Universal Life (UL) vs. Various Financial Alternatives For: Partner #2 - Business Sale
Presented By: Daniel P. Wachs CFP, ChFC, CLU 1431 Opus Place #630 Downers Grove, Illinois 60515 Phone: 630-445-1399 Email: dwachs@perpetualwm.com
Various Financial Alternatives vs. TBD Presented By: Daniel Wachs
Insured: Partner #2
Comparison of Values Municipal Bond Fund Yield 5.50%
Equity Account Growth 5.00%
Equity Account Dividend 1.50%
Dividend Tax Rate 20.00%
Annuity Yield 6.50%
Income Tax Rate 35.00%
TBD Interest Rate 6.50%
Initial Death Benefit 10,455,075
After Tax Values of Identical Allocation to Various Financial Alternatives (1)
Male Yr Age
Life Insurance Premium
(2a) After Tax Cash Flow from Municipal Bond Fund
(2b)
Municipal Bond Fund
(3a) After Tax Cash Flow from Equity Account
(3b)
(4a)
Equity Account
After Tax Cash Flow from Annuity
TBD
(4b)
(5a)
(5b)
(5c)
Annuity
After Tax Policy Loan Proceeds
Year End Cash Value*
Death Benefit
1 2 3 4 5 6 7 8 9 10
47 48 49 50 51 52 53 54 55 56
20,511 43,459 66,559 89,151 112,200 136,468 162,056 163,833 165,610 167,031
0 0 0 0 0 0 0 0 0 0
21,423 67,765 140,295 239,644 367,484 526,353 719,009 922,084 1,136,042 1,360,995
0 0 0 0 0 0 0 0 0 0
21,467 67,909 140,573 240,046 367,934 526,703 719,022 921,371 1,134,089 1,357,182
0 0 0 0 0 0 0 0 0 0
21,236 66,994 138,329 235,665 360,458 515,025 701,888 897,665 1,102,805 1,317,416
0 0 0 0 0 0 0 0 0 0
145,575 636,019 1,158,970 1,715,968 2,309,519 2,941,769 3,666,904 3,928,442 4,204,687 4,496,907
10,455,075 10,940,719 11,458,570 12,010,468 12,598,619 13,225,469 13,893,904 14,098,642 14,318,187 14,553,607
11 12 13 14 15 16 17 18 19 20
57 58 59 60 61 62 63 64 65 66
169,164 170,230 85,826 3,553,858 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0
1,598,174 1,847,009 2,018,749 5,820,310 6,079,023 6,349,235 6,631,459 6,926,227 7,234,098 7,555,653
0 0 0 0 0 0 0 0 0 0
1,591,791 1,837,254 2,004,549 5,808,175 6,061,233 6,320,127 6,586,681 6,862,249 7,147,885 7,444,454
0 0 0 0 0 0 0 0 0 0
1,542,721 1,778,157 1,935,766 5,690,857 5,903,027 6,126,728 6,362,588 6,611,266 6,873,460 7,149,905
0 0 0 0 0 0 0 0 0 0
4,876,154 5,220,425 5,599,688 6,006,921 6,444,428 6,914,491 7,419,779 7,963,190 8,548,204 9,177,793
14,876,154 15,220,425 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,257,845 10,921,573
21 22 23 24 25 26 27 28 29 30
67 68 69 70 71 72 73 74 75 76
0 0 0 0 0 0 0 0 0 0
800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000
7,055,942 6,534,019 5,988,896 5,419,542 4,824,881 4,203,787 3,555,085 2,877,549 2,169,896 1,430,788
800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000
6,912,278 6,356,578 5,776,854 5,172,396 4,542,348 3,885,747 3,201,547 2,488,632 1,745,823 971,881
800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000
6,597,895 6,015,882 5,402,237 4,764,822 4,104,889 3,421,643 2,714,259 1,981,885 1,223,638 438,604
800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000
9,007,963 8,839,309 8,672,480 8,508,223 8,348,897 8,196,224 8,052,501 7,920,380 7,803,066 7,697,446
10,780,596 10,634,731 10,483,773 10,327,533 10,037,652 9,726,306 9,392,762 9,036,294 8,656,335 8,610,590
5,105,956
8,000,000
8,000,000
8,000,000
See the accompanying reports for year-by-year details: Details of the: Equity Account; Portfolio Turnover Annuity Details
Note: Annuity values do not reflect surrender charges or market rate adjustments, if any.
