Transcript Manulife USI template - Adv Mkt

Wealth Transfer Planning
Using Private Financing
A Fair Market Loan Arrangement
Between Family Members
Prepared for
Valued Client & Valued Client
The Concern
• Your estate will be subject to estate tax at death.
• Gifts of large premiums to a trust may be subject to gift tax.
The Solution
• Establish fair market loan arrangement between you and an
ILIT.
• Make gifts of annual loan interest only, or defer interest.
• Repay loan at death from life insurance, or during lifetime
from other funds.
Trusts should be drafted by an attorney familiar with such matters in order to take into account income and estate tax laws (including the generation-skipping tax). Failure to do so
could result in adverse tax treatment of trust proceeds.
How It Works
• Your trust borrows the funds to pay premiums from you.
• You can lend the amount needed annually, or lend an
amount based on a schedule of premiums or a lump sum
amount.
• You make annual premium gifts to the trust to cover loan
interest payments, if any.
How It Works
Total Loan to ILIT = $1,700,140
Total Gifts to ILIT = $660,000
The Client
Family
ILIT
Note & Loan Interest Payments
Total Premiums
$2,501,895
Outstanding Loan in
Yr. 30
$3,243,338
Death Benefit in Yr. 15
$9,257,379
Life Insurance
Death Benefit
$9,257,379
Total Trust Assets
in Yr. 15
$10,646,454
Death Benefit in Yr. 15
$7,403,116
Total Side Fund in ILIT in Yr. 15
$0
Net To The Heirs
$7,403,116
Components of Premium Financing
•
Types of loans
•
Loan interest rate
•
Loan repayment
•
Return of Premium
Comparison of Benefits
Private Financing
Total Loan Amount
$1,700,140
Cumulative Loan Interest
$1,543,198
Total Gift Amount
$660,000
Total Gift Taxes
$0
Total Premiums
$2,501,895
Total Estate
$38,700,858
Total Estate Taxes
$20,389,672
Total Other Assets In Trust
-$1,854,262
Total Death Benefit In Trust
$9,257,379
Net To Heirs
$25,714,302
Benefits
• Minimal or no gift tax
• Heirs receive loan repayment
• Minimal risk
• No income tax on loan interest payment with “Grantor
Trust”.
Considerations
• Non-deductible loan interest.
• Possible estate tax cost.
• Potential income tax cost if family entity makes loan.
• Cash flow/liquidity required.
Disclaimer
This communication with the public is considered 'Correspondence'. It is authorized for use exclusively for one-onone use only between and Valued Client & Valued Client. The purpose of this PowerPoint presentation is to act as
a tool to help facilitate a discussion between Valued Client & Valued Client, and . Discussion between and Valued
Client & Valued Client will generally be extemporaneous in nature and the purpose of the slides is to provide a
visual summary for the client of the assumptions and data provided by the client. This tool may be helpful to
Valued Client & Valued Client when considering planning options. Not all techniques will be based on estate
planning.