Transcript Slide 1

Asset Protection+
Preserving a legacy of retirement assets
using life insurance
Joe Sample, [Designations per field stationery guidelines]
[Company Approved Title]
[Agency Name]
[The Prudential Insurance Company of America][if Agency Distribution]
[1234 Main Street, Suite 1, Floor 10]
[Anywhere], [ST] [12345]
[in required states] [<ST> Insurance License Number <1234567890>]
Phone [123-123-1234] Fax [123-123-1245]
[[email protected]]
0241306-00005-00 Ed. 12/2013 Exp. 06/24/2015
NOT FOR CONSUMER USE
Before we begin…
Financial Lifecycle
Accumulation
Distribution
Succession
What are two common financial goals many
affluent clients have during the second and
third phase?
1. Have enough assets during their lifetime
2. Leave a legacy to their heirs at death
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Agenda
• Legacy Threats
• Why Asset Protection+
• Getting Started
Examples in this presentation are hypothetical and used for illustrative purposes only to describe how the strategy may work. Which
strategy works best for clients will depend on their individual facts and circumstances. Actual results will vary. Any representation of life
insurance premium or death benefit is purely hypothetical in amount and is not a guarantee of cost or death benefit now or in the future
from a specific life insurance policy.
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Clients Who May Benefit…
• Age 59 ½ + and family oriented
• Net worth of $1,000,000 and sufficient
liquid assets to support this strategy
(excluding equity in the home)
• Hold an IRA or Annuity not needed for
support in retirement
• Have sufficient retirement income from
other sources, besides the IRA or Annuity.
Additionally, the client should have a
financial plan completed as determined in
conjunction with their financial advisor
• Desire to provide for children,
grandchildren, and/or charity and consider
the IRA or annuity as a “leave-on” asset for
them
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FORfor
CONSUMER
USE
Consumer
Use.
Legacy Threats
“What are two common risks that can negatively impact a
client’s ability to leave a legacy to heirs?”
One that you can calculate and one you can not:
Taxes
Chronic illness
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Legacy Threats
Taxes are a reality
Stock
Bond
Mutual
Fund
Capital gain on
realized gains,
ordinary income
on interest and
dividends
Step-up in basis
at death, subject
to estate taxes
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CD or
Cash
IRA or
Existing
Annuity
Tax-deferred,
ordinary income
to extent of gain
on distributions
Ordinary income
on gain at
withdrawal AND
subject to estate
taxes
Legacy Threats
Taxes are a reality
How much is a $500,000
IRA really worth to heirs?
Income
Tax
$198,000
Net to
39.6%
Heirs
$302,000
60.4%
Income
Tax
$198,000
39.6%
Assumes the IRA is liquidated by one beneficiary at IRA owner’s death as a lump sum subject to a tax rate of 39.6%.
There may be other options besides lump sum available.
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Legacy Threats
Chronic illness is a reality
• 78 million baby boomers will retire over the next two decades1
• About 70% of Americans over age 65 will require some type of chronic
care services during their lifetime2
• Average national costs of chronic care3 (2010) in the United States:
$205/day for a semi-private room in a nursing home ($74,825/year)
$229/day for a private room in a nursing home ($83,585/year)
$3,293/month for one bedroom unit in an Assisted Living Facility
($39,516/year)
$21/hour for a Home Health Aide ($30,660/year at 4 hours/day)
1U.S.
Census Bureau, Facts for Figures, 2006.
http://www.longtermcare.gov/LTC/Main Site/index.aspx Last accessed April 8, 2013.
3Source: www.longtermcare.gov. U.S. Department of Health and Human Services. May, 2011.
Statistics referenced on this slide are believed to be the most up-to-date available as of April, 2013.
2Source:
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Legacy Threats
Chronic illness is a reality
• 15 million Americans currently provide UNPAID care to
adults with Alzheimer’s or another dementia (22 hours per
week on average)4
• 80% of care provided at home is delivered by FAMILY
caregivers4
• Less than 10% of older adults receive all their care from
PAID workers4
4Source:
Alzheimer’s Association, 2011 Alzheimer’s Disease Facts and Figures, Alzheimer’s & Dementia, Volume 7, Issue 2
Statistics referenced on this slide are believed to be the most up-to-date available as of April, 2013.
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Why Asset Protection+
Reposition Legacy Assets
IRA or
Existing
Annuity
Withdrawal
Premium
Life
Insurance
Client
Income tax on
withdrawal?
