Abstract:
A system and method for the efficient transfer of wealth is disclosed. The system and method implement a plan for the efficient transfer of wealth. The disclosed embodiments include a company computer for gathering information on the amount of wealth to be transferred from a transferor. An amount is determined to be transferred from the transferor to a transferee in the form of a loan. According to the plan, an insurance policy having a term benefit is purchased by the transferee, and the term benefit is assigned to the transferor as an economic benefit which is credited towards the loan. The economic benefit may be determined according to, for example, published IRS Table PS58. The economic benefit may be significantly greater than the actual cost of the policy, with the spread being effectively transferred to the transferee.

Description:
FIELD OF THE INVENTION  
         [0001]    The present invention relates in general to a method and apparatus for transferring wealth. It more particularly relates to a method and apparatus for transferring wealth in an effective manner while reducing the tax consequences of the transaction.  
         BACKGROUND ART  
         [0002]    There have been many different types and kind of systems for implementing financial plans. For example, reference may be made to the following U.S. Pat. Nos. 3,634,669; 4,648,037; 5,191,522; 5,214,579; 5,231,571; 5,233,514; 5,429,506; 5,631,828; 5,761,441; 5,819,230; 5,933,815; 5,966,693; 5,999,917; 6,018,714; 6,064,969; 6,161,096.  
           [0003]    Many of these financial plans relate to mortgages and insurance plans. However, they are not specifically related to the transfer of wealth from one person to another.  
           [0004]    It has been found to be desirable to effectively transfer wealth to others, such as grandchildren or other family members in a cost-effective manner. There have been various estate planning techniques employed in the past. For example, generation-skipping trusts have been employed to be an effective tool in conveying one&#39;s wealth to members of one&#39;s family.  
           [0005]    There can be undesirable costs incurred in connection with the funding of such a trust. Such costs can include the cost of liquidating assets at an undesirable time to fund the transfer. This is especially undesirable where very large sums of money or assets are to be transferred. Also, the funding of the trust can cause the unwanted imposition of taxes such as estate taxes or gift taxes which could otherwise diminish the effective amount of the funding. An outright transfer to another, such as a family member, can also, of course, trigger estate or gift taxes which would likewise diminish the amount of the transfer of wealth.  
           [0006]    Thus, the disclosed embodiment of the present invention helps in the effective transfer of wealth, while minimizing or reducing the costs associated with the transfer. 
       
    
    
     DESCRIPTION OF THE DRAWINGS  
       [0007]    [0007]FIG. 1 is a diagrammatic view of a plan for transferring wealth according to one embodiment of the invention;  
         [0008]    [0008]FIG. 2 illustrates a method according to an embodiment of the invention for implementing the plan for transferring wealth of FIG. 1; and  
         [0009]    [0009]FIG. 3 is a block diagram of a system according to one embodiment of the invention for implementing and administering the wealth transfer plan illustrated in FIG. 1. 
     
    
     DETAILED DESCRIPTION OF PREFERRED EMBODIMENTS  
       [0010]    Referring now to the drawings, there is shown a plan  10  in FIG. 1 for transferring wealth in accordance with a preferred embodiment of the present invention. Further, FIGS. 2 and 3 illustrate a method  20  and a system  10   a  according to preferred embodiments of the invention for implementing the plan illustrated in FIG. 1.  
         [0011]    Referring first to FIG. 1, the plan  10  includes a transferor  12  having a wealth to be transferred. The transferor  12  may be an individual or an entity such as a trust or a company subject to, for example, gift and estate taxes. The transferor  12  may be an individual intending to transfer wealth to his heirs or a corporation seeking to bestow a tax benefit upon an employee by reducing the tax liability. Further, the transferor  12 , as illustrated in FIG. 3, may comprise a transferor computer  12   a , for example, of a financial institution having an account containing the wealth to be transferred.  
