Estate Planning, Individually Centered

epic advisor guide

Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. Both companies are headquartered in Saint Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues.

Financial Professional

EPIC helps clients

WHAT’S INSIDE

What is EPIC estate planning? 4 The EPIC circles 7 Not all families are the same 10 Four threats to estate planning 12 Creating an EPIC story for your clients 14 The EPIC process 14 Looking back on traditional estate planning 18 The new language of estate planning 20 The new role of life insurance 24

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MAXIMIZE how they live

AND

MAXIMIZE what clients give tomorrow.

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What is

EPIC?

Your clients face a number of questions about their current estate planning:

Do I have enough life insurance?

How much should I give to my community?

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What about taxes?

How much should I give to my kids? Can I protect them? Is my estate plan up-to-date?

Estate planning: then and now Estate planning has changed significantly the past couple of years. From larger estate tax exemptions to income tax law changes to portability, your clients’ estate plans need to be reviewed in order to make sure they will accomplish their desires. In the past, most estate planning discussions centered on: • Is estate planning only about death planning? • What is the status of estate taxes and how will your client’s estate be impacted? • What are the newest estate planning strategies? These discussions are important but may miss the central objective: How to maximize your client’s estate plan.

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The limitations of traditional estate planning Most people think estate planning is about what happens upon their death. In planning for the future, people ask themselves: Do I live less today in order to give more tomorrow?

OR Do I live more today and simply give less tomorrow? But there’s a way to live more today and give more tomorrow.

It’s called

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EPIC.

EPIC: Estate Planning, Individually Centered EPIC focuses on your client in the present, preparing your client for retirement, and maximizing and protecting his or her estate’s potential.

“I want to maximize how I live today and maximize what I give tomorrow.” EPIC stands for Estate Planning, Individually Centered. The planning centers on your client by:

Maximizing the EPIC Circles

By minimizing the Four EPIC Threats

The EPIC circles The EPIC approach begins with your client and your client’s spouse (or partner) in the center of the estate plan. They have worked hard to build and maintain a legacy, and they deserve to enjoy it during their lifetime and then protect it for their descendants.

ep•ic adjective \’e-pik\ extending beyond the usual or ordinary, especially in size or scope

EPIC in retirement If money were no object, what are your hopes and dreams for your retirement years? How will you spend your time in retirement? Where will you live in retirement? What are your fears for your retirement years? These are the first few questions your clients will answer in the EPIC fact finder. They are followed with a discussion on how much your clients are saving to reach these goals.

EPIC at the first death The discussion then shifts to their hopes, dreams and fears when the first spouse passes away. Some considerations include: how much they want to protect the assets going to the surviving spouse and what amounts should go to their descendants or community at the first death.

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In addition, your clients may want to give some amounts to their community. Their community can include public charities, community foundations, religious organizations, etc. This is an opportunity to transition tax dollars into charitable dollars.

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Grandchildren

The last EPIC discussion centers on your clients’ hopes and dreams when they both pass away. What are their fears? How much do they want to give to their descendants? How do they want to pass down assets to their children?

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EPIC at both deaths

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Picture your clients’ communities surrounding their families, surrounding them and their spouses or partners, and the EPIC approach emerges:

The EPIC circles

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Not all families are the same Although many families consist of a mother, father and children all in one household, the traditional nuclear family has given way to many other family types. Estate planning must be done, taking into consideration the needs specific to each client’s family.

Single parents Estate planning is especially important for families led by single parents. Whether single due to divorce, separation, having never been married or the death of a spouse, the need for financial security remains constant. As their families’ sole providers, single parents are challenged with how to provide for today’s needs while also preparing for the future.

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Blended families Blended families come in many forms. The phrase “blended family” is an umbrella term covering a variety of family units blended together from other family units. While these families have become more commonplace, traditional estate planning often overlooks their needs.

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Life Insurance

THIS IS FAMILY

Smart solutions for today’s families

Non-citizen spouses

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www.securian.com www.securian.com

vwz INSURANCE | INVESTMENTS | RETIREMENT

400 Robert Street North, St. Paul,by MN 55101-2098 1-800-820-4205 Products and services are provided one or more of •the following affiliates of Securian Financial Group, Inc: Minnesota Life Insurance Company or ©2014 Retirement, Securian Financial Group, Inc. All rights reserved. Securian a unit of Minnesota Life. • 400 Robert Street North, St. Paul, MN 55101-2098 ©2013 Securian Financial Group, Inc. All rights reserved. F72274-26 4-2014 DOFU 4-2014 A01628-0314 F00000 0-2013 DOFU 0-2013 A00000-0000

Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. Both companies are headquartered in Saint Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues.

