Legacy Max
Keep Success in the Right Hands
Ras
Changing Financial Objectives



Estate planning goals can shift
from accumulation to
conservation
Your concern may have
shifted from cash withdrawals
for yourself to preserving a
legacy
Annuities & IRAs may not
meet your asset protection and
transfer goals.
Tax Efficient
Retirement
Savings
Annuities and IRAs are very
tax-efficient ways to save for
retirement
IRA Features

Contributions may be partially or totally tax deductible

Growth is tax-deferred

Taxable as income when distributed
Annuity Features

Contributions are after-tax money

Tax-deferred growth


Portion of retirement payment can be tax-free return of
contributions
Can provide income you can’t outlive
But…
Annuities and IRAs are inefficient ways to pass wealth to your
heirs and beneficiaries
Why?
Eroding Your Legacy
• A gift of annuity or IRA during your life results in BOTH
gift and income taxes at the time of the gift
• Can be subject to estate taxes at death
• Value at death could result in income taxes due
Eroding Your Legacy

Combined gift and income taxes
or

Combined estate and income taxes could result in...
Loss of up to 70% or more to taxes
An Example


Harry is 65. His estate is worth
$5M at his death
Included in Harry’s estate - a
non-qualified annuity that has
grown to a value of about $1.6
million
Gross value of non-qualified annuity at life expectancy = $1.6 M based on 20 years of growth, tables 5 &
6, 6% net rate.
Harry’s Legacy
Keep Non-Qualified Annuity (NQA)
Gross Value at Life Expectancy $1,600,000
Estate Tax on NQA
$ 855,000
Income Tax on NQA
$ 180,000
Net to Heirs
$ 565,000
Gross value of annuity at life expectancy = $1.6 M, based on 20 years of growth, tables 5 & 6, 6% net rate.
Estate tax rate = 53%, income tax rate = 28%
Harry’s Legacy
Of the Non-Qualified
Annuity (NQA) Valued
at $1,600,000
Only $565,000 goes
to his daughter
A 65% Reduction in the Asset!
Harry’s Legacy
Of the Non-Qualified
Annuity (NQA) Valued
at $1,600,000

Only $565,000 goes
to his daughter

The rest goes to IRS

It could get worse….
Harry’s Legacy
Of the $1,600,000 Non-Qualified
Annuity (NQA) -


If NQA beneficiary is a
grandchild…
May be subject to Generation
Skipping Tax….
Further reducing total Harry
passes on to his heirs
What Can Harry Do?


Can’t give NQA away -- would pay both gift & income taxes
at time of gift.
Shouldn’t hold until death because of potential estate
and income tax liabilities
Legacy Max…A Better Alternative
Legacy Max


Exchange for something that has “no value” for estate
taxation purposes
Remove Non-Qualified Annuity from estate WITHOUT gift
taxes
Step 1
Exchange
NQA for
Immediate
Annuity


Purchase immediate annuity
with payments to Harry for his
lifetime
Annuity payable for his life
terminates without value at his
death
Step 2
Exchange
NQA for
Immediate
Annuity
Annuity
Payments to
Harry
Harry receives
annuity payments
and pays income
taxes on each
payment
Step 3
Exchange
NQA for
Immediate
Annuity
Annuity
Payments to
Harry


Pay current
income taxes on
distributions from
annuity
Harry
establishes
irrevocable
trust
Harry sets up an
irrevocable trust
Trust buys life
insurance on Harry
Trust
purchases life
insurance on
Harry’s life
During Harry’s Life
Exchange
NQA for
Immediate
Annuity
Annuity
Payments to
Harry
Harry
establishes
irrevocable
trust
Harry uses
annuity payments
to pay premiums
Trust
purchases life
insurance on
Harry’s life
At Harry’s Death
Life insurance pays
Harry’s daughter
$1.8M non-taxable
death benefit
No Income Tax
No Estate Tax
Assumes that $1,300,000 face amount of Security Design II is purchased with the after-tax distribution
from the non-qualified annuity and grows to approximately $1.8 million, based on current interest and
current mortality assumptions.
If Harry is married….


Annuity can pay income to Harry or his wife until second of
them dies
Life insurance can be designed to insure both spouses and pay
at second death
So What Did Legacy Max
Accomplish?
Harry’s Legacy
Keep Non-Qualified Annuity
Gross Value at Life Expectancy $1,600,000
Estate Tax on NQA
$ 855,000
Income Tax on NQA
$ 180,000
Net to Heirs
$ 565,000
Gross value of annuity at life expectancy = $1.6 M,
based on 20 years of growth, tables 5 & 5, 6% net rate.
Estate tax rate = 53%, income tax rate = 28%
Exchange & Buy Life
Insurance
Policy Death Benefit
$1,800,000
Estate Tax on
Life Insurance Policy
$0
Income Tax on
Life Insurance
$0
Net to Heirs
$1,800,000
65% Advantage
Assumes that $1,300,000 face amount of Security Design II is purchased with the after-tax distribution
from the non-qualified annuity and grows to approximately $1.8 million, based on current interest and
current mortality assumptions.
What Did Legacy Max Do?


$1.8M vs. $565,000 for Harry’s daughter -- a 65% increase
With a survivorship policy, the increase could be even greater
Assumes that $1,300,000 face amount of Security Design II is purchased with the after-tax distribution
from the non-qualified annuity and grows to approximately $1.8 million, based on current interest and
current mortality assumptions.
Caveat
Not everyone will qualify for life insurance -- it will be based
on current condition
Legacy Max


Helps preserve your assets
Helps maximize the benefit to
your heirs and beneficiaries
Disclaimers
Scenarios used the following assumptions:


All figures used in this presentation are for illustrative purposes only
Net value of non-qualified annuity at life expectancy = $1.6M based on 20
years of growth, tables 5 & 6, 6% net rate of return. Rollover non-qualified
annuity to immediate annuity - payments to ILIT to purchase life insurance,
using Security Design II, Policy Form No. 11320 (#11330 in Montana),
varies by state and is not available for sale in every state.

Estate tax on annuity = 53%

Income tax on annuity = 28%

Legacy Max concept designed for use with either Universal Life Insurance
or Variable Universal Life Insurance products
Insurance and annuities issued by ReliaStar Life Insurance Company and Security-Connecticut Life
Insurance Company. Securities offered through Washington Square Securities, Inc., 20 Washington
Avenue South, Minneapolis, MN, 55401, (612) 372-5507. WSSI, ReliaStar Life and SecurityConnecticut are wholly-owned subsidiaries of ReliaStar Financial Corp., a diversified holding
company based in Minneapolis, MN.
Doc. #6176