Knox Consulting Group
                        LLC
Charles Knox, MBA, CCFC®
         Investment Advisor

                  ...
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Knox Consulting Group LLC

     Life Insurance and Estate Planning
     Life insurance has come a long way sin...
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Knox Consulting Group LLC




                            See disclaimer on final page
                       ...
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Knox Consulting Group LLC

     Irrevocable Life Insurance Trust (ILIT): A Wealth
     Replacement Trust
     ...
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Knox Consulting Group LLC

Comparison of Types of Life Insurance
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Knox Consulting Group LLC

     Comparison of Men's and Women's Life Expectancy
     and Mortality
     When i...
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Knox Consulting Group       Securities and Investment Advisory Services offered
                    LLC   ...
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Life Insurance And Estate Tax Presentation

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Life Insurance And Estate Tax Presentation

  1. 1. Knox Consulting Group LLC Charles Knox, MBA, CCFC® Investment Advisor Life Insurance and Representative One Glenlake Parkway Suite 700 Estate Tax Atlanta, GA 30328 Office: 770 439-0357 Fax: 770 321-2542 cknox@knoxcg.com http://www.knoxcg.com April 2009
  2. 2. Page 2 of 7 Knox Consulting Group LLC Life Insurance and Estate Planning Life insurance has come a long way since the days had to sell valuable assets to pay the taxes and when it was known as burial insurance and used expenses that arose as a result of his death. mainly to pay for funeral expenses. Today, life insurance is a crucial part of many estate plans. You can use it to leave much-needed income to your Life insurance lets you give to survivors, provide for your children's education, pay charity, while your estate enjoys an off your mortgage, and simplify the transfer of assets. Life insurance can also be used to replace estate tax deduction wealth lost due to the expenses and taxes that may follow your death, and to make gifts to charity at Using life insurance, Frank was able to leave a relatively little cost to you. substantial gift to his favorite charity. Since gifts to charity are estate tax deductible, this gift was not To illustrate how life insurance can help you plan subject to estate taxes when he died. Dave always your estate wisely, let's compare what happened dreamed of leaving money to his alma mater, but his upon the death of two friends: Frank, who bought life family couldn't afford to give any money away when insurance, and Dave, who did not. (Please note that he died. these illustrations are hypothetical.) Life insurance won't increase estate Life insurance can protect your taxes--if you plan ahead survivors financially by replacing your lost income Before buying life insurance, Frank talked to his attorney about the potential tax consequences. Frank's attorney told him that if he was leaving behind Frank bought life insurance to help ensure that his a taxable estate worth less than a certain amount ($2 survivors wouldn't suffer financially when he died. million in 2008, under the applicable exclusion When Frank died and his paycheck stopped coming amount), his survivors generally wouldn't owe estate in, his family had enough money to maintain their taxes on a life insurance policy left to them. Since lifestyle and live comfortably for years to come. Frank's estate was larger than that, Frank and his And since Frank's life insurance proceeds were attorney put a plan in place that helped minimize the available very quickly, his family had cash to meet estate tax burden on his family. their short-term financial needs. Life insurance proceeds left to a named beneficiary don't pass through the process of probate, so Frank's family Be like Frank, not like Dave didn't have to wait until his estate was settled to get the money they needed to pay bills. Throughout his life, Dave worked hard to support his But Dave didn't buy life insurance, so his family family. Frank did, too, but went wasn't so lucky. Even though Dave left his assets to one step further--he bought life his family in his will, those assets couldn't be insurance to protect his family distributed until after the probate of his estate was after his death. Here's how you complete. Since probate typically takes six months can be like Frank: or longer, Dave's survivors had none of the financial flexibility that a life insurance policy would have • Use life insurance to ensure provided in the difficult time following his death. that your family has access to cash to help them meet both their short-term and Life insurance can replace wealth long-term financial needs that is lost due to expenses and • Plan ahead--buy enough life insurance to cover taxes the potential costs of settling your estate and to ensure that the assets you leave to your Frank planned ahead and bought enough life survivors aren't less than you intended insurance to cover the potential costs of settling his • Consider using life insurance to give to charity estate, including taxes, fees, and other debts that his estate would have to pay. By comparison, these • Consult an experienced attorney about income expenses took a big bite out of Dave's estate, which and estate tax consequences before purchasing life insurance See disclaimer on final page April 2009
  3. 3. Page 3 of 7 Knox Consulting Group LLC See disclaimer on final page April 2009
