WO2000063813A1

WO2000063813A1 - Graphical user interface for displaying alternatives for transferring estate assets to heirs

Info

Publication number: WO2000063813A1
Application number: PCT/US2000/010629
Authority: WO
Inventors: Roy A. Haberman
Original assignee: New York Life Insurance Company
Priority date: 1999-04-19
Filing date: 2000-04-19
Publication date: 2000-10-26
Also published as: AU4474400A

Abstract

In a computer-related apparatus that includes a programmable controller (102), input device (104), a graphical user interface displayed on the display device provides a numerical illustration of the net dollar amount available to heirs if a specified dollar amount of assets each year is allocated to each of several estate planning strategies. The annual dollar amount of contribution and other values associated with the estate assets are input into the apparatus. Computations are then generated which show the net after-tax dollar amount available to the heirs under each alternative at two future dates up to the year of life expectancy and up to a specified year after life expectancy.

Description

GRAPHICAL USER INTERFACE FOR DISPLAYING ALTERNATIVES FOR TRANSFERRING ESTATE ASSETS TO HEIRS

COPYRIGHT NOTICE A portion of the disclosure of this patent document contains material which is subject to copyright protection. The copyright owner has no objection to the facsimile reproduction by anyone of the patent document or the patent disclosure, as it appears in the Patent and Trademark Office patent files or records, but otherwise reserves all copyright rights whatsoever. BACKGROUND OF THE INVENTION

The present invention disclosed herein relates generally to graphical user interfaces (GUI). More particularly, the present invention relates to apparatus and method for presenting a graphical user interface to enter client information concerning estate assets and on the basis of the entered information to display the results of the computational analysis for transferring the estate assets to heirs by using various asset transfer techniques including proceeds from a life insurance policy.

As "baby boomers" with accumulated life savings grow older, the number of families with sizable estates (high net worth individuals) increases proportionately. They grapple with the dilemma of how to transfer assets to heirs after the payment of estate tax. It is preferable to carry out such a net asset transfer in a way that maximizes the amount of assets ultimately available to the heirs. An important part of the estate planning, therefore, is to provide for estate asset transfer alternatives.

Generally, the families may need to consider several alternative solutions for transferring estate assets, net of estate tax. The comparison of the alternatives is a complex but very important problem for high net worth individuals. To make an informed decision, potential clients have to be presented with each alternative solution in an easy-to-understand manner. In addition, the analysis of the alternatives for transferring net assets should be based on some common criterion. Such graphical, user-friendly comparison of estate asset transfer alternatives is currently lacking in the industry. A need therefore exists for apparatus and method that meet the above need in the industry. BRIEF SUMMARY OF THE INVENTION

It is an object of the present invention to provide a numerical illustration of life insurance and other estate planning alternatives for transferring estate assets to heirs upon insured person's death. It is another object of the present invention to provide the numerical illustration for comparing, on the year-by-year basis, life insurance and other estate planning alternatives for transferring estate assets to heirs.

The above and other objects are also achieved by a computer-related apparatus including a graphical user interface for displaying estate planning alternatives including a life insurance policy for transferring estate assets to an heir upon an insured person's death. The apparatus comprises an input device for entering a benefit amount of the life insurance policy payable upon the insured person's death. Further included in the apparatus are a programmable controller and a storage medium for storing first and second program code means executable by the programmable controller. The first program code means calculates a first amount periodically payable on the life insurance policy based on the benefit amount. The second program code means calculates second amounts for transfer to the heir at the insured person's death at a series of ages up to a determined age using the life insurance policy if the first amount has been paid on the insurance policy. In some embodiments, the determined age is the person's life expectancy plus a certain number of years selected by the person. The second program code means further calculates third amounts for transfer to the heir at the insured person's death at the series of ages up to the determined age using another estate planning alternative if the first amount has been retained by the estate.

The apparatus also comprises a display device for displaying the second and third amounts to provide a numerical illustration of a comparison between the life insurance policy and another estate planning alternative.