Management fees reflected in columns (2b), (3b) & (4b): MB = 1.00%, EA = 1.00%, AN = 1.00%
*This illustration assumes the nonguaranteed values shown continue in all years. This is not likely, and actual results may be more or less favorable. This illustration is not valid unless accompanied by a proposal from TBD.
Date: 03/03/2018
8,000,000
Annuity is assessed: Income tax each year. Column (4b) values are after tax.
Page 1 of 11
Various Financial Alternatives vs. TBD Presented By: Daniel Wachs
Insured: Partner #2
Comparison of Values Municipal Bond Fund Yield 5.50%
Equity Account Growth 5.00%
Equity Account Dividend 1.50%
Dividend Tax Rate 20.00%
Annuity Yield 6.50%
Income Tax Rate 35.00%
TBD Interest Rate 6.50%
Initial Death Benefit 10,455,075
After Tax Values of Identical Allocation to Various Financial Alternatives (1)
Male Yr Age
Life Insurance Premium
(2a) After Tax Cash Flow from Municipal Bond Fund
(2b)
Municipal Bond Fund
(3a) After Tax Cash Flow from Equity Account
(3b)
(4a)
Equity Account
After Tax Cash Flow from Annuity
TBD
(4b)
(5a)
(5b)
(5c)
Annuity
After Tax Policy Loan Proceeds
Year End Cash Value*
Death Benefit
31 32 33 34 35 36 37 38 39 40
77 78 79 80 81 82 83 84 85 86
0 0 0 0 0 0 0 0 0 0
800,000 658,826 0 0 0 0 0 0 0 0
658,826 0 0 0 0 0 0 0 0 0
800,000 162,860 0 0 0 0 0 0 0 0
165,512 0 0 0 0 0 0 0 0 0
438,604 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0
800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000
7,604,989 7,527,292 7,466,041 7,422,921 7,397,901 7,391,977 7,405,926 7,439,763 7,492,050 7,563,486
8,581,924 8,572,176 8,583,288 8,617,210 8,674,096 8,755,190 8,861,517 8,993,311 9,149,291 9,330,430
41 42 43 44 45 46 47 48 49 50
87 88 89 90 91 92 93 94 95 96
0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0
800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000
7,652,179 7,754,864 7,867,382 7,983,519 8,162,889 8,430,393 8,819,723 9,375,049 10,148,911 11,042,238
9,534,997 9,759,827 10,000,831 10,251,779 10,093,035 9,971,364 9,914,558 9,959,381 10,148,911 11,042,238
51 52 53
97 98 99
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
800,000 800,000 800,000
12,067,041 13,236,382 14,564,462
12,067,041 13,236,382 14,564,462
5,105,956
9,458,826
8,962,860
8,438,604
See the accompanying reports for year-by-year details: Details of the: Equity Account; Portfolio Turnover Annuity Details
Note: Annuity values do not reflect surrender charges or market rate adjustments, if any.
Management fees reflected in columns (2b), (3b) & (4b): MB = 1.00%, EA = 1.00%, AN = 1.00%
*This illustration assumes the nonguaranteed values shown continue in all years. This is not likely, and actual results may be more or less favorable. This illustration is not valid unless accompanied by a proposal from TBD.
Date: 03/03/2018
26,400,000
Annuity is assessed: Income tax each year. Column (4b) values are after tax.
