FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 1

Gifting

Using Gifting to discover the power of lifetime giving

Manulife Financial and the block design are registered service marks and trademarks of The Manufacturers Life InsuranceCompany and are used by it and its affiliates including Manulife Financial Corporation. Copyright 2002. The Manufacturers

LifeInsurance Company (U.S.A.). All rights reserved. MLI0123018773. Expires 12/31/2002.

THIS MATERIAL MAY NOT BE COPIED OR USED WITH THE PUBLIC.

FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 2

In most situations what is the fundamental Road Block in the

Estate Planning Sale?

The Problem

FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 3

To Gift or Not to Gift…

That is the question

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Empathy Jargon

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Objectives

With A PlanWithout A PlanIRS

Family

IRS

Family

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Inclusive vs. Exclusive

THE BASIC RULES OF THE ANNUAL GIFT TAX

EXCLUSION

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• $11,000 Annual Exclusion removes assets and appreciation from the estate

• Lifetime Applicable Exclusion Amount removes up to $1,000,000 (2002 and beyond) and its future appreciation from the estate

Gift Tax Principles

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Gift during life (assume 50% tax bracket) :

$11,000 Gift + $5,500 Gift Tax = $16,500

Gift at Death (assume 50% tax bracket) :

$11,000 Gift + $11,000 Estate Tax = $22,000

Savings $ 5,500

Estate & Gift Tax Principles

FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 9

Other Advantages of Gifting

• Current enjoyment.

• Creditor protection.

• Probate avoidance.

• Appreciation shifting.

• Income shifting.

• Taxable gifts.

• Discounted gifts.

FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 10

Applicable Credit Amount GiftsApplicable Credit Amount Gifts

2002$500,000Gift tax

$250,000

2002$500,000Gift tax

$250,000

2026$3,424,238Estate tax$1,712,119

2026$3,424,238Estate tax$1,712,119

*Assumes 50% Estate Tax Bracket

FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 11

The Irrevocable Life Insurance Trust

Mom&

Dad

Mom&

Dad

FamilyILIT

FamilyILIT

InsuranceCompany

InsuranceCompany

Insurance PolicyInsurance Policy

BeneficiariesBeneficiaries

Cash Gifts

Premium Payments

Insurance Proceeds

FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 12

Giftingand

The Solution

FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 13

• Sean age 55, Kelly age 55.• 2 married children (and 6 grandchildren).• Estate of $10,000,000 with after tax growth of 5%.• Combined annual exclusions equal $176,000.• They are interested in understanding the difference

between:• No gifting, • Gifting to an irrevocable trust and investing, and• Gifting to an irrevocable trust and purchasing

insurance.

Sean and Kelly MacCaulay

FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 14

No Gifting

MacCaulay Estate Valuein 34 Years$51,257,198

MacCaulay Estate Valuein 34 Years$51,257,198

Estate Taxes of$27,845,659*

Estate Taxes of$27,845,659*

Net to Heirs$24,627,045

Net to Heirs$24,627,045

Credit Shelter Trust$1,215,506

Credit Shelter Trust$1,215,506

Assumes the use of unlimited marital deduction and that each client uses any remaining applicable credit amount ($1,000,000 effective 2002)

FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 15

Gifting to an Irrevocable Trust and Investing

* With Gifting to IT.

** Includes after-tax return on gifts invested

Irrevocable Trust$15,209,806**

Irrevocable Trust$15,209,806**

MacCaulay Estate Valuein 34 Years

$36,047,392*

MacCaulay Estate Valuein 34 Years

$36,047,392*

Estate Taxes of$19,480,260

Estate Taxes of$19,480,260

Net to Heirs$32,992,439

Net to Heirs$32,992,439

Credit Shelter Trust$1,215,506

Credit Shelter Trust$1,215,506

FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 16

Gifting to an ILIT- With Life Insurance

Irrevocable Trust$11,489,259

Plus+$7,349,619

Irrevocable Trust$11,489,259

Plus+$7,349,619

MacCaulay Estate Valuein 34 Years$36,047,392

MacCaulay Estate Valuein 34 Years$36,047,392

Estate Taxes of$19,480,266

Estate Taxes of$19,480,266

Net to Heirs$36,621,511

Net to Heirs$36,621,511

Credit Shelter Trust$1,215,506

Credit Shelter Trust$1,215,506

* If grandchildren are also heirs of the trust, the parents can either allocate part of their combined generation-skipping transfer (GST) tax exemption to the gifts to the trust, or create two separate trusts (one for the children and one for the grandchildren) so they only need to allocate their GST exemption to the grandchildren’s trust.

FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 17

Results

No Gifting $24,627,045

Gifting To ILIT and Investing $32,992,439

Gifting To ILIT and Life Insurance $36,621,511

FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 18

Summary:

Lifetime gifting can:

• Reduce estate taxes

• Maximize gifts to loved ones

• Safeguard family assets

• Safeguard family privacy

FOR BROKER/DEALER AND GENERAL AGENT USE ONLY. 19

Gifting

Manulife Financial and the block design are registered service marks and trademarks of The Manufacturers Life Insurance Company and are used by it and its affiliates including Manulife Financial Corporation. This material is for informational purposes only. For more detailed information please contact your advisor. Manulife Financial or any of its agents, employees, or registered representatives do not give legal, tax, investment, or accounting advice. The information given here is merely a summary of our understanding of the current laws and regulations. Prospective purchasers should consult their tax advisor.

The End