In accordance with one aspect of the present invention, the storage medium further stores third program code means executable by the programmable controller for calculating an internal rate of return for the life insurance policy based on the first and second amounts. The third program code means also calculates another internal rate of return for another estate planning alternative based on the first amount and third amounts.

In accordance with another aspect of the present invention, the second program code means is operative to account for applicable taxes in calculating the second and third amounts.

BRIEF DESCRIPTION OF THE DRAWINGS The present invention is illustrated in the figures of the accompanying drawings which are meant to be exemplary and not limiting, in which like reference characters are intended to refer to like or corresponding parts, and in which: Fig. 1 is a block diagram of computer-related apparatus for providing a numerical illustration of a comparison between life insurance and various estate transfer alternatives in accordance with the present invention;

Fig. 2 shows a block diagram of a display device displaying life insurance and other investment options arranged in a table for illustrating the year-by-year comparison between different ways of transferring estate assets;

Fig. 3 shows a block diagram of a display device in an alternative embodiment displaying life insurance and other investment options arranged in a table for illustrating the year-by-year comparison between different ways of transferring estate assets;

Figs. 4 and 5 are block diagrams of display devices displaying bar and line graphs, respectively, depicting life insurance and other investment options arranged in a table for illustrating comparisons between different ways of transferring estate assets;

Fig. 6 is a flowchart of functions performed by the apparatus of Fig. 1 according to the present invention; and

Fig. 7 is a block diagram of a storage medium of the apparatus of Fig. 1 containing program code in accordance with the present invention.

DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS

As a general overview, the present invention provides an analysis and display of alternative techniques of transferring estate assets to heirs after paying estate taxes. The analysis uses the information supplied by a client with respect to each technique. On the basis of the analysis, the estate planning strategies are displayed to the client for transferring

3 assets to heirs, net of estate tax, upon the insured person's (estate holder's) death. The computational year-by-year analysis graphically illustrates the net amount that the heirs will receive upon the insured person's death from the proceeds of a life insurance policy in comparison with other alternative techniques that may be used to transfer the estate assets. Fig. 1 shows an apparatus for providing a numerical illustration of a comparison between life insurance and various asset transfer alternatives, net of estate tax, in accordance with the present invention. A general-purpose computer 100 contains a programmable controller 102 for executing necessary instructions to cause various images, text, etc., to be displayed on a display device 106 connected to the computer 100. Also connected to the computer 100 is a display device 104 for providing a visual display thereon. The display of images, text, etc., is in response to manipulation of an input device 104, such as a mouse, keyboard, light pen, etc., by a client or user. The programmable controller 102 also is operative to execute a program code as described below. The program code is stored in a storage medium 108 in the computer 100 for calculating year-by-year various amounts (values) for use in the numerical illustration as described below.

In particular, the client supplies information pertaining to various estate and tax-related items. The information is input into the computer 100 via the input device 104 via, for example, a number of questions displayed on the display device 106. The following information may be provided by the client or agent: age and sex of the insured person, estate tax bracket, income tax bracket, rate of investment return on estate assets, etc. For example, the client provides information that the estate holder (the insured person) is a 70-year old male, the estate tax rate is 55%, and net earnings on estate assets grow by 12% annually. The supplied information is then entered into the computer 100 via the input device 104.

Since the asset transfer alternatives include life insurance, the insured person's life expectancy (LE) is automatically set to two future dates - life expectancy and one date past life expectancy. In this example, the dates are set to 88 and 95. In addition, a life insurance policy is selected with the desired death benefit amount. Based on the desired death benefit amount, insurance policy premiums are calculated, for example, on an annual basis. Following the above calculation, the insurance policy annual premium is used as the common reference point among all of the alternatives for transferring net assets to heirs for each year until the insured person reaches a predetermined age of 88 or 95 in accordance with the above example. In this particular embodiment of the present invention, a premium stream is $80,865 to be paid annually in order to purchase the life insurance policy with the death benefit amount of $1,000,000. The amount of $80,865 is then used as the annual outlay amount, net of personal income taxes and other applicable taxes, contributed to each of the asset transfer alternatives to obtain a comparison table.

