Building a Tax-Favorable Retirement Plan through  “ Equity Harvesting ”   By:   Roccy DeFrancesco, JD, CWPP, CAPP, MMB Fou...
This presentation is based on:  <ul><li>The HEMGB is a  completed guide  for how to properly implement an EH plan.  </li><...
Definition <ul><li>Definition of Equity Harvesting (EH): </li></ul><ul><li>EH is  removing equity  from a personal residen...
Why build wealth with EH? <ul><li>-To leverage a “ dormant ” asset in a more beneficial manner to build wealth.  </li></ul...
Why build wealth with CVL? <ul><li>When using the “ right ” policy with minimum expenses and maximum cash, your policy wil...
CVL is a Protective Wealth Building   <ul><li>$100,000 </li></ul>10% S&P 500 Gains Are Locked In $110,000 -15% $93,500 5% ...
Cash Contributions Compound Interest Year 5 $ Minimum Death Benefit Maximum Premiums Funding Life Insurance A Tax Free Non...
Considerations when  implementing an EH plan <ul><li>You must:  </li></ul><ul><ul><li>1) own a home  with equity . </li></...
EH is a simple concept   <ul><li>Your are simply  removing equity from a home  to  reposition into cash value life . </li>...
Writing off home equity debt <ul><li>Title 26 Section 163 ( $100,000  limit on HED) </li></ul><ul><li>Title 26 Section 264...
Example <ul><li>An example is the best way to explain how EH works. </li></ul><ul><li>Facts :  Mr. and Mrs. Smith combined...
Illustrating the numbers <ul><li>For this presentation, it is assumed that Mr. and Mrs. Smith will remove $ 100,000  of th...
Funding the plan <ul><li>The Smiths will reposition $100,000 of borrowed funds into an EIUL insurance policy on Mr. Smith ...
What was the cost? <ul><li>What is the annual cost  to the Smiths to have this $100,000 of borrowed funds repositioned int...
Question: <ul><li>Would you borrow  $100,000  if the costs was  $3,600  a year if earned you a tax-free retirement benefit...
The comparison <ul><li>If no EH plan, the Smith would not incur a $3,600 after-tax expense ever year the loan was in place...
Retirement using mutual funds <ul><li>How much could be removed from their mutual funds after taxes and expenses from  66-...
Illustrative charts
Paying back the debt <ul><li>If the Smiths funded mutual funds instead of an EH plan they would  not  have incurred $100,0...
What EH when the interest is  NOT  deductible <ul><li>Let’s use the same example except assume the interest is  not  deduc...
Continued <ul><li>How much could the Smith remove from their brokerage account after funding  $6,000  into a brokerage acc...
The sales/educational charts
Summary on EH <ul><li>Using real world assumptions, EH is a very powerful and viable way to build a tax-favorable retireme...
Upcoming SlideShare
Loading in …5
×

Equity.harvesting

407 views

Published on

0 Comments
2 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
407
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
6
Comments
0
Likes
2
Embeds 0
No embeds

No notes for slide
  • Copyright 2005 Copyright 2005
  • Copyright 2005 Copyright 2005
  • Copyright 2005 Copyright 2005
  • Copyright 2005 Copyright 2005
  • Copyright 2005 Copyright 2005
  • Copyright 2005 Copyright 2005
  • Copyright 2005 Copyright 2005
  • Copyright 2005 Copyright 2005
  • Copyright 2005 Copyright 2005
  • Copyright 2005 Copyright 2005
  • Copyright 2005 Copyright 2005
  • Copyright 2005 Copyright 2005
  • Copyright 2005 Copyright 2005
  • Copyright 2005 Copyright 2005
  • Copyright 2005 Copyright 2005
  • Copyright 2005 Copyright 2005
  • Copyright 2005 Copyright 2005
  • Copyright 2005 Copyright 2005
  • Copyright 2005 Copyright 2005
  • Copyright 2005 Copyright 2005
  • Copyright 2005 Copyright 2005
  • Copyright 2005 Copyright 2005
  • Copyright 2005 Copyright 2005
  • Equity.harvesting

