Never Out Live Your Never Out Live Your MoneyMoney

Presented byPresented by

Beneflex Financial Group Inc.Beneflex Financial Group Inc.

Jerry W. HillJerry W. Hill

In Cooperation withIn Cooperation with

Richard Olive, Executive Vice-PresidentRichard Olive, Executive Vice-President

National Community FoundationNational Community FoundationNeither the Speaker nor National Community Foundation provides legal, tax or financial

advise. The Speaker does not represent any Investment or Insurance product or Company. Consult your tax advisor about your specific situation.

The “Facts” of LifeThe “Facts” of Life

The IRS allows us the opportunity

to decide who will receive our estate . . .

however, we must choose 2 of the

following:

FAMILYFAMILY

IRSIRS

CHARITYCHARITY

The “Facts” of LifeThe “Facts” of LifeMost Americans Choose:

Family

IRS

-Each get about half-

Why?Why?

People are eitherill-informed

orunprepared

The following are a few The following are a few examples of how estates can examples of how estates can

diminishdiminish

without wise planning.without wise planning.

Marilyn MonroeMarilyn Monroe

Gross Estate

$819,176

Settlement Costs 448,750

Net Estate370,426

Shrinkage 55%

Elvis PresleyElvis PresleyGross

Estate$10,165,434

Settlement Costs

7,374,635

Net Estate 2,790,799

Shrinkage 73%

J. D. RockefellerJ. D. Rockefeller

Gross Estate

$26,905,182

Settlement Costs

17,124,988

Net Estate 16,192,908

Shrinkage 64%

Social Capital ChoicesSocial Capital Choices

Who Decides?Who Decides?

GovernmentGovernment YouYou

TaxesTaxes Local UniversityLocal University

Museums/ArtsMuseums/Arts

Charity/EcologyCharity/Ecology

Taxpayer IssuesTaxpayer Issues

Federal Income Tax 10% - 35%

Capital Gain Tax 5% - 15%

TX State Income Tax 0%

““Death Tax”Death Tax”

“Death Tax” on certain assets

Double Taxation-Estate Tax-Income Tax

-IRAs, Retirement $-Annuities-Savings Bonds

A SolutionA Solution Very Conservative Planning

Guaranteed, Fixed Lifetime Income(s)

Substantial Tax Deductions

IRS Approved since 1917

Not Insurance

By exchanging real estate, stocks,

bonds, or cash for an annuity with a

tax deduction, you can reduce your

tax liability and receive a tax-favored

income that can never be outlived.

The Only Annuity with The Only Annuity with a Tax Deductiona Tax Deduction

Equity Indexed Annuities AreEquity Indexed Annuities Are HOT!HOT!The Annuity Exchange isThe Annuity Exchange is HOTTER!HOTTER!Equity Indexed Annuities AreEquity Indexed Annuities Are HOT!HOT!The Annuity Exchange isThe Annuity Exchange is HOTTER!HOTTER!

Transfer an Equity Indexed Transfer an Equity Indexed AnnuityAnnuity

toto

An annuity with a Tax DeductionAn annuity with a Tax Deduction•Payable for lifetime•Payable for a specified period of years

SolutionSolution

Transfer an Equity Indexed Annuity

to an Annuity with a Tax Deduction!

Transfer an Equity Indexed Annuity

to an Annuity with a Tax Deduction!

Annuity issued at accumulation value, not surrender value

Guaranteed fixed income/Pay-out increases with a flex option

Immediate tax deduction

Flexibility; annuity payments can begin now or at future date

WHY?WHY?

Annuity FactAnnuity Fact Annuity FactAnnuity Fact

According to LIMRA, in 2000 According to LIMRA, in 2000 there were $190 Billion in Tax there were $190 Billion in Tax Deferred Annuities issued and Deferred Annuities issued and 90% of all people who own Tax 90% of all people who own Tax

Deferred Annuities die Deferred Annuities die without ever annuitizingwithout ever annuitizing..