Our “This is Family” campaign provides you the tools and resources needed to enter underserved markets with unique life insurance and estate planning considerations. For more information about this campaign, call your Life Sales Support Team:

a financial strategy that helps ensure a more secure future for your family.

CLIENT SPOUSE

abc Securian Financial Group, Inc. Securian Retirement

CONTACT YOUR FINANCIAL ADVISOR TODAY to start creating

Estate and gift tax laws apply differently to your married clients when one is a non-citizen. Your clients need to work with advisors who are familiar with these tax laws in order for them to maximize their estate plan and make sure the non-citizen spouse is cared for when the citizen spouse passes away.

• 1-877-696-6654 (Securian and Broker-Dealer Partners) • 1-888-413-7860, option 1 (Independent Brokerage)

MUNITY

Partners (unmarried couples) Unmarried couples can be same or opposite sex who consider themselves to be partners in a relationship. They can include opposite-sex partners who don’t feel the need to validate their relationship with a ceremony; older couples who fear marriage will jeopardize Social Security, retirement benefits or alimony; or same-sex domestic partners. Because these relationships are not considered marriages and do not receive the same legal protections as married couples, unmarried couples need to make sure their estate plan contains the appropriate language to accomplish their goals.

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Four threats to estate planning There are four threats to your client’s estate plan: Taxes Traditional estate planning focused more on estate taxes. However, as a result of new tax laws, more people will be affected by income taxes than estate taxes. Estate planning is now income tax planning. The EPIC process reviews your client’s estate plan in order to make it as tax-efficient as possible by taking into account both income and estate taxes.

Creditors An important aspect of estate planning is to protect your client’s legacy from creditors. There are three areas of protection: 1. Protection for clients 2. Protection for spouses or partners 3. Protection for descendants EPIC reviews your client’s estate plan in order to use the appropriate amount of protection for these areas.

Spending Most people think planning for retirement involves saving as much money as possible and investing it wisely by diversifying. But in addition to diversifying investments, smart retirement savers also consider how taxes will affect their retirement dollars. EPIC seeks to maximize your client’s estate today, at retirement and at death.

Death Dying prematurely can leave your client’s family with a sudden loss of income and uncertainty as to how to pay off existing debt. The family’s potential inability to cover basic needs or save for future goals and expenses may require them to change their plans and dreams. EPIC helps ensure your client’s family is protected financially and establishes a more secure future.

YOUR LIFE YOUR LEGACY YOUR EPIC 12

Taxes

Creditors

CLIENT AND SPOUSE

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MUNITY

death

EPIC focuses on clients by maximizing the EPIC circles and by minimizing the four estate planning threats. I want to maximize how I live today and in retirement through tax-efficient spending and saving, and maximize what I give tomorrow by: • Protecting my family if an unexpected event happens. • Passing my estate in the most tax-efficient manner possible. • Protecting my assets for my descendants. • Turning tax dollars into charitable dollars.

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Creating an EPIC story for your clients Estate planning is about more than passing material wealth. Another definition of “epic” is “a story celebrating the adventures and achievements of a legendary or traditional hero.” Your clients want to make sure their EPIC also encompasses: • Passing values, hopes and dreams on to their descendants. • The memories they create with their family and friends. • The impact their actions and material wealth have in their community through charitable giving and volunteering.

The EPIC process EPIC breaks this sales process down into five steps:

Marketing/ education

FACT FINDING

Client engagement

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DESIGN/ ORDER TAKING

IMPLEMENTATION

Solutions meeting

Sale

AFTER-SALE SERVICE

Step 1: EPIC education and marketing The first step is to learn about estate planning and prospect for new and existing clients. We have provided a number of tools for you and your clients’ advisors:

estate planning, individually Centered Financial Professional

Four threats

Estate Planning, Individually Centered

to your clients’ estate plans

Financial Professional

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taxes

To maximize your clienTs’ esTaTe plans

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EPIC education

EPIC tools

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• For advisors –– EPIC Advisor Guide (this is the advisor guide) –– EPIC Tools Advisor Guide (F81291-11) –– Threats to Estate Planning Advisor Guide (F81291-16) • See other Minnesota Life and Securian Life estate planning materials in the “Making life work for estate planning” marketing campaign

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Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. Both companies are headquartered in Saint Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues.

Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. Both companies are headquartered in Saint Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues.

Threats to Estate Planning Advisor Guide

EPIC Tools Advisor Guide

Client Presentation – 2014 Tax Law Update

Preparing for Permanency*

EPIC marketing • Retail client presentations: –– “Make your estate plan EPIC” - introduction to EPIC (A04764-0914) –– “Preparing for permanency” - tax presentation (A04671-1213)

Client’s Budge

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*Permanency subject to change

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Money Spent New Debt Outstanding Debt

Introduction to EPIC presentation

Source: www.u

Step two starts with client engagement. Many advisors (especially those new to the estate planning market) are intimidated by approaching clients. The EPIC process helps you become more confident by providing questions to ask to determine your client’s estate planning objectives. During the initial client meeting, you have three goals:

2013

$22,000

$28,000 $35,000

$38,000 $16,000

$7,000 $172,000

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Client tax presen ta

tion

• “Pass your estate” client tax guide (F74093-6)

Step 2: Initial EPIC meeting

2012

Annual Incom

Estate Planning Tax Guide

Pass your estate with

MAXIMUM TAX EFFICIENCY

Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. Both companies are headquartered in Saint Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues.

“Pass your estate” client tax guide

1. Gather basic information 2. Listen to the client’s estate planning objectives Estate Planning, Individually Centered

3. Educate the client

Estate Planning, Individually Centered

EPIC fact finder The EPIC fact finder will give you the pertinent questions to ask your client and help both of you determine your client’s best course of action. There are two fact finders available: • “How will you leave your mark?” for couples (F81291-5) • “How will you leave your mark?” for individuals (F81291-12)

Your EPIC starts with you

Your EPIC starts with you

How will you leave your mark? Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. Both companies are headquartered in Saint Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues.

EPIC fact finder for couples

How will you leave your mark? Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. Both companies are headquartered in Saint Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues.

EPIC fact finder for individuals

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Step 3: Design After your initial client meeting, you refine the information gathered into the solutions that help meet the client’s objectives. Which strategies will maximize your client’s estate plan? Many advisors can rely on their own experience and education to find the appropriate solution. However, advisors with less experience can look for assistance from two resources: 1. Discuss the information with your client’s EPIC team of advisors. This includes the client’s CPA, tax professional and estate planning attorney. 2. Your dedicated sales support teams for Securian and Minnesota Life’s various financial product lines. Talk to your Life Sales Support Team for assistance connecting with the marketing materials and expertise provided in the EPIC and “Making life work for estate planning” campaigns:

EPIC estate planning requires experts Every estate plan needs experts from different areas in order to be EPIC. Estate planning comes down to three items: people, assets and tools. These experts need to work collaboratively together in order to make the client’s estate plan EPIC: 1. Relationship expert: Your client 2. Financial expert: Advisor/agent/CPA/tax professional 3. Strategic expert: Estate planning attorney

–– Expertise needed for matching a customized strategy with your client’s estate planning objectives. –– Informal reviews of your client’s current estate planning documents.

Step 4: Implementation You have identified the proper strategy for your estate planning client. Now it is time to help the client make an informed decision. This may include using Minnesota Life and Securian Life’s consumer marketing materials or illustration presentations. • Consumer materials break down complex solutions into easily understood summaries. • Illustration presentations summarize a specific concept using the client’s information and demonstrate a potential solution using life insurance.

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Step 5: Annual reviews Once the case is complete, the client has a sense of security because you have provided the appropriate strategies to address his or her concerns. However, your job doesn’t end there. Because of changing tax codes, personal, financial and family changes, and legal challenges, you should meet with clients annually to ensure the EPIC approach still aligns with their estate planning objectives. In addition, Minnesota Life and Securian Life as well as other Securian product lines provide after-sale support for some strategies. For example, Securian Trust Company may be a solution for your corporate trustee needs.

Why Securian Trust Company? Securian Trust Company values successful partnerships with a range of estate planning professionals: attorneys, tax professionals and financial advisors. Bringing a depth of knowledge and a wealth of experience to trust administration and investment management, Securian Trust Company connects with estate planning professionals to help your clients pursue their goals. Securian Trust Company offers: • Distinctive personalized service through an individually assigned trust officer. • The experience of a professionally certified staff averaging more than 20 years of experience. • A federally regulated national trust bank. • Professional support that allows advisors to expand client relationships while retaining a central advisory role.

