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Estate Planning
Presents
Allstate Financial is the marketing name for Allstate Life Insurance Company (“ALIC”), its affiliates and subsidiaries. This information is
provided for general educational purposes by Lincoln Benefit Life Company (“Lincoln Benefit”) and is not intended to provide legal, tax or
investment advice. Lincoln Benefit issues fixed and variable insurance products that are sold through agreements with affiliated or
unaffiliated broker-dealers or agencies. Lincoln Benefit‟s variable products are sold by registered representatives, investment advisors,
and agents or bank employees who are licensed insurance agents. ALFS, Inc. serves as principal underwriter of SEC-registered contracts
for Lincoln Benefit. Lincoln Benefit and ALFS, Inc. are wholly owned subsidiaries of ALIC.
LBL6624-1 FOR BROKER/DEALER OR AGENT USE ONLY April 2005
1
Estate Planning
Estate Planning
is only for
Wealthy
people
LBL6624-1 FOR BROKER/DEALER OR AGENT USE ONLY April 2005
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Estate Planning
Estate Planning is more than
just contending with
Uncle Sam.
LBL6624-1 FOR BROKER/DEALER OR AGENT USE ONLY April 2005
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Estate Planning
Estate Planning is about
dreams and goals. . .
making your assets do what you want –
to benefit:
you,
the people, and
the organizations
that you care most about.
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Why Everybody Should Plan
While the
financial aspects
of estate planning
may not apply to everyone,
the people aspects do!
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Why Everybody Should Plan
Children
Who will take care of your children if something
happens to you?
When and how should the children receive
assets
Special Needs and Elder Care
How will you be taken care of if you need
nursing home care?
How will the special needs of your disabled
child or elderly relative be handled?
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Why Everybody Should Plan
Incapacity
Who will take care of your affairs if you are
incapacitated?
Health Care Directives
How can you know for sure that your wishes
about medical care and life support are
respected?
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Why Everybody Should Plan
Special Assets
Do you have special assets, such as a
business or rental real estate, that needs
special planning?
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Estate Planning Basics
Before dispelling more myths . . .
. . . let’s take a look at the basic
Documents of Estate Planning
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Estate Planning
Basic Tools
Powers of Attorney
Wills
Trusts
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Estate Planning
I don‟t have to
worry about
incapacity
because
everything I own
is in joint tenancy.
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Estate Planning Tools
Joint Tenancy Property
Some types of property (bank accounts) allow
each owner to act independently
Many types of property require both owners to
sign for any transactions
Everyone should have a Power of
Attorney
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Estate Planning Tools
Power of Attorney
Legal Document
Individual gives another person the right to act
on the individual‟s behalf
Durable Power of Attorney
Allows an individual to act on behalf of an
incompetent person
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Estate Planning Tools
Financial Decisions
Durable financial power of attorney
To write checks, sign tax returns, etc.
Health Care Decisions
Living Trust
Durable power of attorney for health care
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Estate Planning Tools
Wills
Legal document
Benefits
Appoints an executor
Orderly transfer of assets
Names guardians
Can establish trusts for children
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Estate Planning Tools
Trusts
Parties to a trust
Grantor Creates Trust
Trustee Manages Trust
Beneficiary Benefits from trust
Type of trusts
Living Testamentary
Revocable Irrevocable
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Estate Planning Tools
Living Trusts
With a typical living trust:
Grantor All the same
person to begin,
Trustee Trustee and
Beneficiary will
Beneficiary
change over time
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Estate Planning Tools
Living Trusts
Provides financial “guardianship”
Management of assets during lifetime
If Trustee becomes incompetent, contains
provisions for successor trustees
Confidential (unlike a will, not public)
Revocable – can be changed at any time
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Estate Planning Tools
Living Trusts
Must be funded to be effective (assets must be
transferred to the trust)
Trust value included in estate
Last, but not least,
Avoids Probate
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Estate Planning Rules
Probate
Court-Supervised distribution of assets
Advantages:
Distribute assets according to will
Limits time to challenge will
Limits time creditors can make claims
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Estate Planning Rules
Probate
Disadvantages:
Time – 1 to 2 years is typical
Cost – Filing fees, attorney fees
Publicity – Will and Estate inventory,
distribution are public records
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Estate Planning Rules
Probate
Assets That Pass Outside of Probate
Joint Tenancy with Right of Survivorship
Assets subject to a beneficiary designation
Assets transferred to a trust (e.g. living trust)
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Estate Planning
I have a living
trust, so I don‟t
need a will.
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Estate Planning Tools
Living Trusts
This is simply not true!