Page 2 of 11
Various Financial Alternatives vs. TBD Presented By: Daniel Wachs
Insured: Partner #2
Matching Values at Age 99 (Year 53) Municipal Bond Fund Yield 5.50%
Equity Account Growth 5.00%
Equity Account Dividend 1.50%
Dividend Tax Rate 20.00%
Annuity Yield 6.50%
Income Tax Rate 35.00%
TBD Interest Rate 6.50%
Initial Death Benefit 10,455,075
Yield/Growth Required by Various Investments in Addition to the Dividend Illustrated for the Equity Account to Match TBD Policy Values over 53 years
Investment
Yield/Growth
Municipal Bond Fund Municipal Bond Fund
9.43% 9.43%
Cash Value $14,564,462 Death Benefit $14,564,462
Equity Account Equity Account
10.45%* 10.45%*
Cash Value $14,564,462 Death Benefit $14,564,462
Annuity Annuity
11.70% 11.70% *Plus 1.50% dividend.
Cash Value $14,564,462 Death Benefit $14,564,462
Municipal Bond Fund
TBD
Equity Account
Annuity $14,564,462
$14,564,462 $14,564,462 942.81% Required To Match CV
$14,564,462 9.43% Required To Match DB
1045.43% Required To Match CV
$14,564,462 10.45%* Required To Match DB
1169.63% Required To Match CV
*Plus 1.50% dividend.
Income Tax Considerations 1. Municipal Bond Fund: Interest is tax exempt. 2. Equity Account: Capital gains tax calculations are taxed based on a ratio of asset value to remaining cost basis in any given year. 3. Annuity: Interest is tax deferred. (Values assume tax is assessed in year shown only) 4. TBD: a. Death Benefit including cash value component is income tax free. b. Loans are income tax free as long as the policy is kept in force. c. Withdrawals and other non-loan policy cash flow up to cost basis (not in violation of IRC Section 7702) are income tax free as a return of premium. d. Cash values shown assume most favorable combination of b and/or c. This illustration assumes the nonguaranteed values shown continue in all years. This is not likely, and actual results may be more or less favorable. This illustration is not valid unless accompanied by a proposal from TBD.
Date: 03/03/2018
Page 3 of 11
$14,564,462 11.70% Required To Match DB
Various Financial Alternatives vs. TBD Presented By: Daniel Wachs
Insured: Partner #2
Net Rate of Return Comparison
Municipal Bond Fund Yield 5.50%
Equity Account Growth 5.00%
Equity Account Dividend 1.50%
Dividend Tax Rate 20.00%
Annuity Yield 6.50%
Income Tax Rate 35.00%
Net Rate of Return of After Tax Values
Male
(1)
(2)
Municipal
Equity
Initial Death Benefit 10,455,075
Net Rate of Return of TBD Values (3)
(4) Year End Cash
(5) Death
1 2 3 4 5 6 7 8 9 10
47 48 49 50 51 52 53 54 55 56
4.45 4.45 4.45 4.45 4.45 4.45 4.45 4.45 4.45 4.45
4.66 4.61 4.57 4.53 4.50 4.47 4.45 4.42 4.40 4.38
3.53 3.55 3.57 3.58 3.60 3.61 3.63 3.65 3.67 3.68
609.75 360.90 201.62 132.66 96.28 74.34 60.36 47.03 37.93 31.44
50873.41 2106.06 646.68 329.26 207.21 145.94 110.11 85.97 69.43 57.54
11 12 13 14 15 16 17 18 19 20
57 58 59 60 61 62 63 64 65 66
4.45 4.45 4.45 4.45 4.45 4.45 4.45 4.45 4.45 4.45
4.36 4.34 4.33 4.38 4.37 4.35 4.33 4.31 4.29 4.28
3.70 3.72 3.74 3.72 3.72 3.73 3.75 3.77 3.80 3.82
26.95 23.35 20.90 5.44 5.86 6.12 6.30 6.44 6.54 6.63
48.76 42.02 29.95 18.70 15.40 12.93 11.06 9.62 8.81 8.57
21 22 23 24 25 26 27 28 29 30
67 68 69 70 71 72 73 74 75 76
4.45 4.45 4.45 4.45 4.45 4.45 4.45 4.45 4.45 4.45
4.26 4.24 4.22 4.21 4.19 4.18 4.17 4.16 4.15 4.14
3.83 3.82 3.81 3.80 3.79 3.78 3.77 3.77 3.77 3.77
6.71 6.78 6.85 6.91 6.98 7.04 7.11 7.17 7.24 7.30
8.39 8.25 8.14 8.06 7.92 7.81 7.71 7.63 7.55 7.61
*This illustration assumes the nonguaranteed values shown continue in all years. This is not likely, and actual results may be more or less favorable. This illustration is not valid unless accompanied by a proposal from TBD.
