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Disclosures

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Disclosures

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  1. Disclosures • The Voya™ Life Companies and their agents and representatives do not give tax or legal advice. This information is general in nature and not comprehensive, the applicable laws change frequently and the strategies suggested may not be suitable for everyone. You should seek advice from your tax and legal advisors regarding your individual situation. • These materials are not intended to and cannot be used to avoid tax penalties and they were prepared to support the promotion or marketing of the matter addressed in this document. Each taxpayer should seek advice from an independent tax advisor. • Life insurance products are issued by ReliaStar Life Insurance Company (Minneapolis, MN), ReliaStar Life Insurance Company of New York (Woodbury, NY) and Security Life of Denver Insurance Company (Denver, CO). Within the state of New York, only ReliaStar Life Insurance Company of New York is admitted and its products issued. All companies are members of the Voya™ family of companies.

  2. Estate Planning Attorneys and Tax Advisors often advise their wealthy clients to consider using Life Insurance in their estate plans.

  3. Why is Life Insurance useful in Wealth Transfer Planning? There are two important reasons: • Reason #1 – Potential For Growth • Gross policy death benefits in most cases exceed the total premiums paid. • The difference between total premiums and policy death benefits represents additional assets that may be paid to policy beneficiaries.

  4. Why is Life Insurance useful in Wealth Transfer Planning? There are two important reasons: • Reason #1 – Potential For Growth • Gross policy death benefits in most cases exceed the total premiums paid. • The difference between total premiums and policy death benefits represents additional assets that may be paid to policy beneficiaries. • Reason #2 – Tax Benefits* • Life insurance death benefits are generally income tax free. • Policy death benefits may be structured to avoid estate taxes. *Proceeds from an insurance policy are generally income tax free, and if properly structured, may also be free from estate tax.

  5. Dying can be expensiveThese are potential estate expenses: • Funeral Expenses • Unpaid Debts • Bequests • Expenses of Last Illness • Medical & hospital expenses • Nursing home costs • Physical therapy and drug costs

  6. Dying can be expensiveThese are potential estate expenses: • Funeral Expenses • Unpaid Debts • Bequests • Expenses of Last Illness • Medical & hospital expenses • Nursing home costs • Physical therapy and drug costs • Estate Administration Expenses • Probate court costs • Legal and accounting fees • Real estate commissions • Asset management expenses • Federal and State Taxes • Income taxes • Estate taxes • Property taxes

  7. Your estate may need cash • You may not have a lot of cash when you die. • If there isn’t enough cash in your estate, the executor may need to find a way to come up with some.

  8. Your estate may need cash • Your executor may have to sell some of your assets. • It may be difficult to get a fair price after your death. • The market may be down • The executor’s negotiating position may be weak • Time pressures may require an quick sale

  9. One way to make sure there will be enough cash on hand is to Plan Ahead!

  10. Life Insurance can potentially be a cost-effective way to create cash

  11. Life Insurance needs careful handling • The policy needs to be managed so that the death benefits are available to meet the cash needs of your estate without being included in your taxable estate.

  12. Life Insurance needs careful handling • When you own a life insurance policy that insures your own life, the death benefits are part of your taxable estate. • The death benefits may increase the size of your estate so much that estate taxes can be due. • If your estate is already large enough to have estate tax concerns, the death benefits can make the problem worse. • When the policy death benefits create or increase your estate tax problem, part of the death benefits may need to be used to pay the taxes.

  13. Tax Professionals may recommend creating a Trust to own the life insurance policy. A well-drafted trust may potentially keep the policy death benefits estate tax free!* * Proceeds from an insurance policy are generally income tax free, and if properly structured, may also be free from estate tax.

  14. Some possible advantages of using a Trust to own a Life Insurance Policy These are some of the potential advantages to using a Trust to own a life insurance policy: • While the Trust owns the policy, it may be protected from the claims of creditors (both yours and your children’s). • All decisions about the policy are made and carried out by the Trustee you selected; this provides centralized management. • You may retain a degree of control over the policy through the provisions you put into the Trust.

  15. Some possible disadvantages of using a Trust There some potential disadvantages to using a Trust: • The cost of creating the trust. • The loss of direct personal control over the policy (although some degree of control is retained by virtue of the provisions put into the trust). • The trust must be irrevocable.

  16. Trusts that own life insurance policies are called “ILITs” “ILIT” = Irrevocable Life Insurance Trust

  17. How are the Policy Premiums paid? • The Trustee of the ILIT is responsible for managing the policy and paying the annual premiums. • You provide the premium dollars to the trust in one of two ways: • Gifts to the ILIT for the benefit of the beneficiaries. • Loans to the ILIT.

  18. Using gifts to pay premiums • Grantors often make gifts to their ILITs. • There are two potential strategies for avoiding gift taxes: • Annual exclusion gifts(up to $14,000 per recipient per year in 2014 when the recipient has a present interest in the gift) • Lifetime exemption gifts(for gifts which don’t qualify for the annual exclusion).

  19. Using gifts to pay premiums • Annual Exclusion Gifts are often used: • They are “renewable” – each year a new set of exclusions is created • Several annual exclusions can be combined to cover the premium • To qualify as an annual exclusion gift, the beneficiary must have a “present interest”

  20. How can the ILIT pay Estate Expenses? • The costs and expenses of settling your affairs are borne by your estate. • There are two potential ways the death benefits your ILIT receives may be used to pay help pay estate costs: • The ILIT trustee may lend the cash from the death benefits to your estate, or • The ILIT trustee may purchase assets from your estate with cash from the death benefits.

