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Estate Planning

Estate planning is a vital component of lifetime financialplanning...Yet many people leave what could be the biggest financial questions of their lifetime

unanswered.

w Who will receive my estate?

w Will I owe estate taxes?

w How much will I owe?

w Where will the money come from when the tax is due?

Recent changes to the federal estate tax rules have left many people with the belief that estate

planning is only for the very wealthy. But that simply isn’t true. Providing the resources for the

payment of death taxes is only one aspect of a family’s estate planning. Many estates will

continue to have a federal estate tax liability since rate reductions and increased exemptions are

phased in over the next few years. Remember, when you die, the government calculates the

value of everything you own, including:

w Your home and any other real estate you may own.

w The face amount of any personal or group life insurance policies in your name.

w The sum of any savings, retirement plan assets or government benefits you are owed.

w The value of any personal property (cash, furniture, jewelry, automobiles, etc.)

w Your share of a business.

When the value of all your assets combined exceeds the amount exempt from federal estate

taxes*, you have an estate tax problem.

As soon as you believe your estate will one day exceed that amount, it’s time to begin the estate

planning process.

*Amount exempt from federal estate tax in 2007 is $2 million. This amount will increase gradually to $3.5 million inthe year 2009, but then revert back to $1 million in 2011.

Life’s Achievements

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The Rich and Famous – “The Cost of Dying”

Based on court records of the estate proceedings.

ESTATE PLANNINGESTATE PLANNINGESTATE PLANNING

Proper estate planning can help:w Ensure financial security for you and your family during your lifetime, and

after your death.

w Make certain your estate is passed on – intact – to your heirs and according

to your wishes.

w Reduce or eliminate taxes, administrative expenses and delays in connection

with the transfer of your estate.

w Provide liquidity to cover taxes, debts and expenses you may owe.

w Provide the peace of mind that comes with knowing steps have been taken

to protect the people who depend on you and everything you’ve worked a

lifetime to build.

Without an estate plan...w State law will determine who inherits your assets – even if it means they

pass to distant relatives or to children who lack the maturity to properly care

for them.

w The court appoints administrators who may not necessarily have ideas that

are compatible with your own.

w You may pay unnecessary taxes and expenses.

w The court appoints a guardian for your children.

w Your family could be forced to sell your assets – at less than market value –

to pay the estate taxes you owe.

Costs:$525,000

To Heirs:$2,475,000

Costs & Premiums:15-Year Premium Total$71,775

To Heirs:$2,843,000

The Estate Pie Solution

($3,000,000 estate at second death)

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Estate Problem

Estate Solution(using life insurance to pay

estate costs)

Costs: 4.00% administration fee andfederal tax of $405,000 in 2007.Based on second-to-die insurance on ahusband and wife age 50. Premiumspaid for 15 years. Policy not includedin taxable estate. This illustration ishypothetical and does not representinvestment results or performance of aspecific insurance product.

Paid in Gross Estate Settlement

Rick Nelson $ 744,357 32%W.C. Fields $884,680 37%Marilyn Monroe $819,176 55%Alwin Ernst, CPA $12,642,431 56%J.D. Rockefeller, Sr. $26,905,182 64%Elvis Presley $10,165,434 73%Howard Gould $67,535,386 78%


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Who should consider estate planning?w Individuals with assets exceeding the amount exempt from federal estate tax.

w People who own their own business.

w People who have minor children or who have been married more than once and are still

responsible for children from a prior marriage.

w People with dependents who are handicapped, elderly or who have special or

long-term needs.

w People who want to donate assets to a favorite charity, institution or other non-profit

organization.

Without proper estate planning, estate taxes could consume a substantial portion of everything

you own.

To whom do you want to leave your money – the attorneys who settle your estate and Uncle Sam,

or your family? The choice is yours.

Last Will & Testament

Taxable Estate withLife Insurance

(to cover cost of estate taxes)

Heirs Receive

95%

Taxable Estate without

Life Insurance

Heirs Receive

82%Note: Figures based on the Estate Pie Solution on page 2.

Because of progressive estate tax rates, probate and other settlement costs, one’s estate could

shrink substantially unless proper planning is done. Why let your heirs pay the taxes due on your

estate? Life insurance can provide money to pay the taxes due for just pennies on the dollar,

preserving your estate for your heirs.

What part of your estate would you want your family toliquidate in order to pay your estate taxes?

