Fundamentals Of  Estate  Planning
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Fundamentals Of Estate Planning

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Why is an estate plan important? The estate tax is probably the largest single tax you...

Why is an estate plan important? The estate tax is probably the largest single tax you
are ever likely to pay. With the highest maximum rate at slightly under 50%, it’s
important that you create a plan that’s right for you and your heirs.
An estate plan can help you to:
•Preserve assets and wealth.
•Ensure your assets are distributed according to your wishes to the right people at
the right time.
•Minimize or defer taxation.

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  • 1. Fundamentals of Estate Planningpage 1 cn51498112010 ©2009. ING North America Insurance Corporation 1
  • 2. Disclosures Neither ING nor its affiliated companies or representatives give tax or legal advice. For complete details regarding your individual situation consult with your tax or legal advisors. These materials are not intended to be used to avoid tax penalties, and were prepared to support the promotion or marketing of the matter addressed in this document. You should seek advice from an independent tax advisor. Life insurance products are issued by Security Life of Denver Insurance Company (Denver, CO), ReliaStar Life Insurance Company (Minneapolis, MN), and ReliaStar Life Insurance Company of New York (Woodbury, NY). 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 ING family of companies.page 2 cn51498112010 ©2009. ING North America Insurance Corporation 2
  • 3. Why is an Estate Plan Important? An Estate Plan can help you to: Preserve assets and wealth. Ensure your assets are distributed according to your wishes to the right people at the right time. Minimize or defer taxation. page 3 cn51498112010 ©2009. ING North America Insurance CorporationWhy is an estate plan important? The estate tax is probably the largest single tax youare ever likely to pay. With the highest maximum rate at slightly under 50%, it’simportant that you create a plan that’s right for you and your heirs.An estate plan can help you to:•Preserve assets and wealth.•Ensure your assets are distributed according to your wishes to the right people atthe right time.•Minimize or defer taxation.Let’s take a look at a brief overview of this subject. 3
  • 4. Overview of Estate Planning What’s included in my estate? How much to whom? How is my estate transferred? What are the costs of estate settlement? page 4 cn51498112010 ©2009. ING North America Insurance CorporationBefore you create a plan, it’s important to understand what’s included in your estate.You also need to consider what you want to leave and to whom.The mechanics of transferring an estate and the settlement costs involved can becomplicated and costly.Before you can create an effective plan, it’s important to understand how each ofthese items work and the impact each of these items on your plan. 4
  • 5. Your estate consists of everything you own or control, including… page 5 cn51498112010 ©2009. ING North America Insurance CorporationFirst of all, your estate consists of everything you own or control, including… 5
  • 6. Tangible Assets Your home and other real estate Your vehicles, boats and recreational vehicles Jewelry and other valuables Precious metals, coins and collectibles Personal possessions, furniture, etc. Business holdings page 6 cn51498112010 ©2009. ING North America Insurance CorporationAll of your tangible assets. In fact, your estate is probably made up of 2 differenttypes of assets – tangible and intangible.Tangible assets include:•Your home and other real estate.•Your vehicles, boats, and recreational vehicles.•Jewelry and other valuables.•Precious metals, coins, and collectibles.•Personal possessions, such as furniture and appliances.•Your business holdings. 6
  • 7. Intangible Assets Your bank accounts Annuities Financial Portfolio Stocks and bonds Mutual funds Retirement plan proceeds Life insurance death benefits page 7 cn51498112010 ©2009. ING North America Insurance CorporationYour intangible assets might include:•Your bank accounts.•Annuities.•Stock and bonds.•Mutual funds.•Retirement plan proceeds and IRA accounts.•Life insurance death benefits. 7
  • 8. How Much to Whom? Private Property Real Estate Financial Portfolio Business Holdings Your Family The Government Charity page 8 cn51498112010 ©2009. ING North America Insurance CorporationThe really important question is: How much of your estate do you want to leave toyour family, to charity, or to the government?The decisions you make as a part of your estate plan will directly impact the answerto this question. 8
  • 9. How is my estate transferred? page 9 cn51498112010 ©2009. ING North America Insurance CorporationLet’s start with the basic issue of how your estate is transferred. Understanding howan estate is transferred is an important step to creating the right plan. 9
