Estate planning

1. Estate Planning Strategies An Overview Guide for Individuals Estate Planning A way to help keep the promises you made

2. Contents 1 | A Sound Estate Plan 2 | Forming an Estate Planning Team 3 | Choosing the Option That’s Right for You 8 | The Changing Tax Environment The information provided is not written or intended as specific tax or legal advice and may not be relied on for purposes of avoiding any federal tax penalties. MassMutual, its employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. WeAllMakePromises We promise to keep our families safe and secure even after we’re gone. We promise to give our children all the benefits of our own success. We promise ourselves that their future will be free from financial worries. In essence, estate planning can be the single best way to make certain the promises you make are promises you keep.

3. 1 We all have goals we want to meet during our lifetime.The education of our children, a comfortable and financially secure retirement, and perhaps a new home or a second home. Thefirststepofestateplanningistohelp youplanfor–andrealize–theselifetime goals.Itaddressesyourlegalandfinancial concerns,takingintoaccountyourgoalsand taxconsiderations.Italsotakesadvantageof existinglawsandfundingvehiclestosaveyou ontaxesandhelpmanageyourpropertyinan efficientandprofitablewayduringyourlifetime. Here are some of the more significant ways estate planning can help you make certain your family will get as much of your estate as is legally possible. Minimizes Estate Taxes Depending upon your net worth, the federal government may levy a substantial tax against the value of your estate. In addition, many states impose their own separate tax at death on their residents and on non-residents who own property within the taxing state. Just as important, that tax is due and payable before any property can be transferred to your beneficiaries. With a well-conceived estate plan, some – or even all – of this tax may be avoided. Liquidity to Pay Estate Taxes If your estate consists primarily of real estate, a business, or other non-liquid assets, your heirs could end up cash poor – and be forced to sell assets in order to pay taxes. Estate planning can help by reducing your estate tax liability. A solution is an estate plan that includes life insurance to address your estate liquidity needs. Protects Your Family’s Income How will the members of your family support themselves after you’re gone?A sound estate plan, including life insurance for your beneficiaries’ financial protection, can make certain they will be taken care of. Provides Professional Asset Management An estate plan that includes the creation of a trust can be established to arrange for the professional management of your assets on your family’s behalf. Controls Distribution of Your Estate Will your assets be distributed the way you want them to? Your estate plan will help make sure your wishes are met. ASoundEstatePlan

4. 2 Estate planning is a team effort. It involves the talents and efforts of a number of professionals – people you respect and trust. Financial Services Representative As a result of the unique features and tax advantages of life insurance, your financial services representative is a key member of your estate planning team. Attorney Your attorney would be responsible for making sure that your intentions are carried out in legally enforceable documents. Accountant Your accountant may provide tax advice and would be most familiar with the extent and value of your assets. Bank Trust Officer If you have chosen to use a corporate trustee, you will want to include the trust officer in your planning discussions. Life insurance and an irrevocable life insurance trust can give you extra advantages. Life insurance plays a critical role in estate planning. It provides cash to pay estate settlement expenses and taxes – and it provides the capital to meet the financial needs of your family. While it gives you the security of a death benefit, life insurance can also be used to help you accumulate savings to supplement your retirement income. Lifeinsurancecoupledwithanirrevocablelifeinsurancetrust canbeevenmoreadvantageousforyou,particularlyifthejoint assetsofyouandyourspouseareworthmorethantwotimes theapplicableexclusionamount.Thisistheusualcut-offpoint whereyourheirscan,throughproperestateplanning,receive yourassetswithoutpayingfederalestatetaxes. An irrevocable life insurance trust offers several unique advantages: • The proceeds of the life insurance policy can be insulated from estate taxes. • Life insurance proceeds can pass income tax-free to your beneficiaries. • The premium may be gifted to the trust, and thereby reduce the remaining taxable estate. Since life insurance is such a vital part of your estate planning needs, you should make sure you work with a company that is an established leader in the field, such as Massachusetts Mutual Life Insurance Company (MassMutual). Furthermore, MassMutual’s representatives are supported by a team of attorneys specializing in estate and business planning, located in the home office. ForminganEstatePlanningTeam

