life insurance as a legacy asset -...

Life Insurance as a Legacy Asset

Broker / Dealer use only LCN‐1985828‐010518 1

This material was prepared to educate participants on the attributes of life insurance products. Lincoln Financial Group® affiliates, their distributors, and their perspective employees, representatives, and/or insurance agents do not provide tax,accounting, or legal advice.

Clients should consult their own independent advisor as to any tax, accounting or legal statements made herein.

Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates.

Broker / Dealer use onlyLCN‐2023683‐020918

Insurance products issued by:The Lincoln National Life Insurance CompanyLincoln Life & Annuity Company of New York

Richard ForchtAdvanced Sales Lincoln Financial Distributors

©2018 Lincoln National Corporation

Opportunity Knockscreated by the

Tax Cuts and Jobs Act 2017FPA Symposium

FPA of San Antonio and South Texas May 9, 2018

Not a deposit Not FDIC-insured May go down in valueNot insured by any federal government agencyNot guaranteed by any bank or savings association

Important Information

This seminar is for educational purposes only. It is intended to be accurate and authoritative in regard to the subject matter covered. It is presented with the understanding that I am not engaged in rendering legal or tax advice.

Lincoln Financial Group provides the sales concepts we’ll discuss for information purposes only. While this seminar discusses general tax aspects of planning with insurance, we make no representations as to suitability for individual clients. Interested parties should be strongly encouraged to seek separate tax and legal advice before implementing a plan of the type described in this presentation.

Illustration numbers are for training purposes only and represent case studies of how to analyze products prior to sale to the client. Hypothetical illustrations, projected premiums and death benefits are based on the interest rate, mortalitycharges and other expenses illustrated in the life insurance policy used in this example. They are not guaranteed.

This material was prepared to educate participants on the attributes of life insurance products. Lincoln Financial Group® affiliates, their distributors, and their perspective employees, representatives, and/or insurance agents do not provide tax,accounting, or legal advice.

Clients should consult their own independent advisor as to any tax, accounting or legal statements made herein.

Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates.

Lincoln LifeElements® Level Term (2017) — 01/23/17, policy form TRM6063 and state variations. Not available in NY. Lincoln LifeElements® Level Term (2014) — 03/14/16, policy form TRM5065/ICC14TRM5065, with endorsement END7013 and Conversion Products Amendment AMD‐7029, and state variations; TRM5065N.2/15 in NY. Lincoln TermAccel® Level Term policy form TRM5065/ICC15TRM5065 with endorsement END7013, data pages TA5165, and state variations. Not available in NY. Lincoln LifeElements® One‐Year Term policy form LN485 and state variations; LLANY485 in NY.

Lincoln LifeCurrent® UL policy form UL5023 and state variations; UL5023N in NY. Lincoln LifeGuarantee® UL (2013) — rates as of 09/12/16, policy form UL6000 and state variations with optional rider form ABR‐7001/ICC15ABR‐7001. Not available in NY. Lincoln LifeGuarantee® SUL (2013) policy form SUL6008 and state variations. Not available in NY. Lincoln LifePhases® UL policy form UL6016 and state variations with optional rider form ABR‐7004. Not available in NY. Lincoln LifeReserve® UL policy form UL5051 and state variations; UL5051N in NY. LifeReserve® Exec UL policy form UL5024 and state variations; UL5024N in NY. Lincoln InReach® UL policy form LN850 (8/05) and state variations; LN850 (5/09) in NY.

Lincoln LifeReserve® Indexed UL Accumulator (2014) policy form UL6024/ICC14UL6024 and state variations with optional rider form ABR‐5762; UL6024N with optional rider form ABR‐5762N in NY. Lincoln WealthAdvantage® Indexed UL policy form UL6046/ICC15UL6046 and state variations with optional rider form ABR‐7027/ICC15ABR‐7027; UL6046N with optional rider form ABR‐7027N in NY. Lincoln WealthPreserve® Survivorship IUL policy form SUL6035 and state variations with optional rider form ICC14ABR‐7012/ABR‐7012; SUL6035N with option rider form ABR‐7012N in NY.

Lincoln VULONE (2014) policy form LN696 and state variations with optional rider form ICC15LR631/LR‐630. Not available in NY. Lincoln SVULONE (2016) policy form LN667 and state variations. Not available in NY. Lincoln PreservationEdge® SVUL policy form LN699 and state variations; LN699 in NY.

Lincoln AssetEdge® VUL (2015) policy form LN683 and state variations


Important information

This information is provided to help producers evaluate Lincoln’s products in relation to competitors’ products. The competitor information in the following slides is from public sources deemed reliable from peer group companies. Although every attempt has been made to ensure the accuracy of the information provided, it cannot be guaranteed. Product features and benefits, expenses, loads and charges will vary from company to company and will impact the values shown. The product’s specific features and the client’s use of those features will impact long‐term policy performance.

This comparison is not intended for and cannot be used with the public.

Although every attempt has been made to ensure accuracy, it cannot be guaranteed. This information does not include product details. Each product’s features and benefits should be weighed against the cost.

Information current as of January 15, 2018, and must be rechecked after July 15, 2018.

Source: Competitor software.


