dmwttrn

Annuity Transfer Case Study

Mrs. Millie Cramer, a 78 year old widow, has owned a fixed indexed annuity for 5 years. She has other income sources and her LTC needs have been taken care of. Millie plans to leave the annuity to her heirs but she now realizes that all of the gains in her annuity will be taxable to her heirs.

An Annuity Transfer Program may be suitable. Here’s how it worked:

1. Millie transferred ownership of her annuity to a legacy strategy.

2. Millie received an immediate income tax deduction which will offset the 1099 gains inside the annuity, helping her settle up with Uncle Sam now.

3. The TRN Strategy will provide a structured inheritance for her children, addressing concerns she had about two spendthrift heirs.

4. Millie recommended her favorite charity to benefit from her transaction.

Current Accumulation on Value $150,000 Original Cost Basis $105,000

Amount of Taxable Gains $ 45,000

Initial Value of the TRN Strategy $150,000

Tax Deduction with the TRN Strategy $ 69,578

Monthly Payments if Millie Passes Away in 5 Years $ 700

Total Benefit (payout plus tax savings) $ 185,395

The TRN Strategy Plan for Millie was issued that provided an immediate charitable income tax deduction of $69,578. Millie’s current income is $55,000. She will receive a 1099 this year of $45,000 (on the gains inside the annuity), bringing her total new income to $100,000.

The tax deduction reduces her taxable income by up to 50%, thereby bringing her taxable income back to $50,000. This allows her to offset the $45,000 of gain from her annuity AND save money on taxes this year. The remaining deduction of $19,578 can still be carried forward to reduce her taxes next year. Her TRN Strategy is designed to pay out over 20 years beginning when she passes away. She named her three children to receive payments from the TRN Strategy and recommended her church to receive an immediate grant, while supporting the charitable works of the TRN Strategy. Her plan is re-insured with a major insurance company.

Three Advantages of Incorporation

Incorporation is the next step in the evolution of your business. The laws for incorporation vary from state to state, but incorporating is definitely something to consider to provide protections for you and your business.

1. Liability. This is the primary issue because in a sole proprietorship there’s no safety net between your client and his or her business. If the business can’t pay its bills, creditors will go after him or her personally to make up the difference. If the business purchases a vehicle, your client purchases that vehicle. If the business gets sued, so does your client. If employees run into trouble on the job, so does your client. Your client and his or her business are inseparable. Even though there’s no cost in choosing the route of sole proprietorship, there’s no protection either.

2. Taxes. With every paycheck comes the hard-hitting reality of losing 6.2 percent of the first $106,800 of gross salary on Social Security and an additional 1.45 percent for Medicare (except Medicare contains no cap – you pay on every dime you make.) But what your client may not know is that employers are required to match those amounts, along with any state payroll tax amounts. So that’s a minimum of 15.3 percent right off the top of your client’s income. The right incorporated business structure minimizes the brunt and avoids payroll taxes on a good chunk of that income.

3. Audit Risk. The Internal Revenue Service (IRS) cites in its own stats that sole proprietorships and general partnerships have a 1 in 7 chance of being audited. The IRS cites 1 in 50 or higher for incorporated businesses. The message here is that the more casually a business is run, the more likely it is to have some recordkeeping errors.

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Annuity Transfer Case Study

Three Advantages of Incorporation