Strategies for Robert Smith and Mary Smith Presented by: John Q. Advisor, CLU, ChFC 0735 David Taylor Drive Suite 350 Charlotte, North Carolina 86 Phone: -800-438-607 Mobile Phone: (704) 549-00 Fax: (704) 549-5700 E-mail: john.q.advisor@impact-tech.com
Important Notes These pages depict certain wealth preservation strategies. These strategies may include simple wills, marital trusts, family trusts, credit shelter trusts, living trusts, grantor retained trusts, charitable remainder trusts, special business entities, life insurance (with or without a trust), taxable and charitable gifts. Inclusion of one or more of these strategies does not constitute a recommendation of that strategy over any other strategy. This illustration simply shows the effect of the strategy shown on your estate and potential estate taxes, based on certain assumptions detailed in the illustration. This report provides only broad, general guidelines, which may be helpful in shaping your thinking about and discussing your wealth preservation needs with your professional advisors. The quality of this report is dependent upon the accuracy of data furnished by you. No legal or accounting advice is being rendered by this report or through any other oral or written communications. This report provides estimates based on our general understanding of current tax laws. Unless otherwise indicated, the tax aspect of the federal Generation- Skipping Transfer Tax (GSTT) is not reflected. The GSTT is similar to an additional level of estate tax on certain transfers to grandchildren, or individuals two or more generations removed from the transferor, whether by direct gift or where such transfers may occur through trust or other arrangements where such persons may be beneficiaries. Please discuss legal and accounting matters directly with your counselors in each of those areas. Calculations contained in this report are estimates only. results may vary substantially from the figures shown. All rates of return are hypothetical and are not a guarantee of future performance of any asset, including insurance or other financial products. All inflation rates are estimates provided by you. This analysis is based on information provided by you. It should be kept in mind that property passes by deed first, next by contract, and then by will. To implement any wealth preservation strategy it may be necessary to change ownership or designated beneficiary before your revised will and any wealth preservation strategy will be effective. Because your wealth preservation concerns and goals may change in the future, periodically monitoring actual results and making appropriate adjustments are essential components of your program. During the course of the analysis, gifting strategies may be proposed that include the acquisition of insurance and other financial products. When this occurs, additional information about the specific product, including a prospectus when required will be provided for your review. You should consult your own tax and legal advisor before utilizing any strategy shown so that it can be evaluated based on your own needs and circumstances. Nothing contained in this report is intended to be used on any tax form or to support any tax deduction. Only your tax advisor should provide you with that type of information. IMPORTANT: The projections or other information generated by this investment analysis tool (Qualified Plan Distribution Analysis) regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. IRS CIRCULAR 30 NOTICE: To ensure compliance with requirements imposed by the IRS, this notice is to inform you that any U. S. federal tax advice contained in this presentation is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this presentation. of
Non-Qualified Stretch-Out A Multi-Generational Approach for Continuing Distributions for Robert Smith and Mary Smith 3 of