Lincoln Protects


Lincoln GUL is back!

Lincoln simplifies IUL

Chronic care options

Easier submission

Introducing Lincoln LifeGuarantee® UL (2013) 02/12/18 with improved pricing for level pay scenarios at ages 60+

Introducing Lincoln WealthPreserve® IUL, a death benefit‐focused IUL with a 40‐year no‐lapse1 and a 10‐year guaranteed cap

Introducing Lincoln LifeAssureSM ABR2, a no upfront‐cost rider provides added flexibility in the event of a permanent chronic illness

eSubmission for ALL fixed products and term and Forms tool enhancements

Available February 12, 2018

Lincoln LifeGuarantee® UL

GoalImprove competitiveness in core market: level‐pay, lifetime guarantee, non‐tobacco classes, ages 60+

Results in core marketPremium rankings for Lincoln LifeGuarantee® UL (2013) compared to key competitors, assuming nontobacco, level pay premiums to guarantee a lifetime death benefit of $1,000,000.

60 65 70 75 80

MALE Preferred Best 2 1 4 3 4

Preferred 2 2 4 2 4Standard 3 2 2 2 1

FEMALE Preferred Best 2 3 3 3 3

Preferred 2 2 4 4 4Standard 3 2 2 2 3

Information is from public sources deemed reliable; its accuracy cannot be guaranteed. Information is valid as of January 15, 2018, and should be rechecked for accuracy after July 15, 2018. Source: Competitor illustration software.


Lincoln WealthPreserve® IUL @ 6.00 $18,451 Age 90 Lifetime $22,370

Symetra UL‐G $18,162 Lifetime Lifetime $20,885

Lincoln LifeGuarantee® UL (2013) ‐ 2/12/18 $19,928 Lifetime Lifetime $20,560

AG Secure Lifetime GUL 3 $19,590 Lifetime Lifetime $19,024

Nationwide YourLife No Lapse GUL $19,933 Lifetime Lifetime $24,586

PennMutual Guaranteed Protection UL $19,934 Lifetime Lifetime $23,740

Protective Advantage Choice UL $20,783 Lifetime Lifetime $18,100

Lincoln Protection Portfolio

60 year‐old standard male, $1M death benefitProtection Alternatives

60 year‐old standard male, solve for the minimum annual level premium to guarantee or endow a $1,000,000 level death benefit for lifetime. State of Ohio.


Annual Premium

Guarantee Duration

CoverageDuration Target

Lincoln VULONE (2014) $21,372 Lifetime Lifetime $31,110

LincolnLifeElements®

Level Term*

Lincoln TermAccel®

LincolnLifeGuarantee® UL

LincolnVULONE

Lincoln WealthPreserve® IUL

Temporary coverage Lifetime guaranteed death benefit Extended guaranteed DB (1)

Lincoln LifeGuarantee® SUL

Lincoln SVULONE

Lincoln WealthPreserve® SIUL*

Cash value potential



(1) Lincoln WealthPreserve IUL features a minimum death benefit guarantee period of 40 years or to age 90 whichever occurs first.

Lincoln LifeGuarantee® UL

Lincoln VULONE

Lincoln WealthPreserve® IUL

Target ages Ages 60+ Ages 35+ Ages 35‐65Max DB

guarantee duration

Lifetime Lifetime 40 years up to age 90

Optimal premium duration Lifetime

Single‐pay (1035x)Short‐payLifetime

Lifetime

Cash value Limited Direct market investment Tied to S&P

Living benefits LifeEnhance® ABR LifeEnhance® ABR LifeAssureSM ABR

LifeEnhance® ABR



No upfront cost

Convenient

No waiting period

Tax‐efficientAvailable at issue for no additional cost and no impact on policy unless exercised

No receipts or reimbursements are required, and funds can be used for

anything

No waitingperiod to receive benefits, once all

eligibility conditions have been met

The benefits are designed to be excluded from taxable income

Available only at issue, subject to certain requirements

Lincoln LifeAssureSM Accelerated Benefits Rider


#5 Mega Wealth Strategies

Trust Review“Have you updated your trust for the new tax law?”


Dynasty Trust Grantor Male 78

$500,000 annual dividend income to reinvest

Trustee wants to diversify trust holdings

Loss averse Grantor favors stable high grade assets

Wealthy Patriarch with a cadre of advisors in a Family OfficeCadre considering Guaranteed Universal Life

Guaranteed Return

Tax Efficiency

Mortality Longevity

Reasons TO buy Reasons NOT to buy

$4,660,692 Lincoln LifeGuarantee® UL $300,000 annual premium, level death benefit



(2) Lincoln LifeReserve® IUL Accumulator (2014) Policy Form UL6024, $615,916 DB, $100,000 annual premium, death benefit increasing by cash value @6.5% and current rates. At 1% return and guaranteed rates the policy would lapse in year 15.