A trust and a will accomplish different things
(e.g. a will designates guardians, appoints an
executor)
“Pour Over” will still needed
For any remaining assets not transferred to
living trust
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Estate Planning
I don‟t have to worry
about estate taxes
because
everything I own is
either in joint
tenancy or has a
named beneficiary.
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Estate Planning Rule
The tax rules are different
For tax purposes all assets you own are
included in your estate.
Assets held in
joint tenancy are partially included
in the estate depending on who the other joint
tenants are.
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Estate Planning Rule
Your Estate’s Assets
All tangible and intangible assets at fair market
value owned by you, such as:
Personal Property
Real Estate
Financial Assets
Business Interests
Life Insurance
Qualified Retirement Plans
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Estate Planning
The new tax
laws have
eliminated
estate taxes
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2001 Tax Act (EGTRRA)
Estate taxes were not repealed
Estate taxes are:
Reduced between 2001-2009
Eliminated in 2010
Reinstated in 2011 (sunset provision)
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2001 Tax Act (EGTRRA)
Prior to EGTRRA, most states collected the
“state death tax credit” portion of the federal
estate tax.
Now the credit is phased out and replaced by a
deduction.
What that means is:
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2001 Tax Act (EGTRRA)
What that means is:
To the states:
Revenue shortfalls, so many states have
now enacted their own estate tax system
To the taxpayer:
Possible increase, not a decrease, in overall
estate tax burden because of:
New state estate tax system
Federal deductions are typically not as
generous as previous credits
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2001 Tax Act (EGTRRA)
Top federal estate tax rate is
scheduled to decrease as follows:
2002 50%
2003 49%
2004 48%
2005 47%
2006 46%
2007-2009 45%
2010 Repealed
2011 55%
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2001 Tax Act (EGTRRA)
The unified credit/estate tax-exempt
amount will gradually increase:
Unified Exemption
Year Credit Equivalent
2002-2003 $345,800 $1,000,000
2004-2005 $555,800 $1,500,000
2006-2008 $780,800 $2,000,000
2009 $1,455,800 $3,500,000
2010 Repealed Repealed
2011 $345,800 $1,000,000
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Estate Planning
My estate plan is
to give everything
to my children
before I die, so I
won‟t have to pay
estate taxes.
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Estate Planning Tools
Gift Tax
There is a federal gift tax, as well as an estate
tax (unified gift and estate tax system)
Hence, deathbed gifting to completely avoid
estate taxes rarely works
However, there is an annual gift tax exclusion
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Estate Planning Tools
Gift Tax
Annual Gift Tax Exclusion:
$11,000 per year* to any one person
(donee)
Unlimited number of donees
$22,000 if spouse participates
Must be a gift of present interest
*($11,000 in 2005; adjusted for inflation periodically)
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Estate Planning Tools
Gifting Planning Techniques
If done for many years or gifts made to large
number of donees, significant amounts of
wealth can be transferred with no gift or estate
tax.
Gift most rapidly appreciating assets first
Beyond the Annual Exclusion
Is the Lifetime Gift Tax Exemption
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Estate Planning Tools
Lifetime Gift Tax Exemption
Frozen at $1 million (even in 2010 and beyond)
Taxable gifts exceeding $1 million subject to
progressive gift taxes
In 2010, the top gift tax rate will be equal to top
individual income tax rate
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Estate Planning Tools
Lifetime Gift Tax Exemption
Gift Tax Estate Tax
Year Exemption Exemption
2002-2003 $1,000,000 $1,000,000
2004-2005 $1,000,000 $1,500,000
2006-2008 $1,000,000 $2,000,000
2009 $1,000,000 $3,500,000
2010 $1,000,000 Repealed
2011 $1,000,000 $1,000,000
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Estate Planning Tools
Gift Tax Example
$1,011,000 Gifts to one person (2005)
- 11,000 Annual gift tax exclusion
$1,000,000 Taxable gift
- 1,000,000 Lifetime gift tax exemption
0 Gift tax paid
Lifetime Credit Fully Used
LBL6624-1 FOR BROKER/DEALER OR AGENT USE ONLY April 2005
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Estate Planning
A husband and
wife never have
to pay estate
taxes until the
second death.
LBL6624-1 FOR BROKER/DEALER OR AGENT USE ONLY April 2005
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Estate Planning Rules
True (generally)
Unlimited Marital Deduction
One spouse can leave an unlimited
amount of property to the other at death
without triggering estate or gift tax
Decedent must be survived by spouse
Spouse must be U.S. citizen
Estate documents prepared after 1981
LBL6624-1 FOR BROKER/DEALER OR AGENT USE ONLY April 2005
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Estate Planning
A husband and
wife can wait until
after one dies to
worry about
saving estate
taxes.
