2. Planning Today The Golden Age of Wealth Transfer
Presented by:
Robert W. Finnegan, J.D., CLU
Highland Capital Brokerage  (518)

3. Help you (and your Clients) answer the question:
Planning Today
Help you (and your Clients) answer the question:
To Plan or Not to Plan?
Spoiler Alert:
Everything I am going to speak about today
supports the need for planning today.

4. We are Living in Extraordinary Times
Even 5 years ago, who could have guessed where we are today?
We live in a very uncertain world.
Old paradigms are being uprooted.
The bottom line: HNW & UHNW clients are delaying planning.
But is that in their and their families best interests?
Our role as advisors is to provide the very best advice possible.
The Golden Age of Estate Planning.

5. The “Golden Age” of Wealth Transfer Planning!
AFRs are extraordinarily low.
Discount strategies are available.
Defective Grantor Trusts remain viable.
Gift/GST Exemptions are high & indexed.
Split $ rules are extremely favorable.
Excellent products are available (including NLG).

6. The “Golden Age” of Wealth Transfer Planning!
We have the vehicles and strategies (and favorable state laws) to provide
Grantor access to trust assets.
Protection against dying too soon or living too long.
Strong creditor/divorce protection.
Ability to change trust provisions.
Control of tax outcomes.
These are the good ole days …

7. Planning in Uncertain Times Putting Repeal in Perspective
Since 1998, we have been under the repeal “cloud of uncertainty”.
Since 1977 (the last 40-years), except ($600,000), the gift/estate tax exemption has changed nearly every year.
It’s just that now the threat of repeal is “in our face”.

8. Repeal is a non-event
In today’s political climate, unlikely that anything will get done.
Corporate and personal income taxes are higher priority.
If the estate tax is repealed,
Reconciliation – revert back in 10-years
It is unlikely that the gift tax will be repealed.
It will be back (in one form or another).
Does the future hold an on again/off again transfer tax?
The new normal?
No matter what transpires in the next few years
Clients will continue to need solid long term planning.
We need to become better planners, communicators

9. Consider this:
If the GST tax is repealed, does that mean that post-repeal, all transfers to trusts will be exempt? Not engaging in Dynasty Planning today may mean OPPORTUNITY LOST!

10. To Plan or Not to Plan?

11. Takeaways
Why would a client decide or an advisor advise to sit on the sidelines during the most favorable wealth transfer environment we’ve ever seen?
Planning is just as important now as it was 6 months ago and as it will be in 6 months, 10 years or 20 years.
One of the biggest issue that we face is client uncertainty regarding the need for planning today.
It is our job to look at the big picture & provide our clients with the best advice possible.

12. Planning Today Threats-to-Wealth & the Perfect Hedge
Client: “What’s in it for me?”
Overview
Life Insurance Planning with Dual SLATs
The Synergy of Life Insurance & Non—Insurance Strategies
The Cost of Delay
Private Financing: The Perfect Strategy
Life Insurance Products – Where are We Heading

13. Threats-to-Wealth & The Perfect Hedge

14. Threats-to-Wealth Taxes - We have let taxes dominate our discussions!
Divorce
Creditors
Predators
Destructive Family Dynamics
Protecting beneficiaries from themselves
Spendthrift –beneficiary can’t manage money
Avoid spoiling a child with too much too soon
Antisocial behavior
Drugs & alcohol abuse
Cults
Wrong crowd
Dying too soon/living too long

15. Takeaways Estate Planning is Not Just or Even Primarily About Taxes.
Family Security.
Minimizing OR eliminating Threats-to-Wealth.
We now have the ability to create the perfect hedge against threats-to- wealth.