Net Death
Benefit
Rider for
Chronic and
Terminal
Illness
Needs*
Children
or Charity
Balance of IRA or Annuity at death
*Receiving benefits under this rider will reduce the death benefit and may result in beneficiaries receiving no death benefit.
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Why Asset Protection+
THE STRATEGY
Why Life Insurance
When properly structured, Life Insurance may provide:
Death benefit protection
 Income tax-free payment
 Predictability
 Accumulation & leverage
 Chronic or terminal illness protection
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Why Asset Protection+
BenefitAccess¹ for Chronic or Terminal Illness
 Accelerates up to 100% of the death benefit
 Max monthly benefit2, lesser of:
• 2% of death benefit
• IRS Per Diem Limit (2014: $330/day)
• IRS Per Diem Limit at issue compounded at 4% annually
 Reduces death benefit dollar for dollar and policy value
proportionately3
1Available
for an additional cost for issue ages 20-80, underwriting classes up to Table D and face amounts up to $5,000,000.
Availability may vary by state. Additional underwriting requirements apply.
2Income taxes may apply if the policy owner is simultaneously receiving benefits from multiple accelerated death benefit riders for chronic
illness and/or long-term care riders/policies and the total benefits received exceed both the IRS per diem limit and his or her qualified LTC
expenses incurred. Whether rider proceeds are taxable as income depends on a number of factors, including whether qualified expenses
are incurred or reimbursed and if additional benefits are being received under similar contracts. Qualified expenses means costs incurred
for the necessary diagnostic, preventive, therapeutic, curing, treating, mitigating and rehabilitative services, and maintenance or personal
care services needed by a chronically ill individual.
3If the entire death benefit is accelerated, nothing will be paid to policy beneficiaries.
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BenefitAccess For Chronic Illness
No receipts (indemnity benefit)
No waiting period
No exclusions for family caregivers
All charges waived once benefits begin*
All charges permanently waived after 25 months of
benefits
*If rider benefits stop within 25 months, additional premiums may be required to keep the policy in force.
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BenefitAccess For Terminal Illness
Upon being certified as terminally ill with a life expectancy of 6
months or less:
 Accelerates the death benefit in a lump sum,
 Or a portion in a lump sum (at least $25,000 must remain)
 If a portion is accelerated the rest could later be accelerated
in full
 Benefits reduced by discount factor
 No policy charge for this portion (a fee applies each time it is used)
Benefits for chronic illness and terminal illness can not be paid simultaneously. Terminal illness benefits could be paid subsequent to
chronic illness benefits but once terminal benefits are paid, chronic illness benefits are no longer available.
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Why Asset Protection+
Hypothetical Case Study
Judy Hill (age 68)
• Retired
• Two sons, ages 40 and 42
• Assets: $300,000 home, $1,000,000 of investable assets, and $500,000
IRA
• Has income from a defined benefit plan and sufficient income from other
assets to meet current and future income needs
• Will take required minimum distributions (RMD)
• IRA earmarked as legacy money
• Would like to leave more to two sons
• Concerned about impact of a chronic illness
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Why Asset Protection+
Current Situation
Hypothetical and for illustrative purposes only.
Assumptions:
-5% growth on IRA assets
$500,000
IRA
Net RMD
reinvested
Taxable
Assets?
Asset Protection+
$500,000
IRA
Net
distribution
redirected
as annual
premium
Life
Insurance
On Judy
- Female age 68, preferred non tobacco,
®
PruLife Universal Life Protector, $20,000
annual premium, guaranteed to age 105.
$865,685
Death
Benefit
WITHOUT
Benefit
Access
$721,561
Death
Benefit
WITH
Benefit
Access
Note: In the event the death benefit is accessed to help with a chronic illness, the remaining value will decrease
leaving less or none to the beneficiaries according to the terms of The Prudential BenefitAccess Rider.
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Internal Rate of Return (IRR) on Judy’s Policy
Internal Rate of Return - IRR
20.17
17.04
14.12
11.00
8.67
11.93
7.70
Age 81
6.07
Age 86
4.45
6.36
4.47
3.13
Age 91
Death Ben IRR w/o BenefitAccess
Death Ben with BenefitAccess
Tax Equivalent IRR w/o BenefitAccess
Tax Equivalent IRR with BenefitAccess
Life Expectancy
Assumes 30% income tax rate. Longevity may result in a negative internal rate of return.
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USE
Consumer
Use.