Date: 03/03/2018
TBD Interest Rate 6.50%
Page 4 of 11
Various Financial Alternatives vs. TBD Presented By: Daniel Wachs
Insured: Partner #2
Net Rate of Return Comparison
Municipal Bond Fund Yield 5.50%
Equity Account Growth 5.00%
Equity Account Dividend 1.50%
Dividend Tax Rate 20.00%
Annuity Yield 6.50%
Income Tax Rate 35.00%
Net Rate of Return of After Tax Values
Male
(1)
(2)
Municipal
Equity
Initial Death Benefit 10,455,075
Net Rate of Return of TBD Values (3)
(4) Year End Cash
(5) Death
31 32 33 34 35 36 37 38 39 40
77 78 79 80 81 82 83 84 85 86
4.45 n/a N/A N/A N/A N/A N/A N/A N/A N/A
4.14 n/a N/A N/A N/A N/A N/A N/A N/A N/A
n/a N/A N/A N/A N/A N/A N/A N/A N/A N/A
7.37 7.43 7.49 7.55 7.60 7.66 7.71 7.76 7.80 7.85
7.66 7.71 7.76 7.81 7.85 7.90 7.94 7.98 8.02 8.06
41 42 43 44 45 46 47 48 49 50
87 88 89 90 91 92 93 94 95 96
N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
7.89 7.92 7.96 7.99 8.02 8.05 8.09 8.13 8.17 8.22
8.09 8.12 8.15 8.17 8.16 8.16 8.16 8.16 8.17 8.22
51 52 53
97 98 99
N/A N/A N/A
N/A N/A N/A
N/A N/A N/A
8.26 8.30 8.33
8.26 8.30 8.33
*This illustration assumes the nonguaranteed values shown continue in all years. This is not likely, and actual results may be more or less favorable. This illustration is not valid unless accompanied by a proposal from TBD.
Date: 03/03/2018
TBD Interest Rate 6.50%
Page 5 of 11
Various Financial Alternatives vs. TBD Presented By: Daniel Wachs
Insured: Partner #2
Pre-Tax Equivalent Rate of Return Comparison
Municipal Bond Fund Yield 5.50%
Equity Account Growth 5.00%
Equity Account Dividend 1.50%
Dividend Tax Rate 20.00%
Annuity Yield 6.50%
Income Tax Rate 35.00%
Pre-Tax Equivalent Rate of Return of Pre-Tax Values
Male
(1)
(2)
(3)
Municipal
Equity
Initial Death Benefit 10,455,075
Pre-Tax Equivalent Rate of Return of TBD Values (4) Year End Cash
(5)
1 2 3 4 5 6 7 8 9 10
47 48 49 50 51 52 53 54 55 56
6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84
7.17 7.10 7.03 6.97 6.92 6.88 6.84 6.80 6.77 6.74
5.44 5.46 5.49 5.51 5.54 5.56 5.59 5.61 5.64 5.67
938.07 555.24 310.19 204.09 148.12 114.36 92.86 72.36 58.35 48.37
78266.79 3240.09 994.89 506.55 318.78 224.53 169.40 132.26 106.82 88.52
11 12 13 14 15 16 17 18 19 20
57 58 59 60 61 62 63 64 65 66
6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84
6.71 6.68 6.66 6.74 6.73 6.70 6.66 6.63 6.61 6.58
5.70 5.73 5.76 5.72 5.72 5.74 5.77 5.81 5.84 5.88
41.45 35.92 32.16 8.37 9.01 9.41 9.69 9.90 10.07 10.20
75.02 64.65 46.08 28.77 23.69 19.89 17.02 14.80 13.55 13.18
21 22 23 24 25 26 27 28 29 30
67 68 69 70 71 72 73 74 75 76
6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84
6.55 6.52 6.49 6.47 6.45 6.44 6.42 6.40 6.39 6.38
5.89 5.88 5.86 5.84 5.83 5.81 5.81 5.80 5.80 5.80