Illustration of Multi-Generational Approaches Total Distribution Compared Beginning Balance : $750,000 Lump-Sum Distribution Approach Maximization Spousal Beneficiary Approach Maximization Non-Spouse Approach Robert's Robert's Robert's Robert's Robert's Distributions to Robert: $0,000 Mary's Mary's & Beneficiary's Distributions to Robert: $0,000 Mary's & Beneficiary's Mary's & Beneficiary's Continues to Non-Spouse Beneficiaries Distributions to Mary: $50,000 Decedent's Decedent's Distributions to Mary: $50,000 Decedent's Decedent's Decedent's (No Distributions to Spouse) Decedent's Decedent's Lump-Sum Distribution to Beneficiaries: $,37,75 Total Distributions: $,97,75 Distributions to Beneficiaries: $3,065,7 Total Distributions: $3,5,7 Distributions to Beneficiaries: $,30,58 Total Distributions: $,4,58 NOTE: See Comparing Multi-Generational Approaches for details. 4 of
Comparing Multi-Generational Approaches An Explanation of Different Techniques Lump-Sum Distribution Approach You name Mary as your primary beneficiary for this annuity. You take distributions of $0,000 until your death. The annuity account balance at your death is $,66,374. At your death, Mary names beneficiaries for the annuity. Mary continues to take distributions of $0,000 until death. The annuity account balance at Mary's death is $,37,75. At Mary's death, the annuity beneficiaries elect to receive the annuity as a lumpsum distribution. Income taxes are due when the lump-sum distribution is received. Total Distributions: $,97,75 Maximization Spousal Beneficiary Approach You name Mary as your primary beneficiary for this annuity. You take distributions of $0,000 until your death. The annuity account balance at your death is $,66,374. At your death, Mary names beneficiaries for the annuity. Mary continues to take distributions of $0,000 until death. The annuity account balance at Mary's death is $,37,75. At Mary's death, the annuity beneficiaries elect to continue distributions based on each named beneficiary's life expectancy. Income taxes are spread over the lifetime of each beneficiary as distributions are received. Total Distributions: $3,5,7 Maximization Non-Spouse Approach You and Mary decide that Mary will not need the annuity as a source of income. You split the annuity into separate annuities with named beneficiaries. You take distributions of $0,000 until your death. The annuity account balance at your death is $,66,374. At your death, the annuity beneficiaries elect to continue distributions based on each named beneficiary's life expectancy. Income taxes are spread over the lifetime of each beneficiary as distributions are received. Total Distributions: $,4,58 5 of
Lump Sum Distribution Approach A Multi-Generational Approach for Continuing Distributions Robert's Value Now (007): Distributions Start (age 65): Death Assumed (age 75): Robert's death is assumed in 0. No income or estate tax is due on the annuity at death. $750,000 $966,98 $,66,374 $0,000 Distributions during Robert's lifetime Mary receives the annuity at Robert's death and continues taking distributions. The estate must have liquidity of $973,553 for federal estate taxes attributable to the annuity to provide the total distributions shown on this page. Mary dies in 06. Values included in estate Mary's Value in 0 $,66,374 $50,000 Distributions during Mary's lifetime At Mary's death, the annuity beneficiaries elect to receive the annuity as a lump-sum distribution. $,37,75 Lump-Sum Distribution Total distributions during lives of Robert, Mary, and beneficiaries: $,97,75 6 of
Lump-Sum Distribution Approach A Multi-Generational Approach for Continuing Distributions Beginning Balance : $750,000 Annuitant Spouse Earnings & Deposits Balance 007 6 6 8,938 0 768,938 008 6 6 47,46 0 86,365 009 63 63 50,35 0 866,76 00 64 64 53,457 0 90,74 0 65 65 56,754 0,000 966,98 0 66 66 59,638 0,000,06,566 03 67 67 6,700 0,000,069,66 04 68 68 65,950 0,000,5,5 05 69 69 69,40 0,000,84,66 06 70 70 73,065 0,000,47,68 07 7 7 76,954 0,000,34,635 08 7 7 8,084 0,000,385,79 09 73 73 85,468 0,000,46,87 00 74 74 90,3 0,000,54,30 0 75 75 95,065 0,000,66,374 Robert dies and Mary assumes the annuity. Distributions Taxed You would like to provide your