Annuity Exchange ExampleAnnuity Exchange Example

Benefits for annuitant AnnualPayout

Tax Deduction

•Lifetime payout flex deferred for 5 years

$7,233

$44,091

•Period Certain for 20 yearsflex deferred for 5

years

$7,242

$54,826

$107,000 Accumulated value with a 10% surrender fee :

Real Estate Property Transfer

Howard and Charlotte Barnett were farmers in Crawford, Indiana, for 42 years. The value of their land had increased from $43,000 in 1959 to $1,000,000 in 2000. If they sold the farm, the IRS could take $190,000 in taxes, leaving them $810,000.

True Story

“We exchanged our farm for a lifetime income and saved thousands of dollars in taxes!”

Howard and Charlotte Barnett, Farmers - Crawford,

Indiana Now Retired - Homestead Florida

Jerry W. HillBeneflex Financial Group, Inc.

11811 East Fwy. Suite 545Houston, TX 77029-1950

(713) 455-7087

Exchange Real Estate

– Guaranteed Lifetime or Period Certain

Income – Capital Gain Tax reduction– Income Tax Deduction– Generally, removes asset from estate– NCF handles real estate fee and

closing costs

Problematic Real Assets

Farms– Unable to take care

of property– Taxes and Insurance– Upkeep (labor)– Many want to remain

on farm and pass it to heirs

Rental Property–Insurance &Taxes–Repairs–Tax on income–Tenant concerns

Problematic Real Assets

Second Homes– Taxes and

Insurance – Annual

maintenance– Lifestyle changes– Tenant concerns

Raw Land–Taxes and Insurance–Not income producing–Maintenance & upkeep

Two Major Concerns

• Capital Gains Tax

– 5% - 25%

• Real Estate Selling Fees

– 6% - 10%

– 11% - 35% Loss in value

Three Choices• SELL – 100K less tax/fees = 82.7K

• KEEP - Problems stay intact

• Exchange - $100,000 for

– Tax favored lifetime income

– Income tax deduction

– Eliminate up-front capital gain

– Control from the grave

ExampleCurrent Info

Property owners husband and wife age 70

$100,000 FMV Property

$25,000 Cost Basis

Results

Annual joint lifetime income $5,430

Income tax deduction $34,577

(34.5%) Capital gain eliminated $25,933

Effective pay-out rate 6.6%

Example (continued)

• up front savings– No out of pocket capital gain tax– NCF absorbs all real estate fees – Tax deduction lowers reportable

income by up to 30%

Choices

Most clients believe there are 2 alternatives

KEEP or SELL

There is a 3rd choice

Exchange Real EstateFor a lifetime or period

certain income

Many Bank CD’s are Many Bank CD’s are earning less than 3% and earning less than 3% and the interest is fully the interest is fully taxable.taxable.

•A large number of A large number of clients over age 65 use clients over age 65 use the interest to the interest to supplement their income.supplement their income.

CD Exchange ProgramCD Exchange Program

Typical $100,000 CD

Interest Rate 2.5%Interest Rate 2.5% $ 2,500$ 2,500

$ 625$ 625 Taxes @ 25% Tax BracketTaxes @ 25% Tax Bracket

Total Net IncomeTotal Net Income $1,875*$1,875*

*Principal remains in estate*Principal remains in estate

CD ExampleCD ExampleCD ExampleCD Example

Solution: $32,000 CGA

CGA CGA ExampleExampleCGA CGA ExampleExample

Payout Rate 6.5%, Payout Rate 6.5%, (age 70)(age 70) $ 2,080$ 2,080

$ 203$ 203 ** Taxes @ 25% Tax BracketTaxes @ 25% Tax Bracket

Total Net IncomeTotal Net Income $1,877$1,877

* 61% of income is tax free return of principal, 39% taxed @ 25%* 61% of income is tax free return of principal, 39% taxed @ 25%

•Client net income increased from $1,875 (Client net income increased from $1,875 (from from Bank CDBank CD) to $3,152 () to $3,152 (income from $32,000 CGA and income from $32,000 CGA and $68,000 Bank CD$68,000 Bank CD))•61% of CGA income is a tax free return 61% of CGA income is a tax free return of principalof principal

•Client receives a current $11,724 tax Client receives a current $11,724 tax deduction, which may save $2,931 in deduction, which may save $2,931 in taxes*taxes*

The DifferenceThe Difference CD Exchange CD Exchange ProgramProgram CD Exchange CD Exchange ProgramProgram