  4. 4. Page 4 of 7 Knox Consulting Group LLC Irrevocable Life Insurance Trust (ILIT): A Wealth Replacement Trust Definition • Provides for professional management of your An irrevocable life insurance trust (ILIT; pronounced assets quot;eyeletquot; and also called a wealth replacement trust) is a trust that is funded, at least in part, by life • Avoids probate insurance policies or proceeds. It is an effective estate planning tool that, if properly structured, may • Maintains your privacy help avoid generation-skipping transfer, gift, and estate taxes, while providing a source of liquid funds • Trust assets may be protected from estate to your estate for the payment of taxes, debts, and creditor's claims expenses. An ILIT can be either funded or unfunded. Key tradeoffs Prerequisites • Transfers may be subject to GSTT and/or gift tax • You want to avoid generation-skipping transfer, • Trust document must include a Crummey gift, and estate taxes or provide liquidity to your withdrawal provision if you want to qualify for the estate present interest gift tax exclusion • You are insurable • Beneficiaries may have to include lapsed gifts in taxable estate • You execute an ILIT agreement • You lose control of your assets • You transfer title to all contributed assets • May be costly • You amend any existing contracts and documents to reflect the trust as the real party in interest Variations from state to state • In community property states, couples owning Key strengths community property and who qualify can give $24,000 per beneficiary under the present • May help avoid generation-skipping transfer, interest exclusion for gift tax without electing gift- gift, and estate taxes splitting. Couples in common law states must • affirmatively elect to split gifts. Takes advantage of the annual gift tax exclusion • Transfers of existing policies may be given a How is it implemented? low value for gift tax purposes • • Replaces wealth to provide for your family Contact your insurance agent • • Provides cash to your beneficiaries so that your Hire an attorney business can continue to operate after your • death Choose your beneficiaries • • May provide funds for the costs of settling your Select a trustee estate (if the estate is in a position to sell assets • Fund the trust to the trust or repay a loan, with interest) • • Serve proper Crummey notice on the Creates minimal drain on your current funds beneficiaries • File gift tax returns, if necessary See disclaimer on final page April 2009
  5. 5. Page 5 of 7 Knox Consulting Group LLC Comparison of Types of Life Insurance Variable Term Whole Life Universal Life Variable Life Universal Life Premiums start low, Level Flexible Level Flexible Premium increase at each renewal Usually renewable For life For life For life For life Coverage until at least age 70; for some policies, up to age 95 Guaranteed Guaranteed May be guaranteed, Guaranteed May be guaranteed, Death benefit depending on policy depending on policy May increase with Can be increased or Varies relative to Can be increased or dividends* decreased cash value decreased; varies investment returns relative to cash value investment returns None Guaranteed Guaranteed Not guaranteed Not guaranteed Cash value minimum interest rate May increase with Varies based on Fluctuates with Fluctuates with dividends* interest rates underlying underlying investment investment performance performance Policy loans Not applicable Yes Yes Yes Yes allowed? May be able to Same as whole life, Same as whole life, Same as whole life, borrow up to 100% but usually available but usually available but usually available of total cash at lower net interest at lower net interest at lower net interest surrender value less rate (i.e., pay the rate (i.e., pay the rate (i.e., pay the annual loan interest interest rate and get interest rate and get interest rate and get rate a credit back to the a credit back to the a credit back to the policy) policy) policy) Cash Not applicable No Yes No Yes withdrawals allowed? Cash value No cash value Insurance company Insurance company Cash value account Cash value account account determines determines cash growth depends growth depends account growth guaranteed cash value interest upon the investment upon the investment value and declares crediting rates performance of the performance of the dividends based on based on current subaccounts you subaccounts you performance of its interest rate returns choose choose general investment to the company portfolio* *Dividends are not guaranteed. Note: Any guarantees associated with payment of death benefits, income options, or rates of return are subject to the claims-paying ability of the insurer. Note: Policy loans and withdrawals will reduce the policy's cash value and death benefit and may cause the policy to lapse. Withdrawals may be subject to surrender charges and income tax, and a 10% penalty may apply to withdrawals from a modified endowment contract if made under age 59½. See disclaimer on final page April 2009
  6. 6. Page 6 of 7 Knox Consulting Group LLC Comparison of Men's and Women's Life Expectancy and Mortality When it comes to life and death, men and women are not created equal. Couples should take this into consideration when evaluating the need for life insurance. The following charts illustrate the differences between male and female life expectancy and death rates (U.S. population). Number of Years By Which Female Life Life Expectancy: Male vs. Female Expectancy Exceeds Male Life Expectancy Rate of Death Per 100,000 Population Source: National Vital Statistics Report, Volume 55, Number 19, August 21, 2007. See disclaimer on final page April 2009
  7. 7. Page 7 of 7 Knox Consulting Group Securities and Investment Advisory Services offered LLC through International Financial Solutions Inc. Member FINRA•SPIC. Charles Knox, MBA, CCFC® Insurance Services offered through L.R. Johnson & Associates Inc. Investment Advisor Representative KCG LLC and LRJ & Associates Inc. are independent entities of One Glenlake Parkway International Financial Solutions Inc. Suite 700 Atlanta, GA 30328 Office: 770 439-0357 Fax: 770 321-2542 cknox@knoxcg.com http://www.knoxcg.com Prepared by Forefield Inc, Copyright 2008.

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