  • 10. When you die your assets are legally transferred in 4 ways: By direct transfer By joint ownership Through probate Through trusts page 10 cn51498112010 ©2009. ING North America Insurance CorporationWhen you die, your assets are legally transferred in one of 4 ways:•By direct transfer (such as a beneficiary designation on a checking account).•By joint ownership (such as holding the title to your house in both spouses’ names).•Through probate (we will talk more about this later).•And through trusts (we will also cover this topic). 10
  • 11. Direct Transfer Assets Assets that have a beneficiary designation or a payable-on- death clause are transferred directly to the new owner: Savings accounts Certificates of deposit 401(k) and other retirement plans Traditional and Roth IRAs Tax-deferred annuities Life insurance page 11 cn51498112010 ©2009. ING North America Insurance CorporationDirect Transfer assets have a specific beneficiary designation or a payable-on-deathclause. These assets are transferred directly to the new owner by law.Examples of assets that may have a beneficiary designation or a payable-on-deathclause include:•Savings accounts.•Certificates of deposit.•401(k) and other retirement plans.•Traditional and Roth IRAs.•Tax-deferred annuities.•Life insurance. 11
  • 12. Joint Ownership Joint Tenancy with Right of Survivorship (JTWROS): Two or more people own the same asset with an undivided interest. 100% Tenants in Common: Two or more people own the same asset, often in different percentages. Community Property: Assets are owned x% y% equally by the husband and wife if the assets were acquired during marriage while living in a community property state.* *Community property states are AZ, CA, ID, LA, NV, NM, TX, WA and WI. page 12 cn51498112010 ©2009. ING North America Insurance CorporationThe issue of joint ownership is a very important one that many people don’t thinkabout much. A joint ownership designation may preclude your current transferdesires. It’s important to look at how your assets are titled because property that isjointly owned transfers by law based on the nature of the joint ownershipdesignation, rather than by virtue of any wishes you may express in your will.Joint ownership can be titled in several ways:•Joint Tenancy with Right of Survivorship – This is a common designation formarried couples, where both spouses own an undivided interest in the property.When one spouse dies, the other spouse automatically owns the entire asset.•Tenants in Common – This designation allows 2 or more people to own the sameasset in designated percentages. When one owner dies, their percentage ownershipwill pass to their designated heirs as set forth in their will (if they have one) or bystate law.•Community Property – This is a common designation in community propertystates. (Community property states include Arizona, California, Idaho, Louisiana,Nevada, New Mexico, Texas, Washington, and Wisconsin.). 12
  • 13. Probate Probate is the court-supervised process that identifies what you own at death and distributes your assets according to your wishes if you left a will, or else according to state law. page 13 cn51498112010 ©2009. ING North America Insurance CorporationTransfers also occur through the process that is called “probate.” Probate is thecourt-supervised process that identifies what you own at death and distributes yourassets according to your wishes, if you left a will, or else according to state law.The more assets that pass through probate, the more costly your settlement costsmay be. 13
  • 14. Probate If you die without a will: The Probate Court determines who administers your estate and cares for your minor children A Court appointed conservator manages the assets for minor children and the children will get the assets at age 18. All children are treated equally, even if they have different needs. Stepchildren may be excluded. Remote relatives may receive assets that you wanted to leave to friends or charity. Your estate may pay unnecessary taxes and expenses. page 14 cn51498112010 ©2009. ING North America Insurance CorporationIf you die without a will, your estate will pass through probate and the probate courtwill determine who administers your estate and cares for your minor children. Theprobate court will appoint a conservator or guardian-ad-litem for those assets thatwill go to minor children, and the assets will be released to those children when theyreach age 18. Regardless of need or ability, all children will be treated equally. Andcontrary to your wishes, most state law excludes stepchildren from the distributionof your assets. In fact, instead of those closest to you, probate may result in remoterelatives receiving assets that you really wanted to leave to friends or charity.Finally, probate may result in your estate paying unnecessary taxes and expenses. 14
