Guaranteed Annuity Life Overview

Guaranteed Annuity Life (GAL) is the only true estate planning solution for the advanced age market. Available to healthy men and women between the ages of 80 and 90, the GAL program can leverage a one-time lump sum gift by as much as three times — GUARANTEED for twenty years!

Credit Maximizer Using ILIT

Step 1:  Grantor gifts lump sum of cash or cash equivalents to irrevocable grantor trust. If available, Unified Credits and Annual Exclusions are used to avoid gift taxes.

Step 2:  Trustee of irrevocable trust purchases life only immediate annuity, where trust is owner and beneficiary of annuity. Annuity is exempt from non-natural person rule of IRC Section 72(u) under exception for immediate annuities having a start date within 12 months.

Step 3:  Guaranteed lifetime annuity is used to pay premiums on GAL policy guaranteed for 20 years, the owner and beneficiary of which is also the trust. Death benefit not includible in estate. An additional annuity may be purchased by Grantor (rather than the trust) to pay premiums on a long-term-care policy, to cover the cost of income taxes, or to simply provide additional income to the Grantor during his life.

Step 4:  Grantor pays income taxes on non-excluded portion of annuity stream since trust established as grantor trust. This step saves additional estate taxes by using money includible in the estate to pay the tax generated on income outside of the estate. Exclusion ratio applies until cost basis in policy is recovered.

Credit Maximizer Using FLP

Step 1:  Grantor transfers lump sum cash or cash equivalents to Family Limited Partnership (FLP), where Grantor owns all of the partnership shares. Technically, no gift has been made.

Step 2:  Grantor gifts 99% limited partner shares to intended heirs. Depending upon many factors such as restrictions placed upon Limited Partners and the nature of the assets transferred, Grantor may receive a discount on the value of the gift of such shares. This determination should be made by Grantor's own counsel.

Step 3:  FLP purchases life only immediate annuity, where partnership is owner and beneficiary of annuity. Annuity is exempt from non-natural person rule of IRC Section 72(u) under exception for immediate annuities having a start date within 12 months. Guaranteed lifetime annuity income is used to pay premiums on GAL policy guaranteed for 20 years, the owner and beneficiary of which is also the FLP. Limited Partners' pro rated share of death benefit not includible in estate. Additional annuit(ies) may be purchased by Grantor and/or partners (rather than the FLP) to pay premiums on a long-term-care policy, to cover the cost of income taxes, or to simply provide additional income to the Grantor during his life.

Step 4:   Partners pay income taxes on non-excluded portion of annuity stream based on their pro rata interest in the FLP. Exclusion ratio applies until cost basis in policy is recovered.

Exclusion Maximizer

Step 1:  Grantor purchase life only immediate annuity as owner and income beneficiary.

Step 2:  Grantor gifts annuity income to irrevocable life insurance trust with appropriate "Crummey" and "Hanging" provisions, and uses available Annual Exclusions to avoid gift taxes.

Step 3:  Trustee purchases GAL policy with guaranteed 20-year death benefit using gifts from Grantor to pay premiums. Trust is owner and beneficiary of GAL policy. Death benefit not includible in estate. Larger annuity may be purchased by Grantor (not ILIT) to pay premiums on long-term-care policy, to cover cost of income taxes, or to simply provide additional income to the Grantor.

Step 4:  Grantor pays income taxes on non-excluded portion of annuity stream. Exclusion ratio applies until cost basis in policy is recovered.

Estate Enhancer

Step 1:  Annuitant/Insured purchases life only immediate annuity as owner and income-beneficiary.

Step 2:  Guaranteed lifetime annuity income is used to pay premiums on GAL policy guaranteed for 20 years. Death benefit includible in estate. Larger annuity may be purchased to pay premiums on long-term-care policy, to cover the cost of income taxes, or to simply provide additional income to the Annuitant.

Step 3:  Annuitant/Insured pays income taxes on non-excluded portion of annuity stream. Exclusion ratio applies until cost basis in policy is recovered.

CharGAL

Step 1:  Donor purchases charitable gift annuity and remains income-beneficiary. Donor is entitled to income tax deduction equal to approximately one-half of the lump sum deposit.

Step 2:  Donor gifts annuity income to irrevocable life insurance trust with appropriate "Crummey" and "Hanging" provisions, and uses available Annual Exclusions to avoid gift taxes.

Step 3:  Trustee purchases GAL policy with guaranteed 20-year death benefit using gifts from Grantor to pay premiums. Trust is owner and beneficiary of GAL policy.  Death benefit not includible in estate. Larger annuity may be purchased by Donor (not ILIT) to pay premiums on long-term-care policy, to cover the cost of income taxes, or to simply provide additional income to the Donor.

Step 4:  Donor pays income taxes on non-excluded portion of annuity stream.  Exclusion ratio applies until cost basis in policy is recovered.