Why Asset Protection+
Assuming chronic illness and BenefitAccess benefits begin at age 82 under Judy’s Policy
Age
Premium
68
72
75
78
81
82
83
84
85
86
87
88
$20,000
$20,000
$20,000
$20,000
$20,000
$0
$0
$0
$0
$0
$0
$0
Max
Annual
BenefitAccess
Benefit Available*
Max
Annual
BenefitAccess
Benefit Taken
Net
Death Benefit
BenefitAccess
Lifetime
Benefit
Amount
$115,200
$115,200
$115,200
$115,200
$115,200
$115,200
$115,200
$115,200
$115,200
$115,200
$115,200
$30,061
$0
$0
$0
$0
$0
$115,200
$115,200
$115,200
$115,200
$115,200
$115,200
$30,361
$721,561
$721,561
$721,561
$721,561
$721,561
$606,361
$491,161
$375,961
$260,761
$145,561
$30,361
$0
$721,561
$721,561
$721,561
$721,561
$721,561
$606,361
$491,161
$375,961
$260,761
$145,561
$30,361
$0
*Requires certification by a licensed health care practitioner as being chronically ill. Terms associated with the rider must be satisfied. The IRS
per diem limitation may be adjusted for inflation by the IRS. Prudential caps the maximum annual increase at 4%. In this example, the per
diem limitation is being inflated at a hypothetical annual rate of 0%. The Maximum Monthly Benefit at any given point in time may be less than
what is illustrated above depending on actual IRS adjustments to the per diem limitation.
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Comparison of Net After-Tax
Proceeds at Death, Without BenefitAccess
Without
Asset Protection +
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IRA Value
at age 86…
$ 519,568
100% of RMD’s
reinvested...
$ 457,223
Income Tax
on IRA (28%)…
$ (145,479)
NET TO HEIRS…
$ 831,312
NOT FOR CONSUMER USE
Comparison of Net After-Tax
Proceeds at Death, Without BenefitAccess
Without
Asset Protection +
IRA Value
at age 86…
$ 519,568
100% of RMD’s
reinvested...
$ 457,223
Income Tax
on IRA (28%)…
$ (145,479)
NET TO HEIRS…
$ 831,312
With
Asset Protection +
IRA Value
at age 86…
$ 347,305
No RMD’s
reinvested...
Death Benefit
$
0
$ 865,685
Income Tax
on IRA (28%)…
$ (97,245)
NET TO HEIRS…
$ 1,115,745
A difference of $284,433
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Comparison of Net After-Tax
Proceeds at Death, With BenefitAccess
Without
Asset Protection +
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IRA Value
at age 86…
$ 519,568
100% of RMD’s
reinvested...
$ 457,223
Income Tax
on IRA (28%)…
$ (145,479)
NET TO HEIRS…
$ 831,312
NOT FOR CONSUMER USE
Comparison of Net After-Tax
Proceeds at Death, Without BenefitAccess
Without
Asset Protection +
IRA Value
at age 86…
$ 519,568
100% of RMD’s
reinvested...
$ 457,223
Income Tax
on IRA (28%)…
$ (145,479)
NET TO HEIRS…
$ 831,312
With
Asset Protection +
IRA Value
at age 86…
$ 347,305
100% of RMD’s
reinvested...
Death Benefit
$
0
$ 721,561
Income Tax
on IRA (28%)…
$ (97,245)
NET TO HEIRS…
$ 971,621
A difference of $140,309
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Why Asset Protection+
Reposition Legacy Assets + Stretch to Grandchildren
IRA or
Existing
Annuity
Withdrawal
Premium
Clients
Income tax on
withdrawal?
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Survivorship
Life
Insurance
Net
Death
Benefit
Children
Grandchildren
Balance of IRA or Annuity at death via “Stretch” strategy
Why Asset Protection+
Hypothetical Case Study
Don (age 72) and Kathy (age 72) Campbell
• Retired 4 years ago and have a modest lifestyle
• One daughter, one grandchild (Ginny, age 10)
• Assets include a $400,000 home, $900,000 in other
assets and a $500,000 IRA
• Has income from a defined benefit pension plan
and sufficient income from other assets to meet
current and future income needs
• Taking required minimum distributions (RMDs)
• IRA and RMDs are earmarked as legacy money
• Would like to leave more to daughter and Ginny
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Why Asset Protection+
Let’s assume the following:
 Don lives to age 85, leaves IRA to Kathy
 Kathy lives to age 92, leaves IRA to Ginny
 Don and Kathy fund premiums with aftertax IRA withdrawals
 Daughter is the life insurance beneficiary
Hypothetical and for illustrative purposes only.