16. The Perfect Planning Hedge
Clients retain access
Clients retain control & planning flexibility
Trust terms can be changed – decanting, protectors
Trustees can be removed and replaced
Control through LLCs
Assets are creditor protected
Protection against dying too soon/living too long
Protect beneficiaries from themselves
Protect beneficiaries from divorce/creditors
Protect against destructive family dynamics
Funding
Self-completing regardless of tax system in place
Funding does not trigger transfer taxes
Assets protected from gift, estate, GST taxes
Income taxes minimized and control who pays taxes

17. Client: “What’s in it for me?” Flexibility & Control

18. The Perfect Planning Hedge
Clients retain access
Clients retain control & planning is flexible
Trust terms can be changed – decanting, protectors
Trustees can be removed and replaced
Control through LLCs
Assets are creditor protected
Protection against dying too soon/living too long
Protect beneficiaries from themselves
Protect beneficiaries from divorce/creditors
Protect against destructive family dynamics
Funding
Self-completing regardless of tax system in place
Funding does not trigger transfer taxes
Assets protected from gift, estate, GST taxes
Income taxes minimized and control who pays taxes.
Clients
Clients
Beneficiaries
Beneficiaries

19. Access Client, “What’s in it for me?”
Dual Spousal Lifetime Access Trusts (SLATs)
Hybrid Self-Settled Trusts
Beneficiary Defective Inheritors Trust (BDIT)
Loans from trust to grantor
Sale and Intra-Family Loan Transactions (No Gifts)

20. The Role of Life Insurance in the Perfect Hedge I Planning with Dual SLATs and Life Insurance

21. Dual SLATs - Case Study H and W each age 60
$40M net worth ($300M → $80M → $40M)
Clients considering
Single Dynasty Trust
$10M gift (25% of net worth)
Shelter with a portion of $10.9M Gift & GST exemption
$15M Life insurance to pay estate taxes
Clients are reluctant to make gifts (They don’t want to give up access/control of gifted assets)
Review Slide Content

22. Dual Spousal Access Trusts (Defective Grantor Trusts)
Husband
Dynasty Trust 1
Wife & Indep. Trustee
FBO Wife, Children, GC, GGC & ILIT
(DGT)
H Creates & Funds LLC
Gifts $5M H
Benefits
H & W access/control
100% while both alive
50% following 1st death
Wife
Dynasty Trust 2
Review Slide Content
Husband & Indep. Trustee
FBO Husband, Children, GC, GGC & ILIT
(DGT)
W Creates & Funds LLC
Gifts $5M
Note: Must take steps to ensure Dynasty Trust 1 & 2 are not reciprocal.

23. Dual Spousal Access Trusts with Single Life Insurance
Dynasty Trust 1
Wife & Indep. Trustee
FBO Wife, Children, GC, GGC $5M Assets
(DGT)
$5M UL On
Husband
H Creates & Funds LLC
Husband
LI Benefits
Surviving spouse retains “access” to 100%
Proceeds Available for Estate Taxes
Purchase assets from Estate
Wife
Dynasty Trust 2
Review Slide Content
H & Indep. Trustee
FBO H, Children, GC, GGC
$5M Assets
(DGT)
$5M UL On
Wife
W Creates & Funds LLC

24. Dual Spousal Access Trusts with Survivorship Life Insurance
Dynasty Trust 1
SUL ILIT
Trustee: Wife & Indep. Trustee
Benef.: Wife, Children, GC,
GGC, & SUL ILIT.
$5M Assets & $5M Term
Defective Grantor Trust
Dynasty Trust
DGT
$15M SUL
FBO of
Children, Grandchildren, etc.
H Creates & Funds LLC
Husband
Wife
Dynasty Trust 2
Review Slide Content
Trustee: H & Indep. Trustee
Benef.: Husband, Children, GC,
GGC, & SUL ILIT.
$5M Assets & $5M Term
Defective Grantor Trust
W Creates & Funds LLC

25. Dual Defective Grantor Trusts with Private Split Dollar Life Insurance
Husband
Dynasty Trust 1
Insurance Trust
H Creates & Funds LLC
Trustee: Wife & Indep. Trustee
Benef.: Wife, Children, GC,
GGC, & SUL ILIT.
$5M Assets
$5M Term on H
Defective Grantor Trust
Dynasty Trust 3
$15M SUL
FBO of
Children, Grandchildren, etc.
EBR Split $ or
Private Financing
Wife
Review Slide Content
Dynasty Trust 2
W Creates & Funds LLC
Trustee: H & Indep. Trustee
Benef.: Husband, Children, GC,
GGC, & SUL ILIT.
$5M Assets
$5M Term on H
Defective Grantor Trust

