Sample Copyright 2015 Patrick A. Jeffers
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Using the Increase in the Federal Gift Tax Exemption to Leverage the Replacement of Taxable Assets with Tax-free Dollars
Brought to you by:
Sa C m op pl yr e ig ht 20
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Estate planning strategies requiring the purchase of life insurance policies are routinely prescribed by professional advisors to meet the needs of families who wish to make a major gift their children and grandchildren under the tax act passed late in 2010 and 2012.
2 A Unique Window of Opportunity
We really wanted each of our children and grandchildren to have rainy day money for retirement or special events such as buying a home or starting a new business.
Peggy
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The Story of Peggy and Art
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Peggy and Art Samuels were aware that the tax acts of 2010 and 2012 allowed them to make major gifts. Peggy was 65 and Art was 68. They had amassed an estate of about $14,000,000, but it increased and decreased depending on the economy. They had a daughter from their marriage and two sons from Art’s prior marriage. There were seven grandchildren. Peggy and Art had been married 34 years. They wanted to make some substantial gifts to their children and grandchildren, but were not sure of the best way to make those gifts.
Sa C m op pl yr e ig ht 20
15
Pa
Peggy and Art had made gifts to their children over the years. Each of them used the $1,000,000 lifetime exemption that they were allowed. In 1998 they created a Wealth Replacement Trust, also known as an Irrevocable Life Insurance Trust, to which they made annual exclusion gifts each year. The face value of the second-to-die life insurance was $2,000,000. They treated all three of their children as if they were their own. Their family was close, although there were the normal issues that seem to occur in every family. One of their sons was not very good in handling money and their daughter had marital difficulties. For 2013 the new law allowed Peggy and Art to make an additional tax-free gift of $4,250,000 each. They wanted to insure, as much as possible, that the gifts they gave their children were protected from creditors and ex-spouses. In addition, they wanted each of their children and grandchildren to have rainy day money for retirement or special events such as buying a home or starting a new business. For them, it made sense to make some gifts that were useful currently, but for the most part, they wanted the gifts to be used after they had passed away.
A Unique Window of Opportunity 3
The Samuel’s Planning Challenges
Sa C m op pl yr e ig ht 20
15
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tri
ck
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Peggy and Art wanted to make the best use of their combined $8,500,000 gift tax exemption. They wanted to protect their children and grandchildren but did not know how to do so. They also wanted to rid themselves of the administration and paperwork associated with their Irrevocable Life Insurance Trust and wanted to give their annual exclusion gifts directly to their children.
4 A Unique Window of Opportunity
A Unique Window of Opportunity 5
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Strategy: A Unique Window of Opportunity
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A Simple Solution
Sa C m op pl yr e ig ht 20
15
Pa
Peggy and Art met with their advisors to discuss their planning needs. Their advisors agreed that they should make substantial gifts and reminded them that the recent law allowing larger tax-free gifts could be changed by Congress at any time in an attempt to raise additional revenue. The window of opportunity might be limited and their advisors encouraged them to make gifts sooner as opposed to later. Because of the potentially small window of opportunity and the leverage of life insurance, the Samuels’ advisors first recommended looking at their existing life insurance coverage and pricing additional insurance. Their advisors stressed that one of the great advantages of life insurance is its leverage: For every dollar spent, there is a return of four or five times, depending on the health of Peggy and Art. In addition, the life insurance is not subject to the uncertainty of investments, no matter when the Samuels pass away. After an audit of their existing life insurance in their Irrevocable Life Insurance Trust, the Samuels found out that they could lower their existing premium and increase their coverage. By making a one-time gift of $500,000, they could guarantee that they would not have to make any more payments into the existing Irrevocable Life Insurance Trust and the life insurance would last until Peggy reached the age of 110. They also found out that they could create an additional Irrevocable Life Insurance Trust that would have different terms than their existing Irrevocable Life Insurance Trust that would better meet their needs. They could then increase their insurance coverage by an additional $2,000,000 for a single premium of $425,000. Finally, they could make additional gifts of stocks, bonds, and cash to the new Irrevocable Life Insurance Trust, so their children could receive additional gifts if they needed them. Holding the gifts in the Irrevocable Life Insurance Trust protected them from the claims of creditors and allowed them to be paid out in a reasonable and responsible manner.
6 A Unique Window of Opportunity
The Benefits • Take immediate advantage of the new law’s potentially small window of opportunity • Audit their existing life insurance coverage and improve it substantially • Leverage their gifts by increasing their life insurance coverage • End the need to use annual exclusion gifts to pay premiums • Establish a new Irrevocable Life Insurance Trust that met the changing needs of the Samuels’ children and grandchildren
• Fund the new trust with life insurance, cash, and investable assets to help assure that their children and grand
ffe Je A. ck tri Pa 15
Sa C m op pl yr e ig ht 20
With this strateg y they could make additional gifts of stocks, bonds, and cash to the new Irrevocable Life Insurance Trust, so their children could receive additional gifts if they needed them.
rs
children would be well provided for now and in the future
A Unique Window of Opportunity 7
15
Sa C m op pl yr e ig ht 20 ck
tri
Pa A.
Je
rs
ffe
Using the Increase in the Federal Gift Tax Exemption to Leverage the Replacement of Taxable Assets with Tax-free Dollars
Brought to you by:
Sa C m op pl yr e ig ht 20
15
Pa
tri
ck
A.