Once the net annual outlay amount is calculated as described above, various alternatives for transferring the estate assets are offered to the client to enable him to make the right decision in selecting the most advantageous alternative based on his circumstances. The amount of net assets at the insured person's age of 88 and 95 for each asset transfer alternative is calculated by applying the client-supplied tax rates and other information on the basis of the annual allocation amount of $80,865. As illustrated on the display device 106 in Fig. 2, in one embodiment the asset transfer alternatives listed in a table 200 includes contributing dollars to the estate (displayed as a column 202 entitled "Keeping Dollars in the Estate"), transferring assets as gifts to heirs (displayed as a column 204 entitled "Gift Dollars to Heirs"), setting up an irrevocable trust for receiving assets as gifts (displayed as a column 206 entitled "Gift Dollars to Irrevocable Trust"), and setting up an irrevocable life insurance trust for purchasing a life insurance policy on the estate holder (displayed as a column 208 entitled "Irrevocable Life Insurance Trust (ILIT))". For each alternative, additional information is obtained either from the client or entered by the user of the computer-related apparatus in the following manner.

With respect to the alternative in column 202, the client's income tax bracket, estate tax bracket, and investment rate for the estate assets are entered into the computer 100. For the alternative in column 204, heirs' income tax bracket and investment rate for the estate assets are entered into the computer 100. With respect to the alternative in column 206, an income tax bracket of the trust and investment rate for the trust are entered into the computer 100. For the alternative in column 208, gross and/or net rate of return on the life insurance policy is calculated by the computer 100. Once the above information is obtained and entered, the computer 100 calculates the year-by-year amount of net dollars to heirs at the client's death for each alternative in the table 200 using the input information and conventional formulas known to those in the industry. Following the calculations, the computer 100 executes instructions to 5 cause the asset transfer alternatives to be displayed on the display device 106. The asset transfer alternatives are arranged in the table for illustrating the comparison between different ways of transferring the estate to heirs in an easy-to-understand and easy-to-compare manner as shown in Fig. 2.

Referring specifically to Fig. 2, the display device 106 shows the table 200 for

10 illustrating the comparison between the estate transfer alternatives on the basis of the common reference point: the premium amount on the preselected basis, such as annually. The non-insurance alternatives are based on the assumption that contributions are exactly equal to the premium amount of the policy at the specified time intervals. In the above- mentioned example, the annual premium amount is $80,865. The invention evaluates the

15 various estate transfer alternatives showing net amount received by the heirs during each year up to life expectancy (88 years in this example) and 7 years later for the insured person. As previously mentioned, the estate planning alternatives are prepared for a 70-year old male.

Column 202 in the table 200 shows entries for the "Keep Dollars in the Estate" alternative of estate planning. The dollar amount of $80,865, hereinafter referred to as

20 "annual allocation," contributed to the estate on the annual basis equals the annual insurance policy premium. The annual allocation amount is invested each year at the exemplary annual investment rate of 12%. The total amount at the end of the year is then reduced by the income tax based on the estate holder's income tax bracket, which for the purpose of this example is set to 40%. This after-tax year-end value is further reduced by the estate tax set to

25 55% in the example of Fig. 2. Consequently, the net dollar amount of $39,009 will be paid to the heirs if the estate holder dies at the age of 71. Namely, row 210 in the table 200 shows what the heirs would receive if death occurred at 71. The Internal Rate of Return (IRR) is based on the annual allocation and the net dollar amount the heirs receive after the income and estate taxes have been paid. For example, the IRR value for the row 210 is calculated as

30 ((39,009/80,865)-!) x 100% resulting in -51.76%. Under the estate planning strategy in column 202, each annual allocation is retained in the client's estate, where any earnings on the allocation are taxed to the clients until the assets, and any such net earnings, pass to heirs upon the death of the last surviving client. At that time, these amounts are subject to estate tax at the rate applicable to that 5 surviving client's estate. The additional IRR values and the net amount remaining after such estate tax are shown on the year-by-year basis for this alternative in column 202.