5. 3 ChoosingtheOptionThat’sRightforYou Basic Estate Planning Techniques Technique Definition Best Application Tax Pros/Cons Other Advantages Other Concerns Will Alegalinstrument throughwhichan individualdisposesof his/herproperty at death. AvalidWillisa cornerstoneofany estateplan. Theindividualcan maximizeuseofthe unlimitedmarital deductionandthe applicableexclusion amount. Ensuresproperty isdisposedper individual’swishes; allowsindividualto stipulateguardianfor minorchildren. Propertypassing throughaWillis subjectto probate fees. Durable Power of Attorney Alegalinstrument grantingpowerto anotherpartytoacton theindividual’sbehalf. LiketheWill,the durablepowerisa basicofallestate plans,andparticularly importantwithelderly anddisabledclients. Ifspecifically authorizedinthe instrument,theperson givenpowerof attorneycanmake giftsandreducethe principal’sestate. Allowstheprincipalto designatewhowillact onhis/herbehalf withoutprobatecourt interventionshould he/shebecome incapacitated. Mustadheretolawsof particularjurisdiction. LifeInsurance Acontractthat providescashatthe deathoftheinsured; thecontractmayalso provideforcash accumulationduring thelifeoftheinsured. Lifeinsuranceisan integralpartofestate planningatallstages oftheindividual’s life cycle. Deathbenefitpasses tothebeneficiaryfree ofincometaxesandif ownedcorrectly,will notbeincludedinthe decedent’sestatefor taxpurposes. Lifeinsurancecan provide:familyincome intheeventof prematuredeathofthe individualand/or spouse;cashvalueof wholelifeinsurance canhelptoprovidefor children’seducation and/orsupplemental retirementincome; andliquiditytopay estatetaxes. Balancingpremium paymentsagainst otherfinancial obligationsaffecting currentcashflow. Qualified Disclaimer Arefusaltoacceptgift orbequestbyintended recipient. Usedwheredonee/ beneficiaryofproperty prefersthatsomeone elsereceivesthe property. Propertyistreatedasif itneverpassedto originaldonee/ beneficiary. Facilitatespostmortem planning. Disclaimer must be an unqualified refusal in writing received by the donor within nine months; the beneficiary must not accept the property; property must pass to either the decedent’s spouse or someone other than the person disclaiming; person disclaiming cannot direct disposition.

6. 4 Advanced Estate Planning Techniques Utilizing Trusts Technique Definition Best Application Tax Pros/Cons Other Advantages Other Concerns Revocable Trust (Living Trust) Atrustisafiduciary arrangementcreatedbythe grantorwherelegaltitleto propertygivenbythe grantorisheldandthe propertymanagedbya trusteeforthebenefitofa beneficiary.Arevocable trustcanberevoked, amended,orterminated andthepropertyrecovered bygrantor. Usefulinconjunction withdurablepowerof attorneyandapour overWill(providing thatallotherassets “pourover”intothe trustatdeath). Notaxadvantageto thegrantorsincethe grantorwillbetaxed ontheincomeandthe assetswillbeincluded inthegrantor’staxable estateatdeath. Efficientreceptaclefor holdingassetsduring lifetimesothatassets arefunneledtomarital deductionorbypass trustsatdeath;provides formanagementof propertyshouldgrantor beincapacitated;probate costsandpublicityare avoidedbyusingatrust versusaWillalone. Nomajor concernssince trustcanbe changedor terminated. Irrevocable LifeInsurance Trust Atrustwhichcannotbe changedorterminatedby thegrantor;thetrust purchaseslifeinsurance usingfundsgiftedtothe trustbythegrantor;atthe grantor’sdeaththedeath benefitspasstothetrust’s beneficiaries. Estateswithliquidity problems. Substantiallyreduces grantor’sestate throughannualgifts thusreducingestate taxes;deathproceeds arereceivedby beneficiariesincome taxandestatetax-free. Estateliquidity enhanced;expenses andpublicityofprobate areavoided. Grantorloses controlofproperty intrust. Marital Deduction & Bypass Trusts OftenreferredtoasA-B trusts,thesetrustsare establishedtominimize estatetaxes.Thebypass trusttakesmaximum advantageofthe applicableexclusion amountandthemarital deductiontrustmaximizes useofthemarital deduction. Thesearebasicestate planningtoolsusefulin estateswherethejoint assetsofthespouses exceedthevalueof theirtotalunified credit. Minimizesestate taxesby:allowingboth spousestotake advantageofthe unifiedcredit;andby fullyutilizingthe unlimitedmarital deduction(thus deferringtaxesuntil theestatepassesto thechildren/family). Professional managementof assetsbythetrustee afterthedeathofthe firstspouse. Possiblelossof controlofthe assetsbythe survivingspouse, ifspouseisnot namedsole trustee. Charitable Remainder Trusts (CRT) Anirrevocabletrust providingcurrentincome paymentstothegrantor followedbypaymentof theremaindertoacharity. Usefulwheregrantor wantstomakea charitablegiftbutalso wantsincome; appropriatewhere grantorwants increasedincomefrom appreciatedproperty withoutsellingand incurringcapitalgains; applicablewhere estatetaxavoidance andcurrentincometax deductionaregoals. Thegrantorisentitled toacurrentincometax charitablededuction; thetrustcansellhighly appreciatedproperty withoutincurring capitalgains;the propertygiftedtothe trustisremovedfrom thetaxableestate. Increasedcurrent income;abilitytomake gifttofavoredcharity. Grantormustbe willingto relinquishcontrol oftheasset.