family with financial security supported by your annuity. You want to defer income taxation as much as possible. You pay income taxes on the distributions as you receive them. Lump-Sum Distribution Approach At your death, spouse continues the annuity. New annuity beneficiaries can be named at anytime during spouse's remaining lifetime. At spouse's death, beneficiaries elect to receive the annuity as a lump-sum distribution. The estate should have enough liquidity outside of the annuity for the estate taxes and expenses attributable to the annuity. insurance may help provide the needed liquidity. Spouse Earnings & Deposits Balance 0 76 00,3 0,000,76,686 03 77 05,88 0,000,8,567 04 78,795 0,000,94,36 05 79 8,074 0,000,0,436 06 80 4,739 0,000,37,75 Total distributions during Mary's lifetime are $50,000. At Mary's death, the annuity is distributed to the named beneficiaries. Estate and income taxes of $973,553 will be due on these amounts. Please refer to the Assumptions page for interest rate assumptions. Also includes deposits, if any. Distributions should be based on the prior year's December 3 value. Distributions prior to annuitization are taxable to the extent of earnings in the annuity. In addition, a 0% federal income tax penalty may apply to distributions taken prior to age 59½. 7 of
Lump-Sum Distribution Approach Wealth Transfer Costs Beginning Balance : $750,000 Balance Other Assets Total Estate 007 768,938 3,037,77 3,806,5 008 86,365 3,8,9 3,944,657 009 866,76 3,,4 4,088,858 00 90,74 3,38,805 4,38,979 0 966,98 3,48,369 4,385,97 0,06,566 3,50,9 4,537,486 03,069,66 3,66,548 4,695,84 04,5,5 3,735,345 4,860,560 05,84,66 3,847,405 5,03,0 06,47,68 3,96,87 5,0,508 07,34,635 4,08,7 5,396,347 08,385,79 4,04,63 5,589,88 09,46,87 4,330,88 5,79,475 00,54,30 4,460,97 6,00,507 0,66,374 4,594,003 6,0,377 0,76,686 4,73,83 6,448,508 03,8,567 4,873,777 6,686,344 04,94,36 5,09,99 6,934,353 05,0,436 5,70,590 7,93,06 06,37,75 5,35,708 7,46,884 Mary receives the annuity at Robert death in 0 and continues taking distributions. Calclulations assume that the applicable credit has been utilized for other taxable transfers. Continuation of this analysis assumes that Mary's estate has sufficient cash liquidity for all transfer costs without using this annuity. Mary's Death Occurs in 06 Total Estimated Estate Taxes: $3,399,586 Estate Taxes Attributable to : $973,553 IRD Income Taxes: 3 $49,599 Insurance Inside of Estate: $0 Insurance Outside of Estate: $0 Sources of Liquidity: Use annuity money Weakens multi-generational planning, utilizes annuities that would otherwise grow on a taxdeferred basis and ceases stretched out distributions Liquidate other designated assets Utilizes assets that might otherwise be designated to pay the estate taxes attributable to the annuity Use life insurance death proceeds insurance may be a strategy to help pay estate taxes, creating the needed liquidity outside of the taxable estate 3 The estate tax is calculated on the total estate. Does not include any probate fees and expenses. Assumes the Applicable Credit Amount has already been utilized at first death. Amounts of prior taxable gifts are not accounted for. Represents the share of estate taxes attribuable to the annuity based on the ratio that the account balance bears to the total estate. A portion of distributions following death are considered Income in Respect of a Decedent (IRD). Ordinary income taxes, estimated at 30%, are due on these amounts by the beneficiary. The beneficiary may also receive an income tax deduction for estate taxes attributable to the IRD asset. 8 of
