OLA 1004 T 1008 An Estate Planning Technique for Individuals Who Own Deferred Annuities with Sizable Growth.

OLA 1004 T 1008

An Estate Planning Technique for Individuals Who Own Deferred Annuities with Sizable Growth

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This material was not intended or written to be used, and cannot be used, to avoid penalties imposed under the Internal Revenue Code. This material was written to support the promotion or marketing of the products, services, and/or concepts addressed in this material. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely solely on their own independent advisors regarding their particular situation and the concepts presented here.

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This seminar focuses on wealth preservation strategies for individuals who own deferred annuities with sizable growth.

Annuity Maximization Strategy

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The Good News...

Deferred annuities can be part of solid financial plan

Annuities can help defer federal and state income taxes*

Over time, contract value may grow substantially

* Tax deferral is only available to individuals. It is not available for annuities owned by entities such as corporations and most types of trusts. There is no additional tax-deferral benefit derived from placing IRA or other tax-qualified funds into an annuity. Features other than tax deferral should be considered in the purchase of a qualified annuity.

Preserving Your Hard-Earned Assets

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The Bad News...

Protection from income taxes may not be enough

Beneficiaries may still lose sizable portion of annuity value at owner’s death

Preserving Your Hard-Earned Assets (cont.)

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Is the Annuity Maximization Strategy for You?

It is, if...

You are a deferred annuity contract owner

You do not foresee a need to withdraw deferred funds for retirement income

You want death benefit protection and cash value accumulation of permanent life insurance

You want to create a legacy for your loved ones

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Taxable amounts received from an annuity contract are taxed as ordinary income*

Gains in an annuity contract are taxable income to beneficiaries when withdrawn or distributed

Contract value may be subject to estate taxes

*In addition, a 10% federal income tax penalty may apply to withdrawals taken prior to age 59½.

Deferred Annuities: Why They Lose Value

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Mike purchased $150,000 deferred annuity 20 years ago

Annuity earned an average 6% annually

Mike is now 70 years old and annuity is now worth $481,070

A Taxing Example: Mike Megaworth

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Mike’s estate is worth more than $2 million

His taxable estate is in 45% marginal federal estate tax bracket

Daughter Martha is beneficiary and is in 35% federal income tax bracket

A Taxing Example: Mike Megaworth (cont.)

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What would happen to Mike’s annuity contract value if it were left to Martha after his death?

A Taxing Example: Mike Megaworth (cont.)

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Contract value at Mike’s death $481,070Estate tax –$216,482Income tax* –$ 63,731Value retained by Martha $200,857

* After an allowance for the original cost basis of $150,000 and an income tax deduction of $148,982 for estate taxes attributable to the income element of the contract [0.45 x (481,070 – 150,000)], $182,088 of the contract’s value would be subject to income taxation at 35%.

The above is for illustrative purposes only. It does not address the impact of applicable state income and death taxes, nor does it reflect any deductions and credits that could be available to reduce the overall estate and income tax liabilities under certain circumstances.

A Taxing Example: Mike Megaworth (cont.)

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After 20 years of tax-deferred savings, 58% would be lost to taxes!

A Taxing Example: Mike Megaworth (cont.)

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Two ways to help reduce value of annuity assets for estate tax purposes during life:

Annuitizing the contract

Taking periodic withdrawals*

*May be subject to company-imposed withdrawal charges.

Annuity Alternatives

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Annuitizing the Contract

Contract owner elects to receive annuity payments over owner’s lifetime, joint lifetimes of owner and spouse, or a fixed period of time. A portion of payment will generally be taxable.

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May reduce overall income tax liabilities when compared to surrendering the contract

Not subject to estate taxes upon death of annuitant if life only option is selected

Annuity value may remain in surviving spouse’s estate

Annuitizing the Contract (cont.)

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Can take withdrawals from annuity for periodic income needs

Contracts purchased after August 1982—withdrawals taken first from gain or interest portion

Then withdrawals taken from basis or investment in the contract

*May be subject to company-imposed withdrawal charges.

Distributions to an owner who is under age 59½ may be subject to a federal income tax penalty of 10% of the taxable portion of the payment. Annuities based on a lifetime payout are generally not subject to the penalty.

Taking Periodic Withdrawals*

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Annuity contract owner purchases life insurance policy

Life insurance generally pays income tax–free death benefit

Portion of annuity income/withdrawals may be used to pay life insurance premiums

Policy can be owned by third party, such as irrevocable life insurance trust

Taxable amounts received from an annuity contract are taxed as ordinary income, and distributions to an owner who is under age 59½ may be subject to a federal income tax penalty of 10% of the taxable portion of the payment.

There’s Another Option: Annuity Maximization Strategy

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Life insurance is key to annuity maximization planning strategy

Life insurance policy generally pays its death benefits to beneficiaries income tax–free

If structured properly, policy can be kept out of taxable estate

Family’s legacy is protected for future generations

Life insurance policies issued by Transamerica Life Insurance Company, Cedar Rapids, IA 52499, or Transamerica Financial Life Insurance Company, Purchase, NY 10577. All products may not be available in all jurisdictions.

Estate Enhancement

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Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company (collectively “Transamerica”), and their representatives do not give tax or legal advice. This material is provided for informational purposes only, and should not be construed as tax or legal advice. Clients and other interested parties must consult with and rely solely upon their own independent advisors regarding their particular situation and the concepts presented here.

Discussions of the various planning strategies and issues are based on our understanding of the applicable federal income, gift, and estate tax laws in effect at the time of this presentation. However, tax laws are subject to interpretation and change, and there is no guarantee that the relevant tax authorities will accept Transamerica’s interpretations. Additionally, this material does not consider the impact of applicable state laws upon clients and prospects.

Although care is taken in preparing this material and presenting it accurately, Transamerica disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it. This information is current as of January 2008.

OLA 1004 T 1008

An Estate Planning Technique for Individuals Who Own Deferred Annuities with Sizable Growth