7. 5 Advanced Estate Planning Techniques Utilizing Trusts Technique Definition Best Application Tax Pros/Cons Other Advantages Other Concerns Charitable Lead Trust (CLT) Anirrevocabletrust providingcurrent incomepaymentstoa charityfollowedby paymentofthe remainderinteresttoa non-charitable beneficiary. Grantorwantsto benefitcharity currentlywhile keepingpropertyinthe family;grantorwants currentincometax deductionsbutis willingtoreporttrust incomelater;grantor facingsubstantial estatetaxesandwants totransferpropertyto childrenatminimal gift/estatetaxcost; grantorwithrapidly appreciatingproperty wantstoremovefuture appreciationfrom estateatminimalgift taxcost. Canprovidesignificant incometaxdeduction; testamentaryCLTcan providesignificant estatetaxdeduction forthecharitable interest;enables grantortotransfer substantialwealth tochildrenor grandchildrenat minimumgift/estate taxcost. Providescurrent incomestreamto grantor’sfavorite charity;property remainsinfamily. Grantoristaxedonthe trust’sincome. Grantor Retained Annuity Trust (GRAT) Anirrevocabletrust intowhichthegrantor placesincome- producingpropertybut retainstherighttoa fixedannuityfora specifiedtermofyears afterwhichthe propertypassestothe children/family. Usedtofreezethe estate(restricttaxable estatetoitscurrent value)toreduceestate taxes;oftenusedto transferstocksorreal estateonafavorable gifttaxbasis. Appreciationofassets escapesestatetaxes; assetscanbe transferredtothenext generationata substantialdiscount; incomefromthetrust taxedtothegrantor. Providesfixedincome streamto grantor. Thegrantorsacrifices controloverthe property;ifgrantor diesduringthe retainedinterest period,theproperty is includedin his/her estate. Grantor Retained Unitrust (GRUT) Anirrevocabletrust intowhichthegrantor placesincome- producingpropertybut retainstherighttoa fixedpercentageofthe propertyforaspecified termofyearsafter whichtheproperty passestothe children/family. SameasGRAT. SameasGRAT. Providesvariable currentincomestream tograntor. SameasGRAT.