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Looking back on traditional estate planning: “Getting it out” of the estate In the past, estate planning was simpler. Take for example, in 2001, the goal of traditional estate planning was to “get assets out of your client’s estate.” The reason we worked so hard to move assets outside of your client’s estate was the federal estate tax. Back then, the exemption amount was $675,000 with a top tax rate of 55 percent. In addition, the law still provided for state estate tax federal credit, so the highest a client would pay for estate taxes was 55 percent, and it really didn’t matter where your clients or their beneficiaries lived. Since the federal exemption rate was at $675,000, there were many clients who were affected by the federal estate tax. While step-up in tax basis for assets included in your client’s estate was an important consideration, the federal capital gains tax rate was 20 percent. Faced with the decision between inclusion and receiving a double step-up in basis for your client’s assets (top tax rate of 20 percent) and paying estate tax (top tax rate of 55 percent), clients chose to get assets outside of their estate.

Credit shelter trusts: The crown jewel of estate planning Because of these tax laws, the credit shelter trust was the crown jewel of estate planning. Most estate planning documents were drafted to place an amount equal to the federal estate tax exemption inside the credit shelter trust. Since the credit shelter trust utilized the deceased spouse’s exemption amount, the assets within this trust only received a step-up in basis at the first death but remained outside the surviving spouse’s estate. The surviving spouse could receive access to the assets within the credit shelter trust for ascertainable standards (health, education, maintenance and support). Any amount in excess of the exemption amount was transferred to the surviving spouse using the unlimited marital deduction.

Husband’s death in 2001 Husband’s estate $1.0 million

Wife’s estate $1.0 million Husband’s death

Exclusion Amount $675,000

Excess Amount $325,000

Credit Shelter Trust $1.0 MILLION Outright or QTIP $500,000

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These amounts were either given outright or to a qualified terminal interest property trust (QTIP), or marital trust for the benefit of a surviving spouse. Since these assets were included in the surviving spouse’s estate, they received a second step-up in basis but were included in the spouse’s estate for estate tax purposes. Another important planning technique involved using an irrevocable life insurance trust (ILIT) to own life insurance to help pay for estate taxes at the death of the second spouse. Typically, these ILITs were funded with protection-focused second-to die life insurance policies to create the greatest amount of death benefit for the smallest amount of premiums.

ILIT - Traditional Funding ILIT 1. Grantor gifts premium to trustee

Grantor

2. Trustee sends Crumney notice to Beneficiaries

3. B eneficiaries say “no thanks”

Child 1 Child 2

Child 3

Credit shelter trust

Marital trust

Outright to surviving spouse

• Bypass trust, family trust or “B” trust

• Also known as a QTIP

• Uses unlimited marital deduction and portability

• Beneficiaries can be surviving spouse and/or descendants

• Beneficiary must be surviving spouse

• Inside surviving spouse’s estate upon his or her death

• Uses deceased spouse’s exemption amount • Typically, distributions made for heath, education, maintenance or support • Outside spouse 2’s estate upon his or her death • Goes to descendants upon death of spouse 2

• Uses unlimited marital deduction and portability • Income distributions must be made to surviving spouse

• Upon death of spouse 2, assets go according to spouse 2’s estate planning

• Typically, principal distributions made for heath, education, maintenance or support • Inside surviving spouse’s estate upon his or her death • Goes to descendants upon death of surviving spouse

Benefits

Benefits

Benefits

• Creditor protection for spouse

• Asset protection for spouse

• Step-up in basis on both spouses’ estates

• Blended marriages

• Step-up in basis on both spouses’ estate

• Taxed at spouse 2’s income tax level

• GST exemption is not portable

• Can be a grantor trust

Considerations

Considerations

Considerations

• No disposition control for deceased spouse

• No step-up in basis at spouse 2’s death

• Will be included in surviving spouse’s estate

• No asset protection for surviving spouse

• Non-grantor trust for income tax purposes

• Trust income must be paid to surviving spouse

• Will be included in surviving spouse’s estate 19

The new language of estate planning: “Keeping it in” the estate Fast forward to 2014, and estate planning has become much more complex. This new estate planning landscape is now characterized by significantly lower transfer tax costs, higher income tax rates and significant disparity among the states when comparing the two taxes. In addition, portability has become a “game changer.”

