Creating a Legacy Through Multi- Generational Planning A Case Study [PRESENTED BY: ] Joe Sample,...
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Creating a Legacy Through Multi- Generational Planning A Case Study [PRESENTED BY: ] Joe Sample, [Designations per field stationery guidelines] [Company
Creating a Legacy Through Multi- Generational Planning A Case
Study [PRESENTED BY: ] Joe Sample, [Designations per field
stationery guidelines] [Company Approved Title] [Agency Name] [The
Prudential Insurance Company of America][if Agency Distribution]
[1234 Main Street, Suite 1, Floor 10] [Anywhere], [ST] [12345] [in
required states] [ Insurance License Number ] Phone [123-123-1234]
Fax [123-123-1245] [[email protected]] WEALTH TRANSFER 2014
Prudential Financial, Inc. and its related entities. 0212945
0212945-00003-00 Ed. 09/2014 Exp. 03/23/2016
Slide 2
Important information This presentation provides general
information in regard to the subject matter covered. It is
published with the understanding that we are not providing legal,
accounting or tax advice. Such services should be provided by the
your own professional advisors. Accordingly, any information in
this document cannot be used by any taxpayer for purposes of
avoiding penalties under the Internal Revenue Code. Life Insurance
is issued by The Prudential Insurance Company of America, Newark,
NJ and its affiliates. All are Prudential Financial companies and
each is solely responsible for its own financial conditions and
contractual obligations. Policies contain exclusions, limitations,
reductions in benefits and terms for keeping them in force. A
financial professional can provide you with costs and complete
details. 2 2
Slide 3
Important information 3 3 All guarantees and benefits of the
insurance policy are backed by the claims-paying ability of the
issuing insurance company. Policy guarantees and benefits are not
backed by the broker/dealer and/or insurance agency selling the
policy, nor by any of their affiliates, and none of them makes any
representations or guarantees regarding the claims-paying ability
of the issuing insurance company. Securities and Insurance
Products: Not Insured by FDIC or Any Federal Government Agency. May
Lose Value. Not a Deposit of or Guaranteed by Any Bank or Bank
Affiliate. Prudential, the Prudential logo, and the Rock symbol are
service marks of Prudential Financial, Inc. and its related
entities.
Slide 4
Multiple Strategies Secure Retirement Pension Personal Savings
and Investments Social Security IRAs & 401(k)s 4
Slide 5
Birthday Greetings From the IRS Commemorating 70 Required
Minimum Distributions 5
Slide 6
A Reasonable Question What if I dont need the income? 6
Slide 7
Unavoidable Time to pay the piper Can calculate and take
minimums Avoid penalties 7
Slide 8
When the Income Is Not Needed Typically, those unneeded
distributions are simply deposited into a savings account, where
they can accumulate interest 8
Slide 9
New Issues Investment growth is taxed Accumulation can
potentially lead to a bigger estate And therefore, potentially
bigger estate tax liabilities 9
Slide 10
Typical Estate Planning Strategy IRA beneficiary can be anyone
you choose, but typically, it goes to your spouse then to the
children 10
Slide 11
My Children My kids are great, but Im just over-the-moon about
11
Slide 12
My Grandchildren Best thing that ever happened to me But I
worry about the world they will grow up in 12
Slide 13
Different World Education expenses Uncertain economy at times
Strain on the U.S. health care system Potential decline of the
employer-sponsored pensions Social Security Increasing life
expectancy 13
Slide 14
My Legacy Remove some of the uncertainty of the future Protect
them from the harsh lessons of life Set them on a path towards
economic security 14
Slide 15
Stretch IRA Money isnt the solution to all of lifes woes But it
does give you options 15
Slide 16
Case Study: John & Mary 16 Mary, Age 68 John, Age 70
Slide 17
John & Marys Assets $800,000 in Non-Qualified Assets
$300,000 in Johns IRA $50,800 per year from Johns pension with 75%
to Mary at his death. Plus they are receiving Social Security
17
Slide 18
The Children 18 Amy Jack
Slide 19
The Grandchildren 19 Chad, age 7 Mindy, age 3Kyle, age 6
Slide 20
The Typical Stretch Arrangement Husband and wife take the
Required Minimum Distributions and, because they dont need them,
accumulate them in their estate The adult children are generally
named as the contingent beneficiaries Children may take the
distributions over their own life expectancy, or may take it all at
once 20 Stretch IRAs are designed for investors who will not need
the money in their account for their retirement income needs
Slide 21
What Does the Stretch Mean For the Children? Assumptions: John
takes the Required Minimum Distributions during his lifetime. Mary
is the beneficiary. John dies in 12 years Upon his death, Mary does
a spousal rollover, splits the IRA into two separate IRAs, naming
Amy and Jack as beneficiaries and takes Required Minimum
Distributions during her lifetime Mary dies 4 years later Amy is 52
and Jack is 57 when they inherit the IRAs from Mary 5% return on
IRA during Jack and Marys Lifetime, 8% during distribution periods
for Amy and Jack The hypothetical investment results are for
illustrative purposes only and are not representative of any
specific product. Actual investment results will vary. 21
Slide 22
What Does the Stretch Mean For This Family? John & Mary
receive total distributions from the IRA of $250,751 Amy would
receive $700,595 over a 32.3 year life expectancy Jack would
receive $552,790 over a 27.9 year life expectancy Total to the
children from their inherited IRAs $1,253,385* *This assumes none
of the IRA assets were needed to pay estate settlement costs.