  • 15. Probate If you die with a will, your will allows you to: Designate the person or institution you want to handle your affairs. Indicate which people or organizations you want to receive specific assets. Control the terms of asset distribution. Indicate who you want to care for your minor children. Take advantage of estate tax-saving strategies. page 15 cn51498112010 ©2009. ING North America Insurance CorporationIf you leave a will, your estate will still go through probate, but the process will bemuch different. The existence of a valid will permits you to:•Designate the person or institution (such as a bank or trust company) that you wantto handle your affairs.•Indicate which people or organizations you want to receive specific assets.•Be able to control the terms of asset distribution (such as certain assets at certainages to your children).•Be able to designate who you want to care for your minor children.•And be able to plan ahead to take advantage of estate tax-saving strategies in yourestate plan. 15
  • 16. Probate In most states, the probate process consists of: Establishing whether a valid will exists. Appointing an executor or personal representative to manage your estate during probate. Valuing everything you owned at your death. Receiving claims against the estate. Paying taxes and claims. Settling disputes about asset distribution. Distribution of the estate assets. page 16 cn51498112010 ©2009. ING North America Insurance CorporationSo how does this probate process work?In most states, the probate process consists of:•First of all establishing whether a valid will exists.•The appointment of an executor or personal representative to manage your estateduring the probate process.•The valuing of everything you owned at your death. This may require appraisalsand other expert opinions.•Receiving claims against your estate within a certain time period, or the claims willforever be barred.•Paying your taxes, debts, and the valid claims made against your estate.•Settling any disputes about asset distribution among your heirs or other claimants.•And finally, the distribution of your assets to the persons you designated. 16
  • 17. Trusts An Intervivos or Living Trust: Intervivos Is established during your lifetime. or Living Takes effect when funded. Trust Provides lifetime financial management of assets owned by the trust. Transfers assets at death. Avoids probate. page 17 cn51498112010 ©2009. ING North America Insurance CorporationRemember that I mentioned that assets can also be transferred by trust. Assets thatare owned by a trust are distributed outside of probate and are not subject to theprobate process.There are several different types of trusts. The most common type is an intervivos orliving trust. This simply means that it is a trust that is established while you are stillalive (intervivos). It takes effect when you put assets into the trust (it is funded).What such a trust can do for you is to provide lifetime financial management of allof the assets owned by the trust. Who does that management? You can do ityourself, or you can designate someone else to be the trustee. Those assets owned bythe trust transfer at your death according to the terms of the trust, without goingthrough the probate process. 17
  • 18. Trusts A Testamentary Trust: Testamentary Is established as part of your will. Trust Takes effect when you die. Allows you to own and control the assets until your death. Establishes the conditions under which the beneficiaries will receive the assets (e.g.: age). Can be used to reduce or defer estate taxes. page 18 cn51498112010 ©2009. ING North America Insurance CorporationA testamentary trust is different from a living trust because it is established as a partof your will when you die. It has no existence or effect until you die. Such a trustdoes allow you to establish the conditions under which your beneficiaries willreceive the assets (for example, the age at which your children will receive certainassets). Such a trust can also be used to reduce or defer estate taxes and some estatesettlement costs. 18
  • 19. Transfer of Assets to a Trust Grantor Trustee Beneficiaries • Transfers • Legally owns • Receive ownership trust assets. trust of assets • Follows trust assets as to the trust. instructions. specified • Manages assets in the trust for the benefit of document. the beneficiaries. page 19 cn51498112010 ©2009. ING North America Insurance CorporationSo how does a trust work? It’s really quite simple. When you set up a trust, thegrantor (you) transfers ownership of his or her assets to the trust.A trustee is selected by the grantor. That trustee legally owns the trust assets. It’s thetrustee’s job to manage the assets for the benefit of the beneficiaries you havedesignated, according to the specific instructions contained in the trust document.The beneficiaries then receive the trust assets as specified in the trust document. 19
  • 20. What are the costs of Estate settlement? page 20 cn51498112010 ©2009. ING North America Insurance CorporationWhat about the subject of estate settlement costs? What are they, and why do wetalk so much about them? 20
