CPASSContingent Private Annuity: CPASS 
"Over and over again, courts have said that there is nothing sinister in arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich and poor; and all do right, for nobody owes any public duty to pay more than the law demands; taxes are enforced exactions, not voluntary contributions."
Circuit Judge Learned Hand Successful Wealth Accumulation Does Not Always Equate to Successful Wealth Transfer In this world, there are leaders and followers. Leaders take charge, are in the forefront of the business world and are a successful breed that move and stimulate the global economy. Leaders are unique people that accumulate wealth. If you are reading this, chances are you are a leader. You are one of the elite few who has the drive to make real wealth. But, that is not enough. Now, how do you pass it on to your family in the most efficient way? Introducing CPASS, Life Insurance Concepts' proprietary estate planning strategy that, when properly implemented, helps high net worth individuals transfer wealth. CPASS is an estate planning strategy that, when properly implemented, is designed to help high net worth individuals transfer wealth with NO estate tax, NO gift tax and NO income tax. CPASS is a contingent private annuity designed to allow for the significant transfer of assets. We work closely with clients and their advisors to implement this strategy. Here are the basics. At the outset, the grantor creates an irrevocable trust. The grantor or the grantor's spouse then enters into an agreement with this trust whereby the grantor or grantor's spouse will pay the trust (in cash or in kind) in exchange for the trust's promise to pay the grantor a private annuity if the spouse dies during such year and is survived by the grantor. Since the trust will need assets in the event the contingency is triggered, grantors often choose to purchase life insurance on the life of grantor's spouse. If the contingency occurs, the trust makes the annuity payment to the grantor from the assets in the trust. If the trust is funded with life insurance, the death benefit will be available to pay the annuity amount. If the contingency does not occur, the grantor's annual payment to the trust should be removed from his gross estate and the trust will be able to distribute assets to the trust beneficiaries or maintain the life insurance policy and other trust assets. FOR MORE INFORMATION ON CPASS:Contact a Life Insurance Concepts Representative Today. Here are some examples of highly successful people who did not take the appropriate steps to protect their estate and their heirs:
J.P. Morgan
John Galbreath
Frederick Vanderbilt; Alwin Ernst, CPA; With today's high-paced business environment and added social pressures, many people never give serious thought to passing their wealth to their heirs. They may not realize the level of taxation and costs that are involved, unless proper steps have been taken. Without proper planning - estate, income and capital gains taxes can significantly diminish your income and greatly decrease the amount of wealth that can be transferred to your heirs. Estate planning protects you from over-taxation so that your estate is passed on as efficiently as possible. This guarantees your legacy. CPASS Q&AHow is the annuity value determined? The grantor or grantor's spouse determines how much income is to be paid from the trust and over what period of time. The present value of that stream of income is calculated using the current section 7520 rate and discounted to reflect the fact that not all payments will be made if the grantor does not survive the predetermined number of years. The result of this calculation produces the annuity value. What is paid to the trust for the right to receive the private annuity? The amount paid to the trust would be the value of the annuity interest multiplied by the actuarial probability of the insured dying that year survived by the grantor. Will the annuity valuation be respected? For the valuation of the contingent private annuity to be respected, it must pass the exhaustion test as outlined in Revenue Ruling 77-454 and Section 7520. The trust must have enough money to make the annuity payments if the contingencies are met, therefore, it should have sufficient assets or adequate life insurance on the spouse's life to satisfy the required payments. Further, the contingent annuity agreement should contain a covenant prohibiting the trust from taking any actions that would materially impair its ability to meet its obligations if the contingency is triggered. What is a Dynasty Trust? Dynasty Trusts have been used by wealthy families for centuries to provide a legacy of wealth for future generations. A dynasty trust permits substantial property to pass from generation to generation without being reduced by estate taxes. The savings for future generations can be millions of dollars. This type of trust will also better protect family wealth from divorces and lawsuits. Can a Dynasty Trust enter into a CPASS agreement with the grantor of the trust? YES - and this can significantly augment the legacy for the heirs. Can Family Limited Partnership (FLP) units be used with a contingent private annuity? YES - the purchase price paid for