1. Never Out Live Your Money Presented by Beneflex Financial Group Inc. Jerry W. Hill Jerry W. Hill In Cooperation with Richard Olive, Executive Vice-President National Community Foundation Neither the Speaker nor National Community Foundation provides legal, tax or financial advise. The Speaker does not represent any Investment or Insurance product or Company. Consult your tax advisor about your specific situation.

2. The “Facts” of Life The IRS allows us the opportunity to decide who will receive our estate... however, we must choose 2 of the following:

3. FAMILY

4. IRS

5. CHARITY

6. The “Facts” of Life Most Americans Choose: Family IRS - Each get about half-

7. Why? People are either ill-informed or unprepared

8. The following are a few examples of how estates can diminish without wise planning. without wise planning.

9. Marilyn Monroe Gross Estate$819,176 Settlement Costs448,750 Net Estate 370,426 Shrinkage55%

10. Elvis Presley Gross Estate$10,165,434 Settlement Costs 7,374,635 Net Estate2,790,799 Shrinkage73%

11. J. D. Rockefeller Gross Estate$26,905,182 Settlement Costs 17,124,988 Net Estate16,192,908 Shrinkage64%

12. Social Capital Choices

13. Taxpayer Issues Federal Income Tax10% - 35% Capital Gain Tax 5% - 15% TX State Income Tax0%

14. “Death Tax” “Death Tax” on certain assets Double Taxation -Estate Tax -Income Tax - IRAs, Retirement $ -Annuities -Savings Bonds

15. A Solution  Very Conservative Planning  Guaranteed, Fixed Lifetime Income(s)  Substantial Tax Deductions  IRS Approved since 1917  Not Insurance

16. By exchanging real estate, stocks, bonds, or cash for an annuity with a tax deduction, you can reduce your tax liability and receive a tax-favored income that can never be outlived. The Only Annuity with a Tax Deduction

17. Equity Indexed Annuities Are HOT! The Annuity Exchange is HOTTER! Transfer an Equity Indexed Annuity to An annuity with a Tax Deduction Payable for lifetime Payable for a specified period of years Solution

18.  New Gift Annuity issued at accumulation value, not surrender value  Guaranteed fixed income/Pay-out increases if a flex option is chosen  Immediate tax deduction, with a five year carry forward if needed  Flexibility; annuity payments can begin now or at future date  Advisor receives a development fee for completing transaction WHY? Transfer an Equity Indexed Annuity to a Charitable Gift Annuity. (An Annuity with a Tax Deduction!)  New Gift Annuity issued at accumulation value, not surrender value  Guaranteed fixed income/Pay-out increases if a flex option is chosen  Immediate tax deduction, with a five year carry forward if needed  Flexibility; annuity payments can begin now or at future date  Advisor receives a development fee for completing transaction WHY? Transfer an Equity Indexed Annuity to a Charitable Gift Annuity. (An Annuity with a Tax Deduction!)  New Gift Annuity issued at accumulation value, not surrender value  Guaranteed fixed income/Pay-out increases if a flex option is chosen  Immediate tax deduction, with a five year carry forward if needed  Flexibility; annuity payments can begin now or at future date  Advisor receives a development fee for completing transaction WHY? Transfer an Equity Indexed Annuity to a Charitable Gift Annuity. (An Annuity with a Tax Deduction!) Transfer an Equity Indexed Annuity to an Annuity with a Tax Deduction ! Transfer an Equity Indexed Annuity to an Annuity with a Tax Deduction !  Annuity issued at accumulation value, not surrender value  Guaranteed fixed income/Pay-out increases with a flex option  Immediate tax deduction  Flexibility; annuity payments can begin now or at future date WHY?

19. Annuity Fact According to LIMRA, in 2000 there were $190 Billion in Tax Deferred Annuities issued and 90% of all people who own Tax Deferred Annuities die without ever annuitizing. According to LIMRA, in 2000 there were $190 Billion in Tax Deferred Annuities issued and 90% of all people who own Tax Deferred Annuities die without ever annuitizing.

20. Annuity Exchange Example Benefits for annuitant Annual Payout Tax Deduction Lifetime payout flex deferred for 5 years $7,233$44,091 Period Certain for 20 years flex deferred for 5 years $7,242$54,826 $107,000 Accumulated value with a 10% surrender fee :

21. Real Estate Property Transfer

22. Howard and Charlotte Barnett were farmers in Crawford, Indiana, for 42 years. The value of their land had increased from $43,000 in 1959 to $1,000,000 in 2000. If they sold the farm, the IRS could take $190,000 in taxes, leaving them $810,000. True Story “We exchanged our farm for a lifetime income and saved thousands of dollars in taxes!” Howard and Charlotte Barnett, Farmers - Crawford, Indiana Now Retired - Homestead Florida Jerry W. Hill Beneflex Financial Group, Inc. 11811 East Fwy. Suite 545 Houston, TX 77029-1950 (713) 455-7087

23. Exchange Real Estate – Guaranteed Lifetime or Period Certain Income – Capital Gain Tax reduction – Income Tax Deduction – Generally, removes asset from estate – NCF handles real estate fee and closing costs