  • 21. Estate Settlement Costs Death triggers a long list of costs that must be paid from your estate. page 21 cn51498112010 ©2009. ING North America Insurance CorporationDeath triggers a long list of costs that must be paid from your estate. These can bequite significant. 21
  • 22. Estate Settlement Costs Funeral, medical, and burial expenses. page 22 cn51498112010 ©2009. ING North America Insurance CorporationThey include your funeral, medical, and burial expenses. 22
  • 23. Estate Settlement Costs Funeral, medical, and burial expenses: Estate Valuation & Distribution Costs Appraisals Court Costs Business Valuation Legal & Accounting Fees Executor/Administrator Expenses page 23 cn51498112010 ©2009. ING North America Insurance CorporationThere are also costs associated with valuation, as well as distribution, of your assetssuch as:•Appraisals – The assets in your estate must be valued in order to determine whethertaxes may be due and also to establish the tax basis of those assets in the hands ofyour beneficiary.•Court-related costs.•Costs associated with the valuation of business interests.•Legal and accounting fees.•And the costs and expenses associated with the activities of your executor oradministrator. 23
  • 24. Estate Settlement Costs Funeral, medical, and burial Payment of Debts expenses Estate valuation and distribution costs Appraisals Court Costs Business Valuation Legal & Accounting Fees Executor/Administrator Expenses page 24 cn51498112010 ©2009. ING North America Insurance CorporationAn important part of the probate process of making sure that all valid debts of thedeceased have been properly taken care of. This includes any outstanding personalor business loans, monthly bills, credit cards, mortgages, etc. 24
  • 25. Estate Settlement Costs Funeral, medical, and burial Federal & State expenses Estate Taxes Estate valuation and distribution costs Appraisals Court Costs Business Valuation Legal & Accounting Fees Executor/Administrator Expenses Payment of Debts page 25 cn51498112010 ©2009. ING North America Insurance CorporationAn important part of the probate process of making sure that all valid debts of thedeceased have been properly taken care of. This includes any outstanding personalor business loans, monthly bills, credit cards, mortgages, etc. 25
  • 26. But I thought the estate tax was repealed! page 26 cn51498112010 ©2009. ING North America Insurance CorporationBut, you might say, I read in the newspaper that the federal estate tax was repealedby Congress. Why should I worry about federal estate taxes? 26
  • 27. Estate Taxes The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA): Estate taxes are NOT immediately and permanently repealed: • Gradual and temporary reform of estate tax system. • Repeal occurs only for those dying in 2010. • Entire law “sunsets” (terminates) in 2011 unless Congress enacts new legislation. • States are enacting their own death taxes. page 27 cn51498112010 ©2009. ING North America Insurance CorporationIn fact, many people believe that the Economic Growth and Tax ReliefReconciliation Act of 2001 repealed the federal estate tax.Sound bites heard in the news have caused many people to misunderstand thechanges that were brought about by this Act. In fact, the federal estate tax was NOTimmediately and permanently repealed. EGTRRA called for a gradual andtemporary reform of the federal estate tax system.Repeal of the federal estate tax only occurs for those dying in 2010 – this is the“Sunset” year. If you have control over the date of your death, then you will be abeneficiary of this legislation. However, if you don’t have such control, or you don’tchose to die in 2010, then if Congress does not enact new legislation before 2011,the old estate tax rates in effect before EGTRRA will return. This means amaximum tax rate of 55% could be in effect when you die.In the meantime, due to economic constraints and the loss of federal estate taxsharing by the federal government, many states are enacting their own death taxes tomake up for shortfalls in their state budgets. And in some cases, these state deathtaxes may be more than the federal estate tax! 27
  • 28. Highest Federal Estate Tax Bracket Year Percent Year Percent 2001 = 55% 2007 = 45% 2002 = 50% 2008 = 45% 2003 = 49% 2009 = 45% 2004 = 48% 2010 = 0 2005 = 47% 2011 = 55% 2006 = 46% page 28 cn51498112010 ©2009. ING North America Insurance CorporationIt is also important to remember that the federal estate tax is really a transfer taxbecause it applies to property that is transferred both during your lifetime and atyour death. This tax is progressive, which means that as the estate value increases,the estate tax rate increases. For instance, the estate tax brackets start at 18% onamounts above $10,000, while on an estate of $3,000,000 the transfer tax can be ashigh as 55%.Since the Economic Growth and Tax Relief Reconciliation Act of 2001 includes asunset provision, this means that none of the Act’s provisions apply to any tax yearbeginning after Dec. 31, 2010. In other words, as I mentioned, unless Congresspasses new legislation in time, on Jan. 1, 2011, all the provisions contained inEGTRRA revert to the tax laws in effect prior to June 7, 2001. This includes thefederal estate tax.At this point in time, many estate planners are suggesting that people do their estateplanning based on the rules that were in place prior to June 7, 2001. By taking thisapproach and planning for the federal estate tax, the worst case scenario is that yourfamily will end up with more than you planned. 28
