1. Presenter Name Presenter Title Date of Presentation
Estate Maximization Utilizing Irrevocable Trusts with Life Insurance and Annuities
Presenter Name
Presenter Title
Date of Presentation
Good morning (afternoon/evening) everyone. For the next few minutes I would like to discuss a different way to approach Life Insurance and Irrevocable Trusts. Most of us are familiar with the Irrevocable Life Insurance Trust or ILIT. Typically wealthy clients that are looking to plan for their Estate Taxes, or that want to maximize their legacy to the next generation, will gift money to an ILIT either each year or as a one-time lump sum. The ILIT will then purchase a life insurance policy on the grantors. Grantors could either use their annual gift tax exclusion or their lifetime gift tax exclusion. Recently the Federal government raised the lifetime gift tax exclusion to $5 million per person. In addition the Estate Tax exclusion and the Gift tax exclusion are once again “unified” at $5 million. This creates a new and unique situation for estate planning until Wealthy clients can now gift up to $5 million per person without incurring gift taxes. We are going to look at a way to utilize this large gifting opportunity by taking advantage of both life insurance and an annuity with a unique income feature known as i4Life.

2. Disclosure
This presentation is for educational purposes only. It is not intended to be used with the public. It is intended to be accurate and authoritative in regard to the subject matter covered. It is presented with the understanding that I am not engaged in rendering legal or tax advice. Lincoln Financial Group provides the sales concepts for information purposes only. While this seminar discusses general tax aspects and concepts of planning with insurance, no representations are made as to suitability for individual clients. Interested parties should be strongly encouraged to seek separate tax and legal advice before implementing a plan of the type described in this presentation. IRS Circular 230 Disclosure This material was prepared to support the promotion and marketing of variable annuities, mutual funds, and insurance company products. Lincoln Financial Group® affiliates, distributors, and their respective employees and representatives do not provide tax, accounting, or legal advice. Any tax statements contained herein were not intended or written to be used, and cannot be used for the purpose of avoiding U.S. federal, state, or local tax penalties. Please consult your own independent advisor as to any tax, accounting, or legal statements made herein.
[Read slide]

3. Irrevocable Life Insurance Trust
Male age 70 Standard, Female age 70 Standard
$1,000,000
Gift
Lincoln
LifeGuarantee
SUL
The typical estate planning tool is an Irrevocable Life Insurance Trust.
<click> Let’s use the example of a married couple, both age 70 who are in good health and would qualify for standard rates for life insurance.
<click> In this example, they are able to gift $1 million to their beneficiaries <click> and set up an Irrevocable Trust.
<click>When the money is put into the trust <click> the trust purchases a Guaranteed Survivorship Life Insurance policy on the husband and wife.
<click> This would give them a death benefit that would go to the Trust Beneficiaries. The IRR would be 6.24%.
This is the typical set up for Estate Planning. However, some clients may not want to do this. What are some of the objections to this concept?
$3,355,948
To Trust
Beneficiaries
Life Insurance
Death Benefit
6.24% IRR
Irrevocable Trust
*Death benefit assumes a guaranteed interest rate of 3%

4. Objections to Single-Premium into Life Insurance?
No future changes by Trustee
No upside potential
No income generation
Lack of liquidity
Fiduciary standards may require income and flexibility
Read slide

5. ChoicePlus AssuranceSM VA with i4LIFE® Advantage and GIB Hypothetical Example
Male age 70 Standard, Female age 70 Standard
$1,000,000
Gift
ChoicePlus
VA with i4Life
and GIB
Now let’s look at another way to maximize an estate.
<click> Let’s take the same 70 year old couple…
<click> with a $1 million gift…
<click> Notice that this time the trust is an Intentionally Defective Grantor Trust. This is done so that if there are income taxes in the trust, the Grantor would be able to pay the taxes outside the trust. We will explain this further in a moment.
<click> This time the money will be put into a Lincoln ChoicePlus Assurance Variable Annuity with the optional features of the i4Life Advantage and Guaranteed Income Benefit. These are income distribution tools that give the Trustee control and access to the Trust money and an income payment that will continue for as long as the annuitants live.
For this example a total charge of 2.55% is included for the Lincoln ChoicePlus Assurance (B share) with the i4Life Advantage. This consists of a 1.300% mortality and expense risk charge and administrative fee; a 0.85% charge for the Guaranteed Income Benefit; and a 0.400% i4Life Advantage charge.
<click> In this example there would be a guaranteed income benefit of $50,000 per year.
<click> The $50,000 per year would fund a Life Insurance Policy. Assuming the purchase of a Lincoln LifeGuarantee SUL (2011) policy for a male age 70 with a standard health rating and a female age 70 with a standard health rating, $50,000 would purchase a guaranteed death benefit of $2,726,735.
Let’s review the basics of a Lincoln variable annuity and the benefits of i4LIFE® Advantage before we move into reviewing the illustration that shows how the i4Life and Guaranteed Income Benefit work.
Guaranteed
Income Benefit
$50,000/yr
SUL
Death Benefit
$2,726,735
Intentionally Defective Grantor Trust
(The income benefit is determined at the time the contract is purchased. In this example the 50K/yr is 5% of the purchase payment based on the annuitants’ ages.) 5 5