(4) Life Expectancy based on the 2008 Valuation basic table for Standard Non‐Tobacco rating

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

80 85 90

$3M

$6M

GUL (1)Opt 1

IUL (2)Opt 2

UL (3)Opt 3

GUL (1)Opt 1

IUL (2)Opt 2

UL (3)Opt 3

AGE 90Life Expectancy (4)

GUL (1)Opt 1

IUL (2)Opt 2

UL (3)Opt 3

0

Combined Portfolioat Life Expectancy

$5,292,194Death Benefit

DB IRR5.80%

AGE 78

½¼ ¾Actuarial Life Expectancy Longevity Planning Range

$5,292,194

5.80%IRR

$4,416,796

13.46%IRR

$6,167,541

2.89%IRR

(1) Lincoln LifeGuarantee® UL (2013) 09/12/16 Policy Form UL6000, $1,552,197 DB, $100,000 annual premium, level death benefit

(3) Lincoln LifeReserve® UL (2009) Policy Form UL5051, $831,887 DB, $100,000 annual premium, death benefit increasing by premium

Diversified Lincoln Life Insurance Policy Portfolio (1)

Lincoln LifeGuarantee® UL , $1,552,197 DB, level death benefit

Lincoln LifeReserve® IUL Accumulator, $615,916 DB, increasing by cash value

Lincoln LifeReserve® UL, $831,887 DB, death benefit increasing by premium

(1) $300,000 annual premiums (1/3 each policy)



Deduct:• Vacation home• Charity (business positioning)• (CLAT, etc)• Oil & Gas, other Partnerships• Family Director Fees• Real Estate Loss• ESOP Contributions• LTC (C Corp especially)

Defer:• Roth• Sale to ESOP w/ 1042• Nonqualified Compensation• 1031, 1035• 401K, Qualified Profit Sharing• Life Insurance for Q Plan conversion to Roth• Elect Cash Basis of Accounting• Split dollar compensation arrangements• Defer down to new tax tables

Business Building Revenue Streams for AdvisorsDivert:• Income to kids• Gifts of Business Interests• IRA, etc• Payroll to family• Life Insurance as supplemental

Retirement Income• Gift appreciated assets

Convert:• Buy‐sell via Cross‐Purchase• Life Insurance (trust)• Life Insurance (Business Funding)• Roth• 529 Plans• CRT• Tax Reduction Strategies• Muni Bonds• Capital Gains• Grandparent pay for education

Peopleat work Versus

Capitalat work

Starting a new business

#4 Business Capitalization

TCJA Tax Planning Opportunities for Business Owners


Pyramid of Business Owner Planning




“How have you re‐structured your business?”

1) Tax Cuts and Jobs Act of 2017 (TCJA) rates, 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Pre –TCJA rates 10%, 15%, 25%, 28%, 33%, 35%, 39.6%

SoleProprietor

Partnership Corporation

37% 37% 21%29.6% (3)TCJA (1)

Pre‐TCJAMax Rates(1)

39.6% 39.6%

QBIPT(2)

Partnership

39.6%35%

New Capital 2.6% 2.6% 10.0% 14%+18.6%

Proprietorship Incorporates

New Working Capital

2) A Qualifying Business Income Pass Through (QBIPT) is an entity that can qualify for a 20% deduction on the non‐wage portions of pass‐through income. if the pass‐through income for a married couple is $315,000 or less ($157,500 for single filers), then the 20% deduction is limited to 50% of the W‐2 wages, or in the case of a business that requires capital (a non‐personal service business) 25% of W‐2 wages plus 2.5% of the adjusted cost basis of the assets.

3) https;//www.forbes.com 12/26/17 making‐sense‐of‐the‐new‐20‐qualified‐business‐income‐deduction


#3 Capital at Work

Making capital work for the owner

BusinessSuccession

AttractingKey Employees

CreatingOwner Equity

OwnerCompensation

EquityCreditor Protection

Sharing the Wealth

RetainingKey Employees

“Are you working more in your business than on your business?”


• Exit strategy? Which preferred exit paths?• Bench Strength for internal succession?• Last time life insurance policies reviewed?•Who guarantees bus debt if internal transfer?•What are “key” value drivers?

•What group benefits? 401(k); Health, LTD, LTC•What education is offered? Priorities?• Can key execs save enough for retirement?• Voluntary deferral plans like NQDC > 401K?•When benefits last benchmarked? (Performance, fees, admin, compliance?)

• Formula for Valuation?• Adequately capitalized? Debt levels? • What & why entity type (C, S, LLC, etc.)• How to balance growth and preservation?• How address leader and capital succession?

Entity Planning ?

Employee Benefits ?

• Special compensation for owner group?• What incentives to create talent magnet?• Retention via contracts, ‘golden handcuffs’• Which mix of True equity, synthetic equity, LT

cash awards? Which, Why? • How tax efficient Executive Comp plans?

Executive Compensation ?

Business Succession ?

#3 Capital at Work


Multiple Entity Participants

Natural Person

Partnership

Corporation

Natural Person

Trust

Corporation

Trust

Partnership

Split $ Insurance PlansRev. Rul. 64‐328, 1964‐2 CB 11

Endorsement

Assignment

Non‐Split $ Plans

CompensationGiftLoanDividend

Multiple Entity Insurance Plans

#3 Capital at Work


• Low Correlation• Absolute Returns• Mortality Hedge

• Cash Flow Management• Long Term Care Funding• Legacy• Multi Purpose Assets

• Longevity Hedge• Tax Efficiency

an Alternative AssetLife InsuranceAccumulation Portfolio

Distribution Portfolio

Life Insurance Portfolioas a Core Asset

What is the evolving role of life Insurance ?