8. 6 Advanced Estate Planning Techniques Utilizing Trusts (Continued) Technique Definition Best Application Tax Pros/Cons Other Advantages Other Concerns Qualified Personal Residence Trust (QPRT) Atrustthatholdsthe grantor’sprimaryor vacationhome;the grantorretainsthe righttoresideinthe homeforatermof years;thereafter,the houseistransferredto thebeneficiaries. Usedwheregrantor wantstoreduceestate taxeswhilealso residinginhome. Reductionofestate taxes;gifttaxis reducedbythevalueof theinterestretainedby thegrantortoresidein thehouse. QPRTsareexempted fromtheanti-estate freezerules. Taxsavingsareonly realizedifgrantorlives beyondtheterm ofyearsthatthe residenceisretained. Continueduseof propertyafterQPRT endsrequirespayment ofrentbygrantor. Estate Freeze Techniques Methodsdesignedto restricttaxableestate toitscurrentvalue(see FLP,GRAT,GRUT,SCIN forexamples). Usedtotransferhighly appreciatingproperty toheirs. Reducesestate/gift taxes. Propertyownerretains somecontrolover propertybutshifts appreciationin propertytoheirs. Estatefreezelawmust besatisfiedtogaintax advantages. Power of Appointment Apropertyright allowingtherecipient tocontrolwhowill receivetheproperty. Appropriatein“wait andsee”situations wheredonorof propertywants decisiontoultimately transferpropertyto futuredate. Thepowerof appointmentis nottaxedintheestate oftheholderofthe power,provided thepoweris draftedcorrectly. Providesflexibilityto shiftproperty accordingto changingneeds/ circumstances. Donorhasnocontrol overultimate dispositionofthe propertybythe holderofthepower ofappointment. 2503(c) Trusts Trustsutilizedtogift propertytoaminor. Appropriatewhere grantorwantsto controltheuseofthe trustpropertyuntilthe beneficiaryreaches adulthood. Reducesestatetaxes ofgrantor;shifts taxableincometo minor(subjecttokiddie taxlimitations). Givesgrantorpeaceof mindknowingthat assetswillbeproperly managedforthe benefitoftheminor beneficiary. Grantorloses personalcontrolof assetsandminorhas accessatage21.

9. 7 * The American Taxpayer Relief Act of 2012 made the estate, gift and generation-skipping transfer applicable exclusion amount of $5,000,000, as indexed for inflation, permanent. Other Advanced Estate Planning Techniques Technique Definition Best Application Tax Pros/Cons Other Advantages Other Concerns Living Will Alegaldocument expressingan individual’swishes concerninglife-support proceduresshouldthe individualbecome terminallyill. Thelivingwillisan importantcomponent ofallestateplans. None Thelivingwillallows theindividualto controlhisor her destiny. Theformatoftheliving willdocumentmust complywithstatelaw. Gifts* Agratuitoustransferof propertyduringthe donor’slifetime. Mostappropriatefor transferringassets thatwillsignificantly appreciate. Donorcangiftupto valueofannualgifttax exclusiontoeach doneeperyearfreeof gifttax;reducessizeof taxableestate. Removesappreciation ofassetfrom taxable estate. Donor’slossofcontrol overproperty. Generation Skipping Transfers* Transfersofpropertyto aperson(s)twoor moregenerations belowthedonor. Usedwhendonor wantstopassproperty tograndchildren/ great-grandchildren. SubjecttoGeneration SkippingTransferTax unlesssome permissible exemption/exclusion applies. Canprovidecreditor protectionfor beneficiariesfor generations. Donor’slossofcontrol overproperty. Family Limited Partnerships and Family Limited Liability Companies Anassociationof familymembersto carryonabusinessfor profit;normallythe parentsarethegeneral partnerswhooperate theorganizationand assumefullliability; theyconveylimited partnershipintereststo otherfamilymembers. WithLLCs,members canmanagetheLLC withoutexposureto fullliability. Usedtopassproperty tofamilymembersat discountedvalues. Reductioninestate taxessinceproperty appreciation transferredfromsenior generation’staxable estateanddiscounts mayreducethevalue ofgiftstofamily member(s);reduction inincometaxesif limitedpartner-donees areinlowertax bracket. Managementand controloffamilyassets remainvestedinsenior familymembers. Unlimitedliabilityof generalpartnersifa partnershipisused; expenseof establishinganFLP orLLC.