10.32 10.43 10.53 10.64 10.74 10.84 10.94 11.04 11.14 11.24
12.90 12.69 12.53 12.40 12.19 12.02 11.87 11.73 11.62 11.70
*This illustration assumes the nonguaranteed values shown continue in all years. This is not likely, and actual results may be more or less favorable. This illustration is not valid unless accompanied by a proposal from TBD.
Date: 03/03/2018
TBD Interest Rate 6.50%
Page 6 of 11
Various Financial Alternatives vs. TBD Presented By: Daniel Wachs
Insured: Partner #2
Pre-Tax Equivalent Rate of Return Comparison
Municipal Bond Fund Yield 5.50%
Equity Account Growth 5.00%
Equity Account Dividend 1.50%
Dividend Tax Rate 20.00%
Annuity Yield 6.50%
Income Tax Rate 35.00%
Pre-Tax Equivalent Rate of Return of Pre-Tax Values
Male
(1)
(2)
(3)
Municipal
Equity
Initial Death Benefit 10,455,075
Pre-Tax Equivalent Rate of Return of TBD Values (4) Year End Cash
(5)
31 32 33 34 35 36 37 38 39 40
77 78 79 80 81 82 83 84 85 86
6.84 n/a N/A N/A N/A N/A N/A N/A N/A N/A
6.36 n/a N/A N/A N/A N/A N/A N/A N/A N/A
n/a N/A N/A N/A N/A N/A N/A N/A N/A N/A
11.33 11.43 11.52 11.61 11.70 11.78 11.86 11.93 12.01 12.07
11.78 11.86 11.93 12.01 12.08 12.15 12.22 12.28 12.34 12.40
41 42 43 44 45 46 47 48 49 50
87 88 89 90 91 92 93 94 95 96
N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
12.13 12.19 12.24 12.29 12.34 12.39 12.44 12.51 12.57 12.64
12.45 12.49 12.53 12.57 12.56 12.55 12.55 12.56 12.57 12.64
51 52 53
97 98 99
N/A N/A N/A
N/A N/A N/A
N/A N/A N/A
12.70 12.76 12.82
12.70 12.76 12.82
*This illustration assumes the nonguaranteed values shown continue in all years. This is not likely, and actual results may be more or less favorable. This illustration is not valid unless accompanied by a proposal from TBD.
Date: 03/03/2018
TBD Interest Rate 6.50%
Page 7 of 11
Various Financial Alternatives vs. TBD Presented By: Daniel Wachs
Insured: Partner #2
Taxation of Annuity Cash Flow With deferred annuities, withdrawals (partial surrenders) are taxable until gain is exhausted. Due to this, cash flow illustrated from the deferred annuity in this presentation is the after tax result of withdrawals of a higher amount. With cash value life insurance policies, withdrawals (also known as partial surrenders) are income-tax free up to cost basis and taxable thereafter. Policy loans are income-tax free so long as the policy stays in force until death. The source of the cash flow from the life insurance policy in this presentation is policy loans. Note: Policy loans reduce policy cash values and death benefits, and the lapse of a loaned policy could result in severe tax ramifications to the policy owner. Be sure to consult a professional tax adviser if you have any questions about this issue.
