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Taxable Asset Annuitization plus Long Term Care Sales Script

Mr. and Mrs. Sample, we recently had a conversation about your $100,000 CD. You have concluded that you are not likely to ever need it for future income, and unless unforeseen circumstances occur, this asset is intended to be left to your children.

I suggested to you that there are other financial strategies that we should examine to see if we could substantially increase the current and future value of this asset to your heirs. I have a proposal that will illustrate a simple, safe, and sensible way to redirect this CD that will, in addition to enhancing its value, preserve it for your children in the event the most likely reason you would need it for your own use would occur. The most likely need would be to pay the costs of a long-term disability.

In the first section of the proposal there are some assumptions that we need to agree on:

I.

(1)

The current value is $100,000.

(2)

The cost basis is the same.

(3)

The rate of return is 6%. Assume no future change.

(4)

Your income tax rate is 28%. Assume no future change.

(5)

When your family inherits this asset, they will be taxed

on the total gain as ordinary income. Their tax rate,

under current law, could reach 39.6%. Let's assume 28%.

(6)

Your heirs' income tax rate will be 31%.

(7)

Assume that the future value of your taxable estate

will not exceed the exemption and will not be taxed.

May we proceed based on these assumptions?

II.

The second part of this illustration is a look at the future performance of this asset based on our assumptions.

One year from now, the CD will have grown to $106,000. (Column 1). The gain is $6,000. If the income tax on the gain has not yet been paid and the inheritance occurred, the estate would owe $1,860 (Column 4) in taxes and the heirs would receive a net $104,140 (Column 7).

If the inheritance occurs 10 years from now, the net would be $152,379.

Twenty years from now the net to heirs would be $232,596.

Our plan here today Mr. and Mrs. Sample is to examine an alternate way to put this $100,000 to work so that we not only increase its value, we also protect it from the threat of being eroded or perhaps depleted by unforeseen long term care costs in later years. There is a 50/50 chance that that the need will occur.

III.

Here are the actions we need to take to redirect this CD to greatly increase its future value to your heirs and protect its value from erosion or depletion from a serious threat. The odds that one of you or both could use up most or all of it paying for the cost of long term disability.

(1)

Use the CD to purchase a $100,000 immediate annuity.
(2)

The annuity will pay to you $8,000 per year guaranteed for as long as either of you are living.
(3)

Pay income tax on the $8,000 annual income of $984.
(4)

Purchase a last survivor life insurance policy and pay the annual premium of $4,769.
(5)

Purchase a long term care policy covering both of you with the $2,247 that's left. The total available long term care benefit is $438,000 ($150.00 per day each for 4 years.)

The death benefit payable is $303,000. That is more than the 20th year $236,750 CD value (refer to Page 1, Column 1).

Using the total $438,000 long term care benefit has no affect on the $303,000 death benefit.

To keep the death benefit from being included in your estate you should consider making your children the owner and beneficiaries of the life policy. The simple way to do this is to make an annual gift to them of $4,769 and let them pay the premiums. You can also consider having an irrevocable insurance trust own the policy and make the annual gift to the trust to pay the premium.

Keep in mind that the $8,000 annual payment comes to you and you have no obligation to either pay premiums nor to make gifts in the future.

IV.

Now let's examine the results of redirecting your CD and compare the difference.

The red boxes represent the future value of CD to heirs years 1, 5, 10, 15, 20 shown in column 7 of page 1 of the illustration. The blue boxes represent the death benefit from the life insurance policy.

In addition to dramatically increasing your children inheritance, it provides you with a $438,000 long term care benefit, which could be the key to preserving a large part of your family legacy.

Mr. and Mrs. Sample, when you ultimately inherit the proverbial pine box, your children can inherit either the red box or the blue box. Which do you prefer to leave them?

	(c) 2009 CatMark, Inc.