#3 Capital at Work


7%$250,000

LincolnLifeElements (1)

30 year Level TermMale 50 Std NT

$250,000

LincolnWealthAdvantage (2)

IULMale 50 Std NT $2400 annual

Premium / 30 years

$72,000Cost of Insurance

6%

5%

167,426

201,124

242,575

$72,000$2400 X 30 Years

‐ Value of $2,400 annually for 30 years ‐

Cost of Insurance

Expense & Admin Charges

Premium Load

$57,829Total Policy Expenses

(1) Lincoln LifeElements® Level Term 30 (11/14) Policy Form TRM5065, $250,000 DB, $2400 annual premium, Male 50 Std NT(2) Lincoln WealthAdvantage® IUL Policy Form UL6046, $250,000 DB, $2400 annual premium, level death benefit, Male 50 Std NT @ 3.5%Assuming 1% return and curr charges policy will lapse in yr 33. Assuming guar min return and max charges policy lapses yr 11

#3 Capital at Work


0

250000

0

250,000

500,000

750,000

1,000,000

1,250,000

$250,000Level BenefitLife Insurance (1)

$2,400Annual Premiums

Age 50 60 70 80

Increasing Option UL(2)

$14,400 Annual Premium2,400 Base Premium plus

12,000 Additional Premium

$250,000 Specified Amount DB

Policy Cash Value

Age 50 60 70 80

(1) Lincoln WealthAdvantage® IUL Policy Form UL6046, $250,000 DB, $2400 annual premium, level death benefit, Male 50 Std NT(2) Lincoln WealthAdvantage® IUL Policy Form UL6046, $250,000 DB, $14,400 annual premium, lncreasing death benefit, Male 50 Std NT

Surrender Value at age 80 : 1,032253 @6% w/current charges, 425,751 @1% w/current charges and 314,214 @1% w/guaranteed charges.

#3 Capital at Work


WealthAdvantage Indexed UL $250,000

Death Benefit$2,400/ year

Cash Valueand

Residual DB

$250,000Death Benefit

$2,400/ year

NoBenefits

12345678910

15

51525354555657585960

65

2,4002,4002,4002,4002,4002,4002,4002,4002,4002,400

2,400

250,000250,000250,000250,000250,000250,000250,000250,000250,000250,000

250,000

<0.04>1.27%2.52%3.26%3.74%4.09%4.34%4.54%4.70%4.83%

5.61%

12,00012,00012,00012,00012,00012,00012,00012,00012,00012,000

12,000

11,85724,45937,84852,03967,08383,02999,932117,849136,841156,973

286,298

Death Flexible Potential (1) Cash ValueYear Age Premium Benefit Premium Cash Value IRR

Inter‐generational Family Planning Options

FatherMale 50 SNT

MotherBeneficiary ChildChild

Owner with fully funded policy cash values

LifeElements30 Year

Level Term

Life Features Insurance

Tax‐deferred growth ✓

Tax‐advantaged ✓Distributions

No additional tax for early withdrawals ✓

Will not increase tax expenses, Social Security ✓taxation, or Medicare

Income tax‐freedeath benefit ✓

(1) Potential Cash Value of Lincoln WealthAdvantage Indexed UL, $230,00 Option 2 @6% and current charges assuming Male 50 Std NT. At 1% returns and guaranteed maximum charges, the policy lapses in year 45 with no distributions.

Distributions are taken through loans and withdrawals which reduce a policy’s cash surrender value and death benefit and may cause the policy to lapse. Loans are not considered income and are tax free. Withdrawals and surrenders are tax‐free up to the cost basis, provided the policy is not a modified endowment contract (MEC).


12345678910

15

51525354555657585960

65

2,4002,4002,4002,4002,4002,4002,4002,4002,4002,400

2,400

250,000250,000250,000250,000250,000250,000250,000250,000250,000250,000

250,000

<0.04>1.27%2.52%3.26%3.74%4.09%4.34%4.54%4.70%4.83%

5.61%

12,0000

24,00012,000

06,00030,40012,00012,00012,000

12,000

11,85712,59737,10451,25154,41763,68997,175114,927133,744153,690

281,905

FatherMale 50 SNT

MotherBeneficiary

ChildOwner with partially funded policy cash values


(1) Potential Cash Value of Lincoln WealthAdvantage Indexed UL, $230,00 Option 2 @6% and current charges. Assuming Male 50 Std NT. At 1% returns and guaranteed maximum charges, the policy lapses in year 45 with no distributions.

< >

< >

VariablePayments

Make upPayments

Loans

Withdrawls

Distributions are taken through withdrawals and loans which reduce a policy’s cash surrender value and death benefit and may cause the policy to lapse. Loans are not considered income and are tax free. Withdrawals and surrenders are tax-free up to the cost basis, provided the policy is not a modified endowment contract (MEC).