    1. 1. Building a Tax-Favorable Retirement Plan through “ Equity Harvesting ” By: Roccy DeFrancesco, JD, CWPP, CAPP, MMB Founder: The Wealth Preservation Institute Co-Founder: The Asset Protection Society
    2. 2. This presentation is based on: <ul><li>The HEMGB is a completed guide for how to properly implement an EH plan. </li></ul><ul><li>Includes the pros and cons as well as the appropriate tax code sections. </li></ul><ul><li>This presentation is an overview of parts of the book so you can determine if you should sit down with a trusted advisor to see if an EH plan is right for you . </li></ul>
    3. 3. Definition <ul><li>Definition of Equity Harvesting (EH): </li></ul><ul><li>EH is removing equity from a personal residence through refinancing (or an equity loan) where the money borrowed is repositioned into cash value life insurance *. </li></ul><ul><li>If you have not viewed the presentation explaining how to build a tax-favorable retirement nest egg using over-funded cash life insurance, it is recommended that you do so shortly after viewing this presentation. </li></ul>
    4. 4. Why build wealth with EH? <ul><li>-To leverage a “ dormant ” asset in a more beneficial manner to build wealth. </li></ul><ul><li>Ask yourself the following question: </li></ul><ul><ul><li>If you could borrow money with an interest rate of 5-7% and earn a tax-free return of 6-9% would you do it? </li></ul></ul><ul><ul><li>The answer should be all day long . </li></ul></ul><ul><ul><li>The essence of EH is borrowing money at an interest rate of X and earning a tax-free return on that borrowed money at X++. </li></ul></ul><ul><li>As you will see, from a financial standpoint, EH is one of the most powerful wealth building tools at your disposal. </li></ul>
    5. 5. Why build wealth with CVL? <ul><li>When using the “ right ” policy with minimum expenses and maximum cash, your policy will have the following characteristics. </li></ul><ul><li>1) Tax-Free accumulation and tax free withdrawal . </li></ul><ul><li>2) An annual minimum return guarantee </li></ul><ul><li>3) Growth pegged to the S&P 500 index. </li></ul><ul><li>4) Principal protection (no downside due to negative market returns). </li></ul><ul><li>From 1987-2007, the S&P 500 still averaged in excess of 10% * (even though the stock market had a “ crash ” from 2000-2003). </li></ul><ul><li>*(Moneychimp.com) </li></ul>
    6. 6. CVL is a Protective Wealth Building <ul><li>$100,000 </li></ul>10% S&P 500 Gains Are Locked In $110,000 -15% $93,500 5% 5% $115,500 $98,175 17.6% Equity Indexed Universal Life locks in the gains in up years and does not participate in the down years .
    7. 7. Cash Contributions Compound Interest Year 5 $ Minimum Death Benefit Maximum Premiums Funding Life Insurance A Tax Free Non-Qualified Retirement Plan Yr. 1 $ Yr. 2 $ Yr. 3 $ Yr. 4 $ Mortality & Expense Charges
    8. 8. Considerations when implementing an EH plan <ul><li>You must: </li></ul><ul><ul><li>1) own a home with equity . </li></ul></ul><ul><ul><li>2) be able to service the debt created with an equity removal*. </li></ul></ul><ul><ul><li>3) be healthy . </li></ul></ul><ul><ul><li>4) use a life insurance policy is a good cash accumulator . </li></ul></ul><ul><ul><li>5) not have an immediate need for the borrowed funds (you should commit to letting your plan progress for 5-10 years before accessing tax-free retirement income). </li></ul></ul>
    9. 9. EH is a simple concept <ul><li>Your are simply removing equity from a home to reposition into cash value life . </li></ul><ul><li>The question most people will have is how well will EH work out from a financial standpoint and what are the pros and cons of implementing a plan? </li></ul><ul><li>The financial viability of the plan will obviously be improved if you can “ write off ” the interest. </li></ul>
    10. 10. Writing off home equity debt <ul><li>Title 26 Section 163 ( $100,000 limit on HED) </li></ul><ul><li>Title 26 Section 264(a)3 ( no deduction if money goes into cash value life). </li></ul><ul><ul><li>Exceptions </li></ul></ul><ul><ul><ul><li>DOW and the 4 out of 7 rule as a way around 264(a)3. </li></ul></ul></ul><ul><ul><ul><li>Use other money first. </li></ul></ul></ul><ul><li>For a complete discussion about the interest deduction on home equity debt, please reach chapter 2 of the Home Equity Management Guidebook: How to Achieve Maximum Wealth with Maximum Security . </li></ul><ul><li>The upcoming examples will illustrate the finances when the interest is deductible and when it is not . </li></ul>