LBL6624-1 FOR BROKER/DEALER OR AGENT USE ONLY April 2005
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Estate Planning
Cost of Waiting
$695,000
Why?
The Unlimited Marital Deduction Tax Trap
You use or lose the individual tax exemption,
which can be costly!
Let‟s look at an example. . .
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Example without Planning
Total Assets First Death Surviving Spouse
$3,000,000 Marital Deduction $3,000,000
Second Death
Taxable Estate: $3,000,000
Estate Tax: $1,250,800
Less Unified Credit: $555,800
Taxes Due: $695,000
Distribution to Heirs: $2,305,000
Note: Chart assumes no growth in value of the estate between the first and second death and that both deaths occur in 2005. Estate
owned with JTWROS (Joint Tenancy with Right of Survivorship).
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Estate Planning Tool
A/B Trust Planning Strategy
Goal: to make full use of each spouse‟s estate
tax exemption ($1,500,000 each in 2004-2005)
Estate divided into two parts at first death
Marital or „A‟ Trust
Family or „B‟ Trust
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Estate Planning Tool
A/B Trust Planning Strategy
Family or „B‟ Trust
Shelters assets equal to exemption at first
death
Provides benefits to surviving spouse
No taxes paid on first death
Bypasses his/her estate at second death
LBL6624-1 FOR BROKER/DEALER OR AGENT USE ONLY April 2005
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Estate Planning Tool
A/B Trust Planning Strategy
Marital or „A‟ Trust
Receives everything not in „B‟ trust
Transfers using the unlimited marital
deduction
Transfers outright to surviving spouse or
Placed in Marital „A‟ trust for spouse‟s
benefit
No taxes paid on first death
LBL6624-1 FOR BROKER/DEALER OR AGENT USE ONLY April 2005
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A/B Trust Example
Family „B‟ Trust First Total Assets First Marital „A‟ Trust
$1,500,000 Death $3,000,000 Death $1,500,000
Second Death
Taxable Property: $1,500,000 Taxable Property: $1,500,000
Less Exemption: $1,500,000 Less Exemption: $1,500,000
Taxes Due: 0 Taxes Due: 0
Distribution to Heirs: $3,000,000
Estate Tax Savings: $695,000
Note: Chart assumes no growth in value of the estate between the first and second death and that both deaths occur in 2005
LBL6624-1 FOR BROKER/DEALER OR AGENT USE ONLY April 2005
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Estate Planning
Estates have
several years
before estate
taxes have to be
paid.
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Estate Planning
Estate taxes are due
9 months
After the date of death
How will your estate
pay these taxes?
LBL6624-1 FOR BROKER/DEALER OR AGENT USE ONLY April 2005
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Estate Planning Tool
Tax Payment Alternatives
Cash on hand
For every dollar of
Life Insurance
$1.00
settlement
Liquidate
expense, a dollar
Borrow
of estate proper
Cash
An enormous
amount of cash to
have on hand
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Estate Planning Tool
Tax Payment Alternatives
Liquidate
For every dollar of
Life Insurance
$1.00
settlement
Liquidate
expense, a dollar
Borrow
plus market timing
Cash
expense and
income taxes is
spent
LBL6624-1 FOR BROKER/DEALER OR AGENT USE ONLY April 2005
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Estate Planning Tool
Tax Payment Alternatives
Borrowing
For every dollar of
Life Insurance
$1.00
settlement
Liquidate
expense, a dollar
Borrow
plus finance
Cash
charge is spent
LBL6624-1 FOR BROKER/DEALER OR AGENT USE ONLY April 2005
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Estate Planning Tool
Tax Payment Alternatives
Life Insurance
For 15-30 cents on
Life Insurance
$1.00
the dollar* a full
Liquidate
dollar is available
Borrow
by way of a death
Cash
benefit
* 15-30 cents on average in terms of premiums paid.