Maximization, Spousal Beneficiary Approach A Multi-Generational Approach for Continuing Distributions Robert's Value Now (007): Distributions Start (age 65): Death Assumed (age 75): Robert's death is assumed in 0. No income or estate tax is due on the annuity at death. $750,000 $966,98 $,66,374 $0,000 Distributions during Robert's lifetime Mary receives the annuity at Robert's death and splits it into separate annuities with each beneficiary. The estate must have liquidity of $973,553 for federal estate taxes attributable to the annuity to provide the total distributions shown on this page. Mary & Henry's Value in 0 $54,5 Mary dies in 06. Values included in estate Mary & Stacy's Value in 0 $54,5 $50,000 Distributions during Mary's lifetime Mary & Robbie's Value in 0 $54,5 Distributions based on the life expectancy of each named beneficiary. $,500,746 Remaining distributions $,907,648 Remaining distributions $7,656,878 Remaining distributions Total distributions during lives of Robert, Mary, and beneficiaries: $3,5,7 9 of
Maximization, Spousal Beneficiary Approach Next Generation After Mary 's Death Beginning Balance : $750,000 Annuitant Spouse Earnings & Deposits Balance 007 6 6 8,938 0 768,938 008 6 6 47,46 0 86,365 009 63 63 50,35 0 866,76 00 64 64 53,457 0 90,74 0 65 65 56,754 0,000 966,98 0 66 66 59,638 0,000,06,566 03 67 67 6,700 0,000,069,66 04 68 68 65,950 0,000,5,5 05 69 69 69,40 0,000,84,66 06 70 70 73,065 0,000,47,68 07 7 7 76,954 0,000,34,635 08 7 7 8,084 0,000,385,79 09 73 73 85,468 0,000,46,87 00 74 74 90,3 0,000,54,30 0 75 75 95,065 0,000,66,374 Robert dies and Mary assumes the annuity. Distributions Taxed You would like to provide your family with financial security supported by your annuity. You want to defer income taxation as much as possible. You pay income taxes on the distributions as you receive them. With proper planning you can spread distributions to your heirs. Maximization Approach At your death, spouse names new beneficiaries for the annuity. At spouse's death, distributions continue to each beneficiary based on their own life expectancies. Spouse's estate must have enough liquidity outside of the annuity for the estate taxes attributable to the annuity. insurance may help provide the needed liquidity. Spouse Earnings & Deposits Balance 0 76 00,3 0,000,76,686 03 77 05,88 0,000,8,567 04 78,795 0,000,94,36 05 79 8,074 0,000,0,436 06 80 4,739 0,000,37,75 Total distributions during Mary's lifetime are $50,000. At Mary's death, the annuity is distributed to the named beneficiaries. Estate and income taxes of $973,553 will be due on these amounts. Please refer to the Assumptions page for interest rate assumptions. Also includes deposits, if any. Distributions should be based on the prior year's December 3 value. Distributions prior to annuitization are taxable to the extent of earnings in the annuity. In addition, a 0% federal income tax penalty may apply to distributions taken prior to age 59½. 0 of
Maximization, Spousal Beneficiary Approach Next Generation After Mary 's Death Balance: $7,39 Henry 07 50 34. 0,830 735,500 08 5 33.,54 758,7 09 5 3. 3,56 78,944 030 53 3. 5,06 805,0 03 54 30. 6,659 88,08 03 55 9. 8,360 850,84 033 56 8. 30,7 873,30 034 57 7. 3,00 894,883 035 58 6. 34,56 95,9 036 59 5. 36,346 936,067 037 60 4. 38,680 955, 038 6 3. 4,69 97,86 039 6. 43,83 989,044 040 63. 46,653,003,393 04 64 0. 49,673,05,607 04 65 9. 5,896,05,35 043 66 8. 56,338,03,54 044 67 7. 60,05,035,907 045 68 6. 63,945,035,854 046 69 5. 68,48,03,595 Balance: $7,39 Stacy 46 37.9 8,797 737,534 47 36.9 9,987 763,036 48 35.9,54 788,844 49 34.9,603 84,895 50 33.9 4,038 84,8 5 3.9 5,566 867,430 5 3.9 7,9 893,739 53 30.9 8,94 99,940 54 9.9 30,767 945,9 55 8.9 3,73 97,54 56 7.9 34,8 996,63 57 6.9 37,049,0,044 58 5.9 39,43,044,597 59 4.9 4,95,067,074 60 3.9 44,647,088,4 6.9 47,5,07,840 6.9 50,586,5,583 63 0.9 53,856,4,5 64 9.9 57,344,54,90 65 8.9 6,068,64,30 Balance: $7,39 Robbie 3 60.,853 744,477 4 59.,597 777,798 5 58. 3,387 8,384 6 57. 4,7 848,6 7 56. 5, 885,46 8 55. 6,070 94,004 9 54. 7,080 963,95 30 53. 8,53,005,4 3 5. 9,94,047,90 3 5. 0,507,09,046 33 50.,797,37,603 34 49. 3,69,84,599 35 48. 4,68,33,035 36 47. 6,79,8,907 37 46. 7,89,334,05 38 45. 9,583,386,9 39 44. 3,449,44,005 40 43. 33,434,496,449 4 4. 35,545,553,0 4 4. 37,79,6,09 3 Calculated using each beneficiary's life expectancy on December 3 of the year following death and recalculated annually. Distributions subject to income tax. Please refer to the Assumptions page for interest rate assumptions. of
