wealth transfer planning using private financing prepared for valued client & valued client a...
TRANSCRIPT
Wealth Transfer Planning
Using Private Financing
Prepared for
Valued Client & Valued Client
A Fair Market Loan Arrangement Between Family Members
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
Net To The HeirsNet To The Heirs$7,403,116$7,403,116
The Client The Client FamilyFamily
Outstanding Loan inYr. 30$3,243,338
Total Loan to ILIT = $1,700,140
Total Premiums$2,501,895
Life Insurance Life Insurance Death BenefitDeath Benefit
$9,257,379$9,257,379
ILITILIT
Note & Loan Interest Payments
Death Benefit in Yr. 15$9,257,379
Total Side Fund in ILIT in Yr. 15$0
Total Trust Total Trust Assets Assets in Yr. 15in Yr. 15
$10,646,454$10,646,454
Death Benefit in Yr. 15$7,403,116
Total Gifts to ILIT = $660,000
Components of Premium Financing
• Types of loans
• Loan interest rate
• Loan repayment
• Return of Premium
Comparison of Benefits
Private FinancingPrivate Financing
Total Loan AmountTotal Loan Amount $1,700,140$1,700,140
Cumulative Loan InterestCumulative Loan Interest $1,543,198$1,543,198
Total Gift AmountTotal Gift Amount $660,000$660,000
Total Gift TaxesTotal Gift Taxes $0$0
Total PremiumsTotal Premiums $2,501,895$2,501,895
Total EstateTotal Estate $38,700,858$38,700,858
Total Estate TaxesTotal Estate Taxes $20,389,672$20,389,672
Total Other Assets In TrustTotal Other Assets In Trust -$1,854,262-$1,854,262
Total Death Benefit In TrustTotal Death Benefit In Trust $9,257,379$9,257,379
Net To HeirsNet To Heirs $25,714,302$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.
This communication with the public is considered 'Correspondence'. It is authorized for use exclusively for one-on-one 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.
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