Under the "Gift Dollars to Heirs" alternative in column 204, the annual allocation amount grows at a rate net of the income tax that the heirs would pay annually based on their income tax bracket. The entries in column 204 represent the net amount 10 accumulated by the heirs to date at an assumed rate of return on investment based on receiving the amounts of the life insurance premiums as gifts, net income taxes. Column 204 also shows the IRR values based on the annual allocation amount and the net amount that the heirs receive in each given year. These gifts are made during one or both client's lifetimes and therefore generally reduce the value of their taxable estate. The illustration in Fig. 2 15 assumes that such gifts are structured so that gift taxes are not payable with respect thereto. The amounts gifted to the heirs would thereafter be invested by the heirs, and any investment return would then be taxed at the heirs' income tax rates.

Specifically for this alternative illustrated in Fig. 2, column 204 shows the year-by-year dollar amount accumulated by the heirs based on an annual allocation of 20 $80,865, together with such net earnings as the heirs are assumed to have earned, through the date of the death of the client or otherwise as of when the life insurance policy pays. The heirs' income tax bracket of 28% and the investment rate of 10% are used as examples in the calculation of entries in column 204. The IRR values in column 204 are calculated with respect to each net amount to heirs. In particular, the IRR value in the row 210 for column 25 204 is ((86,687/80,865)- 1) x 100% resulting in 7.2%. The IRR values corresponding to other net amounts in column 204 are similarly calculated for display on the display device 106.

In column 206 of the table 100, the "Gift Dollars to Irrevocable Trust" alternative is illustrated. Each annual allocation is gifted to an irrevocable trust for the heirs' benefit. This means that the assets will be invested by a trustee pursuant to the terms of a trust instrument, and the income on the assets will be taxed at the trust's income tax rates, rather than at the heirs' income tax rates.

Referring specifically to the example in Fig. 2, column 206 shows the annual allocation of $80,865 contributed to the trust corresponding to net earnings of the trust earned on the annual allocation through the date of the holder's death. The trust's income tax bracket of 40% and the trust's investment rate of 8% are used as examples in the calculation of entries in column 206. Also shown in Fig. 2 are the IRR values in column 206 calculated with respect to each net amount to heirs. For example, the IRR value for the row 210 is calculated as ((84,746/80,865)-l) x 100% resulting in 4.8%. Similarly calculated are the IRR values corresponding to other net amounts to heirs in column 206.

Column 208 shows the "Irrevocable Life Insurance Trust (ILIT)" alternative for transferring estate assets. It is assumed that a life insurance trust purchases a policy equal to the illustrated premium of $80,865 and death benefit of $1,000,000 as shown in the table 200. The illustrated premium and death benefit amounts are based on the life insurance illustration generated by the computer 100. The death benefit amount is based on the preselected dividends, gross interest rate, or net rate of return depending on the product. In the example of Fig. 2, the gross interest rate of 8% and the net rate of return of 6.57% are selected, resulting in the net amount to heirs shown in column 208.

The estate planning strategy in column 208 is similar to the "Gift Dollars to Irrevocable Trust" alternative described above, with the additional proviso that the annual allocations are invested by the trustee in the policy whose direct or indirect beneficiaries are the heirs of the estate. It is noted that under the "Irrevocable Life Insurance Trust" alternative in column 208, no income tax is payable on trust earnings because of the tax deferred "inside buildup" that characterizes life insurance. The IRR values are not shown for the life insurance alternative in Fig. 2 because Fig. 2 illustrates a variable life insurance product. However, such entries may be calculated for column 208. The respective IRR value is calculated on the premium amount compared to the death benefit amount paid in any given year. For example, the IRR value for the row 210 is calculated as ((1,000,000/80,865)-!) x 100% resulting in 1,136.6%. The IRR values corresponding to other net amounts to the heirs in column 208 may be similarly calculated.