12345678910

15

51525354555657585960

65

2,4002,4002,4002,4002,4002,4002,4002,4002,4002,400

2,400

250,000250,000250,000250,000250,000250,000250,000250,000250,000250,000

250,000

‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐

‐‐

0000000000

0

0000000000

0(1) Potential Cash Value of Lincoln WealthAdvantage Indexed UL, $250,00 Option 1 @6% and current charges.

FatherMale 50 SNT

MotherBeneficiary

ChildOwner waits to fund policy death benefits

Death Flexible Death (1) Death BenefitYear Age Premium Benefit Premium Benefit IRR


Probabilityof Death

51.57%55.84%60.20%64.61%69.02%73.34%77.51%81.43%85.01%88.18%90.87%93.11%94 92%

Probabilityof Death

73.34%77.51%81.43%85.01%88.18%90.87%93.11%94.92%96.36%97.48%

(1) Potential Death Benefit of Lincoln WealthAdvantage Indexed UL, $250,00 Option 1 @6% and current charges assuming Male 50 Std NT. At 1% returns and guaranteed maximum charges, the policy lapses in year 11 with no distributions.


30

35

363738394041424344454647484950

80

LE

8687888990919293949596979899100

2,400

0

000000000000000

250,000

250,000

000000000000000

‐‐

‐‐

2677.78%374.41%158.20%90.39%58.90%41.11%29.83%22.20%16.67%12.58%9.47%7.04%5.11%3.55%2.28%

0

0

9,00010,00011,00012,00013,00014,00015,00015,00016,00016,00016,00016,00016,00016,00016,000

0

0

250,000250,000250,000250,000250,000250,000250,000250,000250,000250,000250,000250,000250,000250,000250,000

Business MotherBeneficiary

Child

Death Flexible Death (1) Death BenefitYear Age Premium Benefit Premium Benefit IRR

Owner waits to fund policy death benefits

(1) Potential Death Benefit of Lincoln WealthAdvantage Indexed UL, $250,00 Option 1 @6% and current charges assuming Male 50 Std NT. At 1% returns and guaranteed maximum charges, the policy lapses in year 11 with no distributions.



12345678910

15

51525354555657585960

65

2,4002,4002,4002,4002,4002,4002,4002,4002,4002,400

2,400

250,000250,000250,000250,000250,000250,000250,000250,000250,000250,000

250,000

<0.04>1.27%2.52%3.26%3.74%4.09%4.34%4.54%4.70%4.83%

5.61%

12,00012,00012,00012,00012,00012,00012,00012,00012,00012,000

12,000

11,85724,45937,84852,03967,08383,02999,932117,849136,841156,973

286,298


Business SpouseBeneficiary

EmployeeOwner with fully funded policy cash values


#3 Capital at Work


12345678910

15

51525354555657585960

65

2,4002,4002,4002,4002,4002,4002,4002,4002,4002,400

2,400

250,000250,000250,000250,000250,000250,000250,000250,000250,000250,000

250,000

<0.04>1.27%2.52%3.26%3.74%4.09%4.34%4.54%4.70%4.83%

5.61%

12,00012,00012,00012,00012,00012,00012,00012,00012,00012,000

12,000

11,85724,45937,84852,03967,08383,02999,932117,849136,841156,973

286,298


Business EmployeeOwner with fully funded policy cash values


#3 Capital at Work


12345678910

15

51525354555657585960

65

2,4002,4002,4002,4002,4002,4002,4002,4002,4002,400

2,400

250,000250,000250,000250,000250,000250,000250,000250,000250,000250,000

250,000

<0.04>1.27%2.52%3.26%3.74%4.09%4.34%4.54%4.70%4.83%

5.61%

12,00012,00012,00012,00012,00012,00012,00012,00012,00012,000

12,000

11,85724,45937,84852,03967,08383,02999,932117,849136,841156,973

286,298


Business TrustOwner with funded policy cash values


#3 Capital at Work


The Achilles heal of multiple entity arrangements

Plan Administration

is

Documentation with a legal agreement

Some administration companies provide fill in the blanks documents.

Some also provide Accounting Memorandums Business Year End Reports Annual Reviews

Key Person Split $Co Owned

Private Estate Private Access

Bonus

Most Common Multiple Entity Plans

Business Designs

Legacy Designs

#3 Capital at Work


Fill in the blanks, companyform, completed at the timeof the application

Only legal agreement neededto establish the plan

Plan DocumentationFull Plan Administration

• Accounting Memorandums

• Business Year End Reports

• Annual Reviews

An Illustration and

Administration System

Offering a Varietyof Business andEstate Plans

LifeComp® DollarFlex

LifeComp® DuoFlex

LifeComp® FlexKey Plan

LifeComp® ExecBonus

LifeComp® PrivateEstate Solution

LifeComp® PrivateValue Access

U.S. Patent No. 7,877,303. “System for tracking relevant interest of The Parties to an insurance policy.”

#3 Capital at Work

The Lincoln LifeComp® Suite


80% of owners believe that a successful exit will result fromplanning and action items theyimplement.

17% of business owners have created a written exit plan.