the right to receive the private annuity can be made in cash or in kind. This means that if the trust owned life insurance, to the extent the payment to the trust exceeds the amount needed for life insurance, discounted FLP units can be moved from the taxable estate. Additionally, all of the growth on the transferred FLP units should be exempt from tax in the grantor's estate. Does CPASS negate the need for irrevocable life insurance trusts? NO, not at all. CPASS is not intended to replace life insurance in irrevocable life insurance trusts. It is intended to augment the wealth that is being transferred from one generation to the next. What is a Private Annuity? A private annuity is a personal or restricted annuity. The major difference between private annuities and commercial annuities is that the person or entity that assumes the obligation for the private annuity payment is not in the business of selling annuities. A private annuity is an arrangement where an individual transfers property to another in return for the other's promise to make periodic payments to the transferor. What is a Contingent Private Annuity? A contingent private annuity is a contractual agreement made between a grantor or grantor's spouse and a grantor trust providing a private annuity to the grantor for a period of years or life if shorter assuming the grantor lives and the spouse dies. The death of one spouse and the survival of the other is the "contingency" that will trigger the annuity benefits. Who should consider a contingent private annuity? Married couples with a net worth in excess of $20 million dollars who are trying to preserve the value of their estate for their heirs should consider this strategy. How is a contingent private annuity agreement established? A contract is drafted between a grantor trust and the grantor or the grantor's spouse. The contract states that the trust agrees to make a private annuity payment to the grantor over a period of years (usually 3-7) if the spouse dies and the grantor is living at the end of the year. The agreement further stipulates that the payments will only be made each year if the grantor is alive at the end of the year. FOR MORE INFORMATION ON CPASS:Contact a Life Insurance Concepts Representative Today. For more than a century, families like the Kennedys, the Fords and the DuPonts have passed large sums of money without taxes. John Rockefeller Jr., at his death, lost only 16 percent to taxes. His son avoided estate taxes altogether. Estate taxes are voluntary if planning and the right implementation are done BEFORE taxes are due. WHAT IS CPASS? & HOW CAN I BENEFIT FROM IT?CPASS is an estate planning strategy that, when properly implemented, is designed to help high net worth individuals transfer wealth. CPASS is a wealth transfer strategy between parties with insurable interests (i.e. husband/wife) employing a contingent private annuity to transfer assets from a grantor's taxable estate utilizing an irrevocable grantor trust.
Each year that the trust sells a contingent annuity but the contingency is not triggered, the annual payment should be removed from the taxable estate. What are the benefits of the contingent private annuity To the Trust: If the contingency is triggered, and the trust is required to make the annuity payments, the trust could be "made whole" if it owned life insurance. Additionally, the trust will receive a "windfall" if the grantor does not survive the annuity term. What are the benefits of the contingent private annuity To YOUR Heirs: If the contingency is not triggered, the trust will be able to distribute assets to the heirs, or the life insurance policy and other assets can be maintained to provide needed cash to the estate. What are the Gift Tax consequences of CPASS? The value of the contingent annuity should be based on the IRS actuarial and mortality table for valuing annuity interests. Thus, to the extent the purchase price paid by the grantor/spouse for the contingent annuity is equal to its actuarial value; the purchase price paid to the trust by the grantor/spouse should not be treated as a taxable gift to the trust. A purchase of the contingent annuity interest by the spouse on behalf of the grantor will be treated as a gift to the grantor. However, such gift should be eligible for the gift tax marital deduction. What are the Estate Tax consequences of CPASS? If the grantor dies during the annuity term, no portion of the trust should be included in the grantor's estate. If the spouse purchases the contingent annuity and the Trust owns insurance on the spouse's life, the spouse should not be treated as having any "incidents of ownership" with respect to such policy for purposes of Section 2042. What are the Income Tax consequences of CPASS? The purchase of the contingent annuity interest should not cause any gain to be triggered by the grantor/spouse, even if appreciated assets are used to purchase such interest. Annuity payments made to the grantor should not be taxable to the grantor and the use of appreciated assets to make annuity payments should not trigger gain to the trust. FOR MORE INFORMATION ON CPASS:Contact a Life Insurance Concepts Representative Today. |
 
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