         [0012]    Referring again to FIG. 1, a trust  14  may be provided to which the wealth is to be transferred. The trust  14  may have one or more beneficiaries such as, for example, children, grandchildren or employees of the transferor  12 . The trust  14  may be one of a variety of commonly available trusts. As illustrated in FIG. 3, the trust  14  may include a trust computer  14   a  for communicating with and transferring funds from and to other entities.  
         [0013]    Referring again to FIG. 1, the plan  10  further includes the use of an insurance policy issued by, for example, an insurance company  16 . The insurance policy may be a life insurance policy with a term component and a cash value component. Further details of the insurance policy are provided below with reference to FIGS. 2 and 3. As illustrated in FIG. 3, the insurance company  18  may also include an insurance company computer  16   a  capable of communicating and transferring funds with other entities.  
         [0014]    Referring again to FIG. 1, ownership, responsibilities and benefits of the insurance policy may be governed by a split-dollar agreement  17  entered into by the transferor  12  and the trust  14  for at least a period of time. The split-dollar agreement  21  divides the benefits of the insurance policy by assigning the term benefits to one party and the cash value to the other party. The implementation of the split-dollar agreement is described below with reference to FIGS. 2 and 3.  
         [0015]    The implementation of the wealth transfer plan illustrated in FIG. 1 may be accomplished according to the method  23  illustrated in FIG. 3 and the system  10   a  illustrated in FIG. 2. The plan is initiated by the transferor  12  by providing sufficient financial information to a plan administration company  18  having a company computer  18   a , as illustrated by line A in FIG. 3, where the information may be transferred from the transferor computer  12   a , such as by electronic mail, to the company computer  18   a.    
         [0016]    Referring now to FIG. 2, at block  21 , a transfer of funds from the transferor  12  to the trust  14  may be initiated in the form of a loan. In this regard, FIG. 3 illustrates a message transmitted from the company computer  18   a  to the transferor  12  (line B) including instructions to transfer funds to the trust  14 . A message including the fund transfer is then transmitted by the transferor computer  12   a  to the trust computer  14   a  (line C). The amount of the loan may be indicative of the amount of wealth to be transferred. In one example, the transferor  12  wishes to transfer $5 million of his wealth and loans that amount to the trust  14 . In exchange for the loan, the trust  14  may transfer a note to the transferor  12 . In this regard, a message may be transmitted from the trust computer  14   a  to the transferor computer  12   a , as indicated by line D of FIG. 3.  
         [0017]    At block  23  of FIG. 2, the company  18  causes the trust  12  to purchase a life insurance policy from the insurance company  16 . In a system implementing an embodiment of the invention, as illustrated in FIG. 3, the company computer  18   a  may transmit a message to the trust  14  instructing the trust to purchase insurance, as indicated by line E. The company computer  18   a  may determine the amount of insurance to be purchased pursuant to the information previously gathered by line A. The trust computer  14   a  may then transmit a message, as indicated by line F, to the insurance company computer  16   a  to purchase the insurance policy. The message may also include a fund transfer to pay for an initial premium. Thus, the trust  14  is the owner of the policy.  
         [0018]    It is understood that the purchase of the insurance policy may be initiated and completed prior to the transfer of loan funds from the transferor  12  to the trust  14 .  
         [0019]    The trust  14  may transfer regular premium payments for the insurance policy to the insurance company  16 . Each premium payment may have a term portion and a cash value portion. For example, the policy may require a premium of $750,000 per year, of which $500,000 is the cost of the term portion.  
         [0020]    At block  25  of FIG. 2, the company  18  causes the transferor  12  and the trust  14  to enter into a split-dollar agreement. In FIG. 3, this is illustrated by lines G and H. As indicated at line G, instruction messages may be sent from the company computer  18   a  to the respective computers  12   a  and  14   a , whereby the trust  14  and the transferor  12  enter into a split-dollar agreement. Additional messages may be exchanged between the transferor computer  12   a  and the trust computer  14   a , as indicated by line H. The trust computer  14   a  may also transmit a message to the insurance company computer  16   a , notifying the insurance company  16  of the existence of the split-dollar agreement, as indicated by line I.  
