Creating a Legacy Through Multi- Generational Planning A Case Study [PRESENTED BY: ] Joe Sample, [Designations per field stationery guidelines] [Company Approved Title] [Agency Name] [The Prudential Insurance Company of America][if Agency Distribution] [1234 Main Street, Suite 1, Floor 10] [Anywhere], [ST] [12345] [in required states] [ Insurance License Number ] Phone [ ] Fax [ ] WEALTH TRANSFER © 2014 Prudential Financial, Inc. and its related entities Ed. 09/2014 Exp. 03/23/2016

Important information This presentation provides general information in regard to the subject matter covered. It is published with the understanding that we are not providing legal, accounting or tax advice. Such services should be provided by the your own professional advisors. Accordingly, any information in this document cannot be used by any taxpayer for purposes of avoiding penalties under the Internal Revenue Code. Life Insurance is issued by The Prudential Insurance Company of America, Newark, NJ and its affiliates. All are Prudential Financial companies and each is solely responsible for its own financial conditions and contractual obligations. Policies contain exclusions, limitations, reductions in benefits and terms for keeping them in force. A financial professional can provide you with costs and complete details. 2 2

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Multiple Strategies Secure Retirement Pension Personal Savings and Investments Social Security IRAs & 401(k)s 4

Birthday Greetings From the IRS Commemorating 70½ Required Minimum Distributions 5

A Reasonable Question What if I don’t need the income? 6

Unavoidable Time to “pay the piper” Can calculate and take “minimums” Avoid penalties 7

When the Income Is Not Needed Typically, those unneeded distributions are simply deposited into a savings account, where they can accumulate interest 8

New Issues Investment growth is taxed Accumulation can potentially lead to a bigger estate And therefore, potentially bigger estate tax liabilities 9

Typical Estate Planning Strategy IRA beneficiary can be anyone you choose, but typically, it goes to your spouse then to the children 10

My Children My kids are great, but I’m just over-the-moon about … 11

My Grandchildren Best thing that ever happened to me But I worry about the world they will grow up in 12

Different World Education expenses Uncertain economy at times Strain on the U.S. health care system Potential decline of the employer-sponsored pensions Social Security Increasing life expectancy 13

My Legacy Remove some of the uncertainty of the future Protect them from the harsh lessons of life Set them on a path towards economic security 14

Stretch IRA Money isn’t the solution to all of life’s woes But it does give you options 15

Case Study: John & Mary 16 Mary, Age 68 John, Age 70

John & Mary’s Assets $800,000 in Non-Qualified Assets $300,000 in John’s IRA $50,800 per year from John’s pension with 75% to Mary at his death. Plus they are receiving Social Security 17

The Children 18 Amy Jack

The Grandchildren 19 Chad, age 7 Mindy, age 3Kyle, age 6

The Typical Stretch Arrangement Husband and wife take the Required Minimum Distributions and, because they don’t need them, accumulate them in their estate The adult children are generally named as the contingent beneficiaries Children may take the distributions over their own life expectancy, or may take it all at once 20 Stretch IRAs are designed for investors who will not need the money in their account for their retirement income needs

What Does the “Stretch” Mean For the Children? Assumptions: John takes the Required Minimum Distributions during his lifetime. Mary is the beneficiary. John dies in 12 years Upon his death, Mary does a spousal rollover, splits the IRA into two separate IRAs, naming Amy and Jack as beneficiaries and takes Required Minimum Distributions during her lifetime Mary dies 4 years later Amy is 52 and Jack is 57 when they inherit the IRAs from Mary 5% return on IRA during Jack and Mary’s Lifetime, 8% during distribution periods for Amy and Jack The hypothetical investment results are for illustrative purposes only and are not representative of any specific product. Actual investment results will vary. 21

What Does the “Stretch” Mean For This Family? John & Mary receive total distributions from the IRA of $250,751 Amy would receive $700,595 over a 32.3 year life expectancy Jack would receive $552,790 over a 27.9 year life expectancy Total to the children from their inherited IRAs $1,253,385* *This assumes none of the IRA assets were needed to pay estate settlement costs. 22

Making a “Stretch” Happen Know the distribution rules Properly name beneficiaries Educated beneficiaries Have sufficient liquidity, other than the IRA, for estate settlement 23

IRA Distributions The rules state that the IRA owner’s choice of beneficiaries determines the life expectancy over which distributions can be taken after the IRA owner’s death The longer the life expectancy, the longer the distribution period A proper beneficiary designation strategy may allow you to stretch distributions for a longer period of time 24

An Alternative 25 $300,000 in John’s IRA ChadKyleMindy

Replace the Value of the IRA for the Children $300,000 of additional second-to-die life insurance into an irrevocable life insurance trust Life Insurance Amy Jack 26

IRA Conduit Trusts The conduit trust can be trusted by John and Mary and then by their children until the grandchildren are responsible enough to handle it themselves One for each grandchild 27 ChadKyleMindy

What Does the “Stretch” Mean for the Children? The hypothetical investment results are for illustrative purposes only and are not representative of any specific product. Actual investment results will vary. Assumptions: John takes the Required Minimum Distributions during his lifetime. Mary is the beneficiary. $300,000 of second to die life insurance is purchased by an irrevocable life insurance trust for the benefit of Amy and Jack John dies in 12 years Upon his death, Mary does a spousal rollover, splits the IRA into three separate IRA trusts for the grandchildren, and takes her Required Minimum Distributions Mary dies 4 years later 5% return on IRA during Jack and Mary’s Lifetime, 8% during distribution periods for the grandchildren The Generation Skipping Exemption exceeds IRA value at Mary’s death 28

What Does the “Stretch” Mean for this Family? John receives $180,837 in distributions during his lifetime. He spends $69,048 on life insurance premiums and the balance is used to pay taxes and for other spending. The IRA is now worth $295,617 when Mary takes her rollover. Mary divides the IRA into 3 separate IRAs, one for each grandchild. Mary receives $69,875 in distributions during her lifetime. She spends $23,016 on life insurance premiums and the balance is used for income taxes and other spending. 29

What Does the “Stretch” Mean for this Family? 30 The combined IRAs are now worth $288,832 when Mary dies leaving the conduit trusts designated as beneficiaries Conduit Trust The irrevocable life insurance trust receives $300,000 in life insurance death benefits, leaving $300,000 in tax free funds for Jack and Amy Life Insurance Amy Jack Jack and Amy inherit the balance of the estate, which totals $1,350,810 before estate taxes and expenses. Death benefit proceeds are generally received federal income tax free as provided in Internal Revenue Code Section 101(a)

What Does the “Stretch” Mean for the Grandchildren? 31 The combined IRAs are now worth $288,832 when Mary dies, leaving the conduit trusts designated as beneficiaries $2,386,859 in taxable distributions to Kyle $2,859,554 in taxable distributions to Mindy $2,243,132 in taxable distributions to Chad Conduit Trust Kyle at 22 Conduit Trust Chad at 23 Conduit Trust Mindy at 19

What Does the “Stretch” Mean for this Family? 32 John & Mary receive total distributions from the IRA of $250,712 Kyle, Mindy & Chad receive total distributions from the IRA of $7,489,545 Amy & Jack receive total distributions from the estate of $1,350,810* Plus tax free life insurance of $300,000 *There may be some estate taxes due on the estate distribution

What If John’s IRA Were a Roth? No required distributions for John or Mary, resulting in larger amounts to grandchildren Grandchildren would still have RMDs, but they would be income tax-free John could do a Roth conversion now, or Mary could do it when she did the spousal rollover 33

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