Estate Maximization
Utilizing Irrevocable Trusts with Life Insurance
and Annuities
Presenter Name
Presenter Title
Date of Presentation
©2011 Lincoln National Corporation
For broker/dealer use only. Not to be used with the general public.
LCN 1102-2054431
Disclosure
This presentation is for educational purposes only. It is not intended to be used with the public. It is
intended to be accurate and authoritative in regard to the subject matter covered. It is presented with
the understanding that I am not engaged in rendering legal or tax advice. Lincoln Financial Group
provides the sales concepts for information purposes only.
While this seminar discusses general tax aspects and concepts of planning with insurance, no
representations are made as to suitability for individual clients. Interested parties should be strongly
encouraged to seek separate tax and legal advice before implementing a plan of the type described in
this presentation.
IRS Circular 230 Disclosure
This material was prepared to support the promotion and marketing of variable annuities,
mutual funds, and insurance company products. Lincoln Financial Group® affiliates,
distributors, and their respective employees and representatives do not provide tax,
accounting, or legal advice. Any tax statements contained herein were not intended or written to
be used, and cannot be used for the purpose of avoiding U.S. federal, state, or local tax
penalties. Please consult your own independent advisor as to any tax, accounting, or legal
statements made herein.
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Irrevocable Life Insurance Trust
Male age 70 Standard, Female age 70 Standard
$1,000,000
Gift
Lincoln
LifeGuarantee
SUL
$3,355,948
Life Insurance
Death Benefit
To Trust
Beneficiaries
6.24% IRR
Irrevocable Trust
*Death benefit assumes a guaranteed interest rate of 3%
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Objections to Single-Premium into Life Insurance?
• No future changes by Trustee
• No upside potential
• No income generation
• Lack of liquidity
• Fiduciary standards may require income and flexibility
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ChoicePlus AssuranceSM VA with i4LIFE®
Advantage and GIB Hypothetical Example
Male age 70 Standard, Female age 70 Standard
$1,000,000
Gift
ChoicePlus
VA with i4Life
and GIB
Guaranteed
Income Benefit
$50,000/yr
SUL
Death Benefit
$2,726,735
Intentionally Defective Grantor Trust
For broker/dealer use only. Not to be used with the general public.
LCN 1102-2054431
(The income benefit is determined at the time the contract is purchased. In this
example the 50K/yr is 5% of the purchase payment based on the annuitants’ ages.)
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The basics of a Lincoln variable annuity
• Variable Annuity
– A long-term investment product designed for retirement savings
• Tax-deferred growth
– Earnings aren’t taxed until withdrawals are made, allowing for greater growth
• Lifetime income
– There are several options for receiving an income stream for life.
• Death benefits
– Savings can be transferred to beneficiaries
• Optional protection features
– For an additional charge, clients can elect optional features that can help
protect their minimum future income and ensure growth.
• Flexibility
– Clients can meet individual needs by customizing their contract
through investment allocation, withdrawal options, and adding or
canceling optional features.
For broker/dealer use only. Not to be used with the general public.
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The benefits of i4LIFE® Advantage
• Lifetime Income
– An income stream, no matter how long your clients live.
• Growth potential
– Income that has the potential to grow based on their investment results.
• Increasing wealth floor
– With the Guaranteed Income Benefit (GIB), their payments will never go
below the guaranteed minimum amount and may actually automatically
increase every year if their i4LIFE® Advantage payment increases to a
new high.
• Control and access
– Clients don’t have to choose between lifetime income and access to
savings. They can have both: an income and the ability to make additional
withdrawals during the Access Period.*
*Additional withdrawals reduce the cost basis, account value, and income payments proportionately,
and are subject to ordinary income tax to the extent of the gain.
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Lincoln ChoicePlus AssuranceSM with i4LIFE® and GIB
Guaranteed
Income (GIB)
$50,000
Total Income Non-taxable
Year 1
Income
$55,315
$37,864
For broker/dealer use only. Not to be used with the general public.
(The income benefit is determined at the time the contract is purchased. In this
example the 50K/yr is 5% of the purchase payment based on the annuitants’ ages.)
LCN 1102-2054431
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Lincoln ChoicePlus Assurance with i4LIFE® and GIB
SM
Historical
0%
(12/1999-12/2010)
Income Year 1
$51,315
$55,315
Income Year 15
$50,000
$119,393
Income Year 20
$50,000
$104,224
Total amount invested
$1,000,000
$1,000,000
Ending Contract Value
$0
$958,052
Total Income paid to Trust
$1,056,511
$2,069,070
Total Income above
guaranteed income
$6,510
$334,592
Total Non-taxable Income
$795,146
$795,146
(The income benefit is determined at the time the contract is
purchased. In this example the 50K/yr is 5% of the purchase
payment based on the annuitants’ ages.)
For broker/dealer use only. Not to be used with the general public.
LCN 1102-2054431
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Hypothetical Assumptions for Irrevocable Trust
• Intentionally Defective Grantor Trust
– Grantor/Owner pays taxes outside the Trust
– Trust assets grow with no tax withdrawals since Grantor pays taxes outside the
Trust
• Annuity asset allocation:
– 60% LVIP American Growth Fund
– 40% LVIP Delaware Bond Fund
– 20-year historical returns from 12/1991-12/2010
• The GIB is a minimum of $50,000 annually which pays for the SUL
policy
• Income above the $50,000 GIB (based upon 20 year historical avg.)
stays in the Trust as a “cash reserve”
• This example assumes that cash reserves inside the Trust grow 5%
per year
• Past performance does not guarantee future results. Different funding
options, allocations and time periods would produce different results.