Assumptions:
-7% growth on IRA assets
-Don & Kathy, both age 72, preferred non
®
tobacco, PruLife SUL Protector, $13,672
annual premium, guaranteed to age 105.
Asset Protection+
$13,672
$500,000
IRA
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Some Net
RMD
redirected
as annual
premium
Survivorship
Life
Insurance
$693,666
Death
Benefit
Why Asset Protection+
Don’s total RMD income
from age 72-85 is $426,729
before income tax
Kathy’s total RMD income
from age 86-92 is $369,490
before income tax
Daughter receives life
insurance death benefit of
$693,666 upon Kathy’s
death
Ginny receives RMD income
of $6,136,319 from age 31-83
before income tax
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Don
• IRA Value $500,000
• RMD using Uniform Table
• Kathy elects an IRA rollover at Don’s death
Kathy
• Inherited IRA Value $646,801
• RMD using Uniform Lifetime Table
• At Kathy’s death, Ginny elects distributions
over life expectancy
Barbara
Ginny
• Death benefit generally
received income tax-free
• 7.44% IRR at Kathy’s age 92
• 10.63% Tax-Equivalent IRR*
• Inherited IRA Value $587,049
• RMD using Single Life Table
• Receives first distribution of $11,203 at age 31
*Assumes a 30% tax rate
Why Asset Protection+
Total value to Barbara and Ginny is $6,829,985*
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*Equals sum of the life insurance death benefit to the child and the total lifetime IRA distributions to the grandchild.
Getting Started
Talking Points
• Are you ever going to spend all this money you have in your IRA or Annuity?
• What are you planning to do with it?
• “We’re going to leave it to the kids and grandkids.”
• You sound like you really love those kids. If you could find a way to leave
them more you probably would, wouldn’t you?
• Let me share an idea with you…
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Next Steps
•
Individual meeting
Clients Who May Benefit
•
•
Identify prospects
Build and present case
 Age 59 ½ + and family oriented
 Minimum net worth of $1,000,000 and
sufficient liquid assets to support this
strategy
 Hold an IRA or Annuity not needed for
support in retirement
 Have sufficient retirement income from
other sources, besides the IRA or Annuity
 Desire to provide for and consider the IRA
or Annuity as a ”leave on” asset for
children, grandchildren and/or charity
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What’s in it for you?
• Prospects are in your existing book
– Meet the client profile
– Who has or will complete a sound financial plan
• Meet the needs of your clients
• Easily preserve and grow your business
• Support and Resources
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Summary
Legacy Threats
• Taxes and chronic illness can erode your clients’ legacy
Why Asset Protection+
• Repositioning tax-deferred legacy assets using life insurance can help to
enhance wealth for heirs
Getting Started
• Implementing the strategy using simple talking points and our resources
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Important Considerations
• In addition to the asset or income they may be repositioning to implement the
strategy, clients should have sufficient liquid assets to support their current and
future income and expenses. Equity in the home should not be considered a
liquid asset.
• This concept is only intended to be used for assets that will not be needed for
living expenses for the expected lifetime of the insured. It is the responsibility of
the client to estimate these needs and expenses and it is recommended that
they consider developing a comprehensive financial plan in conjunction with
implementing the strategy being considered. The accuracy of determining future
needs and expenses is more critical for clients at older ages who have less
opportunity to replace assets used for the strategy.
• If your client’s financial or legacy planning situation changes and they need to
use the assets or income that are being earmarked for future life insurance
premiums, they may be unable to continue to make premium payments, the life
insurance policy may terminate and the results illustrated may not be achieved.
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Important Considerations
• If the asset or income earmarked for future life insurance premiums becomes
fully exhausted, premiums may have to be paid using other assets or income to
keep the life insurance policy in force.
• Depending on your client’s life span, it is possible that your client’s beneficiary
may receive more by just inheriting the assets, rather than by receiving the
death benefit of the life insurance policy that was purchased.
• Clients may have to pay taxes, early withdrawal penalties, and/or other fees on
assets liquidated to pay the life insurance policy premiums.
• We recommend that your client consult their tax and legal advisor to discuss
their specific situation before implementing the strategy discussed herein.