An example of another illustration of the graphical user interface system of embodiments of the present invention is shown in Fig. 3. In this illustration, the life 5 insurance policy is a fixed policy, and the IRR is shown calculated for the life insurance policy in the right hand side of column 208. As the column shows, the IRR numbers decrease over time for the life insurance as more premiums are paid into the policy.

The illustrations shown in Figs. 2 and 3 may also be depicted in a more graphical form rather than table format. For example, the illustration may be shown as a bar

10 graph as depicted in Fig. 4, with the net dollars shown for just the life expectancy age and the later age specified by the client. The illustration may also be shown as a line graph of the net dollars for all years calculated up to the later age, as shown in Fig. 5, with the various methods shown in various line formats, e.g., full, dotted, dashed, etc. The line graph of Fig. 5 further helps illustrate the points in time at which the net dollars produced by the various

15 investment options surpass one another.

Fig. 6 is a flowchart of functions performed by the computer-related apparatus according to the present invention. In step 300, a client's information relating to the life insurance policy is entered into the computer 100 via the input device 104. In step 302, information relating to other estate planning alternatives as selected by the client are entered

20 into the computer 100. In step 304, the programmable controller 102 calculates premiums on the life insurance policy selected by the client. Using the example of Fig. 2, the annual premium is $80,865 for the 70-year old male.

In step 306, net dollar amount to heirs using the life insurance policy is calculated by the programmable controller 102. In step 308, the programmable controller

25 102 calculates net dollar amount to heirs using a particular estate planning alternative. The calculations are based on the client-supplied information, such as the investment rate, income tax bracket, etc., and are further based on the annual allocation equal to the calculated premium.

In step 310 of Fig. 3, the programmable controller 102 calculates the IRR

30 values for the life insurance policy and other estate planning alternatives based on the calculated net dollar amount to heirs and annual allocation. It is then determined by the programmable controller 102 in step 312 whether the calculations for the last year (the primary insured person's age at the time of death) as selected by the client have been performed. In the example of Fig. 2, the 70-year old male's life expectancy is determined to

5 be 88, but the calculations for 7 more years as set by user are additionally performed by the computer-related apparatus. If the calculations are carried out up to the client's preselected year, the programmable controller 102 further determines whether the client desires to see more asset transfer strategies in step 314. If this is the last alternative, then results of the calculations in steps 302, 306, 308 and 310 are displayed on the display device 106 in step

10 316 in response to the proper instructions carried out by the computer 100. Otherwise, the process goes back to step 304 for entering information and calculating the above-discussed amounts and values for other estate planning alternatives.

Fig. 7 is a block diagram of the storage medium 108 containing program code in accordance with the present invention. The storage medium 108 stores the program code

15 for displaying the estate planning alternatives including a life insurance policy for transferring estate assets to heirs upon a client's death. The program code is executed by the programmable controller 102 located in the computer 100 that includes the input device 104 for entering a benefit amount of the life insurance policy payable upon the insured person's death and other information relating to the estate planning alternatives as described above. 0 The program code comprises code 400 for calculating a dollar amount of premium periodically payable on the life insurance policy based on the benefit amount. Further, the program code comprises code 402 for calculating a dollar amount for transfer to the heirs at the insured person's death at a predetermined age using the life insurance policy, provided that the premiums have been paid and are current on the insurance policy. Also included in 5 the program code is code 404 for calculating a dollar amount for transfer to the heirs at the client's death at the predetermined age using another estate planning alternative, provided that the annual allocation amount has been contributed to the estate. As a result, the display device 106 displays a numerical illustration of a comparison between the life insurance policy and other estate planning alternatives. Fig. 7 also shows the program code comprising code 406 for calculating an internal rate of return for the life insurance policy based on the premium and the net amount to heirs associated with the life insurance policy. The code 406 is also operative to calculate another internal rate of return for an estate planning alternative, other than life insurance, based on the annual allocation amount and the net amount to heirs associated with this alternative.