#2 Exit Planning for Business Owners

The Exit Planning Marketplace (1)

1) BEI 2016 Business Owner Survey


33%< 3yrs

24%3‐5 yrs

22%6‐10 yrs

12%> 10 yrs

9% Never

1/3 of owners plan to exit their businesses in the next 3 years

8 out of 10 owners plan to exittheir businesses within 10 years

More than 1/2 plan to exit their businesses in the next 5 years

Spouse/Significant

other

Child CPA AnotherBusinessOwner

FinancialAdvisor

BusinessLawyer

EstateLawyer

BusinessConsultant

Banker InsuranceAgent

18% of business owners have talked to someone whom theyconsidered to have training or expertise in exit planning.(1)

“Have you ever visited with an exit planning specialist?”

78%

48% 41% 32% 30% 25% 17% 15% 10% 9%


1) BEI 2016 Business Owner Survey


FinancialReadiness

Mental Readiness

Low H

igh

Low High

of all business owners showedlowmental or financial readinessto exit their business (1).

82%Wealthy and Enjoy Work Rich and Ready To Go

Stay and Grow Get Me Out Now

MBO, Gift, ESOP Gift, Charity, ESOP,MBO, 3rd Party Sale

ESOP, Recapitalization,Grow & Save $

3rd Party Sale

Types of Business OwnersBest Strategies


1) 2016 Pinnacle Equity Survey of Business Exit Readiness


Business ReadinessPersonal Readiness Market Readiness

•Exit Planning

•Transfer Options

•Market Conditions

•Entity Planning

•Executive Compensation

•Leadership Succession / ODI

•Company Value Drivers

•Retirement & Benefits Planning

•Contingency Planning

•Mentally Ready

•Financially Ready

•What comes next?



CurrentAssets / Investments

$

Financial IndependenceValue Gap

$

Capital Needed

$

What is your value gap ?

Often, significant equity from the business is necessary for financial independence.

This is a key indicator of how ready the owner is and what preparation path he/she will need to take.



The Five Exit Pathways

OwnerDesire

Exit Paths

1. Family

2. Co‐Owners

3. Employees

4. Outsiders

5. Public

Gifts, Bequests,Private Annuities,GRATs & IDITs

3rd Party SaleRecapitalization

Merger

Buy –SellLiving Buyout

MBO/LBOESOP

IPOGoing Private

Exit Paths Transfer Method



Bob age 55 is a 47% owner of a real estate businessMarried with two adult children

Their daughter Belle works in the business and is a 2% owner

Bob wants Belle to take over his business interest when he retires, or if he dies before retirement.

Bob wants to provide for his wife if he predeceases her

Bob wants to equalize his estate settlement with children



Bob’s Estate

Bob sells his business interest to the Grantor TrustBob establishes a Grantor Trust for Heirs

utilizing an interest(1) only promissory note principal payable at Bob’s death

Bob’s Grantor Trust

Annual Interest

Principal at death

Trust Income

Business Equity

Note

Loan Interest

Life Insurance

LifetimeIncome

(1) Applicable Federal Rates (AFR) under section 1274(d) of Internal Revenue Code



Interest Rates: Applicable Federal Rates IRC 1274(d)Short Term Rate = 3 years or less

Mid Term Rate = more than 3, but not more than 9 years

Long Term Rate = maturities more than 9 years

Principal Valuation Methods: Market Method, IncomeMethod & Net Asset Value



$10,000,000100 shares

$100,000Per share

$1,000,000Earnings

$10,000EPS

Bill51%

5,100,000

Bob47%

4,700,000

Belle2%

200,000

Sample Corporation



Lack of Marketability

(1) Valuation Advisors’ Lack of Marketability Discount Study, Willamette Management Associates (2) Temple v. United States (123F.Supp.2d 605,622 (2006), Holman v. Commissioner (130 TC no.12 (2008)(3) Jelke v. Commissioner (TC Memo 2005‐131 (2005)(4) Astleford v. Commissioner (TC Memo 2008‐128 (2008)(5) Dunn v. Commissioner (301 F.3d 339 (5th Cir. 2002))

Common Valuation Discounts

Lack of Control

Built‐In Gains Taxes

(DLOM) 18% ‐ 59% (1),(2)

(DLOC) 9% ‐ 47% (3),(4)

(BIG) 100% of Tax (5)



Outstanding Interest Insurance Trust Business Life Year Loan Balance on Loan Premium(2) Income(3) Value(4) Insurance(2)

1 3,290,000 90,475 329,000 50,210 3,388,700 21,072,973 5 3,290,000 90,475 329,000 288,743 3,814,012 21,072,973 10 3,290,000 90,475 329,000 693,720 4,421,485 21,072,97320 3,290,000 90,475 329,000 2,058,373 5,942,106 21,072,97330 3,290,000 90,475 329,000 4,742,852 7,985,694 21,072,973

$33,801,519(1) Valuation assumes 20% DLOM, 10% DLOC (2) $21,072,973 Lincoln LifeGuarantee UL (2013) on Male 55 Std NT rates (3) Assumes $46,925 excess annual income invested @ 7% (4) Assumes Business growth of 3% annually

Bob sells 47 shares of Hypothetical Inc. with $470,000 annual incometo IDIT for $3,290,000(1) due at death and $90,475 annual loan interest

(IDIT owned Minority Shares of Hypothetical Inc. RoE = 14.28%, AFR loan interest= 2.75% )



When Bob dies only the value of the promissory note with a face amount of $3,290,000 remains in his estate.

