Download - Never Out Live Your Money
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Never Out Live Your Never Out Live Your MoneyMoney
Presented byPresented by
Beneflex Financial Group Inc.Beneflex Financial Group Inc.
Jerry W. HillJerry W. Hill
In Cooperation withIn Cooperation with
Richard Olive, Executive Vice-PresidentRichard Olive, Executive Vice-President
National Community FoundationNational Community FoundationNeither the Speaker nor National Community Foundation provides legal, tax or financial
advise. The Speaker does not represent any Investment or Insurance product or Company. Consult your tax advisor about your specific situation.
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The “Facts” of LifeThe “Facts” of Life
The IRS allows us the opportunity
to decide who will receive our estate . . .
however, we must choose 2 of the
following:
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FAMILYFAMILY
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IRSIRS
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CHARITYCHARITY
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The “Facts” of LifeThe “Facts” of LifeMost Americans Choose:
Family
IRS
-Each get about half-
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Why?Why?
People are eitherill-informed
orunprepared
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The following are a few The following are a few examples of how estates can examples of how estates can
diminishdiminish
without wise planning.without wise planning.
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Marilyn MonroeMarilyn Monroe
Gross Estate
$819,176
Settlement Costs 448,750
Net Estate370,426
Shrinkage 55%
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Elvis PresleyElvis PresleyGross
Estate$10,165,434
Settlement Costs
7,374,635
Net Estate 2,790,799
Shrinkage 73%
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J. D. RockefellerJ. D. Rockefeller
Gross Estate
$26,905,182
Settlement Costs
17,124,988
Net Estate 16,192,908
Shrinkage 64%
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Social Capital ChoicesSocial Capital Choices
Who Decides?Who Decides?
GovernmentGovernment YouYou
TaxesTaxes Local UniversityLocal University
Museums/ArtsMuseums/Arts
Charity/EcologyCharity/Ecology
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Taxpayer IssuesTaxpayer Issues
Federal Income Tax 10% - 35%
Capital Gain Tax 5% - 15%
TX State Income Tax 0%
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““Death Tax”Death Tax”
“Death Tax” on certain assets
Double Taxation-Estate Tax-Income Tax
-IRAs, Retirement $-Annuities-Savings Bonds
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A SolutionA Solution Very Conservative Planning
Guaranteed, Fixed Lifetime Income(s)
Substantial Tax Deductions
IRS Approved since 1917
Not Insurance
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By exchanging real estate, stocks,
bonds, or cash for an annuity with a
tax deduction, you can reduce your
tax liability and receive a tax-favored
income that can never be outlived.
The Only Annuity with The Only Annuity with a Tax Deductiona Tax Deduction
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Equity Indexed Annuities AreEquity Indexed Annuities Are HOT!HOT!The Annuity Exchange isThe Annuity Exchange is HOTTER!HOTTER!Equity Indexed Annuities AreEquity Indexed Annuities Are HOT!HOT!The Annuity Exchange isThe Annuity Exchange is HOTTER!HOTTER!
Transfer an Equity Indexed Transfer an Equity Indexed AnnuityAnnuity
toto
An annuity with a Tax DeductionAn annuity with a Tax Deduction•Payable for lifetime•Payable for a specified period of years
SolutionSolution
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Transfer an Equity Indexed Annuity
to an Annuity with a Tax Deduction!
Transfer an Equity Indexed Annuity
to an Annuity with a Tax Deduction!
Annuity issued at accumulation value, not surrender value
Guaranteed fixed income/Pay-out increases with a flex option
Immediate tax deduction
Flexibility; annuity payments can begin now or at future date
WHY?WHY?
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Annuity FactAnnuity Fact Annuity FactAnnuity Fact
According to LIMRA, in 2000 According to LIMRA, in 2000 there were $190 Billion in Tax there were $190 Billion in Tax Deferred Annuities issued and Deferred Annuities issued and 90% of all people who own Tax 90% of all people who own Tax
Deferred Annuities die Deferred Annuities die without ever annuitizingwithout ever annuitizing..
