium loads, surrender charges and other charges or fees that will impact policy values. Variable universal life (VUL) insurance policies also have additional charges and fund operating expenses. HOW AN ACCESS TRUST WORKS 3 Husband or Wife Wealth Accumulation and Access 1 2 3 4 Grantor Spouse Access Trust Wealth Transfer Grantor spouse creates and makes gifts to the Access Trust. Annual and lifetime gift-tax exemption amounts can be used; otherwise, gift tax may be incurred. Trustee uses gifts to purchase a life insurance policy either insuring the grantor alone or both spouses, through a secondto-die policy. The non-grantor spouse is a trust beneficiary. Trustee can make distributions to the non-grantor spouse during that person s lifetime, providing the non-grantor spouse with indirect access to policy values in the trust. Access Trust receives death benefit free of both income and estate taxes when the grantor dies, if a single-life policy is used. If the trust owns a second-to-die policy, it will receive the death benefit of a joint policy when the second death occurs. Trust beneficiaries can then receive wealth through the trust, income- and estate-tax free. 1 2 4
NOTES ON ACCESSING CASH VALUES Both loans and withdrawals from a permanent life insurance policy may be subject to penalties and fees and, along with any accrued loan interest, will reduce the policy s account value and death benefit. The value may be worth more or less than the original amount invested in the policy. Assuming a policy is not a Modified Endowment Contract (MEC), withdrawals are taxed only to the extent that they exceed the policyowner s cost basis in the policy and usually loans are free from current federal taxation. A policy loan could result in tax consequences if the policy lapses or is surrendered while a loan is outstanding. Distributions from MECs are subject to federal income tax to the extent of the gain in the policy and taxable distributions are subject to a 10% additional tax prior to age 59½, with certain exceptions. A MEC occurs when premium funding of a policy in relation to the death benefit provided exceed federal guidelines for life insurance.
ABOUT THE HARTFORD The Hartford s stag has stood as a symbol of strength through volatile economic cycles, changing political landscapes, natural disasters and acts of war. In addition to a near 200-year history of meeting client obligations through good times and bad, The Hartford has nurtured a corporate culture dedicated to enriching the community through volunteer and philanthropic initiatives. Founded in 1810, The Hartford Financial Services Group, Inc. (NYSE: HIG) is an insurance and wealth management company. Through its unique focus on customer needs, the company serves businesses and consumers by providing the products and strategies they need to help protect their assets and income from risks and manage their wealth and retirement needs. A Fortune 100 company, The Hartford is recognized widely for its service expertise. Over 750,000 Americans currently trust their life insurance needs to The Hartford s life subsidiaries, in part because they are getting more than the promise of a death benefit. They are entrusting their financial protection to a company that prides itself on integrity. In fact, The Hartford has been named One of the World s Most Ethical Companies by Ethisphere Institute, 2008-2010.
You should carefully consider the investment objectives, risks, and charges and expenses of any variable universal life insurance policy and its underlying funds before investing. This and other information can be found in the prospectus for the variable universal life insurance policy, the prospectuses for the underlying funds and appropriate product information, which can be obtained from your financial professional or by logging on to www.hartfordinvestor.com. Please read them carefully before you invest or send money. This information is written in connection with the promotion or marketing of the matters addressed in this material. The information cannot be used or relied upon for the purpose of avoiding IRS penalties. These materials are not intended to provide tax, accounting or legal advice. As with all matters of a tax or legal nature, you should consult your own tax or legal counsel for advice. The Hartford is The Hartford Financial Services Group, Inc. and its subsidiaries, including the issuing companies of Hartford Life Insurance Company (New York) and Hartford Life and Annuity Insurance Company (outside New York), Simsbury, CT. The mailing address for both issuers is P.O. Box 2999, Hartford, CT 06104-2999. Variable life insurance products discussed in this material are distributed by Hartford Equity Sales Company, Inc. (HESCO), a broker/dealer affiliate of The Hartford. The Hartford is a proud supporter of the Life and Health Insurance Foundation for Education, a nonprofit organization. 2010 LIFE. The Life and Health Insurance Foundation for Education is not affiliated with The Hartford. LIF11607 LCM-10-71-6-10 Printed in the U.S.A. 2010 The Hartford, Hartford, CT 06115 P.O. Box 2999 Hartford, CT 06104-2999 www.hartfordinvestor.com