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Don’t be fooled...Most people know that they can leave their entire estate to their spouse, free from federal

estate tax.

Others believe their unlimited marital deduction, combined with the increase in the amount

exempt from taxation under the 2001 tax law, have solved their estate planning problems.

Wrong...Deferring estate taxes until the death of a spouse only postpones – and often increases –

the amount of taxes due.

w Assets continue to appreciate, resulting in increased taxes at the second death.

w The decedent spouse’s exemption – $2 million in 2007 – goes unused.

So How Big is the Estate Tax Bite?

* 2007 Estate Tax Calculator assuming use of full marital deduction at first death.

Total Estate Total Taxes* Percent of Estate

$3 million $460,000 15.3%$5 million $1,380,000 27.6%$10 million $3,680,000 36.8%$20 million $8,280,000 41.4%

From where will the money to paythe estate taxes come?

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Not only are estate taxes costly, but generally, they are dueand payable within nine months. Where will you find themoney to pay them?

w Savings and investments – You could sell off any stocks, bonds or mutual funds you own

to raise enough cash to pay the tax when it comes due. But if you sell them when the

market is depressed, you could suffer substantial losses. What’s more, you’d also lose

any future income and investment opportunities these funds could offer, resulting in

Estate Shrinkage.

w Sale of assets – You could liquidate assets such as your home and other personal

property. Unfortunately, most “forced sales” result in “bargain” prices for the buyer and

loss of value for the seller. The result: Estate Shrinkage.

w Credit – You could borrow money to pay estate taxes, but in doing so you’ll actually add

to your total expense. Now you’ll have to pay both the principal AND interest. The result:

larger debt and Estate Shrinkage.

w Proceeds from life insurance – Life insurance can provide the cash needed to pay estate

taxes for just pennies on the dollar. Consider the benefits:

w Cash for your estate, not from your estate.

w With proper planning, life insurance proceeds can be received tax free.

w Life insurance is not subject to the expense and delay of probate.

w Proceeds are paid immediately at death...no waiting.

w The amount of cash is guaranteed and known in advance. Please note all guarantees

are based upon the claims paying-ability of the issuer.

w No forced sale of assets at deeply discounted prices.

w Much needed cash and other liquid assets are preserved.

The result: Estate Preservation.

Protecting your estate is more than just paying off the estate taxes. It’s also making sure it is distributed according to your wishes.The four most common ways of preserving and transferring your estate to your heirs are wills, trusts,

charitable gifts and life insurance.

Wills

While everyone should have a will – and review it periodically – all a will really does

is direct the disposition of your estate. To accomplish other financial goals, such as reducing taxes,

you should also consider using trusts.

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A will is a legal declaration of how you want your

assets to be distributed when you die. Under a will:

w You specify who is to receive your assets.

w You designate who will be legal guardian for

your children.

w You appoint the person who will manage

and administer your estate.

w You can direct assets into trusts or other

accounts for the purpose of reducing taxes.

w You can postpone the transfer of assets to

beneficiaries to a later date.

w You can provide for charities, schools or

other selected organizations.

But a simple will cannot do it all:

w Ownership issues could supersede your will.

w Your will could be contested in court.

w Your will doesn’t become effective until

your death when family circumstances

might have changed.

w If you wait too long to create a will, you

could be deemed mentally unable to

do so and lose the ability to pass your

estate on according to your wishes.

The Estate Planning Process Examine Current Circumstances

Develop Revised Estate Plan, If Necessary

Identify Current Needs & Objectives

Evaluate CurrentEstate Plan

PeriodicallyReview Plan

Take Action to Implement Plan

Estate Planning is a continuous, lifetime process of acquiring, enjoying,conserving, and ultimately transferringthe property and assets of your estate.

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Trusts A trust allows you to “custom-tailor” the transfer of property to your beneficiaries according to

your specific wishes. There are various types of trusts, each designed to help you achieve very

specific goals, including:

w Living Trusts – Passing assets on to heirs without the expense, publicity and delay

of probate.

w QTIP Trust – Passing income and principal from assets on to a surviving spouse, while

ensuring the assets pass to a named individual after the spouse’s death.

w Irrevocable Life Insurance Trust – Keeping insurance proceeds out of your estate.

w Charitable Remainder Trusts – Passing income from assets to your beneficiaries, and,

at their death, passing the assets on to a charity, thus removing them from your

taxable estate.

