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Legacy Max

Legacy Max. Keep Success in the Right Hands. Ras. Changing Financial Objectives. Estate planning goals can shift from accumulation to conservation Your concern may have shifted from cash withdrawals for yourself to preserving a legacy

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Legacy Max

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  1. Legacy Max Keep Success in the Right Hands Ras

  2. Changing Financial Objectives • Estate planning goals can shift from accumulation to conservation • Your concern may have shifted from cash withdrawals for yourself to preserving a legacy • Annuities & IRAs may not meet your asset protection and transfer goals.

  3. Tax Efficient Retirement Savings Annuities and IRAs are very tax-efficient ways to save for retirement

  4. IRA Features • Contributions may be partially or totally tax deductible • Growth is tax-deferred • Taxable as income when distributed

  5. Annuity Features • Contributions are after-tax money • Tax-deferred growth • Portion of retirement payment can be tax-free return of contributions • Can provide income you can’t outlive

  6. But… Annuities and IRAs are inefficient ways to pass wealth to your heirs and beneficiaries Why?

  7. Eroding Your Legacy • A gift of annuity or IRA during your life results in BOTH gift and income taxes at the time of the gift • Can be subject to estate taxes at death • Value at death could result in income taxesdue

  8. Eroding Your Legacy • Combined gift and income taxes or • Combined estate and income taxes could result in... Loss of up to 70% or more to taxes

  9. An Example • Harry is 65. His estate is worth $5M at his death • Included in Harry’s estate - a non-qualified annuity that has grown to a value of about $1.6 million Gross value of non-qualified annuity at life expectancy = $1.6 M based on 20 years of growth, tables 5 & 6, 6% net rate.

  10. Harry’s Legacy Keep Non-Qualified Annuity (NQA) Gross Value at Life Expectancy $1,600,000 Estate Tax on NQA $ 855,000 Income Tax on NQA $ 180,000 Net to Heirs $ 565,000 Gross value of annuity at life expectancy = $1.6 M, based on 20 years of growth, tables 5 & 6, 6% net rate. Estate tax rate = 53%, income tax rate = 28%

  11. Harry’s Legacy Of the Non-Qualified Annuity (NQA) Valued at $1,600,000 Only $565,000 goes to his daughter A 65% Reduction in the Asset!

  12. Harry’s Legacy Of the Non-Qualified Annuity (NQA) Valued at $1,600,000 • Only $565,000 goes to his daughter • The rest goes to IRS • It could get worse….

  13. Harry’s Legacy Of the $1,600,000 Non-Qualified Annuity (NQA) -- • If NQA beneficiary is a grandchild… • May be subject to Generation Skipping Tax…. • Further reducing total Harry passes on to his heirs

  14. What Can Harry Do? • Can’t give NQA away -- would pay both gift & income taxes at time of gift. • Shouldn’t hold until death because of potential estate and income tax liabilities Legacy Max…A Better Alternative

  15. Legacy Max • Exchange for something that has “no value” for estatetaxation purposes • Remove Non-Qualified Annuity from estate WITHOUT gift taxes

  16. Exchange NQA for Immediate Annuity Step 1 • Purchase immediate annuity with payments to Harry for his lifetime • Annuity payable for his life terminates without value at his death

  17. Exchange NQA for Immediate Annuity Annuity Payments to Harry Step 2 Harry receives annuity payments and pays income taxes on each payment

  18. Exchange NQA for Immediate Annuity Annuity Payments to Harry Trust purchases life insurance on Harry’s life Harry establishes irrevocable trust Step 3 • Harry sets up an irrevocable trust • Trust buys life insurance on Harry Pay current income taxes on distributions from annuity

  19. Exchange NQA for Immediate Annuity Annuity Payments to Harry Trust purchases life insurance on Harry’s life Harry establishes irrevocable trust During Harry’s Life Harry uses annuity payments to pay premiums

  20. At Harry’s Death Life insurance pays Harry’s daughter $1.8M non-taxable death benefit No Income Tax No Estate Tax Assumes that $1,300,000 face amount of Security Design II is purchased with the after-tax distribution from the non-qualified annuity and grows to approximately $1.8 million, based on current interest and current mortality assumptions.

  21. If Harry is married…. • Annuity can pay income toHarry or his wife until second of them dies • Life insurance can be designed to insure both spouses and payat second death

  22. So What Did Legacy Max Accomplish?

  23. Harry’s Legacy Exchange & Buy Life Insurance Policy Death Benefit $1,800,000 Estate Tax onLife Insurance Policy $0 Income Tax onLife Insurance $0 Net to Heirs $1,800,000 Keep Non-Qualified Annuity Gross Value at Life Expectancy $1,600,000 Estate Tax on NQA $ 855,000 Income Tax on NQA $ 180,000 Net to Heirs $ 565,000 Gross value of annuity at life expectancy = $1.6 M, based on 20 years of growth, tables 5 & 5, 6% net rate. Estate tax rate = 53%, income tax rate = 28% 65% Advantage Assumes that $1,300,000 face amount of Security Design II is purchased with the after-tax distribution from the non-qualified annuity and grows to approximately $1.8 million, based on current interest and current mortality assumptions.

  24. What Did Legacy Max Do? • $1.8M vs. $565,000 for Harry’s daughter -- a 65% increase • With a survivorship policy, the increase could be even greater Assumes that $1,300,000 face amount of Security Design II is purchased with the after-tax distribution from the non-qualified annuity and grows to approximately $1.8 million, based on current interest and current mortality assumptions.

  25. Caveat Not everyone will qualify for life insurance -- it will be based on current condition

  26. Legacy Max • Helps preserve your assets • Helps maximize the benefit to your heirs and beneficiaries

  27. Disclaimers • Scenarios used the following assumptions: • All figures used in this presentation are for illustrative purposes only • Net value of non-qualified annuity at life expectancy = $1.6M based on 20 years of growth, tables 5 & 6, 6% net rate of return. Rollover non-qualified annuity to immediate annuity - payments to ILIT to purchase life insurance, using Security Design II, Policy Form No. 11320 (#11330 in Montana), varies by state and is not available for sale in every state. • Estate tax on annuity = 53% • Income tax on annuity = 28% • Legacy Max concept designed for use with either Universal Life Insurance or Variable Universal Life Insurance products Insurance and annuities issued by ReliaStar Life Insurance Company and Security-Connecticut Life Insurance Company. Securities offered through Washington Square Securities, Inc., 20 Washington Avenue South, Minneapolis, MN, 55401, (612) 372-5507. WSSI, ReliaStar Life and Security-Connecticut are wholly-owned subsidiaries of ReliaStar Financial Corp., a diversified holding company based in Minneapolis, MN. Doc. #6176

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