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Annuity Exchange ExampleAnnuity Exchange Example
Benefits for annuitant AnnualPayout
Tax Deduction
•Lifetime payout flex deferred for 5 years
$7,233
$44,091
•Period Certain for 20 yearsflex deferred for 5
years
$7,242
$54,826
$107,000 Accumulated value with a 10% surrender fee :
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Real Estate Property Transfer
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Howard and Charlotte Barnett were farmers in Crawford, Indiana, for 42 years. The value of their land had increased from $43,000 in 1959 to $1,000,000 in 2000. If they sold the farm, the IRS could take $190,000 in taxes, leaving them $810,000.
True Story
“We exchanged our farm for a lifetime income and saved thousands of dollars in taxes!”
Howard and Charlotte Barnett, Farmers - Crawford,
Indiana Now Retired - Homestead Florida
Jerry W. HillBeneflex Financial Group, Inc.
11811 East Fwy. Suite 545Houston, TX 77029-1950
(713) 455-7087
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Exchange Real Estate
– Guaranteed Lifetime or Period Certain
Income – Capital Gain Tax reduction– Income Tax Deduction– Generally, removes asset from estate– NCF handles real estate fee and
closing costs
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Problematic Real Assets
Farms– Unable to take care
of property– Taxes and Insurance– Upkeep (labor)– Many want to remain
on farm and pass it to heirs
Rental Property–Insurance &Taxes–Repairs–Tax on income–Tenant concerns
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Problematic Real Assets
Second Homes– Taxes and
Insurance – Annual
maintenance– Lifestyle changes– Tenant concerns
Raw Land–Taxes and Insurance–Not income producing–Maintenance & upkeep
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Two Major Concerns
• Capital Gains Tax
– 5% - 25%
• Real Estate Selling Fees
– 6% - 10%
– 11% - 35% Loss in value
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Three Choices• SELL – 100K less tax/fees = 82.7K
• KEEP - Problems stay intact
• Exchange - $100,000 for
– Tax favored lifetime income
– Income tax deduction
– Eliminate up-front capital gain
– Control from the grave
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ExampleCurrent Info
Property owners husband and wife age 70
$100,000 FMV Property
$25,000 Cost Basis
Results
Annual joint lifetime income $5,430
Income tax deduction $34,577
(34.5%) Capital gain eliminated $25,933
Effective pay-out rate 6.6%
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Example (continued)
• up front savings– No out of pocket capital gain tax– NCF absorbs all real estate fees – Tax deduction lowers reportable
income by up to 30%
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Choices
Most clients believe there are 2 alternatives
KEEP or SELL
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There is a 3rd choice
Exchange Real EstateFor a lifetime or period
certain income
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Many Bank CD’s are Many Bank CD’s are earning less than 3% and earning less than 3% and the interest is fully the interest is fully taxable.taxable.
•A large number of A large number of clients over age 65 use clients over age 65 use the interest to the interest to supplement their income.supplement their income.
CD Exchange ProgramCD Exchange Program
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Typical $100,000 CD
Interest Rate 2.5%Interest Rate 2.5% $ 2,500$ 2,500
$ 625$ 625 Taxes @ 25% Tax BracketTaxes @ 25% Tax Bracket
Total Net IncomeTotal Net Income $1,875*$1,875*
*Principal remains in estate*Principal remains in estate
CD ExampleCD ExampleCD ExampleCD Example
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Solution: $32,000 CGA
CGA CGA ExampleExampleCGA CGA ExampleExample
Payout Rate 6.5%, Payout Rate 6.5%, (age 70)(age 70) $ 2,080$ 2,080
$ 203$ 203 ** Taxes @ 25% Tax BracketTaxes @ 25% Tax Bracket
Total Net IncomeTotal Net Income $1,877$1,877
* 61% of income is tax free return of principal, 39% taxed @ 25%* 61% of income is tax free return of principal, 39% taxed @ 25%
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•Client net income increased from $1,875 (Client net income increased from $1,875 (from from Bank CDBank CD) to $3,152 () to $3,152 (income from $32,000 CGA and income from $32,000 CGA and $68,000 Bank CD$68,000 Bank CD))•61% of CGA income is a tax free return 61% of CGA income is a tax free return of principalof principal