  • 29. Estate Settlement Costs Sources of funds to pay estate settlement costs: Use cash Sell assets Borrow money Pre-pay with life insurance page 29 cn51498112010 ©2009. ING North America Insurance CorporationHow does your estate find the funds needed to pay your estate settlement costs?There are several sources.Your heirs can:•Use any readily available cash.•Sell assets contained in the estate.•Borrow money, using estate assets as collateral.•Or, you can pre-pay this expense with life insurance.Let’s look at each of these possibilities in some depth. 29
  • 30. Estate Settlement Costs Cash • Estate must have sufficient cash available. • Assets may have to be sold quickly. • Substantial loss to HEIRS. Estate Borrows the Money • Money has to be repaid with interest. • Estate assets might have to be used as collateral. • Substantial portion of the estate may not be available to your HEIRS. page 30 cn51498112010 ©2009. ING North America Insurance CorporationWith the first method, cash is taken out of the estate to cover estate settlement costs.For most estates, this is the least likely way to pay the tax. On the average, mostestates have only about 3% in liquid assets.Assets can also be sold, but usually the buyers know there is a motivated seller, andthe chances of getting the best price possible for these assets is difficult toaccomplish. This may result in a substantial loss to your heirs.The second way to solve the problem is to borrow the money. In effect, yourexecutor or administrator borrows money and uses the estate’s assets as collateral.This often leaves it up to the heirs to figure out how to service the debt. Downsidesto borrowing the money include problems finding a lender, high interest rates, andthe dilemma of how the loan be paid off. Your heirs may be saddled with a largedebt for years to come. 30
  • 31. Estate Settlement Costs IRS Installment Payments • IRS code section 6166 allows payments of taxes plus interest over 14 years. • Closely held business must be a large portion of the estate. • Debt payments could be a substantial burden. Life Insurance • Plan ahead to pay the taxes. • A small portion of the existing estate provides for settlement costs and taxes. • Settlement costs and taxes are paid without reducing the value to the HEIRS. page 31 cn51498112010 ©2009. ING North America Insurance CorporationInternal Revenue Code Section 6166 is another method of financing the estate taxwhen a closely-held business is a large portion of the estate. It is similar toborrowing the money. Tax-deferral methods such as Section 6166, however, do notreduce the tax. The full tax must still be paid, plus interest on the tax. This methodinvolves a government lien on the estate and business assets until the tax is paid.This results in a more complicated and costly estate settlement. Under certainconditions, the IRS can terminate the Section 6166 extension and demand fullpayment of the entire balance due.One of the major disadvantages to this solution is that the estate is not officiallyclosed until the taxes are paid. In the event of default, the government may go afterany estate beneficiary for the balance due. This option is not available for non-business assets.The fourth method is the life insurance solution. You can plan ahead to pay theestate settlement costs and taxes. For pennies on the dollar (as long as the premiumis paid) the money is available to pay the estate tax and settlement costs whenever itis due. 31
  • 32. Estate Taxes - A Burden for Heirs Paid from the estate before any distribution occurs. Must be paid in cash. Due in 9 months. Interest charged on any late payment. page 32 cn51498112010 ©2009. ING North America Insurance CorporationEstate taxes are a burden for your heirs because they must be:•Paid from the estate before any distribution to the heirs can occur.•Paid in cash within 9 months of death.•And the IRS charges interest on any late payments. 32
  • 33. Pay with Discounted Dollars Life insurance provides: Cash payment at death. “Immediate liquidity.” A dollar of death benefit may be obtained for a reasonable cost per year. Benefits are received income-tax free. Benefits may be subject to estate taxes if included in the estate. page 33 cn51498112010 ©2009. ING North America Insurance CorporationYou can choose to relieve your heirs of this burden by purchasing life insurancenow to pre-pay your estate tax with discounted dollars.Life insurance provides:•Cash payment at death (when it is needed most).•“Immediate liquidity” (no need to borrow or sell assets).•A dollar of death benefit may be obtained for a reasonable premium cost.•A death benefit amount that is received income tax-free.•A death benefit amount that may be subject to estate taxes if included in the estate. 33