Cash Flow Analysis In Year 21 Below is an analysis of tax calculations on cash flow in the first year that cash flow from the Tax Deferred Account and TBD is illustrated.
Tax Deferred Account +
$1,230,769 $0 $1,230,769
gain in contract withdrawn @ 35.00% tax to net $800,000 additional non-taxed withdrawal to net + $0 total withdrawal which nets, after tax
$800,000
TBD There are no tax calculations required for the life insurance policy since policy loans are not taxable
Annuity surrender charges, if any, will further reduce annuity values.
Date: 03/03/2018
Page 8 of 11
Various Financial Alternatives vs. TBD Presented By: Daniel Wachs
Insured: Partner #2
Taxation of Equity Account Cash Flow With equity accounts, dividends are taxed and the after tax balance is either reinvested or used for scheduled cash flow. Capital gains tax calculations are based upon a ratio of asset value to remaining cost basis in any given year. With cash value life insurance policies, withdrawals (also known as partial surrenders) are income-tax free up to cost basis and taxable thereafter. Policy loans are income-tax free so long as the policy stays in force until death. The source of the cash flow from the life insurance policy in this presentation is policy loans. Note: Policy loans reduce policy cash values and death benefits, and the lapse of a loaned policy could result in severe tax ramifications to the policy owner. Be sure to consult a professional tax adviser if you have any questions about this issue.
Date: 03/03/2018
Page 9 of 11
Various Financial Alternatives vs. TBD Presented By: Daniel Wachs
Insured: Partner #2
Tax Calculations The tax deferred investment illustrated in the accompanying material reflects after tax values. Since withdrawals are taxable until any gain is exhausted, account values are illustrated on an after tax basis. With equity accounts, dividends are taxed and the after tax balance is either reinvested or used for scheduled cash flow. Capital gains tax calculations are based upon a ratio of asset value to remaining cost basis in any given year. A cash value life insurance policy (that is not designed as a modified endowment contract*) is taxed on a first-in-first-out basis which means that withdrawals (also known as partial surrenders) have different taxation. Withdrawals up to cost basis are income-tax free; subsequent withdrawals are taxable. However, contractual loan provision in the policy allow you to access additional cash flow from the policy cash value which is income-tax free so long as the policy stays in force. This feature avoids the problem of taxable withdrawals in excess of cost basis. Interest on such loans can be added to the outstanding loan, and with most life insurance policies, the loan balance is credited with interest earnings at (or near) the level of the loan interest charged resulting in a wash (or near wash) of the loan interest. If the policy is kept in force until death, the policy death benefit, including any internal deferred gain, is income-tax free. Policy loans reduce policy cash values and death benefits, and the lapse of a loaned policy could result in severe tax ramifications to the policy owner. Be sure to consult a professional tax adviser if you have any questions about this. *With a life insurance policy that is characterized as a modified endowment contract ("MEC"), both withdrawals and loans are taxed on a gain first basis. In almost all circumstances, it is advisable to avoid purchasing a MEC, and the basic illustration that is provided to you from the issuing life insurance company should indicate if it is a MEC. Legal and tax information is for general use only and may not be applicable to specific circumstances. Clients should consult their own legal, tax and accounting advisors to assist in the evaluation of any potential transaction or strategy.
Date: 03/03/2018
Page 10 of 11
Various Financial Alternatives vs. TBD Presented By: Daniel Wachs
Insured: Partner #2
A Look at Year 53
Various Financial Alternatives
TBD
Cumulative Payments
5,105,955
5,105,955
Cumulative After Tax Cash Flow 26,400,000 9,458,826
8,962,860
8,438,604
MB
AN
14,564,462 Value
0
0
Cash Value
14,564,462
0 Death Benefit MB Value
AN Value
MB - Municipal Bond Fund - Equity Account AN - Annuity
Date: 03/03/2018
Page 11 of 11