10. 8 Other Advanced Estate Planning Techniques (Continued) Changes made by the Tax Relief, Unemployment Insurance Reauthorization, and Job CreationAct of 2010 (Tax Relief Act of 2010), were made permanent by theAmerican Taxpayer ReliefAct of 2012 (ATRA 2012). Depending on the size of your estate and when you die, you may need to be more concerned than ever about estate planning. Because there is no tax on assets inherited by a surviving spouse, the estate tax exemption amount only works for assets that do not pass to a husband or wife. Therefore, many estate plans commonly transfer the maximum exemption amount in a “bypass” trust that benefits the children or family. Exemptions and Rates The law “reunifies” and makes permanent, the federal estate, gift and generation-skipping transfer tax laws and the tax exemptions of $5,000,000 per person ($10,000,000 per married couple). These amounts are increased and indexed for inflation to $5,430,000 and $10,860,000 respectfully for 2015. The tax rate on taxable estate, gift and generation-skipping transfers in excess of the $5,430,000 exempted amount in 2015 is 40 percent. TheChangingTaxEnvironment Technique Definition Best Application Tax Pros/Cons Other Advantages Other Concerns Charitable Contributions Gifttofavoritecharity. Usefulwhendonor wantstobenefit charitywhilealso gainingincomeand transfertax advantages. Donorreceivesincome taxdeductionupto 50%ofadjustedgross income;giftreduces taxableestate. Donor’ssatisfactionin benefitingcharity. Charitablegiftreduces estatepassingto donor’sheirs. Installment Sales & Self Canceling Installment Notes (SCIN) Salesmethods wherebythepurchaser paysforpropertyover aperiodoftime. Usefulforfreezing valueofhighly appreciatingproperty; usedwhenpurchaser cannotaffordfull purchasepriceattime ofpurchase. Anycapitalgainsona salecanberecognized graduallybyseller;can reduceestatetaxby shiftingappreciationin propertytoheirs;any balanceremainingon SCINatdeathofseller iscanceledandnot subjecttoestatetax (butremaininggainis taxableincometo estate).ASCIN requiresanadditional premiumcosttobe paidinorderforthe balanceofnotetobe cancelledatthedeath oftheseller. Providesflexibilityto thesellerineither spreadingout recognitionofcapital gainorimmediately recognizing;gives buyerflexibilityof spreadingout payments. Withinstallmentsale, anyinstallmentsdueat deathofsellerare includedinthe seller’s estate.

11. 9 “Portability” of any Unused Estate Tax Exemption The Deceased Spouses Unused EquivalentAmount (DSUEA) is known as portability. It is the ability for a surviving spouse to elect any unused exemption of the first spouse to die. The surviving spouse must claim this right on the Form 706 from the deceased spouses estate. It will terminate if the surviving spouse remarries. In the past, trusts – often referred to as by-pass trusts or credit shelter trusts – were established to utilize the estate tax exemption of the first spouse of a married couple to die. Assets transferred to these trusts at the death of the first spouse “bypassed” or were “sheltered” from estate taxation at the death of the second spouse. While this new provision has the potential to help simplify estate tax planning for married couples, it should be noted that there are benefits to using a bypass or credit shelter trust that the portable exemption strategy does not offer, including creditor protection and keeping the appreciation or increase in value of trust assets out of the second spouse’s taxable estate. Tax Rates and Exemption Equivalents Calendar Year Estate and GST Tax Deathtime Transfer Exemption Highest Estate and Gift Tax Rates (GST Tax Rate) 2001 $675,000forestatetax; $1,060,000forGSTtax 55%,plus5%surtaxonestatesover$10million 2002 $1millionforestatetax; $1,100,000indexedfrom2001forGSTtax 50%(andsurtaxrepealed) 2003 $1millionforestatetax; $1,120,000indexedfrom2001forGSTtax 49% 2004 $1.5million 48% 2005 $1.5million 47% 2006 $2million 46% 2007 $2million 45% 2008 $2million 45% 2009 $3.5million 45% 2010 N/A(estateandGSTtaxrepealed) Gifttaxremains,equaltotopindividualincometaxrateof 35% 2011 $5million 35% 2012 $5,120,000 35% 2013 $5,250,000 40% 2014 $5,340,000 40% 2015 $5,430,000 40%

12. AS6004 115 CRN201612-188702 Therearemanyreasonstochoosealifeinsurancecompanytohelpmeet yourfinancialneeds:protectionforyourfamilyorbusiness,productsto providesupplementalincomeandtheconfidenceofknowingyouwillbe preparedforthefuture. AtMassachusettsMutualLifeInsuranceCompany(MassMutual),we operateforthebenefitofourparticipatingpolicyowners.Westandstrong inthefundamentalbeliefthateverysecurefuturebeginswithagood decision.Andwhenchoosingalifeinsurancecompany–ownership, strengthandstabilitymatter. Learnmoreatwww.massmutual.com/mutuality MassMutual.We’llhelpyougetthere.® ©2015MassachusettsMutualLifeInsuranceCompany,Springfield,MA01111-0001.Allrightsreserved.www.massmutual.com. MassMutualFinancialGroupisamarketingnameforMassachusettsMutualLifeInsuranceCompany(MassMutual)anditsaffiliatedcompaniesandsalesrepresentatives.

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