Private Financing (Split Dollar Loan Regime)
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Private Financing (Split Dollar Loan Regime) with Sun Protector VUL Funding Trust – Owned Life Insurance Without Making Annual Gifts SLPC 18525 02/08 XMSD 44/684 Exp. Date 07/10 PAGE 1 of 4 Target Market Dave is a wealthy individual, age 50, divorced, with one child. He anticipates that he will need a $1,000,000 life insurance policy to cover his estate tax liability. He has already depleted his lifetime gift tax exemption and has committed his annual exclusions to a gifting program for his child. He wants to place the insurance into an Irrevocable Life Insurance Trust (ILIT) which has been created and seeded with income-producing assets. He does not want to make taxable gifts to the ILIT, but rather desires to fund the insurance in a tax-efficient way (without incurring gift taxes). Product Solution Dave enters into a private split dollar agreement with the Trustee of his ILIT. This is also known as a private loan arrangement. He will make loans to the Trust to be used for premium payments on the life insurance policy. He will purchase a Sun Protector Variable Universal Life policy* which will accumulate cash to enable the Trustee to repay the loan during Dave’s lifetime if desired. Otherwise, the death benefit will be available at Dave’s death. Sun’s Charitable Giving Benefit Rider is available at no additional cost and will pay a benefit of 1% of initial face amount or $10,000 in this case to a qualified charity. Strategy How it Works: Private Split Dollar Trust Grantor Dave The ILIT is the owner and beneficiary of a policy on Dave. Dave loans the premium amount each year to the ILIT in exchange for a demand note at the applicable federal rate (AFR). The Trust pays the premium to the insurance company and the annual interest on the note to Dave. The trust has access to the policy cash value to repay the loan prior to death if desired. When the death benefit is paid, the loan, if still outstanding, will be repaid to Dave’s estate with the remainder of the death benefit payable to the ILIT estate tax-free. Note at applicable federal rate (AFR) from Trust to Grantor Annual interest payment on note Repayment of note to estate from cash value or death benefit Payment of Premiums Death Benefit Proceeds Life Insurance Company Irrevocable Life Insurance Trust (ILIT) Owner/Beneficiary of Policy on Grantor’s Life Loan of premiums to Trust FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC. Advanced Markets Group | SUN PROTECTOR VUL SALES IDEA SUN PROTECTOR VUL SALES IDEA Advanced Markets Group
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Transcript of Private Financing (Split Dollar Loan Regime)
Private Financing (Split Dollar Loan Regime)with Sun Protector VUL
Funding Trust – Owned Life Insurance Without Making Annual Gifts
SLPC 18525 02/08 XMSD 44/684Exp. Date 07/10
PAGE 1 of 4
Target MarketDave is a wealthy individual, age 50, divorced, with one child. He anticipates that he will need a$1,000,000 life insurance policy to cover his estate tax liability. He has already depleted his lifetime gifttax exemption and has committed his annual exclusions to a gifting program for his child. He wants toplace the insurance into an Irrevocable Life Insurance Trust (ILIT) which has been created and seededwith income-producing assets. He does not want to make taxable gifts to the ILIT, but rather desires tofund the insurance in a tax-efficient way (without incurring gift taxes).
Product SolutionDave enters into a private split dollar agreement with the Trustee of his ILIT. This is also known as a private loan arrangement. He will make loans to the Trust to be used for premium payments on the lifeinsurance policy. He will purchase a Sun Protector Variable Universal Life policy* which will accumulatecash to enable the Trustee to repay the loan during Dave’s lifetime if desired. Otherwise, the death benefitwill be available at Dave’s death. Sun’s Charitable Giving Benefit Rider is available at no additional costand will pay a benefit of 1% of initial face amount or $10,000 in this case to a qualified charity.
Strategy
How it Works: Private Split Dollar
Trust GrantorDave
The ILIT is the owner and beneficiary of a policy on Dave. Dave loans the premium amount each year to the ILIT in exchange for a demand note at the applicable federal rate (AFR). The Trust pays the premium to the insurance company and the annual interest on the note to Dave. The trust has access to the policy cash value to repay the loan prior to death if desired. When the death benefit is paid, the loan, if still outstanding, will be repaid to Dave’s estate with the remainder of the death benefit payable to the ILIT estate tax-free.
Note at applicable federal rate (AFR) from Trust to Grantor
Annual interest payment on note
Repayment of note to estate from cash value or death benefit
Payment of Premiums
Death Benefit Proceeds
Life Insurance Company
Irrevocable Life Insurance Trust (ILIT)Owner/Beneficiary of Policy on
Grantor’s Life
Loan of premiums to Trust
FOR PRODUCER USE ONLY.NOT FOR USE WITH THE PUBLIC.