LBL6624-1 FOR BROKER/DEALER OR AGENT USE ONLY April 2005
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Estate Planning Tool
Irrevocable Life Insurance Trust
Proceeds excluded from estate
Provides liquidity
Can utilize annual gift tax exclusion for
premium payments
Reduces estate tax liability
Avoids probate
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Example
Irrevocable Life Insurance Trust
No Life Insurance
Assets $4,000,000
Premiums 0
Ins. Proceeds 0
Taxable Estate $4,000,000
Estate Taxes ($1,165,000)
Trust Assets 0
Net to Children $2,835,000
Estate Shrinkage 29 percent
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Example
Irrevocable Life Insurance Trust
No Life Insurance Life Insurance
Assets $4,000,000 $4,000,000
Premiums 0 ($80,000)
Ins. Proceeds 0 $1,200,000
Taxable Estate $4,000,000 $5,120,000
Estate Taxes ($1,165,000) ($1,691,400)
Trust Assets 0 0
Net to Children $2,835,000 $3,428,600
Estate Shrinkage 29 percent 14 percent
LBL6624-1 FOR BROKER/DEALER OR AGENT USE ONLY April 2005
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Example
Irrevocable Life Insurance Trust
No Life Insurance Life Insurance ILIT
Assets $4,000,000 $4,000,000 $4,000,000
Premiums 0 ($80,000) ($80,000)
Ins. Proceeds 0 $1,200,000 0
Taxable Estate $4,000,000 $5,120,000 $3,920,000
Estate Taxes ($1,165,000) ($1,691,400) ($1,127,400)
Trust Assets 0 0 $1,200,000
Net to Children $2,835,000 $3,428,600 $3,992,600
Estate Shrinkage 29 percent 14 percent Less than 1%
LBL6624-1 FOR BROKER/DEALER OR AGENT USE ONLY April 2005
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Example – During Lifetime
Irrevocable Life Insurance Trust
Insurance
Grantor
Company
Establishes Trust Pays premiums
Makes gifts of premiums
Trust
Crummey Powers
Estate Beneficiaries
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Example – Upon Death
Irrevocable Life Insurance Trust
Insurance
Grantor
Company
Pays death benefit
Property passes
to Estate
Trust
Makes loans or
buys assets Income & Property
Sells assets
Estate Beneficiaries
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Estate Planning
What Have We Covered?
Estate Planning Tools
Wills
Trusts
Living Trusts
A/B Trusts
Irrevocable Life Insurance Trust
Powers of Attorney
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Estate Planning
What Have We Covered?
Estate Planning Rules
Probate
2001 Tax Act (EGTRRA)
Lifetime Gift and Estate Tax Exemptions
Annual Gift Tax Exclusion
Unlimited Marital Deduction
LBL6624-1 FOR BROKER/DEALER OR AGENT USE ONLY April 2005
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Estate Planning
What Have We Covered?
Estate Planning is more than dodging Uncle
Sam
Estate Planning is for everyone
Everyone needs the basic estate planning
documents
LBL6624-1 FOR BROKER/DEALER OR AGENT USE ONLY April 2005
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Estate Planning Support
Estate Planning Package
Customer Materials
Estate Planning Customer Brochure with
seven planning tool inserts (LBL6611)
10 Common Estate Planning Myths Trifold
Brochure (LBL6619)
Estate Planning Questionnaire (LBL6621)
Estate Tax Concepts Presentation Software
(included on agent resource CD)
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Estate Planning Support
Estate Planning Package
Agent Materials
Marketing Guide (LBL6622)
Guide to Estate Planning Q&A (LBL6620)
This slide presentation (LBL6624)
Estate Tax Planning Software (included on
agent resource CD)
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Estate Planning Support
Advanced Planning and Support Team
Your MBA‟s back office support team
Team of attorneys, accountants and financial
consultants
Will prepare estate plan free of charge
Available for estates of $2,000,000 or more
800-470-4377
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Estate Planning
Additional Concepts and Tools
AssetMax
Wealth transfer strategy helping to protect
assets from income and estate taxes
GenerationLinc
Transfer more wealth with the benefits of
two financial products working together
CharityLinc
Charitable gift annuity turnkey program
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Estate Planning
Additional Concepts and Tools
NIMCRUTs Package
Donate assets, receive an income stream,
and benefit your favorite charity
Advanced Markets Online (AMO)
An online resource to answer all your estate
and business planning questions
SalesMaker
50+ customer approved sales presentations
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Estate Planning
Thank You
Allstate Financial is the marketing name for Allstate Life Insurance Company (“ALIC”), its affiliates and subsidiaries. This information is
provided for general educational purposes by Lincoln Benefit Life Company (“Lincoln Benefit”) and is not intended to provide legal, tax or
investment advice. Lincoln Benefit issues fixed and variable insurance products that are sold through agreements with affiliated or
unaffiliated broker-dealers or agencies. Lincoln Benefit‟s variable products are sold by registered representatives, investment advisors,
and agents or bank employees who are licensed insurance agents. ALFS, Inc. serves as principal underwriter of SEC-registered contracts
for Lincoln Benefit. Lincoln Benefit and ALFS, Inc. are wholly owned subsidiaries of ALIC.
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