Maximization, Spousal Beneficiary Approach Next Generation After Mary 's Death 047 70 4. 7,648,0,574 048 7 3. 77,468,008,77 049 7. 8,637 987,7 050 73. 88,89 960,45 05 74 0. 94,6 95,59 05 75 9. 00,60 88,03 053 76 8. 07,563 88,85 054 77 7. 5,8 764,854 055 78 6. 3,364 688,665 056 79 5. 3,436 598,705 057 80 4. 4,549 493,083 058 8 3. 54,088 369,407 059 8. 67,9 4,79 060 83. 86,899 5,3 06 84 0. 54,37 0 Total: $,500,746 66 7.9 65,045,7,076 67 6.9 69,94,74,0 68 5.9 73,837,7,585 69 4.9 78,697,66,0 70 3.9 83,900,54,39 7.9 89,476,35,955 7.9 95,458,0,559 73 0.9 0,886,077,70 74 9.9 08,805,034,80 75 8.9 6,70 98,357 76 7.9 4,349 98,598 77 6.9 33,30 84,5 78 5.9 4,733 75,33 79 4.9 53,333 644,339 80 3.9 65,5 58,866 8.9 78,99 37,949 8.9 95,763 99,7 83 0.9,409 0 Total: $,907,648 43 40. 40,80,670,405 44 39. 4,7,730,70 45 38. 45,45,79,03 46 37. 48,303,854,57 47 36. 5,364,97,59 48 35. 54,63,980,889 49 34. 58,09,044,975 50 33. 6,78,09,33 5 3. 65,7,73,70 5 3. 69,894,37,886 53 30. 74,348,30,565 54 9. 79,09,364,49 55 8. 84,43,46,9 56 7. 89,55,486,3 57 6. 95,58,544,39 58 5. 0,367,599,880 59 4. 07,879,65,356 60 3. 4,8,70,7 6.,3,745,504 6. 30,9,784,7 63 0. 38,543,87,934 64 9. 47,536,844,0 65 8. 57,38,86,488 66 7. 67,397,87,643 67 6. 78,363,870,397 3 Calculated using each beneficiary's life expectancy on December 3 of the year following death and recalculated annually. Distributions subject to income tax. Please refer to the Assumptions page for interest rate assumptions. of
Maximization, Spousal Beneficiary Approach Next Generation After Mary 's Death 68 5. 90,09,857,344 69 4. 0,649,830,930 70 3. 6,0,789,434 7. 30,53,730,949 7. 46,03,653,356 73 0. 6,709,554,30 74 9. 80,69,43,5 75 8. 300,4,80,958 76 7. 3,6,00,38 77 6. 344,35,885,603 78 5. 369,76,63,77 79 4. 398,09,334,754 80 3. 430,566 986,53 8. 469,768 577,59 8. 55,083 88,33 83 0. 93,569 0 Total: $7,656,878 3 Calculated using each beneficiary's life expectancy on December 3 of the year following death and recalculated annually. Distributions subject to income tax. Please refer to the Assumptions page for interest rate assumptions. 3 of
Maximization, Spousal Beneficiary Approach Wealth Transfer Costs Beginning Balance : $750,000 Balance Other Assets Total Estate 007 768,938 3,037,77 3,806,5 008 86,365 3,8,9 3,944,657 009 866,76 3,,4 4,088,858 00 90,74 3,38,805 4,38,979 0 966,98 3,48,369 4,385,97 0,06,566 3,50,9 4,537,486 03,069,66 3,66,548 4,695,84 04,5,5 3,735,345 4,860,560 05,84,66 3,847,405 5,03,0 06,47,68 3,96,87 5,0,508 07,34,635 4,08,7 5,396,347 08,385,79 4,04,63 5,589,88 09,46,87 4,330,88 5,79,475 00,54,30 4,460,97 6,00,507 0,66,374 4,594,003 6,0,377 0,76,686 4,73,83 6,448,508 03,8,567 4,873,777 6,686,344 04,94,36 5,09,99 6,934,353 05,0,436 5,70,590 7,93,06 06,37,75 5,35,708 7,46,884 Mary receives the annuity at Robert death in 0 and continues taking distributions. Calclulations assume that the applicable credit has been utilized for other taxable transfers. Continuation of this analysis assumes that Mary's estate has sufficient cash liquidity for all transfer costs without using this annuity. Mary's Death Occurs in 06 Total Estimated Estate Taxes: $3,399,586 Estate Taxes Attributable to : $973,553 IRD Income Taxes: 3 $49,599 Insurance Inside of Estate: $0 Insurance Outside of Estate: $0 Sources of Liquidity: Use annuity money Weakens multi-generational planning, utilizes annuities that would otherwise grow on a taxdeferred basis and ceases stretched out distributions Liquidate other designated assets Utilizes assets that might otherwise be designated to pay the estate taxes attributable to the annuity Use life insurance death proceeds insurance may be a strategy to help pay estate taxes, creating the needed liquidity outside of the taxable estate 3 The estate tax is calculated on the total estate. Does not include any probate fees and expenses. Assumes the Applicable Credit Amount has already been utilized at first death. Amounts of prior taxable gifts are not accounted for. Represents the share of estate taxes attribuable to the annuity based on the ratio that the account balance bears to the total estate. A portion of distributions following death are considered Income in Respect of a Decedent (IRD). Ordinary income taxes, estimated at 30%, are due on these amounts by the beneficiary. The beneficiary may also receive an income tax deduction for estate taxes attributable to the IRD asset. 4 of