26. Non-Reciprocal Trusts
Dynasty Trust 1
Dynasty Trust 2
Husband Grantor
NV – Premier Trust
Wife Grantor
SD – SD Trust Co.
Wife & Independent Trustee 1
Husband & Independent Trustee 2
Wife, Children, GC, GGC, etc., ILIT
Husband, Children, GC, ILIT
W – HEMS (?)
H – HEMS (?)
Indep. Trustee – Abs. Discretion
Indep. Trustee - HEMS
Wife holds 5x5 Power
Loans to H (Grantor)
H holds testamentary LPOA
Among Descendants
Review Slide Content
Other factors to consider:
Separate trust formation by time (6 mos.)
Fund with different assets
W income from day 1
H’s income interest “springs” into being at age 65
Hybrid self settled trust
Life Insurance on grantor of each trust?

27. Takeaways
Planning in the future will be about flexibility, access and synergies by combining insurance and non-insurance strategies.

28. The Role of Life Insurance in the Perfect Hedge II Synergies combining insurance & non- insurance strategies

29. Funding Hierarchy (Simple to Complex)
Clients Funds
Existing Funded Trusts
$14,000 AGTE
$5.49 Lifetime Gift & GST
Transfer Assets
Discounted Gift to DGT
Discounted Sale to DGT
Discounted GRAT (DGT)
Loan
Premium Structure
Full Premium
Split $ - Economic Ben.
Private Financing
Split-$ Demand Loan
Pay Gift Tax (> $5.45M)
OPM (Premium Financing)
Commercial Lender
Local Banking Relationship
Bank Specialize in Premium Financing
Intermediary
Dual Loan
For Advisor and Producer Use Only. Not For Public Distribution.

30. Case Study Clients M60/F60 Preferred NT
Have a need for $75M*** of SUL G.
Carve out $15M of assets from Client’s estate.
*** The analysis that follows is just as valid for a $1.5M gift with $7.5M policy as a $15M gift and a $75M policy.

31. Case Study Assumptions: $15M Assets 1/3rd Discount
$10M Gift and GST Exemption ($10M Net Gift to Dynasty Trust/DGT)
Rates of Returns
5% Pre-Tax
20% Tax Rate on Earnings
4% Net After-tax
AFR (if sale)
2.75% Long Term AFR
Evaluate Wealth transferred at age 90/90 (LE)

32. Plan Today – 3 Scenarios Compare the Net to Family in three scenarios:
Do Nothing with $15M – No Planning
Discounted Gift Alone (No LI) .
Discounted Gift & Private Split $.
$15M gift will support $75M*** of fully guaranteed SUL (M60/F60 Preferred NT).
*** Analysis just as valid for a $1.5M gift & $7.5M SUL G.

33. Plan Today – Net to Family
1. No Planning
Life
Expectancy
90/90
*Assumes second death in any given year.

34. Plan Today - Net to Family
1. No Planning vs. 2. Gift (No LI)
Life
Expectancy
90/90
*Assumes second death in any given year.

35. Net to Family Plan Today (LE 90/90)
No Plan vs. Plan (without LI)
Improvement
Source
1. No Plan
2. Gift (No LI)
2 - 1 
GST Exempt
10,000,000
68,070,592
58,070,592
Estate
24,358,201
(10,484,155)*
(34,842,355)
Total
34,358,201
57,586,438
23,228,237
Wealth Transfer & Shifting!
*$10.5M is the estate’s “tax burn” due to:
i) grantor paying taxes on trust income.
ii) the loss of the “use” of those funds, net of estate taxes.

36. Plan Today - Net to Family
1. No Planning vs. 2. Gift (No LI) vs. 3. Gift & Split $ LI
Life
Expectancy
90/90
*Assumes second death in any given year.

37. Net to Family Plan Today (LE 90/90)
No Plan vs. Plan with LI
Improvement
Source
1. No Plan
3. Gift & Split $
3. – 1.
GST Exempt
10,000,000
106,628,263
96,628,263
Estate
24,358,201
(15,716,086)*
(40,074,287)
Total
34,358,201
90,912,177
56,553,976
Even Greater
Wealth Transfer & Shifting!
*$15.7M is the estate’s “tax burn” due to:
i) grantor paying taxes on trust income.
ii) the “premium burn” due to split $ premium advances.
iii) the loss of the “use” of those funds, net of estate taxes.
Remember these numbers!

