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

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 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.

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.

How It Works (Grantor Trust) Your trust borrows the funds to pay premiums from another grantor trust. 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.

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

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

Components of Premium Financing Types of loans Loan interest rate Loan repayment Return of Premium

Comparison of Benefits Private Financing No Financing Total Loan Amount $1,700,140N/A Cumulative Loan Interest $1,543,198N/A Total Gift Amount $660,000$3,000,000 Total Gift Taxes $0$139,400 Total Premiums $2,501,895$3,000,000 Total Estate $38,700,858$34,971,531 Total Estate Taxes $20,389,672$19,554,660 Total Other Assets In Trust -$1,854,262$0 Total Death Benefit In Trust $9,257,379$10,000,000 Net To Heirs $25,714,302$25,416,871

Comparison of Benefits Private Financing Total Loan Amount $1,700,140 Cumulative Loan Interest $1,543,198 Total Gift Amount $660,000 Total Gift Taxes $0 Total Premiums $2,501,895 Total Estate $38,700,858 Total Estate Taxes $20,389,672 Total Other Assets In Trust -$1,854,262 Total Death Benefit In Trust $9,257,379 Net To Heirs $25,714,302

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

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

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