Maximization, Non-Spouse Beneficiary Approach A Multi-Generational Approach for Continuing Distributions Robert's Value Now (007): Distributions Start (age 65): Death Assumed (age 75): $750,000 $966,98 $,66,374 Robert splits the annuity into separate annuities for each beneficiary. The estate must have liquidity of $70,77 for estate taxes attributable to the annuity to provide the total distributions shown on this page. Robert & Henry's Value in 0 $54,5 Robert dies in 0. Values included in estate Robert & Stacy's Value in 0 $54,5 $0,000 Distributions during Robert's lifetime Robert & Robbie's Value in 0 $54,5 Distributions are based on the life expectancy of each named beneficiary. $,97, Remaining distributions $,705,596 Remaining distributions $7,99,80 Remaining distributions Total distributions during lives of Robert and beneficiaries: $,4,58 5 of
Maximization, Non-Spouse Beneficiary Approach Next Generation After Robert 's Death Beginning Balance : $750,000 Annuitant Earnings & Deposits Balance 007 6 8,938 0 768,938 008 6 47,46 0 86,365 009 63 50,35 0 866,76 00 64 53,457 0 90,74 0 65 56,754 0,000 966,98 0 66 59,638 0,000,06,566 03 67 6,700 0,000,069,66 04 68 65,950 0,000,5,5 05 69 69,40 0,000,84,66 06 70 73,065 0,000,47,68 07 7 76,954 0,000,34,635 08 7 8,084 0,000,385,79 09 73 85,468 0,000,46,87 00 74 90,3 0,000,54,30 0 75 95,065 0,000,66,374 Total distributions during Robert's lifetime are $0,000. Robert names a beneficiary for each annuity distribution. Estate taxes attributable to the annuity of $70,77 are attributable to the annuity balance at Robert's death. Distributions Taxed You pay income taxes on the distributions as you receive them. You want to defer income taxation as much as possible. You would like to provide your family with financial security supported by your annuity. With proper planning you can spread distributions to your heirs. Non-Spouse Beneficiary Approach Before taking distributions, you split the annuity into separate annuities each with a different beneficiary. At your death, each beneficiary continues receiving distributions based on his or her own life expectancy. The estate should have enough liquidity outside of the annuity for the estate taxes and expenses attributable to the annuity. insurance may help provide the needed liquidity. Please refer to the Assumptions page for interest rate assumptions. Also includes deposits, if any. Distributions should be based on the prior year's December 3 value. Distributions prior to annuitization are taxable to the extent of earnings in the annuity. In addition, a 0% federal income tax penalty may apply to distributions taken prior to age 59½. 6 of
Maximization, Non-Spouse Beneficiary Approach Next Generation After Robert 's Death Balance: $54,5 Henry 0 45 38.8 3,97 56,590 03 46 37.8 4,857 58,370 04 47 36.8 5,798 60,430 05 48 35.8 6,800 6,75 06 49 34.8 7,866 64,06 07 50 33.8 9,000 66,86 08 5 3.8 0,08 683,489 09 5 3.8,493 704,5 030 53 30.8,86 74,70 03 54 9.8 4,39 745,00 03 55 8.8 5,87 765,84 033 56 7.8 7,55 784,855 034 57 6.8 9,86 803,977 035 58 5.8 3,6 8,403 036 59 4.8 33,6 839,965 037 60 3.8 35,93 856,480 038 6.8 37,565 87,74 039 6.8 39,988 885,50 040 63 0.8 4,573 897,564 04 64 9.8 45,33 907,59 Balance: $54,5 Stacy 4 4.7,696 56,866 4 4.7 3,498 584,084 43 40.7 4,35 605,758 44 39.7 5,58 67,86 45 38.7 6,4 650,363 46 37.7 7,5 673,5 47 36.7 8,344 696,404 48 35.7 9,507 79,849 49 34.7 0,745 743,503 50 33.7,06 767,99 5 3.7 3,465 79,59 5 3.7 4,958 84,998 53 30.7 6,547 838,78 54 9.7 8,40 86,09 55 8.7 30,04 885,346 56 7.7 3,96 907,990 57 6.7 34,007 99,986 58 5.7 36,86 95,59 59 4.7 38,508 97,36 60 3.7 40,984 990,4 Balance: $54,5 Robbie 8 65.0 8,340 567, 9 64.0 8,863 593,344 0 63.0 9,48 60,5 6.0 0,008 648,786 6.0 0,636 678,65 3 60.0,303 708,690 4 59.0,0 740,389 5 58.0,765 773,90 6 57.0 3,566 807,48 7 56.0 4,48 84,799 8 55.0 5,34 879,458 9 54.0 6,86 97,45 30 53.0 7,30 956,689 3 5.0 8,398 997,98 3 5.0 9,555,039,54 33 50.0 0,785,08,568 34 49.0,093,7,45 35 48.0 3,484,73,87 36 47.0 4,964,0,689 37 46.0 6,537,69,44 3 Calculated using each beneficiary's life expectancy on December 3 of the year following death and recalculated annually. Distributions subject to income tax. Please refer to the Assumptions page for interest rate assumptions. 7 of
