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Advanced Markets Group | S U N

Advanced Markets Group

Private Financing (Split Dollar Loan Regime) with Sun Protector VUL
Funding Trust – Owned Life Insurance Without Making Annual Gifts
Target Market
Dave is a wealthy individual, age 50, divorced, with one child. He anticipates that he will need a $1,000,000 life insurance policy to cover his estate tax liability. He has already depleted his lifetime gift tax exemption and has committed his annual exclusions to a gifting program for his child. He wants to place the insurance into an Irrevocable Life Insurance Trust (ILIT) which has been created and seeded with income-producing assets. He does not want to make taxable gifts to the ILIT, but rather desires to fund the insurance in a tax-efficient way (without incurring gift taxes).


Product Solution
Dave enters into a private split dollar agreement with the Trustee of his ILIT. This is also known as a private loan arrangement. He will make loans to the Trust to be used for premium payments on the life insurance policy. He will purchase a Sun Protector Variable Universal Life policy* which will accumulate cash to enable the Trustee to repay the loan during Dave’s lifetime if desired. Otherwise, the death benefit will be available at Dave’s death. Sun’s Charitable Giving Benefit Rider is available at no additional cost and will pay a benefit of 1% of initial face amount or $10,000 in this case to a qualified charity.

How it Works: Private Split Dollar
Note at applicable federal rate (AFR) from Trust to Grantor Loan of premiums to Trust Annual interest payment on note Repayment of note to estate from cash value or death benefit The ILIT is the owner and beneficiary of a policy on Dave. Dave loans the premium amount each year to the ILIT in exchange for a demand note at the applicable federal rate (AFR). The Trust pays the premium to the insurance company and the annual interest on the note to Dave. The trust has access to the policy cash value to repay the loan prior to death if desired. When the death benefit is paid, the loan, if still outstanding, will be repaid to Dave’s estate with the remainder of the death benefit payable to the ILIT estate tax-free.

Trust Grantor Dave

Irrevocable Life Insurance Trust (ILIT) Owner/Beneficiary of Policy on Grantor’s Life
Payment of Premiums

Death Benefit Proceeds

Life Insurance Company


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Goals Achieved
• The payment of premiums without incurring any gift taxes • Death proceeds after repayment of the loan are estate and income tax-free • Cash accumulates in the ILIT for potential distribution to trust beneficiaries and other purposes (such as repayment of the premium loans).

Additional Benefits
No Collateral
Collateral deposits are not required to secure the loan because it is a non-commercial arrangement.

The loan can be structured as lump sum or annual. Repayment of the loan can be made at death or during lifetime. The Sun Protector Variable Universal Life policy will permit a prepayment of the loan prior to death, if desired.

Minimize Gift Taxes
Gift taxes may be significantly lowered or even avoided. The amount of the annual interest payment on the loan may be gifted to the trust.

Maximize Transfer of Wealth
Upon death, the life insurance proceeds will pass through the ILIT to the heirs free of income and estate taxes assuming no transfer-for-value under Internal Revenue Code Section 101 has been made or that the insured has no incidents of ownership in the policy.

Sun Protector Variable Universal Life policy permits:
1) Distributions to be made from ILIT to beneficiaries. 2) Prepayment of loans (if desired) 3) Financial Flexibility (Any withdrawals from the policy will result in a reduction in the policy death benefit.)

Premium Advances 36,844 36,844 36,844 Cumulative Loan Advances Interest Paid Repayment 36,844 184,222 368,444 368,444 1,842 9,211 18,422 18,422 (368,444) Cash Value Grantor 0 167,169 368,444 368,444 0 0 0 Cash Value Trust 0 0 67,119 234,556 247,877 296,359 441,044 Death Benefit Grantor 36,844 184,222 368,444 368,444 0 0 0 Death Benefit Trust 997,205 1,008,597 1,023,644 1,023,644 1,023,644 1,023,644 1,023,644

Year 1 5 10 15 16 20 30


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For more information, please contact your Sun Life Financial Representative.

This information contains references to concepts that have significant legal, accounting and tax implications. It is not intended as legal, accounting or tax advice. Clients should consult with their own financial and tax advisor regarding the application of these concepts to any particular situation. *This case study is designed to present an understanding of the mechanics of Sun Protector VUL in a Private Financing Plan. Variable Universal Life Insurance policies are subject to market risks, including possible loss of principal. When accessing policy values, policy holders may receive more or less than they invested. Partial withdrawals and loans will reduce the policy Death Benefit and the Account Value by the amount of the withdrawal. Withdrawals that exceed the amount of premiums paid into the policy will be taxable. Complete VUL illustrations contain three sets of values in the following sequence and should accompany any presentation of this concept: 1. Based on one assumed rate and current cost of insurance rates; 2. Based on three assumed rates (including 0%) and current cost of Insurance rates. 3. Based on three assumed rates (including 0%) and Guaranteed Cost of Insurance rates. Variable Universal Life Insurance products are issued by Sun Life Assurance Company of Canada (U.S.), and distributed through our affiliated broker-dealer, Sun Life Financial distributors, Inc. Variable Universal Life Insurance products are offered by prospectus. Customers should request a prospectus, which provides more details about charges and expenses, and review it carefully before investing. Not FDIC/NCUA insured. May lose value. No bank/credit union guarantee. Not a deposit. Not insured by any federal government entity. All guarantees are based on the claims-paying ability of the issuing company, Sun Life Assurance Company of Canada (U.S.) (Wellesley Hills, MA), or in New York, Sun Life Insurance and Annuity Company of New York (New York, NY). Both are members of the Sun Life Financial group of companies. ©2008 Sun Life Assurance Company of Canada. All rights reserved. Sun Life Financial and the globe symbol are registered trademarks of Sun Life Assurance Company of Canada


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Sun Life Financial is a leading international financial services organization providing a diverse range of wealth accumulation and protection products and services to individuals and corporate customers. Chartered in 1865, Sun Life Financial and its partners today have operations in key markets worldwide including Canada, the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China and Bermuda. Sun Life Financial Inc. trades on the Toronto (TSX), New York (NYSE) and Philippine (PSE) stock exchanges under the ticker symbol SLF.


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