FOR BROKER/DEALER AND GENERAL AGENT USE ONLY.1 Gifting Using Gifting to discover the power of...
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Transcript of FOR BROKER/DEALER AND GENERAL AGENT USE ONLY.1 Gifting Using Gifting to discover the power of...
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 1
Gifting
Using Gifting to discover the power of lifetime giving
Manulife Financial and the block design are registered service marks and trademarks of The Manufacturers Life InsuranceCompany and are used by it and its affiliates including Manulife Financial Corporation. Copyright 2002. The Manufacturers
LifeInsurance Company (U.S.A.). All rights reserved. MLI0123018773. Expires 12/31/2002.
THIS MATERIAL MAY NOT BE COPIED OR USED WITH THE PUBLIC.
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 2
In most situations what is the fundamental Road Block in the
Estate Planning Sale?
The Problem
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 3
To Gift or Not to Gift…
That is the question
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 4
Empathy Jargon
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 5
Objectives
With A PlanWithout A PlanIRS
Family
IRS
Family
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 6
Inclusive vs. Exclusive
THE BASIC RULES OF THE ANNUAL GIFT TAX
EXCLUSION
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 7
• $11,000 Annual Exclusion removes assets and appreciation from the estate
• Lifetime Applicable Exclusion Amount removes up to $1,000,000 (2002 and beyond) and its future appreciation from the estate
Gift Tax Principles
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 8
Gift during life (assume 50% tax bracket) :
$11,000 Gift + $5,500 Gift Tax = $16,500
Gift at Death (assume 50% tax bracket) :
$11,000 Gift + $11,000 Estate Tax = $22,000
Savings $ 5,500
Estate & Gift Tax Principles
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 9
Other Advantages of Gifting
• Current enjoyment.
• Creditor protection.
• Probate avoidance.
• Appreciation shifting.
• Income shifting.
• Taxable gifts.
• Discounted gifts.
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 10
Applicable Credit Amount GiftsApplicable Credit Amount Gifts
2002$500,000Gift tax
$250,000
2002$500,000Gift tax
$250,000
2026$3,424,238Estate tax$1,712,119
2026$3,424,238Estate tax$1,712,119
*Assumes 50% Estate Tax Bracket
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 11
The Irrevocable Life Insurance Trust
Mom&
Dad
Mom&
Dad
FamilyILIT
FamilyILIT
InsuranceCompany
InsuranceCompany
Insurance PolicyInsurance Policy
BeneficiariesBeneficiaries
Cash Gifts
Premium Payments
Insurance Proceeds
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 12
Giftingand
The Solution
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 13
• Sean age 55, Kelly age 55.• 2 married children (and 6 grandchildren).• Estate of $10,000,000 with after tax growth of 5%.• Combined annual exclusions equal $176,000.• They are interested in understanding the difference
between:• No gifting, • Gifting to an irrevocable trust and investing, and• Gifting to an irrevocable trust and purchasing
insurance.
Sean and Kelly MacCaulay
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 14
No Gifting
MacCaulay Estate Valuein 34 Years$51,257,198
MacCaulay Estate Valuein 34 Years$51,257,198
Estate Taxes of$27,845,659*
Estate Taxes of$27,845,659*
Net to Heirs$24,627,045
Net to Heirs$24,627,045
Credit Shelter Trust$1,215,506
Credit Shelter Trust$1,215,506
Assumes the use of unlimited marital deduction and that each client uses any remaining applicable credit amount ($1,000,000 effective 2002)
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 15
Gifting to an Irrevocable Trust and Investing
* With Gifting to IT.
** Includes after-tax return on gifts invested
Irrevocable Trust$15,209,806**
Irrevocable Trust$15,209,806**
MacCaulay Estate Valuein 34 Years
$36,047,392*
MacCaulay Estate Valuein 34 Years
$36,047,392*
Estate Taxes of$19,480,260
Estate Taxes of$19,480,260
Net to Heirs$32,992,439
Net to Heirs$32,992,439
Credit Shelter Trust$1,215,506
Credit Shelter Trust$1,215,506
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 16
Gifting to an ILIT- With Life Insurance
Irrevocable Trust$11,489,259
Plus+$7,349,619
Irrevocable Trust$11,489,259
Plus+$7,349,619
MacCaulay Estate Valuein 34 Years$36,047,392
MacCaulay Estate Valuein 34 Years$36,047,392
Estate Taxes of$19,480,266
Estate Taxes of$19,480,266
Net to Heirs$36,621,511
Net to Heirs$36,621,511
Credit Shelter Trust$1,215,506
Credit Shelter Trust$1,215,506
* If grandchildren are also heirs of the trust, the parents can either allocate part of their combined generation-skipping transfer (GST) tax exemption to the gifts to the trust, or create two separate trusts (one for the children and one for the grandchildren) so they only need to allocate their GST exemption to the grandchildren’s trust.
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 17
Results
No Gifting $24,627,045
Gifting To ILIT and Investing $32,992,439
Gifting To ILIT and Life Insurance $36,621,511
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 18
Summary:
Lifetime gifting can:
• Reduce estate taxes
• Maximize gifts to loved ones
• Safeguard family assets
• Safeguard family privacy
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 19
Gifting
Manulife Financial and the block design are registered service marks and trademarks of The Manufacturers Life Insurance Company and are used by it and its affiliates including Manulife Financial Corporation. This material is for informational purposes only. For more detailed information please contact your advisor. Manulife Financial or any of its agents, employees, or registered representatives do not give legal, tax, investment, or accounting advice. The information given here is merely a summary of our understanding of the current laws and regulations. Prospective purchasers should consult their tax advisor.
The End