asset protection+ preserving a legacy of retirement assets using life insurance joe sample,...

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]]

NOT FOR CONSUMER USE

0241306-00005-00 Ed. 12/2013 Exp. 06/24/2015

Succession Distribution

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

Accumulation

Financial Lifecycle

Before we begin…

NOT FOR CONSUMER USE2

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.


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

4 Not for Consumer Use.NOT FOR CONSUMER USE4

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


Stock Bond IRA or ExistingAnnuity

CD or Cash

Capital gain on realized gains,

ordinary income on interest and

dividends

Step-up in basis at death, subject to estate taxes

Tax-deferred, ordinary income to extent of gain on distributions

Ordinary income on gain at

withdrawal AND subject to estate

taxes

Mutual Fund

Legacy Threats

Taxes are a reality


Legacy Threats

Taxes are a reality

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.

How much is a $500,000 IRA really worth to heirs?

Income Tax

$198,000 39.6%

Income Tax

$198,000

39.6%

Net to Heirs $302,000

60.4%


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, 2006.2Source: 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.


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 2Statistics referenced on this slide are believed to be the most up-to-date available as of April, 2013.


Life Insurance

Reposition Legacy Assets

IRA or ExistingAnnuity

Why Asset Protection+

Net Death Benefit

Income tax on withdrawal? Balance of IRA or Annuity at death

Children or Charity

Premium

Rider for Chronic and

Terminal Illness Needs*

Withdrawal

*Receiving benefits under this rider will reduce the death benefit and may result in beneficiaries receiving no death benefit.

Client


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


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.

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



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.


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.



• 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

Hypothetical Case Study

Judy Hill (age 68)


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.


$500,000 IRA Net RMD

reinvested

Taxable Assets?

Current Situation

Asset Protection+

Hypothetical and for illustrative purposes only.

$500,000 IRA Net

distribution redirected as annual premium

Life InsuranceOn Judy

$865,685 Death

Benefit WITHOUT

BenefitAccess

$721,561 Death Benefit WITH

BenefitAccess

Assumptions:

-5% growth on IRA assets

- Female age 68, preferred non tobacco,

PruLife® Universal Life Protector, $20,000 annual premium, guaranteed to age 105.


Internal Rate of Return (IRR) on Judy’s Policy

Assumes 30% income tax rate. Longevity may result in a negative internal rate of return.

Life Expectancy

Inte

rnal

Rat

e of

Ret

urn

- I

RR

Not for Consumer Use.NOT FOR CONSUMER USE17

14.12

7.70

4.45

11.93

6.073.13

20.17

11.00

6.36

17.04

8.67

4.47

Age 81 Age 86 Age 91

Death Ben IRR w/o BenefitAccess Death Ben with BenefitAccess

Tax Equivalent IRR w/o BenefitAccess Tax Equivalent IRR with BenefitAccess

*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.


Assuming chronic illness and BenefitAccess benefits begin at age 82 under Judy’s Policy

Age Premium

MaxAnnual

BenefitAccess Benefit

Available*

MaxAnnual

BenefitAccess Benefit Taken

NetDeath Benefit

BenefitAccessLifetimeBenefitAmount

68 $20,000 $115,200 $0 $721,561 $721,561 72 $20,000 $115,200 $0 $721,561 $721,561 75 $20,000 $115,200 $0 $721,561 $721,561 78 $20,000 $115,200 $0 $721,561 $721,561 81 $20,000 $115,200 $0 $721,561 $721,561 82 $0 $115,200 $115,200 $606,361 $606,361 83 $0 $115,200 $115,200 $491,161 $491,161 84 $0 $115,200 $115,200 $375,961 $375,961 85 $0 $115,200 $115,200 $260,761 $260,761 86 $0 $115,200 $115,200 $145,561 $145,561 87 $0 $115,200 $115,200 $30,361 $30,361 88 $0 $30,061 $30,361 $0 $0


Without

Asset Protection +

IRA Valueat age 86… $ 519,568

100% of RMD’s reinvested... $ 457,223

Income Tax

on IRA (28%)… $ (145,479)

NET TO HEIRS… $ 831,312


Comparison of Net After-TaxProceeds at Death, Without BenefitAccess


Without

Asset Protection +With

Asset Protection +



Income Tax

on IRA (28%)… $ (145,479)



No RMD’s reinvested... $ 0Death Benefit $ 865,685

Income Tax

on IRA (28%)… $ (97,245)

NET TO HEIRS… $ 1,115,745

A difference of $284,433NOT FOR CONSUMER USE20

Without Asset Protection +



Income Tax

on IRA (28%)… $ (145,479)



Comparison of Net After-TaxProceeds at Death, With BenefitAccess

Without Asset Protection +

With Asset Protection +



Income Tax

on IRA (28%)… $ (145,479)



100% of RMD’s reinvested... $ 0Death Benefit $ 721,561

Income Tax

on IRA (28%)… $ (97,245)


A difference of $140,309NOT FOR CONSUMER USE22


Children

SurvivorshipLife

Insurance

Reposition Legacy Assets + Stretch to Grandchildren

IRA or ExistingAnnuity


Clients

Net Death Benefit

Income tax on withdrawal? Balance of IRA or Annuity at death via “Stretch” strategy

PremiumWithdrawal

Grand-children



• 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

Hypothetical Case Study

Don (age 72) and Kathy (age 72) Campbell



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 after-

tax IRA withdrawals Daughter is the life insurance beneficiary

$500,000 IRA

$13,672

Some Net RMD

redirected as annual premium

SurvivorshipLife

Insurance

$693,666Death

Benefit

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.

Hypothetical and for illustrative purposes only.

Asset Protection+


Ginny receives RMD income of $6,136,319 from age 31-83

before income tax

• Inherited IRA Value $587,049• RMD using Single Life Table• Receives first distribution of $11,203 at age 31

Ginny


Don’s total RMD income from age 72-85 is $426,729

before income tax

• IRA Value $500,000• RMD using Uniform Table• Kathy elects an IRA rollover at Don’s death

Don

Kathy’s total RMD income from age 86-92 is $369,490

before income tax

• Inherited IRA Value $646,801• RMD using Uniform Lifetime Table• At Kathy’s death, Ginny elects distributions over

life expectancy

Kathy

Daughter receives life insurance death benefit of

$693,666 upon Kathy’s death

Barbara• Death benefit generally

received income tax-free• 7.44% IRR at Kathy’s age 92 • 10.63% Tax-Equivalent IRR*

*Assumes a 30% tax rateNOT FOR CONSUMER USE26


Total value to Barbara and Ginny is $6,829,985*

*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…


Next Steps

• Individual meeting

• Identify prospects

• Build and present case

Clients Who May Benefit 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


• 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

What’s in it for you?


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


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.

32

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.

33

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 InformationThe 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.


Important InformationThis 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].


Important InformationThe 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.


asset protection+ preserving a legacy of retirement assets using life insurance joe sample,...

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