Lower transfer tax costs estate planning, individually Centered Financial Professional

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taxes

Since 2001, the Federal Estate Tax exemption has slowly risen to $5 million (indexed for inflation - $5.43 million in 2015), and its top tax rate has decreased to 40 percent. As a result, fewer clients will face federal estate taxes, and their estate tax liability will be less. Please refer to the Threats to Estate Planning Advisor Guide, F81291-16.

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Higher income tax rates Conversely, Federal Income Taxes have been increasing, especially for high income tax earners. As a result, your clients are more likely to pay income taxes rather than estate taxes. In addition, the health care surtax or Net Investment Income tax potentially adds an additional 3.8 percent surtax on taxpayers’ investment income. Please refer to the Threats to Estate Planning Advisor Guide, F81291-16.

Disparity among states Estate planning is also impacted by your client’s state of residence, because of the great disparity of taxes between the 50 states. Currently approximately 20 states have some sort of transfer tax, and most states have an additional income tax which varies substantially by state.

What about your state? • Resources for state transfer taxes: http://www.mcguirewoods.com/ news-resources/publications/taxation/state_death_tax_chart.pdf • Resource for state income taxes: http://taxfoundation.org/article/ state-personal-income-tax-rates-and-brackets-2014-update

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Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. Both companies are headquartered in Saint Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues.

Threats to Estate Planning Advisor Guide

Portability Portability has become a “game changer” for the new paradigm of estate planning.1 It allows an executor of a deceased U.S. citizen or resident to transfer any unused estate exemption to the surviving spouse, called the Deceased Spouse Unused Exemption (DSUE). Only the DSUE of the last deceased spouse is portable, and there must be a timely filed estate tax return with an irrevocable election. It applies only to estate and gift tax – not generational skipping transfer tax – and its application to state law will depend on each state.

Spouse 1’s estate

Spouse 1’s death

Credit Shelter Trust

Marital Trust QTIP

Outright

Portability and Unlimited Marital Deduction

There are three benefits to portability:

1 It simplifies property ownership (no more “use it or lose it”). 2 It simplifies estate planning (for some estates, no need for bypass trusts).

3 It can give assets a double step-up in basis because it is included in both spouses’ estates.

1

See article - Franklin, Law, and Karibjanian, Portability – The Game Changer, ABA-RPTE Section (January 2013). 21

Portability vs. credit shelter trusts Currently, there is a lot of discussion in the estate planning community on how clients’ estate planning documents are to be drafted. The question is whether to use a credit shelter trust or focus on portability (using marital trust or outright to surviving spouse). The best course of action may be to create flexibility in your estate planning documents. There are a number of alternatives an estate planning attorney can use in the drafting of these provisions in your clients’ documents: • Outright bequest to spouse • Outright bequest to spouse with disclaimer to credit shelter trusts • Single QTIP trust with partial QTIP election • Clayton QTIP

Spouse 1’s estate

Spouse 1’s death

Credit Shelter Trust

QTIP

Outright

Portability and Unlimited Marital Deduction

The chart below contains a summary of the differences between credit shelter trusts, marital trusts, and outright distributions to spouses:

2

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Credit shelter trusts

Marital trusts with portability

Outright to surviving spouse with portability

Step-up in basis at first death?

Yes

Yes

Yes

Step-up in basis at second death?

No

Yes

Yes

Inclusion in surviving spouse’s estate?

No

Yes

Yes

Use of GST exemption?

Yes

No

No

Beneficiaries

Surviving spouse and/or descendants 2

Surviving spouse only

Surviving spouse only

Asset management?

Yes

Yes

No

Disposition control by deceased spouse?

Yes

Yes

No

Asset protection with spendthrift provisions?

Yes

Yes

No

Taxed at:

Trust tax rates

Surviving spouse’s tax rate

Surviving spouse’s tax rate

Important criteria for couples in blended marriages.

Tax issues with credit shelter trusts

Trust Income tax rates

A traditional credit shelter trust is a non-grantor trust funded with the applicable exclusion amount of the deceased spouse. One of the drawbacks of having assets in a credit shelter is if income is left inside the trust, then it will be taxed at the compressed tax rates. For example, if the assets in the trust have income over $12,150 and income is not paid out to the beneficiaries, then the income will be taxed at the top tax rate and may include the 3.8 percent Health Care Surtax. Life insurance can be an intriguing asset inside of a credit shelter trust because it grows tax-deferred and the death benefit is paid income tax-free. See wait-and-see estate planning and life insurance in an existing credit shelter trust in the EPIC Tools Advisor Guide (F81291-11).

