Joe & Mary Client April 11, 2008

Objectives To educate you on the Joe & Mary Client estate plan To measure the impact inheritance may have on your life. To provide you direction on how to utilize your inheritance to meet your planning goals. To suggest changes to the plan to improve implementation.

Agenda The Impact: What would happen if the plan went into effect this year? The Truth About Investing The Investment Vortex Choosing Your Investment Philosophy Financial Plan Overviews What the Will/Trust does not say Revisions & Wrap Up

How Large is the Estate?

Estate of Joe & Mary Client Mutual Funds:$0 Annuities:$0 IRA Accounts:$0 Life Ins. Benefits:$0 Real Estate:$0 Personal Property$0 CRT$0 ILIT$0 Total$0

Charitable Remainder Trust An irrevocable trust that allows one to shelter taxes on income producing assets until distributed, with remaining assets passing to charity at death. An immediate tax deduction is allowed for the future gift.

Irrevocable Life Insurance Trust (ILIT) A trust designed to own a life insurance policy. Policy proceeds are not part of the taxable estate and can pass to heirs tax free.

If the Estate was Settled Today… Charity: $0 Jerry Client: $0 Billie Client: $0

One more relative… Uncle Sam: $0

Impact in 10 years Taxable Estate Assets: $0 Transfer Taxes: $0 Net to each heir: $0 Tax law changes result in a loss of net inheritance despite growth of estate.

Taxes Estate Taxes: Current law calls for a dramatic increase in estate taxes over the next three years. Income Taxes: Based on the value of the IRA’s/Annuities, current tax rates, and the taxable income of the heirs.

Federal Estate Taxes Year of deathMaximum estate and gift tax rate Gift tax exemption Estate tax exemption 2005$1,000,000 $1,500,00047% 2006$1,000,000$2,000,00046% 2007$1,000,000$2,000,00045% 2008$1,000,000$2,000,00045% 2009$1,000,000$3,500,00045% 2010$1,000,000RepealedRepealed 1 – No limit $1,000,000$1,000,00055% 1 In 2010, the estate tax is repealed but the gift tax rate will equal the maximum individual income tax rate. Page 8-6

The Credit Shelter Trust Page 8-24 Will everything to spouseCredit shelter trust Estate value $4,000,000 Death of first spouse $2,000,000 to surviving spouse Use unlimited marital deduction $0 estate taxes due $2,000,000 to fund trust Use (first spouse’s) estate tax credit or exemption 1 $0 estate taxes due Estate value $4,000,000 Death of first spouse $4,000,000 to surviving spouse Use unlimited marital deduction $0 estate taxes due 1 Estate tax exemption amount is $1,500,000 for 2005.

Credit Shelter Trusts Death of second spouse $2,000,000 estate Use (second spouse’s) estate tax credit or exemption 1 $0 estate tax due $2,000,000 in trust Trust assets not in estate $0 estate tax due $4,000,000or 100% to beneficiaries Death of second spouse $4,000,000 estate Use (second spouse’s) estate tax credit or exemption 1 $900,000 estate tax due $3,100,000 or 77.5% to beneficiaries (minus probate expenses) 1 Estate tax exemption amount is $1,500,000 for 2005.

Tax Reduction Strategies Tax deferred vehicles: Pay later vs. now Stretch IRA’s Life Insurance outside the estate

Tax Deferred Vehicles IRA’s and annuities allow you to defer paying taxes on the gain on your investments until you’re ready to spend the money.

Power of Tax Deferment $100,000 invested at 10% for 10 years tax deferred grows to $259,374 if tax deferred. $100,000 invested at 10% for 10 years grows to only $187,713 if taxed annually at 35%.

Stretch IRA’s As a beneficiary of an IRA, Jerry & Billie can either take all the money at once and pay income taxes, or take a small amount each year, paying tax only on the amount they withdraw. The amount they have to withdraw is based on the life expectancy of the oldest beneficiary.

Life Insurance Outside the Estate A $0 million policy, owned by a trust, will be paid to Jerry & Billie free of income and estate taxes upon both Joe & Mary’s death. The benefits of this trust could be enhanced by transferring the $0 million of life insurance policies, currently owed by Joe & Mary, to the ILIT. If done, this would raise the expected inheritance for Jerry & Billie to $0 million each.

Estate Enhancement In addition, the current CRT could begin paying out income at any time. This income could be used to finance additional life insurance, owned by the ILIT with a benefit to premium ratio of about 30:1.

Threats to the Estate Need for custodial care Investment volatility Tax code changes

Impact to the heir Since very often heirs inherit more money than their present net worth, thought should be given to the impact that this money will have on their life. Typically, mistakes are made when heirs cannot answer two questions: 1.What will I do with the money? 2.How will I invest it?