Charitable Gifts Charitable gifting allows you to distribute a portion of your assets to selected organizations –

when and in whatever amounts you designate – thus reducing the amount of taxes you owe.

There are numerous ways to gift assets, both during your lifetime and after your death, all of

which provide the added bonus of:

Life Insurance Life insurance can provide the cash your family needs to maintain their lifestyle and the

liquidity to pay estate taxes and settlement costs when they come due.

With life insurance, your family won’t have to liquidate assets to pay estate costs.

Life insurance can also help you:

w Reducing estate tax liability.

w Sheltering assets from creditors.

w Increasing privacy in transferring assets.

w Providing income to a spouse, children or

individual with special needs.

w Rewarding a favorite charity.

w Provide for college expenses.

w Pay off the mortgage.

w Supplement retirement income for a

surviving spouse.

w Replace the value of a charitable gift.

w Equalize inheritances among your heirs.

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Why begin estate planning today?Because there’s no guarantee you’ll have time down the road. It’s never too early to start:

w Preserving the assets you’ve spent a lifetime building.

w Protecting your spouse, children or other heirs.

w Ensuring your assets are distributed how and when you want them to be.

w Reducing the amount of estate taxes that will be due.

w Providing for a favorite charity.

Take a look at the checklist on the next page. Think about each of the questions,

then answer “yes,” “no” or “not sure.” Every “no” or “not sure” answer should give you one more

reason to begin planning now for the preservation and distribution of your estate.

Is it time to get started on your estate plan? A secure financial future doesn’t happen by accident.

It requires examining your current circumstances; identifying your goals and objectives;

developing a plan to achieve those goals and objectives; taking action to implement your plan,

and periodically reviewing your plan.

The tool that helps us gather the appropriate information to begin this planning process

is referred to as a fact finder, which is simply a series of questions specific to your unique

situation. You can rest assured that all the information you provide will remain strictly

confidential. Once we have a good understanding of your current situation we will be better

prepared to serve your needs now and in the future.

Do you have an up-to-date will? ____ Yes ____ No ____ Not sure

Does your will name a guardian for your children? ____ Yes ____ No ____ Not sure

Are you still comfortable with the executor(s)of your will? ____ Yes ____ No ____ Not sure

Have you considered a living trust to avoid probate? ____ Yes ____ No ____ Not sure

Are you taking maximum advantage of tax credits,

exemptions, and the marital deduction? ____ Yes ____ No ____Not sure

Is the amount of life insurance you own adequate

to cover any estate taxes you may owe? ____ Yes ____ No ____ Not sure

Is the type of life insurance you have

appropriate for your situation? ____ Yes ____ No ____ Not sure

Have you removed your life insurance from your estate? ____ Yes ____ No ____ Not sure

Are you taking advantage of the annual gift

tax exclusion ($12,000 in 2007)? ____ Yes ____ No ____ Not sure

Have you created any trusts? ____ Yes ____ No ____ Not sure

If so, do they qualify for the annual gift tax exclusion? ____ Yes ____ No ____ Not sure

Are you planning on gifting assets to charity? ____ Yes ____ No ____ Not sure

Do you know the total value of your current estate? ____ Yes ____ No ____ Not sure

Are you anticipating a large inheritance? ____ Yes ____ No ____ Not sure

ESTATE PLANNING CHECKLIST

PM0378 6/07A7JC-0530-01

FX2001-1113-0073

Securities offered through Hornor, Townsend & Kent Inc. (HTK), Registered InvestmentAdvisor, Member NASD/SIPC, 600 Dresher Road, Horsham, PA 19044/215-957-7300. HTK is a wholly owned subsidiary of The Penn Mutual Life Insurance Company.

Please note: Any reference to the taxation of life insurance products in this material isbased on Penn Mutual’s understanding of current tax laws which are subject to change. You should consult a qualified tax advisor regarding your own personal situation.

©2007 The Penn Mutual Life Insurance Company, Philadelphia, PA 19172www.pennmutual.com

The Penn Mutual Family of Companies:

w The Penn Mutual Life Insurance Company

w The Penn Insurance and Annuity Company

w Independence Capital Management, Inc.

w Hornor, Townsend & Kent, Inc.

w Penn Series Funds, Inc.

w The Pennsylvania Trust Company

w Janney Montgomery Scott LLC

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