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. 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. Page 3 of 7
Knox Consulting Group LLC
See disclaimer on final page
April 2009

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. 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. 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. 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.