6. The basics of a Lincoln variable annuity
A long-term investment product designed for retirement savings
Tax-deferred growth
Earnings aren’t taxed until withdrawals are made, allowing for greater growth
Lifetime income
There are several options for receiving an income stream for life.
Death benefits
Savings can be transferred to beneficiaries
Optional protection features
For an additional charge, clients can elect optional features that can help protect their minimum future income and ensure growth.
Flexibility
Clients can meet individual needs by customizing their contract through investment allocation, withdrawal options, and adding or canceling optional features.
Let’s briefly review the advantages of a Lincoln variable annuity, which is a long-term investment product designed for retirement savings.
It offers tax-deferred growth, which means earnings will not be taxed until your client makes a withdrawal. This offers your clients greater growth potential.
Secondly, when your clients are ready to take income, there are number of possibilities that can best meet their needs. If there is a portion of their assets leftover when your client passes away, death benefits allow them to transfer their savings to beneficiaries.
What makes our variable annuities unique are our optional features that can preserve minimum future income and additional growth. And what we’ll discuss in greater detail today is how flexible our variable annuities are in order to address clients’ individual needs.
One thing to mention before we move onto the optional features overview is if the annuity is purchased inside a trust, the trustees are the ones with access to the contract, not the clients.

7. The benefits of i4LIFE® Advantage
Lifetime Income
An income stream, no matter how long your clients live.
Growth potential
Income that has the potential to grow based on their investment results.
Increasing wealth floor
With the Guaranteed Income Benefit (GIB), their payments will never go below the guaranteed minimum amount and may actually automatically increase every year if their i4LIFE® Advantage payment increases to a new high.
Control and access
Clients don’t have to choose between lifetime income and access to savings. They can have both: an income and the ability to make additional withdrawals during the Access Period.*
Let’s spend a little time on the optional features…
When your clients elect i4LIFE® Advantage, our patented income distribution method, they receive an income stream that lasts for their lifetime.
Their income also has the potential to grow based on their investment results, and with the Guaranteed Income Benefit (GIB), their payments will never go below the guaranteed minimum amount.
Plus, this amount also has the potential to increase annually if their i4LIFE® Advantage payment increases to a new high.
Finally, clients have the option to receive and the additional benefit of taking withdrawals when they need to during the Access Period.
And again, i4LIFE with GIB is available for an additional annual. After the Access Period ends, payments will continue on a lifetime basis, but your clients will no longer have access to their assets or a death benefit. The tax-exclusion amount varies by age and only applies until the original cost basis in the contract has been recovered. Guarantees are backed by the claims-paying ability of the appropriate issuing company.
Now let’s take a look at the illustration that shows how the i4Life and Guaranteed Income Benefit work specific to our hypothetical scenario
*Additional withdrawals reduce the cost basis, account value, and income payments proportionately, and are subject to ordinary income tax to the extent of the gain.

8. Lincoln ChoicePlus AssuranceSM with i4LIFE® and GIB
Guaranteed
Income (GIB)
$50,000
Total Income
Year 1
$55,315
Non-taxable Income
$37,864
Here is page 5 of the Lincoln ChoicePlus Assurance Variable Annuity with i4Life and Guaranteed Income Benefit (GIB).
<click> As you can see, the first year GIB is $50,000 per year. Because this is guaranteed for as long as at least one of the annuitants is alive, this is the amount that we will use to fund the life insurance policy, which will then be guaranteed.
<click> In addition, in this example where we reference historical returns, the actual income in year one would be more than the GIB of $50,000. Any amount of income above $50,000 would be excess income that would go directly into the Trust as cash reserves.
<click> Also, of that $55,315, over $37,000 is non-taxable, with respect to federal income taxes. The annuity will provide an consistent $37,864 in non-taxable income every year for the owner. Please remember that taxes are paid by the owner outside of the trust.
Please note this scenario illustrates the variable annuity (B share). Different shares classes have different charges, so the selection of another share class would impact the results shown. It is the responsibility of the registered rep selling the VA to ensure it’s suitable overall.
(The income benefit is determined at the time the contract is purchased. In this example the 50K/yr is 5% of the purchase payment based on the annuitants’ ages.)