The Trustee will use trust assets to retire debt and the remaining assets will be managed and distributed to Bob’s heirs according to

the grantor’s trust directives.

When Bob dies there will be at least $25 million in the trust forspousal maintenance, business transfer and estate equalization.

Bob receives a lifetime income from trust.


Summary of Business sale to IDIT


Social SecurityRetirementBenefits (2)

$660 Billion

(2) ssa.gov 2016

Your big opportunity may be right where you are now.

‐ Napoleon Hill

LifeInsuranceBenefits (1)

$592 Billion

(1) NAIC data 2016

7,000+people die everyday

in the US

1 Million Seconds =

1 Billion Seconds =

1 Trillion Seconds =

12 days

32 years

32,000 years

$12,342,150,000,000,000US Individual Life Insurance in Force $12 Trillion+ (1)

(1) Source : https://www.statista.com/statistics/207651/us‐life‐insurance‐policies‐in‐force

#1 Intergenerational planning


Individual US Life Insurance Ownership

16%

Millennials

22%

Gen X

32%

Boomers

45%

SeniorsSource: https://www.statista.com/statistics/207651/us‐life‐insurance‐policies‐in‐force/

65,000,000ages 50 to 65 (1)

(1) US Department of Commerce Bureau of the Census(2) Baby Boomers Generation Fast Facts CNN Library 11/6/13

Will Inherit

$8,400,000,000,000,000 (2)

BabyBoomers



Wants tax free returns

Wants to buy life Insurance for two daughters

Male 55

Inherits $1,000,000 from Wife’s Life Insurance

Proceeds are currently in local bank paying 1% on time deposits

Wants some of assets in the market and some in safe returns

Wants penalty free liquidity in the event of an “opportunity”



Premium Deposit FundLincoln

$1,000,000 904,418807,880710,377611,898512,435411,978310,515208,038104,537

0

104,537104,537104,537104,537104,537104,537104,537104,537104,537104,537

Annual(1)Premium

ProceedsAccount

12345678910

YearAvailableBalance (3)

2,1491,9201,6881,4541,2189797384942480

Tax (4) onInterest

895,463799,881703,343605,840507,362407,899307,441205,979103,502

0

Balance

8,9557,9997,0336,0585,0744,0793,0742,0601,035

0

EarnedInterest(2)

(1) Client uses death benefit proceeds to fund policy premiums of $104,537 for years 1‐10

(3) Residual balance assuming 1% return.

(2) Assumes hypothetical 1% return.

(4) Federal Income Tax assuming 24% rate.

Client decides to retain control of money in local bankand systematically draw down balance over 10 yearsto pay life insurance premiums.

‐ Funds life insurance policy premiums‐ Avoids MEC policy status

‐ Creates local liquidity and flexibility



123

565758

104,537104,537104,537

84,922181,066282,980

1,725,0001,725,0001,782,980

12,712111,061215,165

For: Client Initial Death Benefit $1,500,000Age: 55 Initial Death Benefit Opt: Increasing by Cash ValueSex: Male Payment Mode: AnnualClass: Standard Non‐Tobacco Riders: ABR

This section shows how the specific premium and benefit design are illustrated to perform hypothetically using non‐guaranteedassumptions. The hypothetical benefits and values shown below are not guaranteed. The hypothetical values shown below are based onthe assumed rates of return, cost of insurance rates, charges for M & E risk and administrative expenses. The assumptions on whichthey are based are subject to change and actual results may be more or less favorable. For additional information about assumptionssee the Understanding Your Illustration section..

Current Charges Premium Allocation / Rate of Return 100% Indexed Account / # Weighted 6.00%

End Annual Net of Premium Accum. Surrender Death

Year Age Outlay Value Value Benefit

Flexible Premium Variable Life Insurance Policy

Lincoln AssetEdge® VUL 2015A Hypothetical Life Insurance Illustration

Presented by: Any Representative Current Charges/Hypothetical Rate of Return

5.00%SV IRR

5.19%DB IRR

917,130918,941925,542937,116954,034976,612

1,005,2431,040,3171,081,1401,128,164

CombinedLiquidValues(1)

(1) Combined Liquid Values includes the residual value of insurance death proceeds plus the Surrender Value of the AssetEdge VUL policy.Broker / Dealer use only LCN‐2023683‐020918 49Assuming 1% return with guarantee charges, the accumulation value

in year 10 is $721,246 and in year 30 is $496,148

Wants tax free returns

Wants to buy life Insurance for children

Wants some of assets in the market and some in safe returns

Wants penalty free liquidity in the event of an “opportunity”

Male 55

‐ $750,000 + life Insurance inheritance for each child

‐ Choice of over 80 equity accounts plus 3 market indexed accounts,and guaranteed fixed account

‐Minimum $917,130 penalty free liquidity

‐ Pays only tax on client earnings ($11,000 @ 28%)



$720,000 InheritanceM&F age 60 Excellent Health

Yes

Yes

$776,553

0

$2,335,246

NonQualified

VariableAnnuity

Assumes 6% returns, 20% Federal Income Tax and both deaths at age 901% annual fee on nonqualified account, 2% annual fee on variable annuity

Exposed to Downside Market Risk?

