You can, with the Split Annuity strategy, you purchase two annuities1 – an “immediate annuity” to provide regular income payments and a “deferred annuity” to rebuild your value to the original premium amount. The Split Annuity may be a means to avoid the 10 percent IRS penalty tax for early distributions if the funds are withdrawn prior to age 59½. Here’s how the Split Annuity strategy works:
You determine the duration for which you want to receive income. Based on that duration and current rates available, an exact split is determined for purposes for funding two annuity contracts.
Confidence Income AnnuityTM converts a portion of your total premium into a guaranteed stream of tax-advantaged income for the duration you choose (5, 6, 8 or 10 years).
Certainty SelectTM annuity is guaranteed to grow – tax deferred – to your original total premium, assuming no withdrawals or surrenders.
Certainty Select is a single premium deferred annuity offering guaranteed rates for 5, 6, 8 and 10 years. Certain withdrawal provisions apply. Accounts grow tax deferred until withdrawn.
Confidence Income is a single premium immediate annuity designed to provide income for a specific period of time. When used as a part of the Split Annuity strategy, the annuity provides income for a period that matches your Certainty Select duration. Payments can be received monthly, quarterly, semiannually, or annually. Current tax laws define immediate annuity payments as partially a return of principal.
A Split Annuity may not be appropriate for qualified assets, which are already tax deferred.
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Life insurance used for estate planning solves many estate issues by providing liquidity at death. The usefulness of life insurance is reduced when proceeds are taxable in a decedent’s estate.
Highly successful clients can give ownership of their life insurance policy away to keep it out of their taxable estate. Since giving the policy to children runs the risk of losing the policy to creditors, bankruptcy, or to a child’s divorce, it behooves the client to create an entity that is there to pay-out the death benefit according to the client’s wishes.
SOME OF THE ADVANTAGES OF AN IRREVOCABLE LIFE INSURANCE TRUST (ILIT) INCLUDE:
Proceeds not included in insured’s estate
Provides estate liquidity without taxation of proceeds
Avoids both Federal and State death taxes
With use of Present Interest Gifts of $14,000 per beneficiary and Lifetime Gift Tax Exemption of $5,450,000 as of 2016, avoids gift tax
SOME OF THE DISADVANTAGES INCLUDE:
Client must give up direct control over policy and gifts of premium
Transfer must be complete and permanent
Client cannot change beneficiary or ownership of policy and cannot have any incident of ownership
Events can later change with divorce, financial situation, stability of children etc. yet policy cannot be changed since insured does not own policy
TAX IMPLICATIONS OF AN ILIT:
If trust is only funded with life insurance, no taxable income
If trust is funded with investment assets, trust pays lax
To the extent income is paid to beneficiaries, beneficiaries will pay tax
However, if the trust is treated as an intentionally defective grantor trust, income earned by the trust is taxed to Grantor yet the trust proceeds are kept out of the Grantor’s estate
An Irrevocable Life Insurance Trust can be used as a “Dynasty Trust” that can benefit not only children but grandchildren and great grandchildren. Dynasty Trusts are a long term trust created specifically for all generations. Dynasty Trusts con survive 21 years beyond the death of the last beneficiary olive when the trust was written. If an insured had a grandchild age one when the trust is created, the Dynasty Trust could last over l00 years.
Tax savings occur at the death of the descendants, such as children and grandchildren. Since the Generation Skipping Tax (GSTJ exemption is assigned to the trust, the death benefit and trust assets are not taxed at the children or grandchildren’s death. There is also no federal estate tax on assets when the trust ends and no estate tax al the beneficiary’s deaths; this con save 70% of the estate through three generations.
The GST Exemption is $5,450,000 per person as of 2016.
More and more individuals who have had 401 (k)s for years, homes in appreciating areas and other investments hove taxable estates (yes, even now). An ILIT provides a means of providing liquidity at death without having the assets included in the deceased’s estate. If a client is projected to have a taxable estate, an ILIT can have a dramatic impact on the amount that goes to heirs. Irrevocable life Insurance Trusts need to be prepared by an estate planning attorney to ensure compliance with state and federal lax laws and to make sure the proceeds pass outside the insured’s estate. Keep in mind existing policy is contributed to an Irrevocable Life Insurance Trust, there is a three-year wait before the policy proceeds pass outside of the insured’s estate. If the insured is healthy, it may be better to have the Trustee purchase a new policy for the trust so that the insured has no incidence of ownership and the death benefit passes outside the insured’s estate from day one. Signature Guaranteed Universal Life is a great match for an Irrevocable Life Insurance Trust. It is a low cost permanent life insurance policy that does not accumulate cash value but provides a guaranteed death benefit as long as premiums are paid and loans and withdrawals are not taken. That, in essence, is how an ILIT should work by minimizing cost and providing a permanent guaranteed benefit.
It can take years for you to build your business, risking everything every day. Your business can be your greatest accomplishment and you have worked hard to make it what it is today. You feel you are the business and the business is you; your self- worth is tied up in that business. The last thing you want is to see it all lost if something happens to you. Family Business Succession Planning can help ensure your business continues in the case of potential risks including: LOSS IF SOMETHING HAPPENS TO YOU – ESTATE LIQUIDITY
If you are waiting until your death to transfer your business to the next generation, you will need some way of paying for the transaction whether there is estate tax or not. Failure to plan may result in the liquidation of the business in order to pay estate taxes and expenses. If an estate representative is forced to liquidate the business in order to pay estate taxes nine months after the date of death, the price they can obtain will be dramatically impacted not only by the speed with which the business must be liquidated but also because no planning was done to create a market for the business. The sale of the business becomes a fire sale which reflects in the price that can be obtained.
