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Never Out Live Your Money
Presented by
Beneflex Financial Group Inc.
Jerry W. Hill
In Cooperation with
Richard Olive, Executive Vice-President
National Community Foundation
Neither 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.
The “Facts” of Life
The IRS allows us the
opportunity
to decide who will
receive our estate . . .
however, we must
choose 2 of the
following:
FAMILY
IRS
CHARITY
The “Facts” of Life
Most Americans Choose:
Family
IRS
-Each
get about half-
Why?
People are either
ill-informed
or
unprepared
The following are a few examples
of how estates can diminish
without wise planning.
Marilyn Monroe
Gross Estate
Settlement
Costs
Net Estate
Shrinkage
$819,176
448,750
370,426
55%
Elvis Presley
Gross Estate
$10,165,434
Settlement
Costs
7,374,635
Net Estate
2,790,799
Shrinkage
73%
J. D. Rockefeller
Gross Estate
$26,905,182
Settlement
Costs
17,124,988
Net Estate
16,192,908
Shrinkage
64%
Social Capital Choices
Who Decides?
Government
You
Taxes
Local University
Museums/Arts
Charity/Ecology
Taxpayer Issues
Federal Income Tax
10% - 35%
TX State Income Tax
0%
Capital Gain Tax
5% - 15%
“Death Tax”
“Death Tax” on certain assets
-IRAs, Retirement $
-Annuities
-Savings Bonds
Double Taxation
-Estate Tax
-Income Tax
A Solution
 Very Conservative Planning
 Guaranteed, Fixed Lifetime Income(s)
 Substantial Tax Deductions
 IRS Approved since 1917
 Not Insurance
The Only Annuity with
a Tax Deduction
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.
Equity Indexed Annuities Are HOT!
The Annuity Exchange is HOTTER!
Solution
Transfer an Equity Indexed Annuity
to
An annuity with a Tax Deduction
•Payable for lifetime
•Payable for a specified period of years
Transfer an Equity Indexed Annuity
to an Annuity with a Tax Deduction!
WHY?
 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
Annuity Fact
According to LIMRA, in 2000 there
were $190 Billion in Tax Deferred
Annuities issued and 90% of all
people who own Tax Deferred
Annuities die without ever
annuitizing.
Annuity Exchange Example
$107,000 Accumulated value
with a 10% surrender fee :
Benefits for annuitant
Annual
Payout
Tax
Deduction
•Lifetime payout flex
deferred for 5 years
$7,233 $44,091
•Period Certain for 20 years
flex deferred for 5 years
$7,242 $54,826
Real Estate
Property Transfer
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
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.
Jerry W. Hill
Beneflex Financial Group, Inc.
11811 East Fwy. Suite 545
Houston, TX 77029-1950
(713) 455-7087
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
Problematic Real Assets
Rental Property
–Insurance
&Taxes
–Repairs
–Tax on income
–Tenant
concerns
Farms
– Unable to take care
of property
– Taxes and Insurance
– Upkeep (labor)
– Many want to remain
on farm and pass it
to heirs
Problematic Real Assets
Raw Land
–Taxes and
Insurance
–Not income
producing
–Maintenance
& upkeep
Second Homes
– Taxes and
Insurance
– Annual
maintenance
– Lifestyle changes
– Tenant concerns
Two Major Concerns
• Capital Gains Tax
– 5% - 25%
• Real Estate Selling Fees
– 6% - 10%
– 11% - 35% Loss in value
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
Example
Current 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%
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%
Choices
Most clients believe there
are 2 alternatives
KEEP or SELL
There is a 3rd choice
Exchange Real Estate
For a lifetime or period
certain income
CD Exchange Program
Many Bank CD’s are
earning less than 3% and
the interest is fully
taxable.
•A large number of
clients over age 65 use
the interest to
supplement their income.
CD Example
Typical $100,000 CD
Interest Rate 2.5%
$ 2,500
Taxes @ 25% Tax Bracket
$ 625
Total Net Income
$1,875*
*Principal remains in estate
CGA Example
Solution: $32,000 CGA
Payout Rate 6.5%, (age 70)
$ 2,080
Taxes @ 25% Tax Bracket
$ 203*
Total Net Income
$1,877
* 61% of income is tax free return of principal, 39% taxed @ 25%
CD Exchange Program
The Difference
•Client net income increased from $1,875 (from
Bank CD) to $3,152 (income from $32,000 CGA and
$68,000 Bank CD)
•61% of CGA income is a tax free return of
principal
•Client receives a current $11,724 tax
deduction, which may save $2,931 in taxes*
* Assumes 25% tax bracket
CD vs. Gift Annuity
$100,00
$32,000
CD
CGA
Annual Payout Rate
2.5%
6.5%
Annual Income
$2,500
$2,080
Estimated Taxes
$625
$203*
Income Tax Deduction
-0-
$11,724
Total Net Income
$1,875
$1,877
* 61% of income is tax free return of principal, 39% taxed @ 25%
CD Exchange Program
Summary
•Income increased by $1,277 per year
•May save $2,931 in taxes
•Asset was removed from estate
and avoided probate
•Rate locked in for life
•No set-up or legal fees
Securities Exchange
Program
Fund your
Annuity with
Securities
Charitable Planned Giving
Countless individuals have stock and
bond portfolios that have significantly
increased in value or have lost value
over the past few years.
Many of these individuals are hesitant
in selling because of the capital gains
tax, or because of difficulties in
accepting a loss.
Stock Exchange Example
Typical $100,000 Stock Portfolio
Dividend Rate 1.5%
$ 1,500
Taxes @ 25% Tax Bracket
$ 375
Total Net Income
$1,125*
*Principal remains in estate
Stock vs. CGA
Stock
CGA
Annual Payout Rate
1.5%
6.5%
Annual Income
$1,500
$6,500
Estimated Taxes
$375
$650*
Income Tax Deduction
-0-
$35,936
Total Net Income
$1,125
$5,850
* 60% of income is tax free return of principal, 40% taxed @ 25%
CGA Example
Tax Treatment of CGA Income
Tax Free Return of Principal
$1,950
Taxed as ordinary income
$2,600
Taxed at capital gain rate
$1,950 *
Total Income
$6,500
* Based on a $50,000 cost basis
CGA Example
Example: Exchange $100,000 Stock
Portfolio for an annuity with a tax deduction
Payout Rate 6.5%, (age 70)
$ 6,500
Tax Deduction
$35,936
Capital Gain Reduction
$19,415*
* Based on a $50,000 cost basis
Summary
•Securities were exchanged for a taxfavored 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.
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