Maximization, Non-Spouse Beneficiary Approach Next Generation After Robert 's Death 04 65 8.8 48,76 95,94 043 66 7.8 5,4 90,36 044 67 6.8 54,78 9,309 045 68 5.8 58,374 90,8 046 69 4.8 6,8 95,397 047 70 3.8 66,333 905,54 048 7.8 70,744 890,63 049 7.8 75,477 870,086 050 73 0.8 80,563 843,87 05 74 9.8 86,040 809,54 05 75 8.8 9,949 767, 053 76 7.8 98,348 76,077 054 77 6.8 05,305 654,938 055 78 5.8,90 58,43 056 79 4.8,336 496,999 057 80 3.8 30,789 396,863 058 8.8 4,737 79,604 059 8.8 55,336 4,54 060 83 0.8 50,4 0 Total: $,97, 6.7 43,63,007,694 6.7 46,438,03,409 63 0.7 49,440,037,09 64 9.7 5,644,048,4 65 8.7 56,065,057,0 66 7.7 59,78,06,487 67 6.7 63,6,064,397 68 5.7 67,796,06,50 69 4.7 7,6,055,506 70 3.7 77,044,043,563 7.7 8,70,05,757 7.7 87,67,00,35 73 0.7 93,584 969,59 74 9.7 99,95 99,376 75 8.7 06,85 879,873 76 7.7 4,69 89,87 77 6.7,369 748,07 78 5.7 3,4 66,970 79 4.7 4,057 56,803 80 3.7 5,09 445,407 8.7 64,965 307,93 8.7 8,5 45,779 83 0.7 54,770 0 Total: $,705,596 38 45.0 8,0,39,58 39 44.0 9,989,370,94 40 43.0 3,88,43,598 4 4.0 33,895,477,507 4 4.0 36,037,53,600 43 40.0 38,35,588,8 44 39.0 40,739,646,068 45 38.0 43,38,704,76 46 37.0 46,06,763,33 47 36.0 48,98,83,08 48 35.0 5,089,883,464 49 34.0 55,396,944,36 50 33.0 58,96,005,36 5 3.0 6,664,066,5 5 3.0 66,653,7,040 53 30.0 70,90,87,330 54 9.0 75,45,46,84 55 8.0 80,43,305,50 56 7.0 85,376,36,950 57 6.0 90,844,46,786 58 5.0 96,67,469,77 59 4.0 0,88,58,588 60 3.0 09,504,564,45 6.0 6,565,606,08 6.0 4,097,64,666 3 Calculated using each beneficiary's life expectancy on December 3 of the year following death and recalculated annually. Distributions subject to income tax. Please refer to the Assumptions page for interest rate assumptions. 8 of
Maximization, Non-Spouse Beneficiary Approach Next Generation After Robert 's Death 63 0.0 3,33,673,56 64 9.0 40,7,697,7 65 8.0 49,873,74,8 66 7.0 59,660,7,975 67 6.0 70,3,79,737 68 5.0 8,36,706,68 69 4.0 93,98,679,78 70 3.0 06,37,638,97 7.0 9,9,58,780 7.0 34,707,506,3 73 0.0 50,63,40,64 74 9.0 67,807,9,7 75 8.0 86,390,46,038 76 7.0 306,577,97,84 77 6.0 38,637,764,805 78 5.0 35,96,50,693 79 4.0 380,73,34,33 80 3.0 4,438 899,005 8.0 449,50 504,95 8.0 536,095 0 Total: $7,99,80 3 Calculated using each beneficiary's life expectancy on December 3 of the year following death and recalculated annually. Distributions subject to income tax. Please refer to the Assumptions page for interest rate assumptions. 9 of
Maximization, Non-Spouse Beneficiary Approach Wealth Transfer Costs Beginning Balance : $750,000 Balance Other Assets Total Estate 007 768,938 3,037,77 3,806,5 008 86,365 3,8,9 3,944,657 009 866,76 3,,4 4,088,858 00 90,74 3,38,805 4,38,979 0 966,98 3,48,369 4,385,97 0,06,566 3,50,9 4,537,486 03,069,66 3,66,548 4,695,84 04,5,5 3,735,345 4,860,560 05,84,66 3,847,405 5,03,0 06,47,68 3,96,87 5,0,508 07,34,635 4,08,7 5,396,347 08,385,79 4,04,63 5,589,88 09,46,87 4,330,88 5,79,475 00,54,30 4,460,97 6,00,507 0,66,374 4,594,003 6,0,377 Mary receives the annuity at Robert death in 0 and continues taking distributions. Calclulations assume that the applicable credit has been utilized for other taxable transfers. Continuation of this analysis assumes that Mary's estate has sufficient cash liquidity for all transfer costs without using this annuity. Robert's Death Occurs in 0 Total Estimated Estate Taxes: $,76,07 Estate Taxes Attributable to : $70,77 IRD Income Taxes: 3 $57,85 Insurance Inside of Estate: $0 Insurance Outside of Estate: $0 Sources of Liquidity: Use annuity