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Wealth Transfer Planning Using Private Financing

Wealth Transfer Planning Using Private Financing. A Fair Market Loan Arrangement Between Family Members. Prepared for Valued Client & Valued Client. The Concern. Your estate will be subject to estate tax at death. Gifts of large premiums to a trust may be subject to gift tax. The Solution.

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Wealth Transfer Planning Using Private Financing

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  1. Wealth Transfer Planning Using Private Financing A Fair Market Loan Arrangement Between Family Members Prepared for Valued Client & Valued Client

  2. The Concern • Your estate will be subject to estate tax at death. • Gifts of large premiums to a trust may be subject to gift tax.

  3. The Solution • Establish fair market loan arrangement between you and an ILIT. • Make gifts of annual loan interest only, or defer interest. • Repay loan at death from life insurance, or during lifetime from other funds. Trusts should be drafted by an attorney familiar with such matters in order to take into account income and estate tax laws (including the generation-skipping tax). Failure to do so could result in adverse tax treatment of trust proceeds.

  4. How It Works • Your trust borrows the funds to pay premiums from you. • You can lend the amount needed annually, or lend an amount based on a schedule of premiums or a lump sum amount. • You make annual premium gifts to the trust to cover loan interest payments, if any.

  5. How It Works Total Loan to ILIT = $1,700,140 The Client Family ILIT Total Gifts to ILIT = $660,000 Note & Loan Interest Payments Total Premiums $2,501,895 Outstanding Loan in Yr. 30 $3,243,338 Life Insurance Death Benefit $9,257,379 Death Benefit in Yr. 15 $9,257,379 Total Trust Assets in Yr. 15 $10,646,454 Death Benefit in Yr. 15 $7,403,116 Net To The Heirs $7,403,116 Total Side Fund in ILIT in Yr. 15 $0

  6. Components of Premium Financing • Types of loans • Loan interest rate • Loan repayment • Return of Premium

  7. Comparison of Benefits

  8. Benefits • Minimal or no gift tax • Heirs receive loan repayment • Minimal risk • No income tax on loan interest payment with “Grantor Trust”.

  9. Considerations • Non-deductible loan interest. • Possible estate tax cost. • Potential income tax cost if family entity makes loan. • Cash flow/liquidity required.

  10. Disclaimer This communication with the public is considered 'Correspondence'. It is authorized for use exclusively for one-on-one use only between and Valued Client & Valued Client. The purpose of this PowerPoint presentation is to act as a tool to help facilitate a discussion between Valued Client & Valued Client, and . Discussion between and Valued Client & Valued Client will generally be extemporaneous in nature and the purpose of the slides is to provide a visual summary for the client of the assumptions and data provided by the client. This tool may be helpful to Valued Client & Valued Client when considering planning options. Not all techniques will be based on estate planning.

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