Advanced M
arkets Group | S
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Advanced Markets Group
SLPC 18525 02/08 XMSD 44/684Exp. Date 07/10
PAGE 2 of 4
Goals Achieved• The payment of premiums without incurring any gift taxes
• Death proceeds after repayment of the loan are estate and income tax-free
• Cash accumulates in the ILIT for potential distribution to trust beneficiaries and otherpurposes (such as repayment of the premium loans).
Additional BenefitsNo CollateralCollateral deposits are not required to secure the loan because it is a non-commercialarrangement.
FlexibilityThe loan can be structured as lump sum or annual. Repayment of the loan can be madeat death or during lifetime. The Sun Protector Variable Universal Life policy will permit aprepayment of the loan prior to death, if desired.
Minimize Gift TaxesGift taxes may be significantly lowered or even avoided. The amount of the annual interestpayment on the loan may be gifted to the trust.
Maximize Transfer of WealthUpon death, the life insurance proceeds will pass through the ILIT to the heirs free ofincome and estate taxes assuming no transfer-for-value under Internal Revenue CodeSection 101 has been made or that the insured has no incidents of ownership in the policy.
Notes:Sun Protector Variable Universal Life policy permits:1) Distributions to be made from ILIT to beneficiaries.2) Prepayment of loans (if desired)3) Financial Flexibility
(Any withdrawals from the policy will result in a reduction in the policy death benefit.)
Example
YearPremiumAdvances
CumulativeAdvances Interest Paid
LoanRepayment
Cash Value Grantor
Cash ValueTrust
DeathBenefitGrantor
DeathBenefit
Trust
1 36,844 36,844 1,842 0 0 36,844 997,205
5 36,844 184,222 9,211 167,169 0 184,222 1,008,597
10 36,844 368,444 18,422 368,444 67,119 368,444 1,023,644
15 368,444 18,422 368,444 234,556 368,444 1,023,644
16 (368,444) 0 247,877 0 1,023,644
20 0 296,359 0 1,023,644
30 0 441,044 0 1,023,644
FOR PRODUCER USE ONLY.NOT FOR USE WITH THE PUBLIC.
SLPC 18525 02/08 XMSD 44/684Exp. Date 07/10
PAGE 3 of 4
For more information, please contact yourSun Life Financial Representative.
This information contains references to concepts that have significant legal, accounting and tax implications. It is not intendedas legal, accounting or tax advice. Clients should consult with their own financial and tax advisor regarding the application ofthese concepts to any particular situation.
*This case study is designed to present an understanding of the mechanics of Sun Protector VUL in a Private Financing Plan.Variable Universal Life Insurance policies are subject to market risks, including possible loss of principal. When accessing policyvalues, policy holders may receive more or less than they invested. Partial withdrawals and loans will reduce the policy DeathBenefit and the Account Value by the amount of the withdrawal. Withdrawals that exceed the amount of premiums paid intothe policy will be taxable.
Complete VUL illustrations contain three sets of values in the following sequence and should accompany any presentation ofthis concept:
1. Based on one assumed rate and current cost of insurance rates;2. Based on three assumed rates (including 0%) and current cost of Insurance rates.3. Based on three assumed rates (including 0%) and Guaranteed Cost of Insurance rates.
Variable Universal Life Insurance products are issued by Sun Life Assurance Company of Canada (U.S.), and distributed throughour affiliated broker-dealer, Sun Life Financial distributors, Inc. Variable Universal Life Insurance products are offered byprospectus. Customers should request a prospectus, which provides more details about charges and expenses, and review itcarefully before investing.
Not FDIC/NCUA insured. May lose value. No bank/credit union guarantee. Not a deposit. Not insured by any federal government entity.
All guarantees are based on the claims-paying ability of the issuing company, Sun Life Assurance Company of Canada (U.S.)(Wellesley Hills, MA), or in New York, Sun Life Insurance and Annuity Company of New York (New York, NY). Both are membersof the Sun Life Financial group of companies.
©2008 Sun Life Assurance Company of Canada. All rights reserved. Sun Life Financial and the globe symbol are registered trademarks of Sun Life Assurance Company of Canada
FOR PRODUCER USE ONLY.NOT FOR USE WITH THE PUBLIC.
SLPC 18525 02/08 XMSD 44/684Exp. Date 07/10
PAGE 4 of 4
ABOUT SUN LIFE FINANCIA LSun Life Financial is a leading international financial services organization providing a diverse range of wealth accumulation and protection products and services to individuals and corporate customers. Chartered in 1865, Sun Life Financial and its partners today have operations in key markets worldwide including Canada, theUnited States, the United Kingdom, Ireland, Hong Kong, the Philippines, Japan,Indonesia, India, China and Bermuda. Sun Life Financial Inc. trades on the Toronto (TSX),New York (NYSE) and Philippine (PSE) stock exchanges under the ticker symbol SLF.
FOR PRODUCER USE ONLY.NOT FOR USE WITH THE PUBLIC.