9. Lincoln ChoicePlus AssuranceSM with i4LIFE® and GIB0%
Historical (12/ /2010)
Income Year 1
$51,315
$55,315
Income Year 15
$50,000
$119,393
Income Year 20
$104,224
Total amount invested
$1,000,000
Ending Contract Value $0
$958,052
Total Income paid to Trust
$1,056,511
$2,069,070
Total Income above guaranteed income
$6,510
$334,592
Total Non-taxable Income
$795,146
Here is the same illustration, next to a 0% return. The 0% return scenario, because of fees, nets a return of -3.55%. Despite having a negative return, you still have enough to fund the life insurance policy.
If you look at the historical, you can see that the income increased, based on the returns of the investment options, which provided excess income annually. Please remember that the increasing income is not guaranteed, and that it is based on returns that are not guaranteed.
(The income benefit is determined at the time the contract is purchased. In this example the 50K/yr is 5% of the purchase payment based on the annuitants’ ages.)

10. Hypothetical Assumptions for Irrevocable Trust
Intentionally Defective Grantor Trust
Grantor/Owner pays taxes outside the Trust
Trust assets grow with no tax withdrawals since Grantor pays taxes outside the Trust
Annuity asset allocation:
60% LVIP American Growth Fund
40% LVIP Delaware Bond Fund
20-year historical returns from 12/ /2010
The GIB is a minimum of $50,000 annually which pays for the SUL policy
Income above the $50,000 GIB (based upon 20 year historical avg.) stays in the Trust as a “cash reserve”
This example assumes that cash reserves inside the Trust grow 5% per year
Past performance does not guarantee future results. Different funding options, allocations and time periods would produce different results.
Before we go any further let’s review some assumptions that have been assumed for this example:
<click> First we will assume that the Trust is an Intentionally Defective Grantor Trust. This type of trust is still irrevocable, however, any income inside the trust will be taxed to the Grantor and not to the trust. Therefore, the Grantor would pay the taxes on income to the trust from the annuity. These taxes would be paid outside the trust. Because the taxes are being paid by the Grantor outside the Trust, the Trust assets will be able to accumulate with no tax withdrawals.
<click> We have assumed an annuity asset allocation of 60% LVIP American Growth Fund and 40% LVIP Delaware Bond Fund. These funds were chosen to represent a simple asset allocation of 60% stock funds and 40% bond funds. We will use the 20-year historical returns for our hypothetical scenario.
<click> The GIB is a minimum of $50,000 annually which pays for and guarantees the SUL policy.
<click> Any amount above the $50,000 (based upon the historical 20-year returns) stays in the Trust as a “cash reserve.”
<click> Another assumption in this example is that the Trust assets (excess income above the GIB from the annuity) will be managed and grow at 5% per year.
<click> Please keep in mind that past performance does not guarantee future results. Different funding options, allocations and time periods would produce different results and the cash reserve and annuity death benefit values in this scenario would vary.

11. Three Buckets of Money Intentionally Defective Grantor Trust
Male age 70 Standard, Female age 70 Standard
Year 20 (hypothetical)
$1,000,000
Gift
ChoicePlus
VA with i4Life
and GIB
Excess Income
>$50,000
Assuming we began 20 years ago with our assumptions
<click> The excess annuity income to the trust above the GIB of $50,000 would have created Trust cash reserves. Assuming the 20-year historical returns on the chosen funds and with the assumption that the Trust assets grew at 5%, the Trust would have had a cash reserve of $1,489,950 (assuming that the Grantor paid the income taxes outside of the trust).
<click> In addition, the variable annuity would provide a death benefit with an after tax value of $707,686. This is after-tax because there would be a tax-deferred gain inside the annuity net of the remaining cost basis. The trust would pay this tax at the highest income tax rate.
20 year historical returns*
Guaranteed
Income Benefit
$50,000/yr
Cash
Reserve
$1,489,950
Assumes
5% growth
Annuity
Death Benefit
(after-tax)
$707,686
SUL
Death Benefit
$2,726,735
Intentionally Defective Grantor Trust
* 60% LVIP American Growth Fund, 40% LVIP Delaware Bond Fund 12/ /2010. Illustrated amounts are not guaranteed.