Je
ffe
rs
Estate planning strategies requiring the purchase of life insurance policies are routinely prescribed by professional advisors to meet the needs of families who wish to make a major gift their children and grandchildren under the tax act passed late in 2010 and 2012.
2 A Unique Window of Opportunity
We really wanted each of our children and grandchildren to have rainy day money for retirement or special events such as buying a home or starting a new business.
Peggy
rs
The Story of Peggy and Art
tri
ck
A.
Je
ffe
Peggy and Art Samuels were aware that the tax acts of 2010 and 2012 allowed them to make major gifts. Peggy was 65 and Art was 68. They had amassed an estate of about $14,000,000, but it increased and decreased depending on the economy. They had a daughter from their marriage and two sons from Art’s prior marriage. There were seven grandchildren. Peggy and Art had been married 34 years. They wanted to make some substantial gifts to their children and grandchildren, but were not sure of the best way to make those gifts.
Sa C m op pl yr e ig ht 20
15
Pa
Peggy and Art had made gifts to their children over the years. Each of them used the $1,000,000 lifetime exemption that they were allowed. In 1998 they created a Wealth Replacement Trust, also known as an Irrevocable Life Insurance Trust, to which they made annual exclusion gifts each year. The face value of the second-to-die life insurance was $2,000,000. They treated all three of their children as if they were their own. Their family was close, although there were the normal issues that seem to occur in every family. One of their sons was not very good in handling money and their daughter had marital difficulties. For 2013 the new law allowed Peggy and Art to make an additional tax-free gift of $4,250,000 each. They wanted to insure, as much as possible, that the gifts they gave their children were protected from creditors and ex-spouses. In addition, they wanted each of their children and grandchildren to have rainy day money for retirement or special events such as buying a home or starting a new business. For them, it made sense to make some gifts that were useful currently, but for the most part, they wanted the gifts to be used after they had passed away.
A Unique Window of Opportunity 3
The Samuel’s Planning Challenges
Sa C m op pl yr e ig ht 20
15
Pa
tri
ck
A.
Je
ffe
rs
Peggy and Art wanted to make the best use of their combined $8,500,000 gift tax exemption. They wanted to protect their children and grandchildren but did not know how to do so. They also wanted to rid themselves of the administration and paperwork associated with their Irrevocable Life Insurance Trust and wanted to give their annual exclusion gifts directly to their children.
4 A Unique Window of Opportunity
A Unique Window of Opportunity 5
15
Sa C m op pl yr e ig ht 20 ck
tri
Pa A.
Je
rs
ffe
A.
Je
ffe
rs
Strategy: A Unique Window of Opportunity
tri
ck
A Simple Solution
Sa C m op pl yr e ig ht 20
15
Pa
Peggy and Art met with their advisors to discuss their planning needs. Their advisors agreed that they should make substantial gifts and reminded them that the recent law allowing larger tax-free gifts could be changed by Congress at any time in an attempt to raise additional revenue. The window of opportunity might be limited and their advisors encouraged them to make gifts sooner as opposed to later. Because of the potentially small window of opportunity and the leverage of life insurance, the Samuels’ advisors first recommended looking at their existing life insurance coverage and pricing additional insurance. Their advisors stressed that one of the great advantages of life insurance is its leverage: For every dollar spent, there is a return of four or five times, depending on the health of Peggy and Art. In addition, the life insurance is not subject to the uncertainty of investments, no matter when the Samuels pass away. After an audit of their existing life insurance in their Irrevocable Life Insurance Trust, the Samuels found out that they could lower their existing premium and increase their coverage. By making a one-time gift of $500,000, they could guarantee that they would not have to make any more payments into the existing Irrevocable Life Insurance Trust and the life insurance would last until Peggy reached the age of 110. They also found out that they could create an additional Irrevocable Life Insurance Trust that would have different terms than their existing Irrevocable Life Insurance Trust that would better meet their needs. They could then increase their insurance coverage by an additional $2,000,000 for a single premium of $425,000. Finally, they could make additional gifts of stocks, bonds, and cash to the new Irrevocable Life Insurance Trust, so their children could receive additional gifts if they needed them. Holding the gifts in the Irrevocable Life Insurance Trust protected them from the claims of creditors and allowed them to be paid out in a reasonable and responsible manner.
6 A Unique Window of Opportunity
The Benefits • Take immediate advantage of the new law’s potentially small window of opportunity • Audit their existing life insurance coverage and improve it substantially • Leverage their gifts by increasing their life insurance coverage • End the need to use annual exclusion gifts to pay premiums • Establish a new Irrevocable Life Insurance Trust that met the changing needs of the Samuels’ children and grandchildren
• Fund the new trust with life insurance, cash, and investable assets to help assure that their children and grand
ffe Je A. ck tri Pa 15
Sa C m op pl yr e ig ht 20
With this strateg y they could make additional gifts of stocks, bonds, and cash to the new Irrevocable Life Insurance Trust, so their children could receive additional gifts if they needed them.
rs
children would be well provided for now and in the future
A Unique Window of Opportunity 7
15
Sa C m op pl yr e ig ht 20 ck
tri
Pa A.
Je
rs
ffe