* Assumes 25% tax bracket* Assumes 25% tax bracket

* 61% of income is tax free return of principal, 39% taxed @ 25%* 61% of income is tax free return of principal, 39% taxed @ 25%

$100,00$100,00

CDCD$32,000$32,000

CGACGA

Annual IncomeAnnual Income $2,080$2,080

$203$203 **

Total Net IncomeTotal Net Income $1,877$1,877

$2,500$2,500

Annual Payout RateAnnual Payout Rate 2.5%2.5% 6.5%6.5%

Estimated TaxesEstimated Taxes

Income Tax DeductionIncome Tax Deduction

$625$625

-0--0-

$1,875$1,875

$11,724$11,724

CD vs. Gift AnnuityCD vs. Gift Annuity

SummarySummary

•Income increased by $1,277 per yearIncome increased by $1,277 per year

•Asset was removed from estate Asset was removed from estate and avoided probateand avoided probate

•Rate locked in for life Rate locked in for life

•No set-up or legal feesNo set-up or legal fees

•May save $2,931 in taxesMay save $2,931 in taxes

CD Exchange ProgramCD Exchange Program

Securities Exchange Securities Exchange ProgramProgram

Securities Exchange Securities Exchange ProgramProgram

Fund your Fund your

Annuity with Annuity with SecuritiesSecurities

Countless individuals have stock Countless individuals have stock and bond portfolios that have and bond portfolios that have significantly increased in value or significantly increased in value or have lost value over the past few have lost value over the past few years.years.

Charitable Planned Giving Charitable Planned Giving Charitable Planned Giving Charitable Planned Giving

Many of these individuals are Many of these individuals are hesitant in selling because of the hesitant in selling because of the capital gains tax, or because of capital gains tax, or because of difficulties in accepting a loss.difficulties in accepting a loss.

Typical $100,000 Stock Portfolio

Dividend Rate 1.5%Dividend Rate 1.5% $ 1,500$ 1,500

$ 375$ 375 Taxes @ 25% Tax BracketTaxes @ 25% Tax Bracket

Total Net IncomeTotal Net Income $1,125*$1,125*

*Principal remains in estate*Principal remains in estate

Stock Exchange ExampleStock Exchange ExampleStock Exchange ExampleStock Exchange Example

* 60% of income is tax free return of principal, 40% taxed @ 25%* 60% of income is tax free return of principal, 40% taxed @ 25%

StockStock CGACGA

Annual IncomeAnnual Income $6,500$6,500

$650$650 **

Total Net IncomeTotal Net Income $5,850$5,850

$1,500$1,500

Annual Payout RateAnnual Payout Rate 1.5%1.5% 6.5%6.5%

Estimated TaxesEstimated Taxes

Income Tax DeductionIncome Tax Deduction

$375$375

-0--0-

$1,125$1,125

$35,936$35,936

Stock vs. CGAStock vs. CGA

Tax Treatment of CGA IncomeTax Treatment of CGA Income

Total Income $6,500Total Income $6,500

Tax Free Return of PrincipalTax Free Return of Principal $1,950$1,950

$2,600$2,600 Taxed as ordinary incomeTaxed as ordinary income

$1,950 $1,950 ** Taxed at capital gain rateTaxed at capital gain rate

CGA ExampleCGA Example

* Based on a $50,000 cost basis* Based on a $50,000 cost basis

Example:Example: Exchange $100,000 Stock Exchange $100,000 Stock Portfolio for an annuity with a tax Portfolio for an annuity with a tax

deductiondeduction

CGA ExampleCGA ExampleCGA ExampleCGA Example

* Based on a $50,000 cost basis* Based on a $50,000 cost basis

Payout Rate 6.5%, Payout Rate 6.5%, (age 70)(age 70) $ 6,500$ 6,500

$35,936$35,936 Tax DeductionTax Deduction

$19,415$19,415 ** Capital Gain ReductionCapital Gain Reduction

•Securities were exchanged for a tax-favored annual income of $6,500 payable for life.

•Transaction created a $35,936 income tax deduction saving thousands in taxes.

• No capital gains tax due at the time of transaction.

SummarySummary SummarySummary