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Senior Disclosure
In recommending the replacement of an asset or using the income
therefrom to a senior consumer (age 65 or older) that results in a life
insurance transaction or a series of insurance transactions, the insurance
producer must have reasonable grounds for believing the recommendation is
suitable for the senior consumer on the basis of the facts disclosed by the
senior consumer as to his or her investments and other insurance products
and as to his or her financial situation and needs.
The insurance producer must make reasonable efforts to obtain the following:
senior consumer's financial status, tax status, investment objectives and
such other information used or considered to be reasonable by the insurance
producer in making recommendations to senior consumers.
Important Information
The Benefits Access Rider is available for an extra premium. Additional underwriting requirements and limits may
also apply. Obtaining benefits under the terms of the rider will reduce and may eliminate the net death benefit.
Benefits paid under the BenefitAccess Rider are intended to be treated for federal tax purposes as accelerated life
insurance death benefits under IRC §101(g)(1)(b). Tax laws related to the receipt of accelerated death benefits are
complex and may be taxable in certain circumstances. Receipt of benefits may affect eligibility for public assistance
programs such as Medicaid. Accelerated benefits paid under the terms of the Terminal Illness portion of the rider
are subject to a $150 processing fee ($100 in Florida). Clients should consult your tax and legal advisors prior to
initiating any claim.
A licensed health care practitioner must certify the chronic or terminal illness to qualify for benefits. Chronic illness
claims will require recertification by a licensed heath care practitioner. Other terms and conditions may apply before
benefits are paid. This rider is not Long Term Care insurance (LTC) and it is not intended to replace LTC. The rider
may not cover all of the costs associated with chronic illness. The rider must follow state accelerated death benefit
laws, is generally not subject to health insurance requirements, and may not be available in all states.
Life insurance policies contain fees and expenses, including cost of insurance, administrative fees, premium loads,
surrender charges and other charges or fees that will impact policy values.
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Important Information
This material has been prepared by The Prudential Insurance Company of America to assist financial professionals.
It is designed to provide general information in regard to the subject matter covered. It should be used with the
understanding that we are not rendering legal, accounting or tax advice. Such services should be provided by the
client’s own advisors. Accordingly, any information in this document cannot be used by any taxpayer for purposes of
avoiding penalties under the Internal Revenue Code.
PruLife® Universal Protector is issued by Pruco Life Insurance Company in all states except New York, where if
available it is issued by Pruco Life Insurance Company of New Jersey. Other insurance policies and annuities are
issued by The Prudential Insurance Company of America located in Newark, NJ. Securities are offered through
Pruco Securities, LLC.
PruLife® SUL Protector is issued by Pruco Life Insurance Company, except in New York where, it is issued by
Pruco Life Insurance Company of New Jersey. Both are Prudential Financial companies located in Newark, NJ.
[Each is solely responsible for its own financial condition and contractual obligations. The contract number is
SULNLG-2011].
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Important Information
The Living Needs Benefit℠ is an accelerated death benefit and is not a health, nursing home, or long-term care
insurance benefit and is not designed to eliminate the need for insurance of these types. There is no charge for this
rider but, when a claim is paid under this rider, the death benefit is reduced for early payment, and a $150
processing fee ($100 in Florida) is deducted. If more than one policy is used for the claim, each policy will have a
processing fee of up to $150 deducted ($100 in Florida). Portions of the Living Needs Benefit payment may be
taxable, and receiving an accelerated death benefit may affect eligibility for public assistance programs. The federal
income tax treatment of payments made under this rider depends upon whether the insured is the recipient of the
benefit and is considered "terminally ill" or "chronically ill." We suggest that clients seek assistance from a personal
tax advisor regarding the implications of receiving Living Needs Benefit payments. This rider is not available in
Minnesota to new purchasers over age 65 until the policy has been in force for one year, and the nursing home
option is not available in Connecticut, Florida, Massachusetts, New York or the District of Columbia. This rider is not
available in Washington state. In Oregon, term policies must include the waiver of premium benefit to be eligible for
this rider.
BenefitAccess is covered by U.S. Patent No. 7,958,035, which was issued on the insurance product management
system for an accelerated benefit provided in response to a medical condition, where the benefit is paid to the
policyowner without restriction on use of proceeds.
Prudential, the Prudential logo, and the Rock symbol are service marks of Prudential Financial, Inc. and its related
entities.
Securities and Insurance Products:
Not Insured by FDIC or Any Federal Government Agency. May Lose Value.
Not a Deposit of or Guaranteed by Any Bank or Bank Affiliate.
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