Proper life insurance planning can alleviate the need to sell the business and if the business is to be sold, a market can be created and a fair price obtained. If there is estate tax, life insurance can be used to pay the taxes and related expenses. Typically, an irrevocable life insurance trust is used to hold the policy and keep the death benefit out of the owner’s estate. That way the beneficiaries can receive the proceeds estate and income tax free.
If there is not an estate tax, there are still estate expenses for lawyers and accountants, burial expenses, and loss of revenue due to the owner no longer being a part of the company.
There may be issues with suppliers, creditors, and customers without the key owner in place. Insurance can be a way to calm these various groups so they know the company has the funds to sustain a drop in revenue while the owner is replaced with a family member or key executive. BUY-SELL AGREEMENT
It may be hard to imagine ever losing a business you worked hard to create, but the fact is someday someone else will own your business. A properly designed Buy-Sell Agreement and estate plan ensures your business passes as you wish. Even though your intent may be to simply leave the business to family members, care should be taken to ensure that non-participating family members who do not work in the business do not receive stock in the company but instead receive other property or a buyout. A Buy-Sell Agreement can help alleviate family disputes that may arise while trying to readjust the business after something has happened to you. With the proper plan in place, the family will have the guidance they need during this critical transition period.
A stock redemption buy-sell where insurance is owned by the company allows the company to buy stock from the estate while a cross purchase buy-sell would have the children working in the business owning the insurance, and the children in the business purchasing the stock from the estate or from the children not in the business. A cross purchase buy-sell is more expensive as the cost of insurance must be grossed up for the income taxes the children must pay but the advantage is the children in the business receive a step-up in basis on their stock. The stock redemption plan has the insurance owned by the company and once the company purchases the deceased owner’s stock the stock is retired and becomes Treasury stock. The remaining owners then own all of the outstanding stock in the company with no step-up in basis. ESTATE EQUALIZATION
As mentioned under the Buy-Sell Agreement there may be times when family members that have not been involved in the business receive partial ownership of the business. When there are multiple family members with different levels of involvement in the business, it is often times difficult to determine how the assets of the family business should be divided. Life insurance can help ensure that once the owner dies, the business will have the cash flow to continue as planned. The proceeds of the life insurance can be used to purchase the non-involved family member’s interest in the business, so that the family members that have been involved in the business can continue to run the family business as planned.
KEY PERSON INSURANCE
So many family businesses have non-family members in very key roles without whom the business may suffer. It could be the key salesman who has all of the customer contacts, the individual who has all of the relationships with suppliers, the key financial person in the company or the individual who keeps all of the machinery running out in the shop. If that person dies suddenly, the business will suffer a financial hardship due to that employee’s absence. A key person policy can help to ensure any loss is covered and additional funds are available to hire consultants temporarily until a new employee can be found and trained. It can also include a component that can provide a benefit to the deceased employee’s family.
NON-QUALIFIED DEFERRED COMPENSATION (NQDC)
Normally, on a life insurance policy that does not generate significant cash value, we would not recommend it be used for NQDC. However, the Signature Guaranteed Universal Life Insurance Policy offers the Cash-Out Rider. This allows the company to provide the employee’s family guaranteed death benefit protection at lower prices than the typical universal life policy while retaining the Cash-Out option which can pay a partial return of premiums after 15 years and a full return of premiums after 20 and 25 years, subject to the death benefit cap1. That way, the employee’s family is provided death benefit protection and then, if it is not needed after 20 or 25 years, the company may surrender the policy for its Cash-out value and use that to provide the employee an additional cash bonus. CONCLUSION
Family Business Succession Planning is very different than planning for a closely held business that is
not family held. Each family is different and has a different set of “family” issues to plan for. The one commonality is that liquidity will be needed to convey the family business to the next generation while ensuring the continuation of the family business and being fair to children who do not participate in the business. Signature Guaranteed UL can provide a low cost means of providing permanent insurance coverage that will be there when it is needed. If the business is sold, the insured can utilize the Cash-Out option during the 15th, 20th, and 25th policy years to obtain the return of premiums while having enjoyed the permanent protection of insurance for all of those years.
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The new Table Reduction program for Signature GUL could transform your case from Table 4 down to Table 3, Table 2, or even Standard!
Signature GUL Table Reduction Program:
What is the extra advantage for Signature GUL?
Eagle Advantage for SGUL gives clients that normally would have been rated up to Table 4 a better rating if the lower rating was due to certain eligible conditions. A list of conditions that may be eligible for a table reduction is available to the right.
How does it work?
There is no action required on the part of the agent. American National Underwriters will automatically submit your case if it appears it may qualify. If a better rating is offered, it could be a one rate class improvement or possibly better. For cases that would normally be Table 2-4, standard is the the best possible rate class.
If for some reason an improvement cannot be made, there is no chance of losing American National’s original rate class opinion.
What cases may be eligible?
• Signature GUL cases only
• Ages 18 – 70
• Face Amounts of $250,001 up to $2,000,000
Eligible Medical conditions and Non-medical risks:
Type II Diabetes
Hepatitis C (Treated)
Morbid Obesity Surgery
Abnormal Blood Sugars
Liver function tests
PSA(Prostate Specific Antigen)
Motor Vehicle Violations
For Agent Use Only, Not For Distribution Or Use with Consumers.