22
Slide 23
Making a Stretch Happen Know the distribution rules Properly
name beneficiaries Educated beneficiaries Have sufficient
liquidity, other than the IRA, for estate settlement 23
Slide 24
IRA Distributions The rules state that the IRA owners choice of
beneficiaries determines the life expectancy over which
distributions can be taken after the IRA owners death The longer
the life expectancy, the longer the distribution period A proper
beneficiary designation strategy may allow you to stretch
distributions for a longer period of time 24
Slide 25
An Alternative 25 $300,000 in Johns IRA ChadKyleMindy
Slide 26
Replace the Value of the IRA for the Children $300,000 of
additional second-to-die life insurance into an irrevocable life
insurance trust Life Insurance Amy Jack 26
Slide 27
IRA Conduit Trusts The conduit trust can be trusted by John and
Mary and then by their children until the grandchildren are
responsible enough to handle it themselves One for each grandchild
27 ChadKyleMindy
Slide 28
What Does the Stretch Mean for the Children? The hypothetical
investment results are for illustrative purposes only and are not
representative of any specific product. Actual investment results
will vary. Assumptions: John takes the Required Minimum
Distributions during his lifetime. Mary is the beneficiary.
$300,000 of second to die life insurance is purchased by an
irrevocable life insurance trust for the benefit of Amy and Jack
John dies in 12 years Upon his death, Mary does a spousal rollover,
splits the IRA into three separate IRA trusts for the
grandchildren, and takes her Required Minimum Distributions Mary
dies 4 years later 5% return on IRA during Jack and Marys Lifetime,
8% during distribution periods for the grandchildren The Generation
Skipping Exemption exceeds IRA value at Marys death 28
Slide 29
What Does the Stretch Mean for this Family? John receives
$180,837 in distributions during his lifetime. He spends $69,048 on
life insurance premiums and the balance is used to pay taxes and
for other spending. The IRA is now worth $295,617 when Mary takes
her rollover. Mary divides the IRA into 3 separate IRAs, one for
each grandchild. Mary receives $69,875 in distributions during her
lifetime. She spends $23,016 on life insurance premiums and the
balance is used for income taxes and other spending. 29
Slide 30
What Does the Stretch Mean for this Family? 30 The combined
IRAs are now worth $288,832 when Mary dies leaving the conduit
trusts designated as beneficiaries Conduit Trust The irrevocable
life insurance trust receives $300,000 in life insurance death
benefits, leaving $300,000 in tax free funds for Jack and Amy Life
Insurance Amy Jack Jack and Amy inherit the balance of the estate,
which totals $1,350,810 before estate taxes and expenses. Death
benefit proceeds are generally received federal income tax free as
provided in Internal Revenue Code Section 101(a)
Slide 31
What Does the Stretch Mean for the Grandchildren? 31 The
combined IRAs are now worth $288,832 when Mary dies, leaving the
conduit trusts designated as beneficiaries $2,386,859 in taxable
distributions to Kyle $2,859,554 in taxable distributions to Mindy
$2,243,132 in taxable distributions to Chad Conduit Trust Kyle at
22 Conduit Trust Chad at 23 Conduit Trust Mindy at 19
Slide 32
What Does the Stretch Mean for this Family? 32 John & Mary
receive total distributions from the IRA of $250,712 Kyle, Mindy
& Chad receive total distributions from the IRA of $7,489,545
Amy & Jack receive total distributions from the estate of
$1,350,810* Plus tax free life insurance of $300,000 *There may be
some estate taxes due on the estate distribution
Slide 33
What If Johns IRA Were a Roth? No required distributions for
John or Mary, resulting in larger amounts to grandchildren
Grandchildren would still have RMDs, but they would be income
tax-free John could do a Roth conversion now, or Mary could do it
when she did the spousal rollover 33