Creating Liquidity from a Non-liquid Asset Bill Clark, Director Innovation & Collaborative Strategies Portland Oregon - February 6, 2015 “Achieving Success in Any Economy”

What do these have in common? Your house A lottery ticket Your life policy

Term life insurance - Life Settlement Male age 74 $2 million, 20-year term, ready to expire. Insurance carrier value if lapsed = ZERO

Term life insurance - Life Settlement Male age 74 $2 million, 20-year term, ready to expire. Insurance carrier value if lapsed = ZERO Fair Market Value = $630K

StatusOffer 1Offer 2Offer 3Final Offer Provider 1Accepted1,100,0001,315,0001,500,000 1,550,000 Provider 2Offer900,0001,100,0001,320,000 Provider 3Offer480,000497,500502,500 Provider 4Offer1,000,0001,250,0001,255,000 Provider 5Offer850,000950,0001,025,0001,120,000 Provider 6Offer875,000900,000 Provider 7Offer1,040,0001,050,0001,065,000 Provider 8Offer725,000890,000920,000 Provider 9Decline Provider 10Decline Provider 11Decline Provider 12Offer411,000 Death Benefit $4,000,000 CSV = $109,088 Fair Market Value vs. Fair Value

Health Policy issued Standard or Preferred With a change in health since the issue date 15 year +/- projected life expectancy

DOWNLOAD OUR APP LIFE SETTLEMENT CALCULATOR AT YOUR FINGERTIPS Q uick Reference App Icon for Smartphones and Tablets

Progression in Accountability & Liability Grigsby v. Russell (1911 Supreme Court Decision) Uniform Prudent Investor Act NCOIL Life Settlement Model Act Larry Grill et al v. Lincoln National Life

Your clients are living longer The economy has not been friendly to them They’re worried about running out of money

80% of policy owners will lapse a life policy!

90% of seniors who lapsed a life insurance policy would have considered a life settlement had they been aware of the possibility. Insurance Studies Institute (ISI)

Term Insurance Universal Life Insurance held in an ILIT Pay Close Attention to…….

Clients often pay meticulous attention to important TRADITIONAL ASSETS (businesses, securities, and real estate) LIFE INSURANCE can equal or exceed the value of these traditional assets but may receive little or no attention and can be left in an underperforming state for years.

Trust Owned Life Insurance Female age 81 $3M UL policy purchased in 1988 Underfunded, $48K cash value remaining Premiums increased to $150K

Trust Owned Life Insurance Female age 81 $3M UL policy purchased in 1988 Underfunded, $48K cash value remaining Premiums increased to $150K Fair Market Value = $1.1 Million

Three Valuation Processes that Overlook Life Insurance Fair Market Value Business Valuations ILIT Policy Reviews Insurance Portfolio Review

M&A|Sell side overlooks $800K Key-Person policy 76-year-old seller retained the $10M entity owned policy and sold it for $800K

Two Unique Life Settlement Options Long Term Care Benefit Trust Settlement Retained Death Benefit Settlement

Long Term Care Benefit Settlement The ‘Gift of Dignity’ Adult children were funding 7K/mo. for skilled nursing care for their 84-year-old mother.

Long Term Care Benefit Settlement The ‘Gift of Dignity’ Adult children were funding $7K/mo. for skilled nursing care for their 84-year-old mother. Mom sold her $500K UL policy for $150K Proceeds were placed in an irrevocable trust The trust then Paid Monthly LTC Expenses

99.8%

of all estates in 2013 were not expected to be subject to federal estate tax (Benjamin H. Harris, “Estate Taxes after ATRA,” taxpolicycenter.org, February 2013)

Excess Coverage Dilemma resulting from ATRA 2012 Male 78 $10M UL, CSV = $67K Appraised value = $697K lump sum

Excess Coverage Solution resulting from ATRA 2012 Male 78 $10M UL, CSV = $67K Appraised value = $697K lump sum Client retained $2.15M in coverage No future premium payments

Take the Quiz, then give us a call The Process

The Form 712 Value may be a very expensive mistake for Term & Universal Life policies. Life Policy Valuations

Example of the Differences in Valuations Company A issues a $10M policy with a $250K premium Company B issues a $10M policy with a $250K premium 712 Values: Company A 712 = $2.5M value Company B 712 = $1M value Which is accurate?

Example of the Differences in Valuations Company A issues a $10M policy with a $250K premium Company B issues a $10M policy with a $250K premium 712 Values: Company A 712 = $2.5M value Company B 712 = $1M value Which is accurate? In the eyes of the IRS, they both are ?!

Actual 712 Value Report - $5M NLG Base Reserve = 559, Axxx Basic Reserve = 792, Axxx Deficiency Reserve = 473, “……To date, the IRS has not issued guidance with respect to the valuation of the no lapse guarantee feature for estate and gift tax purposes…………

Actual 712 Value Report - $5M NLG Base Reserve = 559, Axxx Basic Reserve = 792, Axxx Deficiency Reserve = 473, “……To date, the IRS has not issued guidance with respect to the valuation of the no lapse guarantee feature for estate and gift tax purposes………… …………..Ultimately, the fair market value that you report to the IRS is up to you.”

The Ashar SMV ® Fair Market Value Revenue Ruling – “…a sound valuation will be based upon all the relevant facts, but the elements of common sense, informed judgment and reasonableness must enter into the process …”

Bill Clark D | C 1800 Pembrook Drive |# 240 |Orlando, FL Q & A