Gifting
Using Gifting to
discover the power
of lifetime giving
Manulife Financial and the block design are registered service marks and trademarks of The Manufacturers Life Insurance
Company and are used by it and its affiliates including Manulife Financial Corporation. Copyright 2002. The Manufacturers Life
Insurance Company (U.S.A.). All rights reserved. MLI0123018773. Expires 12/31/2002.
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 1
THIS MATERIAL MAY NOT BE COPIED OR USED WITH THE PUBLIC.
The Problem
In most situations what is the
fundamental Road Block in the
Estate Planning Sale?
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 2
To Gift or Not to
Gift…
That is the question
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 3
Empathy Jargon
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 4
Objectives
Without A Plan With A Plan
IRS
IRS
Family
Family
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 5
THE BASIC RULES OF
THE ANNUAL GIFT TAX
EXCLUSION
Inclusive vs. Exclusive
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 6
Gift Tax Principles
• $11,000 Annual Exclusion removes
assets and appreciation from the estate
• Lifetime Applicable Exclusion Amount
removes up to $1,000,000 (2002 and
beyond) and its future appreciation from the
estate
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 7
Estate & Gift Tax Principles
Gift during life (assume 50% tax bracket) :
$11,000 Gift + $5,500 Gift Tax = $16,500
Gift at Death (assume 50% tax bracket) :
$11,000 Gift + $11,000 Estate Tax = $22,000
Savings $ 5,500
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 8
Other Advantages of Gifting
• Current enjoyment. • Income shifting.
• Creditor protection. • Taxable gifts.
• Probate avoidance. • Discounted gifts.
• Appreciation shifting.
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 9
Applicable Credit Amount Gifts
2002 2026
$500,000 $3,424,238
Gift tax
$250,000 Estate tax
$1,712,119
*Assumes 50% Estate Tax Bracket
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 10
The Irrevocable Life Insurance Trust
Insurance Policy
Premium
Payments
Mom Cash Gifts Family Insurance
&
ILIT Company
Dad
Insurance
Proceeds
Beneficiaries
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 11
The Solution
Gifting
and
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 12
Sean and Kelly
MacCaulay
• Sean age 55, Kelly age 55.
• 2 married children (and 6 grandchildren).
• Estate of $10,000,000 with after tax growth of 5%.
• Combined annual exclusions equal $176,000.
• They are interested in understanding the difference
between:
• No gifting,
• Gifting to an irrevocable trust and investing, and
• Gifting to an irrevocable trust and purchasing
insurance.
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 13
No Gifting
MacCaulay Estate Value
in 34 Years
$51,257,198
Credit Shelter Trust Estate Taxes of
$1,215,506 $27,845,659*
Assumes the use of
unlimited marital Net to Heirs
deduction and that each
client uses any remaining $24,627,045
applicable credit amount
($1,000,000 effective
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 14
2002)
Gifting to an Irrevocable Trust and Investing
MacCaulay Estate Value
in 34 Years
$36,047,392*
Credit Shelter Trust
$1,215,506
Estate Taxes of
$19,480,260
Irrevocable Trust
$15,209,806**
* With Gifting to IT. Net to Heirs
** Includes after-tax $32,992,439
return on gifts
invested
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 15
Gifting to an ILIT- With Life Insurance
MacCaulay Estate Value
in 34 Years
$36,047,392
Credit Shelter Trust
$1,215,506
Estate Taxes of
Irrevocable Trust $19,480,266
$11,489,259
Plus
+$7,349,619
Net to Heirs
$36,621,511
* If grandchildren are also heirs of the trust, the parents can either allocate part of their combined generation-
skipping transfer (GST) tax exemption to the gifts to the trust, or create two separate trusts (one for the children
and one for the grandchildren) so they only need to allocate their GST exemption to the grandchildren’s trust.
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 16
Results
No Gifting $24,627,045
Gifting To ILIT and Investing $32,992,439
Gifting To ILIT and Life Insurance $36,621,511
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 17
Summary:
Lifetime gifting can:
• Reduce estate taxes
• Maximize gifts to loved ones
• Safeguard family assets
• Safeguard family privacy
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 18
Gifting
The End
Manulife Financial and the block design are registered service marks and trademarks of The
Manufacturers Life Insurance Company and are used by it and its affiliates including Manulife
Financial Corporation. This material is for informational purposes only. For more detailed
information please contact your advisor. Manulife Financial or any of its agents, employees,
or registered representatives do not give legal, tax, investment, or accounting advice. The
information given here is merely a summary of our understanding of the current laws and
regulations. Prospective purchasers should consult their tax advisor.
FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 19