Survivorship Life Insurance In A Profit Sharing Plan

1. Survivorship Life InsuranceIn A Profit Sharing Plan

3. Plan Participant Dies FirstMechanics of Policy Transfer Participant creates irrevocable trust to receive policy after first death. Participant executes special plan beneficiary designation with profit sharing trustee which allows transfer of policy to irrevocable trust (also QPSA and simultaneous death provision). Surviving spouse is plan beneficiary only of profit sharing investment account (Spousal IRA Rollover). Irrevocable trust pays income tax on total cash value distribution of policy from plan less Participant’s basis in the policy. Cash value is included in participant’s gross estate and does not qualify for the marital deduction. If it exceeds the applicable exclusion amount, there will be first death estate taxes due.

4. Distribution A) Step 1: ?Distribution of policy to Participant –Income tax on cash value (less basis in policy) plus 10% penalty if under 59 1/2 Step 2: ? Absolute assignment by Participant is considered a gift to the trust – IRC 2035 three year rule – Form 709 adjusted taxable gift Note: This two-step process also applies if both Participant and spouse are still alive. Purchase B) Step 1: ? Purchase of policy by the Participant or their trust – No income tax on cash value and PTE 92-6* Step 2: ? Absolute assignment gift to trust – IRC 2035 three year rule – Form 709 adjusted taxable gift *Note: PTE 92-6 and DOL Advisory Opinion 98-07A allow purchase of policy by “relatives” of participant. On September 3, 2002, DOL retroactively amended PTE 92-6 to allow the sale of insurance and annuities to a trust that benefits the participants or a relative.

6. Steps to Implement the Plan 1. Purchase Survivorship Life Insurance in the Profit Sharing Plan. Plan Trustee is applicant, owner, and beneficiary. 2. Set up an Irrevocable Life Insurance Trust outside the plan. 3. ? Make sure that the Profit Sharing Plan has the proper enabling language: (amend plan if necessary) Require policy distribution if spouse dies before participant Allow purchase of Life Insurance on spouse of participant Permit use of aged money for insurance purchase. (2 year rule; 5 year rule) Allow for rollover from another plan. (optional) 4. Establish Special Plan Beneficiary Designation. Irrevocable Trust is plan beneficiary of policy if participant dies first Spouse completes Spousal Waiver form. Non-participant spouse is named beneficiary of the investment portion of the plan (Spousal IRA Rollover) 5. Norris case unisex implications? In 1983, “Arizona vs. Norris” resulted in a Supreme Court decision that required unisex rates when funding QRPs with life insurance or annuities. John Hancock uses male rates to achieve the aims of the Norris Decision. 6. Complete Form QRP-1011 Commission Disclosure Statement and Form QRP-1060 Non-John Hancock Prototype Disclaimer. John Hancock Profit Sharing Prototype plan document has been modified to include the above enabling language.

7. Survivorship Life Insurance Owned by Profit Sharing Trust Plan Beneficiary Designations I, [PARTICIPANT], a Participant in the [NAME OF PLAN]. PROFIT SHARING PLAN, (hereinafter the “Plan”), hereby designate my [HUSBAND/WIFE], [SPOUSE’S NAME], as the beneficiary of the amounts payable as a death benefit under the Plan, other than any life insurance policy under which my [HUSBAND/WIFE], [SPOUSE’S NAME], is the insured or one of the insureds. Should my [HUSBAND/WIFE], [SPOUSE’S NAME], predecease me, such death benefit shall be payable to [CONTINGENT BENEFICIARY]. I hereby designate [NAME OF TRUSTEES] or their successors, Trustees of the[NAME OF IRREVOCABLE TRUST] dated the [DAY] day of [MONTH], 20[YEAR], as the owner and beneficiary of any life insurance policy under which my [SPOUSE’S NAME], is the insured or one of the insureds, and direct that such policy ownership be transferred by absolute assignment to the said Trustees at my death. In the event that [PARTICIPANT] and [SPOUSE] shall die under circumstances that the order of death cannot be determined, it shall be presumed for purposes of this plan beneficiary designation that [PARTICIPANT] predeceases [SPOUSE]. This beneficiary designation constitutes an election not to receive a joint and survivor annuity in the event of my retirement, and further constitutes an election not to have my [HUSBAND/WIFE] receive a survivor annuity under the Plan in the event I shall die before I retire. This beneficiary designation supersedes all prior beneficiary designations I have made with reference to the subject death benefits, and all such prior designations are hereby revoked. ____________________________________ ____________________________________ (TRUSTEE OF PROFIT SHARING PLAN) (PARTICIPANT) I [SPOUSE’S NAME], hereby consent and waive my right to a qualified pre-retirement survivor annuity and/or a qualified joint and survivor annuity as provided for in section 401(a)(11) and 417 of the Internal Revenue Code. My rights under these sections have been fully explained to me and I have made this waiver fully understanding such rights. For purposes of this plan beneficiary designation only, I waive any and all community property interest I may be entitled to under the laws of (State) or any other state, in any policies of life insurance held by the “Plan” and such policies shall be deemed to be the separate property of my [HUSBAND/WIFE], [SPOUSE’S NAME]. __________________________________ (SPOUSE’S NAME) This specimen has been prepared for illustration purposes only. Legal counsel is solely responsible for preparing the actual document to be used.