         [0021]    The split-dollar agreement assigns the death benefit of the policy to the transferor  12  and assigns the cash value to the trust  14 . Thus, in lieu of principal payments on the note issued at line D, the trust  14  seeks to retire the loan with in-kind repayments in the form of term benefits (death benefits) from the insurance policy. Credit may, therefore, be applied toward the note for the value of the term benefit.  
         [0022]    The term benefit may be valued according to an “economic benefit” assigned to it by the IRS in, for example, published Table PS58. For example, the “economic benefit” for the term portion of the policy may be $1 million per year according to Table PS58. Thus, the trust  14  would be required to assign the death benefits to the transferor  12  for a period of five years to retire a note of $5 million.  
         [0023]    Accordingly, the insurance company computer  16   a  may transmit a message to the transferor computer  12   a  and the trust computer  14   a , as indicated by line J of FIG. 3, notifying each of its assigned rights pursuant to the split-dollar agreement.  
         [0024]    Once the complete amount of the note has been retired, the split-dollar agreement may be terminated, as indicated at block  27  of FIG. 2. In a system according to an embodiment of the invention as illustrated in FIG. 3, the company computer  18   a  may transmit a message to the trust computer  14   a  with instructions to terminate the split-dollar agreement, as indicated by line K. The trust computer  14   a  may then exchange messages with the transferor computer  12   a  to terminate the agreement (line L). The trust computer  14   a  may then transmit a message to the insurance company computer  16   a , notifying the insurance company of the reversion of the death benefit to the trust (line M), followed by an acknowledgment message being transmitted from the insurance company computer  16   a  to the trust computer  14   a  (line N).  
         [0025]    Once all rights in the insurance policy have reverted back to the trust  14 , the trust  14  may choose to either maintain the policy or to cancel the policy, thereby obtaining any cash value in the policy. Factors such as the health and age of the insured may be taken into account in making this decision.  
         [0026]    Referring again to FIG. 2, at a selected time, the company computer  18   a  may cause the trust  14  to terminate the insurance policy (block  29 ). In FIG. 3, the company computer  18   a  transmits a message to the trust computer  14   a  with instructions to terminate the insurance policy (line O). The trust computer  14   a  may then transmit a message to the insurance company computer  16   a  to terminate the policy, as indicated by line P in FIG. 3. The insurance company computer  16   a  may then transmit a message to the trust computer  14   a  (line Q). The message may include a fund transfer with any cash value in the cancelled insurance policy.  
         [0027]    The complete amount of the loan may be retired after, for example, several years of term benefit assignment. This period may be accelerated by selecting a larger death benefit, resulting in a larger “economic benefit” according to Table PS58. One key to the successful implementation of the plan is the spread between the actual cost of the term portion (e.g., $500,000) and the Table PS58 “economic benefit” for the same term portion (e.g., $1 million). Thus, after five years, according to Table PS58, the loan of $5 million has been retired. However, of the original $5 million loan, the trust  14  may have only paid $3.75 million in premiums ($750,000 per year for five years). The trust may retain the difference of $1.25 million. Further, after five years, the policy may have a cash value of an additional $1.25 million, which reverts to the trust  14  when the policy is cancelled. Thus, $2.5 million of the $5 million loan (or 50%) has been successfully transferred to the trust  14 . Greater percentages may be transferred if lower insurance costs can be achieved and the spread between the actual costs and the Table PS58 “economic benefit” can be increased.  
         [0028]    It is to be understood that while various communications taking place between various computers may be conveniently accomplished via electronic mail, other forms of communication may also be employed, such as, for example, postal mail, telephone or other forms of communication.  
         [0029]    While particular embodiments of the present invention have been disclosed, it is to be understood that various different modifications and combinations are possible and are contemplated within the true spirit and scope of the appended claims. There is no intention, therefore, of limitations to the exact abstract or disclosure herein presented.