12. Three Buckets of Money Male age 70 Standard, Female age 70 Standard
$1,000,000 into a Lincoln ChoicePlus AssuranceSM Variable Annuity with
i4LIFE® Advantage and GIB (Referencing 20 Year Historical Returns)
Trust as Illustrated
SUL
Death Benefit
$2,726,735
$1 million Lump Sum
Into Life Insurance
Cash
Reserve*
$1,489,950
Annuity
Death Benefit
(after-tax)*
$707,686
In essence the trust would have three potential buckets of money: The life insurance death benefit, the cash reserves and the annuity death benefit
<click> When we stack up all of these buckets we would have almost $5 million of benefit to the trust beneficiaries.
Please note the only guaranteed value among the three buckets in the trust is the SUL death benefit, the GIB pays the premiums for it. The values illustrated for the other two buckets are not guaranteed. These values will fluctuate based on the performance of the VA investment options chosen, and the rate of return received on any Cash Reserves due to any excess GIB payments.
<click> Compare this to the $1 million lump sum into the life insurance policy.
The trust would have flexibility, upside potential, and the ability to provide income if needed to the beneficiaries
SUL
Death Benefit
$3,355,948
$4,924,371
8.30% IRR
6.24% IRR
* Actual Cash Reserves and Annuity Death Benefit values will vary and are not guaranteed.

13. 20 Year Historical Illustration
Estate Maximization
20 Year Historical Illustration
Lump Sum SUL
Death Benefit
$3,355,948
$4,924,371
$4,593,626
$4,696,063
$3,948015
We can see graphically how the different buckets of money will affect the overall benefit over different time horizons.
<click> As a reference, this line shows the benefit if we had put the $1 million into a life insurance policy.
In summary, now that clients can gift up to $5 million gift tax free, there is a tremendous opportunity for legacy gifting. By utilizing both life insurance and the benefits of i4Life advantage, the trust could potentially have a greater benefit to the trust beneficiaries while at the same time providing flexibility, upside potential and income potential for income beneficiaries.
A worst case scenario would occur if the VA account value drops to zero. If this were to occur there would be no VA death benefit or account value. The minimum GIB would still be paid (no cash reserves) so at a minimum, the Life Insurance death benefit would be available for the trust beneficiaries.
0% Return
*Assuming a worst case scenario (0% return), the Life Death Benefit of $2,726,735 would be paid to the trust beneficiaries

14. Disclosure for Insurance Policies and Annuity Contracts
Life insurance policies, including Lincoln LifeGuarantee® SUL, policy form SUL5066 and state variations (when approved), and annuity contracts, including Lincoln ChoicePlus AssuranceSM variable annuities (contract form B and state variations), are issued by The Lincoln National Life Insurance Company, Fort Wayne, IN, and distributed by Lincoln Financial Distributors, Inc., a broker/dealer. The Lincoln National Life Insurance Company does not solicit business in the state of New York, nor is it authorized to do so.
Policies and contracts sold in New York (policy SUL5066N (when approved); contract forms 30070BNYA, 30070BNYC, 30070BNYAL, and 30070BNYN) are issued by Lincoln Life & Annuity Company of New York, Syracuse, NY, and distributed by Lincoln Financial Distributors, Inc., a broker/dealer.
All guarantees and benefits of the insurance policy and all contract and rider guarantees, including those for optional benefits, fixed subaccount crediting rates, or annuity payout rates, are backed by the claims-paying ability of the issuing insurance company. They are not backed by the broker/dealer or insurance agency from which this policy or annuity is purchased, or any affiliates of those entities other than the issuing company affiliates, and none makes any representations or guarantees regarding the claims-paying ability of the issuer.
In some states, policy contract terms are set out and coverage may be provided in the form of certificates issued under a group policy issued by The Lincoln National Life Insurance Company to a group life insurance trust. Products and features are subject to state availability. The insurance policy and riders have limitations, exclusions, and/or reductions.
There is no additional tax-deferral benefit for an annuity contract purchased in an IRA or other tax-qualified plan.
[Read slide]

15. Disclosure for Insurance Policies and Annuity Contracts
Variable annuities are long-term investment products designed for retirement purposes and are subject to market fluctuation, investment risk, and possible loss of principal. Variable annuities contain both investment and insurance components, and have fees and charges, including mortality and expense, administrative, and advisory fees. Optional features are available for an additional charge and are based on the financial strength of the insurer. The annuity’s value fluctuates with the market value of the underlying investment options, and all assets accumulate tax deferred. Withdrawals of earnings are taxable as ordinary income and, if taken prior to age 59½, may be subject to a 10% federal tax penalty. Withdrawals will reduce the death benefit and cash surrender value. Investors are advised to consider the investment objectives, risks, and charges and expenses of the variable annuity and its underlying investment options carefully before investing. The applicable variable annuity prospectus contains this and other important information about the variable annuity and its underlying investment options. Please call or for a free prospectus. Read it carefully before investing or sending money. Products and features are subject to state availability. Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates. Affiliates are separately responsible for their own financial and contractual obligations.
[Read slide]

16. Thank You
Questions?
Read Slide