    11. 11. Example <ul><li>An example is the best way to explain how EH works. </li></ul><ul><li>Facts : Mr. and Mrs. Smith combined income = $250,000 a year (pre-tax). </li></ul><ul><ul><li>Their income is stable and they have $150,000 in stocks and mutual funds in a brokerage account (that used to be $200,000 before a recent stock market downturn ) </li></ul></ul><ul><li>Both are age 45 and in good health. </li></ul><ul><li>They own a home worth $400,000 with $200,000 of current debt with a 30-year mortgage at 6%. </li></ul><ul><li>They have $200,000 of equity in the home. </li></ul>
    12. 12. Illustrating the numbers <ul><li>For this presentation, it is assumed that Mr. and Mrs. Smith will remove $ 100,000 of the equity from their home (the 163) limit . </li></ul><ul><li>Smith are well positioned to setup an EH plan that will allow them to write off the debt on $100,000 of home equity debt*. </li></ul><ul><li>*See chapter 2 of the HEMGB. </li></ul>
    13. 13. Funding the plan <ul><li>The Smiths will reposition $100,000 of borrowed funds into an EIUL insurance policy on Mr. Smith life over five years where the average rate of return pegged to the S&P 500 index is assumed to be 7.5% a year. </li></ul><ul><li>How much could the Smith removed income tax-free from the life insurance policy from ages 66-85? </li></ul><ul><li>$30,470 </li></ul>
    14. 14. What was the cost? <ul><li>What is the annual cost to the Smiths to have this $100,000 of borrowed funds repositioned into the life insurance policy? </li></ul><ul><li>$6,000 annually with an interest only loan. </li></ul><ul><li>However, because the Smith are positioned to write off the interest, the actual out of pocket costs in the 40% income tax bracket is $3,600 . </li></ul>
    15. 15. Question: <ul><li>Would you borrow $100,000 if the costs was $3,600 a year if earned you a tax-free retirement benefit of $30,470 every year from ages 66-85? </li></ul><ul><li>The answer should an emphatic YES! </li></ul>
    16. 16. The comparison <ul><li>If no EH plan, the Smith would not incur a $3,600 after-tax expense ever year the loan was in place </li></ul><ul><li>Most people grow wealth with mutual funds so that will be the comparison. </li></ul><ul><li>The same 7.5% gross investment rate of return will be assumed in the mutual fund. </li></ul><ul><li>-20% blended dividend/capital gains tax. </li></ul><ul><li>.6% mutual fund expense (industry average is over 1.2% a year. </li></ul>
    17. 17. Retirement using mutual funds <ul><li>How much could be removed from their mutual funds after taxes and expenses from 66-85 ? </li></ul><ul><li>$14,402 </li></ul><ul><li>Do you remember how much could be removed from the EIUL insurance policy? </li></ul><ul><li>$30,470 </li></ul><ul><li>How much better did they do using EH? </li></ul><ul><li>$16,068 (each year for 20 years) or $331,360 better over the twenty-year retirement period. </li></ul>
    18. 18. Illustrative charts
    19. 19. Paying back the debt <ul><li>If the Smiths funded mutual funds instead of an EH plan they would not have incurred $100,000 worth of new debt. </li></ul><ul><li>With a proper life insurance policy design, there should always be enough death benefit to pay back the $100,000 interest only debt. </li></ul><ul><li>At Mr. Smith’s age 85, the policy’s death benefit would be $125,041 debt benefit . </li></ul>
    20. 20. What EH when the interest is NOT deductible <ul><li>Let’s use the same example except assume the interest is not deductible. </li></ul><ul><li>Except now $6,000 would be repositioned into mutual funds every year for the comparison instead of $3,600 ). </li></ul>
    21. 21. Continued <ul><li>How much could the Smith remove from their brokerage account after funding $6,000 into a brokerage account every year the loan is in place? </li></ul><ul><li>$ 24,003 from age 66-85. </li></ul><ul><li>How much could they remove from their EIUL policy? </li></ul><ul><li>$30,047 from ages 66-85. </li></ul><ul><li>How much better was the EH plan when the funds are NOT deductible? </li></ul><ul><li>$6,044 annually or $120,880 better over the 20-year period. </li></ul>
    22. 22. The sales/educational charts
    23. 23. Summary on EH <ul><li>Using real world assumptions, EH is a very powerful and viable way to build a tax-favorable retirement nest egg. </li></ul><ul><li>There is no one size plan that fits everyone, but if you </li></ul><ul><ul><li>have a stable income </li></ul></ul><ul><ul><li>have a home with equity </li></ul></ul><ul><ul><li>Like the idea of using a wealth building tool that </li></ul></ul><ul><ul><ul><li>Allows money to grow tax-free and come out tax-free , </li></ul></ul></ul><ul><ul><ul><li>Locks in gains and no downside market risk , and </li></ul></ul></ul><ul><ul><ul><li>Protects the family in the event of an early death… </li></ul></ul></ul><ul><li>… .then you are a candidate to build wealth through Equity Harvesting. </li></ul><ul><li>For help on this topics, contact your locally trusted advisor. </li></ul>

    ×