38. The Role of Life Insurance in the Perfect Hedge III The Cost of Delay See Leimberg Estate Planning Newsletter Numbers 2492, 2526 & 2532

39. The Cost of Delay – Example I
The Following Legislation Passed:
2017 Estate & GST taxes repealed.
Gift tax retained.
2027 Automatic reversion (sunset) to law as it stand today:
Gift, Estate & GST taxes reinstated.
Compare Net to Family for 2 Scenarios at LE (Age 90/90)
Clients (60/60) Plan Today (2017).
Clients (70/70) Plan in 10-years (2027).

40. The Cost of Delay – Example I
Clients delayed planning for 10-years.
Both alive & still qualify for preferred rates
Planning tools same, support less LI:
Gift & GST tax exemption $10M ―› $ 10M
Discount /3rd ―› 1/3rd
LT AFR % ―› %
Life Insurance Supported $75M ―› $50M

41. Remember these numbers
Table I: Plan Today vs. in 10-Years With $22.2M ($15M Gift, $7.2M Sale) Net to LE (age 90/year 31)
Plan Today
Plan in 10 Years
Cost of Delay
Dynasty Trust
106,628,263
77,739,009
28,889,254
Estate
(15,716,086)
(3,881,803)
(11,834,283)
Total
90,912,177
73,857,205
17,054,972
Remember these numbers

42. The Cost of Delay – Example II
Clients are both alive & still qualify for preferred rates
Planning tools less favorable, support less LI:
Gift & GST tax exemption $10M ―› $ 7M
Discount /3rd ―› 20%
LT AFR % ―› %
Life Insurance Supported $75M ―› $27.5M

43. Remember these numbers
Table II: Plan Today vs. in 10-Years With $22.2M ($8.75M Gift, $13.45M Sale) Net to LE (age 90/year 31)
Plan Today
Plan in 10 Years
Cost of Delay
Dynasty Trust
106,628,263
50,138,253
56,490,010
Estate
(15,716,086)
7,097,120
(22,813,206)
Total
90,912,177
57,235,372
33,676,805
WOW!
Remember these numbers

44. Takeaways
The cost of delaying planning is substantial.

45. The Role of Life Insurance in the Perfect Hedge IV Private Financing (Loan Regime Split Dollar)

46. Private Financing (Loan Regime Split Dollar)
Clients lends funds to a Dynasty Trust (a defective grantor trust), Trust invests loan proceeds in order to:
Pay each annual premium as it becomes due
Repay the loan at the end of the loan term
Lump sum loan locks in current favorable AFRs:
Mid-Term % (1.97%) >3-Years, ≤9-Years
Long Term % (2.75%) > 9-years
Accrue interest (powerful benefit)

47. Private Financing - $10M SUL G Example M60/F60 Preferred – 10-Pay – 5% Pre-tax Return
Initial:
 $6,357,985
Beginning of Year
End of Year 
Life
Trust
End-of-Year 
Beginning 10
6.00%
Ending 
Insurance
Assets
Loan Balance
Value of
Annual
Pre-Tax
Note
Death
Less Loan
Age
1.97% Accrued
Premium
Earnings
Repayment
Benefit
Balance
60/60
6,483,237
6,357,985
(240,000)
367,079
6,485,064
10,000,000
1,827
61/61
6,610,957
374,704
6,619,768
8,811
62/62
6,741,193
382,786
6,762,554
21,361
63/63
6,873,994
391,353
6,913,907
39,913
64/64
7,009,412
400,434
7,074,341
64,929
65/65
7,147,497
410,060
7,244,402
96,905
66/66
7,288,303
420,264
7,424,666
136,363
67/67
7,431,882
431,080
7,615,746
183,863
68/68
7,578,290
442,545
(7,578,290)
240,000
69/69
(0)
70/70+
Side
Fund
Exceeds
Loan
Balance
Grantor
Repaid
End of
Year 9

48. Private Financing The Perfect Strategy for the Perfect Hedge?
Design so that the client is fully secured and plan can be unwound at any time.
Loaned assets + policy CSV
The trustee can choose to repay the loan early.
Clients feel more comfortable entering into the transaction.
Moves wealth to a dynasty trust without income, gift, estate or GST taxes.
Not dependent upon making a gift, it is a loan. It rides out whatever tax regimen we have in place. If the gift tax comes and goes, the strategy is unaffected.
The income tax free DB protects against estate and GST taxes as well as a capital gains upon death.
Combine with Dual SLATs, BDIT, Self Settled Trusts.
Use single life, survivorship, term, current assumption UL, VUL, indexed UL, WL, term
The strategy is simple – clients understand a loan.