Income tax basis

If taxable income is

The tax is

Not over $2,500

15% of the taxable income

Over $2,500 but not over $5,900

$375.00 plus 25% of the excess over $2,500

Over $5,900 but not over $9,050

$1,200 plus 28% of the excess over $5,900

Over $9,050 but not over $12,300

$2,068 plus 28% of the excess over $9,050

Over $12,300

$3,140.50 plus 39.6% of the excess over $12,300

Plus 3.8% health care surtax on net investment income over $12,300

Based upon these changes, you must measure the potential transfer tax costs against the income tax savings that would arise from a step-up in basis in clients’ estate plans.3 You will need to keep in mind:

For the 2015 tax year

1. The Federal Estate Tax Exemption will continue to increase. 2. If a client dies in a state that has a transfer tax, transfer tax calculation must include state transfer taxes. 3. The income tax savings from the “step-up” in basis must be measured with the state taxes where the beneficiaries will live.

Step-up in basis? Credit shelter trust

QTIP

Outright

Retirement income assets

Probably not, because retirement income assets are best used for surviving spouse’s retirement income

Possibly

Yes

Capital assets

Yes, but watch out for only step-up in basis upon first death and non-grantor trust

Yes, using unlimited marital deduction and portability

Yes, but no asset protection and loss of disposition control

Yes, automatic step-up

Maybe, if needed for retirement income

Legacy assets

Possible double step-up in basis

Watch out for estate inclusion

3

Maybe, if needed for retirement income Watch out for estate inclusion

L ee, Brewer, and Harrison, Venn Diagrams I: Meet Me at the Intersection of Estate and Income Tax (Tax Basis and Income Tax Planning for Larger Estates), 2014 Heckerling Estate Planning Institute. 23

The new role of life insurance: flexibility The flexibility and versatility of life insurance as both a wealth accumulation and wealth transfer asset makes it an integral tool in the new paradigm of estate planning. Here are some of the new roles life insurance plays in the new paradigm: Supplemental retirement income Due to the different tax thresholds with current income taxes, life insurance can be used as a wealth accumulation tool for supplemental retirement income. Clients close to an income tax threshold may consider taking cash value or loans out of the policy as income tax-free income to supplement their retirement income. See Life Insurance in Retirement Program Sales Track (F72497-13) and the wait-and-see planning materials in the Making Life Work for Estate Planning campaign.

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Managing investment risk Investors may be more

comfortable taking added investment risk with other assets knowing a life insurance death benefit is providing a secure financial base.4 With the many investment options found in a variable policy, clients have the ability to rebalance subaccounts tax-free to carry out revised portfolio objectives and risk tolerances.4 See Life Insurance in Retirement Program Sales Track (F72497-13) and “wait-and-see planning” in the EPIC Tools Advisor Guide (F81291-11).

Irrevocable trusts Because cash value grows tax-deferred, life insurance has a unique role in irrevocable trusts. If an irrevocable trust is not a grantor trust (such as credit shelter trusts), the ability to grow tax-deferred and an income tax-free benefit make life insurance an intriguing asset to be funded in these trusts. In addition, since there is asset protection with irrevocable trusts (such as ILITs, SLATs, BLATs, etc.), a life insurance policy can receive creditor protection, while allowing access to cash value for supplemental retirement income. Wealth replacement Charitable planning will likely become more prevalent because of increasing income taxes. Direct gifts to charities and charitable remainder trusts may ensure a basic legacy for descendants, with other assets set aside for charity. See “wealth replacement” in the EPIC Tools Advisor Guide (F81291-11).

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Life Insurance in Retirement Program

LIRP sales track

Most people think preparing for retirement involves saving as much money as possible and investing it wisely by diversifying. But in addition to diversifying investments, smart retirement savers also consider how taxes will affect their retirement dollars. As a financial advisor, you can help pre-retirees evaluate and implement various ways to save for retirement and withdraw income once retirement arrives. It’s important to consider the contribution, accumulation and distribution tax characteristics of these options. The following sales track provides suggested steps you can take to show clients how life insurance may become a valuable asset in retirement. From education, prospecting and fact finding to strategy design and implementation, each step highlights the resources available to guide you through the sales process.