•Client receives a current $11,724 tax Client receives a current $11,724 tax deduction, which may save $2,931 in deduction, which may save $2,931 in taxes*taxes*
The DifferenceThe Difference CD Exchange CD Exchange ProgramProgram CD Exchange CD Exchange ProgramProgram
* Assumes 25% tax bracket* Assumes 25% tax bracket
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* 61% of income is tax free return of principal, 39% taxed @ 25%* 61% of income is tax free return of principal, 39% taxed @ 25%
$100,00$100,00
CDCD$32,000$32,000
CGACGA
Annual IncomeAnnual Income $2,080$2,080
$203$203 **
Total Net IncomeTotal Net Income $1,877$1,877
$2,500$2,500
Annual Payout RateAnnual Payout Rate 2.5%2.5% 6.5%6.5%
Estimated TaxesEstimated Taxes
Income Tax DeductionIncome Tax Deduction
$625$625
-0--0-
$1,875$1,875
$11,724$11,724
CD vs. Gift AnnuityCD vs. Gift Annuity
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SummarySummary
•Income increased by $1,277 per yearIncome increased by $1,277 per year
•Asset was removed from estate Asset was removed from estate and avoided probateand avoided probate
•Rate locked in for life Rate locked in for life
•No set-up or legal feesNo set-up or legal fees
•May save $2,931 in taxesMay save $2,931 in taxes
CD Exchange ProgramCD Exchange Program
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Securities Exchange Securities Exchange ProgramProgram
Securities Exchange Securities Exchange ProgramProgram
Fund your Fund your
Annuity with Annuity with SecuritiesSecurities
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Countless individuals have stock Countless individuals have stock and bond portfolios that have and bond portfolios that have significantly increased in value or significantly increased in value or have lost value over the past few have lost value over the past few years.years.
Charitable Planned Giving Charitable Planned Giving Charitable Planned Giving Charitable Planned Giving
Many of these individuals are Many of these individuals are hesitant in selling because of the hesitant in selling because of the capital gains tax, or because of capital gains tax, or because of difficulties in accepting a loss.difficulties in accepting a loss.
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Typical $100,000 Stock Portfolio
Dividend Rate 1.5%Dividend Rate 1.5% $ 1,500$ 1,500
$ 375$ 375 Taxes @ 25% Tax BracketTaxes @ 25% Tax Bracket
Total Net IncomeTotal Net Income $1,125*$1,125*
*Principal remains in estate*Principal remains in estate
Stock Exchange ExampleStock Exchange ExampleStock Exchange ExampleStock Exchange Example
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* 60% of income is tax free return of principal, 40% taxed @ 25%* 60% of income is tax free return of principal, 40% taxed @ 25%
StockStock CGACGA
Annual IncomeAnnual Income $6,500$6,500
$650$650 **
Total Net IncomeTotal Net Income $5,850$5,850
$1,500$1,500
Annual Payout RateAnnual Payout Rate 1.5%1.5% 6.5%6.5%
Estimated TaxesEstimated Taxes
Income Tax DeductionIncome Tax Deduction
$375$375
-0--0-
$1,125$1,125
$35,936$35,936
Stock vs. CGAStock vs. CGA
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Tax Treatment of CGA IncomeTax Treatment of CGA Income
Total Income $6,500Total Income $6,500
Tax Free Return of PrincipalTax Free Return of Principal $1,950$1,950
$2,600$2,600 Taxed as ordinary incomeTaxed as ordinary income
$1,950 $1,950 ** Taxed at capital gain rateTaxed at capital gain rate
CGA ExampleCGA Example
* Based on a $50,000 cost basis* Based on a $50,000 cost basis
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Example:Example: Exchange $100,000 Stock Exchange $100,000 Stock Portfolio for an annuity with a tax Portfolio for an annuity with a tax
deductiondeduction
CGA ExampleCGA ExampleCGA ExampleCGA Example
* Based on a $50,000 cost basis* Based on a $50,000 cost basis
Payout Rate 6.5%, Payout Rate 6.5%, (age 70)(age 70) $ 6,500$ 6,500
$35,936$35,936 Tax DeductionTax Deduction
$19,415$19,415 ** Capital Gain ReductionCapital Gain Reduction
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•Securities were exchanged for a tax-favored annual income of $6,500 payable for life.
•Transaction created a $35,936 income tax deduction saving thousands in taxes.
• No capital gains tax due at the time of transaction.
SummarySummary SummarySummary