24. Problematic Real Assets Farms –Unable to take care of property –Taxes and Insurance –Upkeep (labor) –Many want to remain on farm and pass it to heirs Rental Property –Insurance &Taxes –Repairs –Tax on income –Tenant concerns

25. Problematic Real Assets Second Homes –Taxes and Insurance –Annual maintenance –Lifestyle changes –Tenant concerns Raw Land –Taxes and Insurance –Not income producing –Maintenance & upkeep

26. Two Major Concerns Capital Gains Tax – 5% - 25% Real Estate Selling Fees – 6% - 10% –11% - 35% Loss in value

27. Three Choices SELL – 100K less tax/fees = 82.7K KEEP - Problems stay intact Exchange - $100,000 for –Tax favored lifetime income –Income tax deduction –Eliminate up-front capital gain –Control from the grave

28. Example Current Info Property owners husband and wife age 70 $100,000 FMV Property $25,000 Cost Basis Results Annual joint lifetime income $5,430 Income tax deduction $34,577 (34.5%) Capital gain eliminated $25,933 Effective pay-out rate 6.6%

29. Example (continued) up front savings –No out of pocket capital gain tax –NCF absorbs all real estate fees –Tax deduction lowers reportable income by up to 30%

30. Choices Most clients believe there are 2 alternatives KEEP or SELL

31. There is a 3rd choice Exchange Real Estate For a lifetime or period certain income

32.  Many Bank CD’s are earning less than 3% and the interest is fully taxable. A large number of clients over age 65 use the interest to supplement their income.A large number of clients over age 65 use the interest to supplement their income. CD Exchange Program

33. Typical $100,000 CD Interest Rate 2.5% $ 2,500 $ 625 Taxes @ 25% Tax Bracket Taxes @ 25% Tax Bracket Total Net Income $1,875* *Principal remains in estate CD Example

34. Solution: $32,000 CGA CGA Example Payout Rate 6.5%, (age 70) $ 2,080 $ 203 * Taxes @ 25% Tax Bracket Taxes @ 25% Tax Bracket Total Net Income $1,877 * 61% of income is tax free return of principal, 39% taxed @ 25%

35. Client net income increased from $1,875 (from Bank CD) to $3,152 (income from $32,000 CGA and $68,000 Bank CD)Client net income increased from $1,875 (from Bank CD) to $3,152 (income from $32,000 CGA and $68,000 Bank CD) 61% of CGA income is a tax free return of principal61% of CGA income is a tax free return of principal Client receives a current $11,724 tax deduction, which may save $2,931 in taxes*Client receives a current $11,724 tax deduction, which may save $2,931 in taxes* The Difference CD Exchange Program CD Exchange Program * Assumes 25% tax bracket

36. * 61% of income is tax free return of principal, 39% taxed @ 25% $100,00CD $32,000CGA Annual Income $2,080 $203 * Total Net Income $1,877 $2,500 Annual Payout Rate 2.5%6.5% Estimated Taxes Income Tax Deduction $625 -0- $1,875 $11,724 CD vs. Gift Annuity

37. Summary Income increased by $1,277 per yearIncome increased by $1,277 per year Asset was removed from estate and avoided probateAsset was removed from estate and avoided probate Rate locked in for lifeRate locked in for life No set-up or legal feesNo set-up or legal fees May save $2,931 in taxesMay save $2,931 in taxes CD Exchange Program

38. Securities Exchange Program Fund your Annuity with Securities

39.  Countless individuals have stock and bond portfolios that have significantly increased in value or have lost value over the past few years. Charitable Planned Giving  Many of these individuals are hesitant in selling because of the capital gains tax, or because of difficulties in accepting a loss.

40. Typical $100,000 Stock Portfolio Dividend Rate 1.5% $ 1,500 $ 375 Taxes @ 25% Tax Bracket Taxes @ 25% Tax Bracket Total Net Income $1,125* *Principal remains in estate Stock Exchange Example

41. * 60% of income is tax free return of principal, 40% taxed @ 25% StockCGA Annual Income $6,500 $650 * Total Net Income $5,850 $1,500 Annual Payout Rate 1.5%6.5% Estimated Taxes Income Tax Deduction $375 -0- $1,125 $35,936 Stock vs. CGA

42. Tax Treatment of CGA Income Total Income $6,500 Tax Free Return of Principal $1,950 $2,600 Taxed as ordinary income Taxed as ordinary income $1,950 * Taxed at capital gain rate Taxed at capital gain rate CGA Example * Based on a $50,000 cost basis

43. Example: Exchange $100,000 Stock Portfolio for an annuity with a tax deduction CGA Example * Based on a $50,000 cost basis Payout Rate 6.5%, (age 70) $ 6,500 $35,936 Tax Deduction Tax Deduction $19,415 * Capital Gain Reduction Capital Gain Reduction

44. Securities were exchanged for a tax- favored annual income of $6,500 payable for life. Transaction created a $35,936 income tax deduction saving thousands in taxes. No capital gains tax due at the time of transaction. SummarySummary