Education

Prospecting

First appointment

Strategy design

Solutions and implementation

Service and support

1. Education Many experts advise that life insurance should not be used as a retirement investment vehicle. Other experts advise that life insurance can be a good retirement investment vehicle – once other retirement vehicles are maximized. Most importantly, life insurance can be an instant asset, providing beneficiaries with a means of support after the death of a provider. But a cash value life insurance policy can also be used to supplement your clients’ retirement. This is a consideration given only after other, more expedient retirement vehicles are utilized. These include 401(k)s, Roth IRAs and other such investments. Permanent life insurance features tax-deferred growth and tax-advantaged access to its cash value, provided it is structured correctly: • Policy values up to the amount the client has paid in premium is considered “basis.” Since it is essentially the client’s money, the client may withdraw from the policy up to this amount without taxation.

• Any amount over basis is considered gain and is taxable. However, if a client accesses this portion of the cash value through a policy loan, there is no tax – as long as the client maintains the policy in force, pays the interest or pays off the loan.

This is why life insurance is considered “tax-advantaged” and under some circumstances, for some clients, it can be a solution for providing supplemental retirement income.

Life Insurance in Retirement Program Sales Track

Estate Planning, Individually Centered Financial Professional

EPIC tools To maximize your clienTs’ esTaTe plans

Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. Both companies are headquartered in Saint Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues.

Estate equalization Estate equalization is where a business owner wants to treat his or her children fairly but maybe not equally. Here, a business owner bequeaths the business to a successor child who wishes to continue the business. The rest of the assets then will be split among the other children. See “estate equalization” in the EPIC Tools Advisor Guide (F81291-11).

EPIC Tools Advisor Guide

Blended families Life insurance may be useful in second marriages to provide for a surviving spouse, while children from the previous marriage could receive other assets (for example, specific assets from the first marriage).

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Warshaw, Melvin A. , Life Insurance as an Asset Class, Trust & Estates, (April 2014). 25

Take a fresh look at your clients’ estate plans. We’ll work with you and your clients’ estate planning professionals to help create an EPIC that’s right for your clients. Contact Advanced Marketing today: Bill Stark, JD, LLM, CLU Senior Advanced Marketing Counsel 651-665-1500 [email protected]

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Channing Schmidt, JD, CFP® Senior Advanced Marketing Counsel 651-665-4335 [email protected]

Keeping promises since 1880 With a long history in offering flexible life insurance, Securian Financial Group, the holding company parent of Minnesota Life and Securian Life, and its affiliates has been committed to protecting clients since 1880. Minnesota Life Insurance Company and Securian Life Insurance Company, a New York authorized insurer, are highly rated by the major independent rating agencies that analyze the financial soundness and claims-paying ability of insurance companies. For more information about the rating agencies and to see where our ratings appear relative to other ratings, please see our website at securian.com/ratings.

Partnering with you to protect your clients’ estates Life insurance plays an important role in many estate planning strategies. Policies from Minnesota Life and Securian Life are not only backed by experience and financial strength – they’re backed by a company that believes in treating policyholders like partners. We understand the importance of treating our loyal policyholders well, and we demonstrate our commitment to them by offering new agreements and policy features year after year. Whether your clients are purchasing a new policy or making changes to one they currently own, choose a policy backed by a company that shows how much it cares about them.

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This information may contain a general discussion of the relevant federal tax laws. It is not intended for, nor can it be used by any taxpayer for the purpose of avoiding federal tax penalties. This information is provided to support the promotion or marketing of ideas that may benefit a taxpayer. Taxpayers should seek the advice of their own tax and legal advisors regarding any tax and legal issues applicable to their specific circumstances. Life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender periods. Please keep in mind that the primary reason for purchasing life insurance is the death benefit. Policy loans and withdrawals may create an adverse tax result, in the event of a lapse or policy surrender, and will reduce both the cash value and death benefit.

Securian Financial Group, Inc. www.securian.com Variable products distributed by Securian Financial Services, Inc., Member FINRA/SIPC. 400 Robert Street North, St. Paul, MN 55101-2098 • 1-800-820-4205 ©2014 Securian Financial Group, Inc. All rights reserved.

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F81291-2 10-2014 DOFU 10-2014 A04837-0914

For financial professional use only. Not for use with the public. This material may not be reproduced in any form where it would be accessible to the general public.