  • 34. Risks of Failing to Plan Your heirs may owe more money because: • You missed annual exclusion gifting opportunities. • You missed estate tax reduction strategies. You may lack life insurance because: • You die before purchasing. • You are too old or ill to purchase insurance at a reasonable cost. Your heirs may have to liquidate assets. page 34 cn51498112010 ©2009. ING North America Insurance CorporationAfter hearing all of this, what are the risks if you don’t plan? There are several:•Your heirs may owe more money because you missed opportunities to plan, such asannual exclusion gifts and other estate tax reduction strategies.•You may die without life insurance, because you never purchased it, or becausewhen you finally decided that it was an important part of your estate plan, you weretoo old or too ill to purchase insurance at a reasonable cost.•Your heirs may have to liquidate assets or borrow in order to cover your estatesettlement costs, resulting in assets being lost or spent that you intended to go toyour family. 34
  • 35. Estate Planning Objectives Minimize or defer taxation. Liquidity to pay estate taxes. Use all available exemptions. Efficient transfer of personal capital. page 35 cn51498112010 ©2009. ING North America Insurance CorporationIf you do decide to go forward and do your estate plan, what are some of the mostcommon objectives?•Minimize or defer taxation.•Liquidity for the payment of estate settlement costs and taxes.•Taking advantage of all possible exemption amounts to reduce taxes.•The efficient transfer of personal capital.For most people, these are just of few of the topics that need to be covered duringthe estate planning process. There are also other issues such as business successionplanning or the special needs of a particular family member. 35
  • 36. Estate Planning Strategy Select proper tools and techniques. Avoid paying estate taxes at first death. Provide estate liquidity at survivor’s death: • Establish irrevocable life insurance trust (ILIT). page 36 cn51498112010 ©2009. ING North America Insurance CorporationOnce you establish your objectives, it is important to select the proper tools andtechniques to carry out the estate plan. These tools and techniques may includewills, trusts, distribution arrangements, liquidity planning, and irrevocable lifeinsurance trusts.By properly designing a plan that incorporates these tools, you may be able to avoidpaying federal estate taxes at the first spouse’s death and also minimize taxes at thesecond spouse’s death. This is often accomplished by combining the maritaldeduction with a credit shelter trust.You can also provide your estate with liquidity to pay estate taxes and other estatesettlement costs at the surviving spouse’s death. This is accomplished byestablishing an irrevocable life insurance trust (an “ILIT”) that owns a life insurancepolicy insuring your life or jointly insuring the life of you and your spouse. 36
  • 37. Typical Plan: Use marital deduction to transfer remaining estate to survivor without federal estate tax at first spouse’s death. Take advantage of the amount exempt from federal estate taxes. page 37 cn51498112010 ©2009. ING North America Insurance CorporationA typical estate plan is designed to take advantage of the amount exempt fromfederal estate taxes by placing it in a trust known as a credit shelter trust.The remainder of the estate is transferred to the surviving spouse either directly or intrust. This transfer takes advantage of the unlimited marital deduction to defer allfederal estate taxes until the death of the surviving spouse.While this is often a good first step in planning, it may not provide your estate withthe liquidity needed to pay the estate taxes and other estate settlement costs at thedeath of the surviving spouse. This is where the ILIT may come into play. 37
  • 38. Typical Plan Irrevocable Life Insurance Trust (ILIT): Ownership of life insurance to remove policy proceeds from federal estate taxation at the insured(s)’ death(s). Policy proceeds are estate tax-free source of funds to provide estate liquidity. Irrevocable Life Life Insurance Insurance Owns Policy Trust page 38 cn51498112010 ©2009. ING North America Insurance CorporationAs the name implies, the ILIT is the vehicle for holding life insurance policies. Theprimary goal of such an instrument is to have the trust own the life insurancepolicies as opposed to the insured(s). When properly established, such trustownership will remove the life insurance policy proceeds from federal estatetaxation at the death of both spouses. If the life insurance policy is personally ownedby the insured(s) prior to the transfer to the ILIT, a 3-year rule will apply that saysthat the life insurance policy death proceeds will be removed from federal estatetaxation only if the insured(s) lives for at least 3 years following the date of thetransfer.In this way, the trust can have a fund of cash that can be used to loan money to orpurchase assets from the executor of the decedent’s estate. This can create theneeded liquidity in the estate for payment of estate taxes and other estate settlementcosts, without these funds adding to the burden by causing additional estate taxes tobe due at either spouse’s death. 38