Subject to Annual Income Taxes?

Total Tax loss over 30 years?

Taxed to Children at Death?

Total Net after death in 30 years?

Yes

No

0

$467,049$1,868,197



123456789

10

61626364656667686970

276,252276,252147,496

0000000

249,202500,207630,628621,204610,299597,586582,701565,236544,687520,499

5,000,0005,000,0005,000,0005,000,0005,000,0005,000,0005,000,0005,000,0005,000,0005,000,000

5,000,0005,000,0005,000,0005,000,0005,000,0005,000,0005,000,0005,000,0005,000,0005,000,000

35,489328,689509,892553,664598,732645,179693,087742,538793,562916,581

22,702289,207434,778440,104443,549444,786443,451439,136431,287489,699

276,252276,252147,496

0000000

261,989539,689705,742734,764765,482797,979832,337868,638906,962947,381

For: Mr. Wealth Transfer Mrs. Wealth Transfer Initial Death Benefit $5,000,000Age: 60 60 Initial Death Benefit Opt: LevelSex: Male Female Initial Payment Mode: AnnualClass: Preferred Non‐Tobacco Preferred Non‐Tobacco Riders: ABR

Guaranteed Charges Current ChargesGuaranteed Interest: All Accounts 1.00% Assumed Interest: Weighted Allocations: 6.00%

Account Allocation: 100% Indexed Account, 0% Fixed Account

End Net Net Net Netof Annual Policy Surrender Death Annual Policy Surrender Death

Year Age Outlay Value Value Benefit Outlay Value Value Benefit

Flexible Premium Adjustable life Insurance

Lincoln WealthPreserve Survivorship IULA Life Insurance Illustration

Presented by: Any Representative Summary Values

Non Qualified Balance1,557,609

Annuity Surr Value1,246,087

Life InsuranceCash Value 1,640,6942,335,246

Life InsuranceDeath Benefit 5,000,0001,868,197 2,320,216

$720,000Transferred over 3 years


Exposed to Downside Market Risk? Yes Yes No

Subject to Annual Income Taxes? Yes No No

Total Tax loss over 30 years? $776,553 0 0

Taxed to Children at Death? 0 $467,049 0

Total Net after death in 30 years? $2,022,510 $1,830,672 $5,000,000

NonQualified

VariableAnnuity

LifeInsurance

Lincoln WealthPreserve Survivorsip Indexed UL policy Form SUL6035

$720,000 InheritanceM&F age 60 Excellent Health

Assumes 6% returns, 20% Federal Income Tax and both deaths at age 90. 1% annual fee on nonqualified account, 2% annual fee on variable annuity

Assuming 1% return and guaranteed charges the policy will lapse in year 19.



Cash Flow ManagementTax Loss Management

Specific Legacy

Long Term CareLeverage

Absolute Returns

Mortality Hedge

CorrelationManagement

Reservoir of Wealth

Longevity Quality HedgeInflation Management

WealthManagement

Cash Value

A sub‐ allocation of the Asset PortfolioHarmonized to Match Risk Liabilities

Personally Evolving



56% of Financial Advisors don’t discuss life insurance. (1)

Baby Boomers will inherit $8,400,000,000,000 (4)

More than 7,000 Americans die every day. (3)

Client death is the greatest liquidity event for advisors. (2)‐ 70% of widows change advisors within 1 year

(3) US Center for Disease Control and Prevention

(1) Saybrus Partners 2012 Survey of Advisors(2) Fidelity 2012 Assets Under Management Survey

(4) Baby Boomers Generation Fast Facts CNN Library 11/6/13

‐ 84% of children change advisors within 6 months



Most Regulated

Most Complex

Most Versatile

Least ManagedLife

InsuranceAsset

‐ Unique Attributes of Life Insurance ‐

Un‐taxedby Government

Un‐touchedby Creditors

On timewhen needed

THANK YOUFOR YOUR LINCOLN BUSINESS!


Important informationLincoln Financial Group® affiliates, their distributors, and their respective employees, representatives and/or insurance agents do not provide tax, accounting or legal advice. Please consult an independent advisor as to any tax, accounting or legal statements made herein.Issuers:The Lincoln National Life Insurance Company, Fort Wayne, INLincoln Life & Annuity Company of New York, Syracuse, NYDistributor: Lincoln Financial Distributors, Inc., Radnor, PA, a broker‐dealerCertain products used with the strategies discussed may carry risks including possible loss of principal. Products, riders and features are subject to state availability. Limitations and exclusions may apply. The Lincoln National Life Insurance Company does not solicit business in the state of New York, nor is it authorized to do so.All guarantees and benefits of the insurance policy are subject to the claims‐paying ability of the issuing insurance company. They are not backed by the broker‐dealer and/or insurance agency selling the policy, or any affiliates of those entities other than the issuing company affiliates, and none makes any representations or guarantees regarding the claims‐paying ability of the issuer.


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