49. Design Flexibility Can we reduce the loan amount?

50. Can we reduce the loan amount? Yes, of course!
Extend the Premium Paying Term
Extend the Loan term
Switch from the midterm to the long term AFR.
The arbitrage (difference between investment return and loan rate) is greater over a longer period of time (12+ years).
Raise the Assumed Rate of Return Earned on Loan Proceeds (take greater investment risk)
Use in kind assets.
Discounts have the effect of
Lowering the loan interest and
Increasing the rate of return.
Repay in kind (discounted).

51. For a Given DB ($10M) Longer Note & Longer Premium Paying Terms (6% Pre-Tax Return)
Note Terms
$10M Life Insurance
***
Note
August 2017 AFR
Annual
Years Pay
Required
Scenario
Duration
Term
Rate
Premium
Premiums
Loan 1 9
MidTerm
1.95%
230,000 10
6,067,431 2 20
Long Term
2.58%
135,000
3,412,100 3 30
112,500
2,621,533 4
Life
105,000 61
2,033,411

52. Reducing the Loan Amount
The longer the loan term
The longer the grantors must wait to be repaid
9-year note – grantor repaid end of 9-years
Lifetime note – estate is repaid upon death (unless trust side fund outperforms expectations & loan repaid early).
There are many years where the loan side fund is less than the outstanding loan balance
Upon death, some of the DB may be needed to repay the loan.
Lending an amount greater than what is required
Reduces the shortfall upon death.
Provides a hedge if the side fund investments underperform.

53. Reducing the Loan Amount or Increasing the Death Benefit?
Defined Benefit
For a given DB ($10M)
Solve for loan amount
Defined Contribution:
For a given loan amount ($15M)
Solve for DB

54. For a Given Loan Amount ($15M) Longer Note & Longer Premium Paying Terms (6% Pre-Tax Return)
Note Terms
$10M Life Insurance
***
Note
August 2017 AFR
Annual
Years Pay
DB Supported
Scenario
Duration
Term
Rate
Premium
Premiums
$15M Loan 1 9
MidTerm
1.95%
575,000 10
$25M 2 20
Long Term
2.58%
594,000
$44M 3 30
641,250
$57M 4
Life
777,000 61
$74M
GSD*
*GSD = (Inter-) Generational Split Dollar. For a given loan, Scenario 4 maximizes DB in dynasty trust.

55. Takeaways
Private Financing - the perfect strategy for uncertain times.

56. The Role of Life Insurance in the Perfect Hedge V Life Insurance Products: Where are We Heading?

57. Life Insurance Products Where are we heading?
Consider the following:
Carriers continue to experience significant pressure on investment returns, with continued downward pressure on illustrative and crediting rates.
Even if investment returns improved tomorrow, it may be 7 or 8 years before an improvement is seen in illustrative and crediting rates.
Carriers will continue to manage expenses and look for alternative investments including profitable subsidiary businesses to support returns.

58. Insurance Products Where are we heading?
Product Consequences:
Current assumption products will continue to reduce illustrative and crediting rates.
No lapse guarantee products will continue to see issue amount reductions, premium increases and product withdrawals.
Carriers will continue to improve Indexed UL and Variable UL products, shifting the investment decisions and risk.

59. The “Golden Age” of Wealth Transfer Planning 7 Key Takeaways
Be proactive about the need for planning.
Speak in terms of Threats-to-Wealth (not taxes).
Create the Perfect Hedge.
Put Planning in Terms of: “What’s in it for me (Client)?”
Make Life Insurance a mainstay of your Planning.
Take advantage of Insurance/Non—Insurance synergies.
Hedge dying too young.
Understand the Cost of Delaying planning.
Consider Private Financing: The Perfect Strategy.