  • 39. The ILIT Grantor Irrevocable Life Insurance Trust Executor U.S. Treasury Heirs page 39 cn51498112010 ©2009. ING North America Insurance CorporationLet us take a closer look at the ILIT process.First, with the help of an attorney, you create an ILIT, select a trustee, and thentransfer cash or income-producing assets to the trust. Depending upon how thetransfer to the trust is structured, this transfer of cash and assets to the trust may besubject to gift taxes.Second, the trustee purchases and pays premiums for a life insurance policy insuringyou, or you and your spouse. Assuming that the trust was properly set up, at yourdeath or the death of your surviving spouse (if the policy purchased was a survivorlife policy) the trust receives the policy proceeds free of income and estate taxes.Next, the executor of your estate or the estate of the surviving spouse borrowsmoney from or sells assets to the ILIT. The executor can then use these funds to payestate taxes and other estate settlement costs.In the end, your heirs receive the net estate assets from your estate and the ILIT. 39
  • 40. What Is Being Accomplished? For You: Removes life insurance proceeds from taxable estate. Provides support for heirs after your death. Preserves bulk of your estate for your heirs. page 40 cn51498112010 ©2009. ING North America Insurance CorporationIn summary, with careful estate planning, including the use of an ILIT, you mayremove life insurance policy proceeds from the estate of both you and your spouse,provide support for your heirs after your death, and preserve the bulk of the value ofyour estate for your heirs. 40
  • 41. What Is Being Accomplished? For the Executor of Your Estate: Obtains money from trustee to help pay estate taxes and other settlement costs. Irrevocable Life Life Trustee Insurance Insurance Receives Policy Trust Death Benefit page 41 cn51498112010 ©2009. ING North America Insurance CorporationThe executor of your estate can sell estate assets to the ILIT or borrow money fromthe trustee of the ILIT, and use those funds to help pay estate taxes and other estatesettlement costs. 41
  • 42. What Is Being Accomplished? For Your Heirs: Removes life insurance death benefit proceeds from taxable estate. Life Estate Insurance Outside Death of Benefit Estate Proceeds page 42 cn51498112010 ©2009. ING North America Insurance CorporationIf the policy is owned by a properly drafted and funded ILIT, the trust will receivethe policy’s net death benefit proceeds, and such proceeds can pass to your heirsfree of estate and income taxes. 42
  • 43. Conclusion Consider Estate Planning if you: Want to choose who receives your estate. Want to maximize the wealth passing to your heirs. page 43 cn51498112010 ©2009. ING North America Insurance CorporationIn summary, you should consider planning your estate if you want to choose whoreceives the benefits of your hard-earned wealth and want to maximize the wealthyou pass to your heirs. 43
  • 44. Conclusion Consider life insurance owned by an ILIT if you: Want to pass estate tax-free death benefit to your heirs. Irrevocable Life Life Insurance Insurance Owns Policy Trust page 44 cn51498112010 ©2009. ING North America Insurance CorporationYou can also consider establishing an ILIT to own life insurance on your life if youwant the policys net death benefit proceeds to pass to your heirs free of income andestate taxes. 44
  • 45. Next Steps Review your current ownership of assets. Review existing beneficiary designations of life insurance or qualified plans. Review employer provided benefits. Review (or create) your will. Consult with your attorney and CPA and create your estate plan: • Restructure ownership of assets if needed. • Create trusts if needed. • Change ownership and beneficiary designations if needed. • Revise your will, if needed. • Consider purchasing life insurance.page 45 cn51498112010 ©2009. ING North America Insurance CorporationWhat’s the next step?First of all, review your current ownership of assets.You should also review existing beneficiary designations of life insurance orqualified plans.Review your employer-provided benefits.Review (or create) your will.Consult with your attorney and CPA and create your estate plan: - Restructure ownership of assets (if needed), - Create trusts (if needed), - Change ownership and beneficiary designations (if needed), - Revise your will (if needed), and - Consider purchasing life insurance. 45