money Weakens multi-generational planning, utilizes annuities that would otherwise grow on a taxdeferred basis and ceases stretched out distributions Liquidate other designated assets Utilizes assets that might otherwise be designated to pay the estate taxes attributable to the annuity Use life insurance death proceeds insurance may be a strategy to help pay estate taxes, creating the needed liquidity outside of the taxable estate 3 The estate tax is calculated on the total estate. Does not include any probate fees and expenses. Assumes the Applicable Credit Amount has already been utilized at first death. Amounts of prior taxable gifts are not accounted for. Represents the share of estate taxes attribuable to the annuity based on the ratio that the account balance bears to the total estate. A portion of distributions following death are considered Income in Respect of a Decedent (IRD). Ordinary income taxes, estimated at 30%, are due on these amounts by the beneficiary. The beneficiary may also receive an income tax deduction for estate taxes attributable to the IRD asset. 0 of
The Key to Maximizing Distributions Keeping Your Plan Intact The key to maximizing income tax deferral and stretching out distributions to your heirs is to keep the annuity intact at death. Significant Transfer Costs Are Incurred at Your Death How will the estate taxes and other transfer costs needed to keep your plan in place be paid? Where will the additional liquidity come from? Using the annuity not only accelerates income taxes on these funds but prevents the stretching of distributions over future generations Pay the additional liquidity needed from other assets within the estate assets that might otherwise be passed on and utilized for other planning purposes Or, pay the transfer costs attributable to the annuity transfer using life insurance owned by an irrevocable life insurance trust Your estate needs enough liquidity outside of the annuity to satisfy estate taxes and expenses attributable to the plan to achieve optimal multi-generational planning. of
Assumptions Details and Assumptions for Maximization Calculations General Assumptions Robert's DOB: Jan. 0, 946 and Mary's DOB: Jan. 0, 946 Maximization Assumptions Current plan amount is $750,000 with a growth rate of 6.000%. Hypothetical rates of return illustrated are not associated with any particular investment. The annuity cost basis is $400,000. The annuity balance is grown pro-rata based on the date entered. Robert takes distributions from the annuity of $0,000 already started and ending when Robert turns 66. These distributions increase annually at 0.000%. Distributions are taxable. Beneficiary Information Beneficiary Name Date of Birth Henry Jan. 0, 977 Stacy Jan. 0, 98 Robbie Jan. 0, 004 Lump-Sum Distribution Assumptions At Robert's death, Mary takes distributions based on his/her own life expectancy. At Mary's death, beneficiaries receive the balance of the annuity as a lump sum distribution. Maximization Spousal Beneficiary Assumptions At Robert's death Mary continues distributions based on his/her own life expectancy. The surviving spouse splits the inherited annuity values into a separate annuity for each non-spouse beneficiary. Distributions continue to each beneficiary at Mary's death calculated on the named beneficiary's life expectancy as of /3 in the year following Mary's death. Mary's estate is assumed to have cash liquidity to fund estate taxes outside of the annuity for this analysis. Maximization Non-Spousal Beneficiary Assumptions At retirement the annuity is divided with each non-spouse beneficiary. Robert's death is assumed in 0. Robert's estate is assumed to have enough cash liquidity outside of the annuity in analysis. Each non-spouse beneficiary continues taking distributions based on his or her life expectancy and is assumed to live to the life expectancy used in the illustration. Distributions continue to each beneficiary at Robert's death calculated on the named beneficiary's life expectancy as of /3 following Robert's death. of