  21. How does the strategy work? There are five steps in using life insurance in an ILIT: • Your attorney drafts the trust and you and the trustee sign it.

  22. How does the strategy work? There are five steps in using life insurance in an ILIT: • Your attorney drafts the trust and you and the trustee sign it. • You put money into the ILIT through annual gifts, loans or a combination of the two.

  23. How does the strategy work? There are five steps in using life insurance in an ILIT: • Your attorney drafts the trust and you and the trustee sign it. • You put money into the ILIT through annual gifts, loans or a combination of the two. • The Trustee of your ILIT purchases a life insurance policy insuring your life and pays premiums with your gifts/loans.

  24. How does the strategy work? There are five steps in using life insurance in an ILIT: • Your attorney drafts the trust and you and the trustee sign it. • You put money into the ILIT through annual gifts, loans or a combination of the two. • The Trustee of your ILIT purchases a life insurance policy insuring your life and pays premiums with your gifts/loans. • The trustee manages the policy according to the trust’s terms.

  25. How does the strategy work? There are five steps in using life insurance in an ILIT: • Your attorney drafts the trust and you and the trustee sign it. • You put money into the ILIT through annual gifts, loans or a combination of the two. • The Trustee of your ILIT purchases a life insurance policy insuring your life and pays premiums with your gifts/loans. • The trustee manages the policy according to the trust’s terms. • At your death, the insurer pays the death benefits to the ILIT; the trustee manages the death benefits according to the trust terms.

  26. An ILIT in action: John Johnson* • John Johnson, age 70 and in standard health, is a widower with six children and a $5 million net worth. • John recognizes he has more money than he needs for the rest of his life; he also realizes his net worth may generate a large estate tax. • He wants to avoid the loss of his hard-earned wealth and preserve as much as possible for his children. * The hypothetical results are for illustrative purposes only and should not be deemed a representation of past or future results. This example does not represent any specific product, nor does it reflect sales charges or other expenses that may be required.

  27. John Johnson • John has his attorney draft an ILIT. • John gives ILIT $84,000 annually to pay the policy premiums; the gifts are designed as annual exclusion gifts.

  28. John Johnson • John has his attorney draft an ILIT. • John gives ILIT $84,000 annually to pay the policy premiums; the gifts are designed as annual exclusion gifts. • The ILIT purchases a $3,000,000 life insurance policy on John’s life.

  29. John Johnson • John has his attorney draft an ILIT. • John gives ILIT $84,000 annually to pay the policy premiums; the gifts are designed as annual exclusion gifts. • The ILIT purchases a $3,000,000 life insurance policy on John’s life. • John continues to make the gifts each year and the trustee manages the policy and pays the premiums.

  30. John Johnson • John has his attorney draft an ILIT. • John gives ILIT $84,000 annually to pay the policy premiums; the gifts are designed as annual exclusion gifts. • The ILIT purchases a $3,000,000 life insurance policy on John’s life. • John continues to make the gifts each year and the trustee manages the policy and pays the premiums. • After John dies, the ILIT receives the $3,000,000 death benefit.

  31. John Johnson • What John potentially accomplished: • John leveraged his premium payments into $3,000,000 of life insurance death benefits.

  32. John Johnson • What John potentially accomplished: • John leveraged his premium payments into $3,000,000 of life insurance death benefits. • The $3,000,000 in death benefits were paid income tax free.* *Proceeds from an insurance policy are generally income tax free, and if properly structured, may also be free from estate tax.

  33. John Johnson • What John potentially accomplished: • John leveraged his premium payments into $3,000,000 of life insurance death benefits. • The $3,000,000 in death benefits were paid income tax free.* • The entire $3,000,000 death benefit was estate tax free.* *Proceeds from an insurance policy are generally income tax free, and if properly structured, may also be free from estate tax.

  34. John Johnson • What John potentially accomplished: • John leveraged his premium payments into $3,000,000 of life insurance death benefits. • The $3,000,000 in death benefits were paid income tax free. • The entire $3,000,000 death benefit was estate tax free. • The ILIT trustee had the ability to preserve John’s wealth by potentially making loans to the estate or purchasing assets from the estate.

  35. In summary • An irrevocable life insurance trust (ILIT) uses life insurance death benefits to potentially create the cash needed to settle your affairs.

  36. In summary • An irrevocable life insurance trust (ILIT) uses life insurance death benefits to potentially create the cash needed to settle your affairs. • Two features of life insurance make it an effective tool for preserving estate assets: • Potential for growth • Gross policy death benefits in most cases exceed the total premiums paid • The difference between total premiums and death benefits represents additional assets that may be paid to policy beneficiaries

  37. In summary • An irrevocable life insurance trust (ILIT) uses life insurance death benefits to potentially create the cash needed to settle your affairs. • Two features of life insurance make it an effective tool for preserving estate assets: • Potential for growth • Valuable tax benefits • Income tax free death benefits • Opportunity for death benefits to be estate tax free* * Proceeds from an insurance policy are generally income tax free, and if properly structured, may also be free from estate tax.

  38. Talk with your financial professional to see how this strategy might work for you. Ask for a proposal customized to fit your situation.

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