For broker/dealer use only. Not to be used with the general public.
LCN 1102-2054431
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Three Buckets of Money
$1,000,000
Gift
Male age 70 Standard, Female age 70 Standard
Year 20 (hypothetical)
ChoicePlus
VA with i4Life
and GIB
20 year historical returns*
Guaranteed
Income Benefit
$50,000/yr
SUL
Death Benefit
$2,726,735
Cash
Reserve
$1,489,950
Assumes
5% growth
Annuity
Death Benefit
(after-tax)
$707,686
Intentionally Defective Grantor Trust
For broker/dealer use only. Not to be used with the general public.
LCN 1102-2054431
* 60% LVIP American Growth Fund, 40% LVIP Delaware Bond Fund 12/1991-12/2010. Illustrated amounts are not guaranteed.
11
Three Buckets of Money
Male age 70 Standard, Female age 70 Standard
$1,000,000 into a Lincoln ChoicePlus AssuranceSM Variable Annuity with
i4LIFE® Advantage and GIB (Referencing 20 Year Historical Returns)
Trust as Illustrated
$1 million Lump Sum
Into Life Insurance
SUL
Death Benefit
$2,726,735
Cash
Reserve*
$1,489,950
Annuity
Death Benefit
(after-tax)*
$707,686 $4,924,371
8.30% IRR
SUL
Death Benefit
$3,355,948
6.24% IRR
For broker/dealer use only. Not to be used with the general public.
LCN 1102-2054431
* Actual Cash Reserves and Annuity Death Benefit values will vary and are not guaranteed.
12
Estate Maximization
20 Year Historical Illustration
$6,000,000
$5,000,000
$4,000,000
$4,593,626
$4,696,063
$4,924,371
Lump Sum SUL
Death Benefit
$3,355,948
$3,948015
Annuity DB
Cash Reserve
Life DB
$3,000,000
$2,000,000
0% Return
$1,000,000
Year 20
*Assuming a worst
case scenario (0%
return), the Life Death
Benefit of $2,726,735
would be paid to the
trust beneficiaries
For broker/dealer use only. Not to be used with the general public.
LCN 1102-2054431
$0
Year 5
Year 10
Year15
13
Disclosure for Insurance Policies and Annuity Contracts
Life insurance policies, including Lincoln LifeGuarantee® SUL, policy form SUL5066 and state variations
(when approved), and annuity contracts, including Lincoln ChoicePlus AssuranceSM variable annuities
(contract form 30070-B and state variations), are issued by The Lincoln National Life Insurance Company,
Fort Wayne, IN, and distributed by Lincoln Financial Distributors, Inc., a broker/dealer. The Lincoln
National Life Insurance Company does not solicit business in the state of New York, nor is it
authorized to do so.
Policies and contracts sold in New York (policy SUL5066N (when approved); contract forms 30070BNYA,
30070BNYC, 30070BNYAL, and 30070BNYN) are issued by Lincoln Life & Annuity Company of New
York, Syracuse, NY, and distributed by Lincoln Financial Distributors, Inc., a broker/dealer.
All guarantees and benefits of the insurance policy and all contract and rider guarantees, including
those for optional benefits, fixed subaccount crediting rates, or annuity payout rates, are backed
by the claims-paying ability of the issuing insurance company. They are not backed by the
broker/dealer or insurance agency from which this policy or annuity is purchased, or any affiliates of those
entities other than the issuing company affiliates, and none makes any representations or guarantees
regarding the claims-paying ability of the issuer.
In some states, policy contract terms are set out and coverage may be provided in the form of certificates
issued under a group policy issued by The Lincoln National Life Insurance Company to a group life
insurance trust. Products and features are subject to state availability. The insurance policy and riders
have limitations, exclusions, and/or reductions.
There is no additional tax-deferral benefit for an annuity contract purchased in an IRA or other taxqualified plan.
For broker/dealer use only. Not to be used with the general public.
LCN 1102-2054431
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Disclosure for Insurance Policies and Annuity Contracts
Variable annuities are long-term investment products designed for retirement purposes and are subject to
market fluctuation, investment risk, and possible loss of principal. Variable annuities contain both
investment and insurance components, and have fees and charges, including mortality and expense,
administrative, and advisory fees. Optional features are available for an additional charge and are based
on the financial strength of the insurer. The annuity’s value fluctuates with the market value of the
underlying investment options, and all assets accumulate tax deferred. Withdrawals of earnings are
taxable as ordinary income and, if taken prior to age 59½, may be subject to a 10% federal tax penalty.
Withdrawals will reduce the death benefit and cash surrender value.
Investors are advised to consider the investment objectives, risks, and charges and expenses of
the variable annuity and its underlying investment options carefully before investing. The
applicable variable annuity prospectus contains this and other important information about the
variable annuity and its underlying investment options. Please call 800 942-5500 or 888 868-2583
for a free prospectus. Read it carefully before investing or sending money. Products and features
are subject to state availability.
Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates. Affiliates
are separately responsible for their own financial and contractual obligations.
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Thank You
Questions?
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