The invention provides important and meaningful information, in a form of graphical representation, which will be of value to families, especially with significant taxable estates (and the estate planning professionals who typically advise them) in helping them to analyze their estate planning alternatives. The invention graphically presents information about a subject that is difficult to analyze or understand other than by reference to specific numerical examples as in the present invention. The clients or their advisors who will use present invention will have no difficulty in understanding and comparing various estate planning alternatives available to them. According to the present invention, the display device 106 displays several estate planning alternatives. The comparison between the various strategies is based on a preselected death benefit and the premiums as shown in the illustration. Comparison is shown to a minimum of life expectancy of the insured person and a selected number of years beyond his life expectancy. The client supplies different numbers relating to the estate planning strategies and by allowing these numbers to vary, the present invention provides personalized information, in a form of graphical representation, that helps individuals think in a logical way about their problems of how best to transfer estate assets to heirs.

While the invention has been described and illustrated in connection with preferred embodiments, many variations and modifications as will be evident to those skilled in this art may be made without departing from the spirit and scope of the invention, and the invention is thus not to be limited to the precise details of methodology or construction set forth above as such variations and modification are intended to be included within the scope of the invention.

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Claims

WHAT IS CLAIMED IS:

1. A method implemented in a computer for displaying a plurality of estate planning alternatives for transferring estate assets to an heir upon an person's death, the method comprising: setting a benefit amount of a life insurance policy payable upon the person's death; calculating a first amount periodically payable on the life insurance policy based on the benefit amount; calculating second amounts for transfer to the heir at the person's death at each of a plurality of different ages using the life insurance policy if the first amount has been paid on the insurance policy; calculating third amounts for transfer to the heir at the person's death at each of the ages using a plurality of estate planning alternatives if the first amount has been contributed to the estate; and displaying the second and third amounts to thereby provide a comparison between the life insurance policy and the estate planning alternatives.

2. The method according to claim 1, comprising accounting for applicable taxes in calculating the second and third amounts.

3. The method according to claim 1, further comprising calculating first internal rates of return for the person's ages for the life insurance policy based on the first and second amounts, and calculating second internal rates of return for at least one of the estate planning alternatives for the person's ages based on the first amount and the third amounts.

4. The method according to claim 1, wherein the first, second and third amounts are arranged in a table on the display device in correspondence with the life insurance policy and with the another estate planning alternative for each year up to the person's death at the various ages.

5. The method according to claim 1, wherein estate planning alternatives are selected from the group consisting of keeping the first amount in the estate, gifting the first amount to the heir, and gifting the first amount to a trust.

6. The method according to claim 5, further comprising inputting the person's income tax bracket value, an estate tax bracket value, and an investment rate value for the first amount with reference to at least one of the estate planning alternatives.

7. The method according to claim 5, further comprising the step of inputting an heir's income tax bracket value and an investment rate value for the first amount with reference to at least one of the estate planning alternatives.

8. The method according to claim 5, further comprising the step of inputting an income tax bracket value for the trust and an investment rate value for the first amount with reference to the at least one of the estate planning alternatives.

9. The method according to claim 5, further comprising the step of inputting a rate of return value with reference to the life insurance policy.

10. Computer-related apparatus including a graphical user interface for displaying a plurality of estate planning alternatives for transferring estate assets to an heir upon an insured person's death, the apparatus comprising: an input device for entering a benefit amount of the life insurance policy payable upon the insured person's death; a programmable controller; a storage medium for storing first program code means executable by the programmable controller for calculating a first amount periodically payable on the life insurance policy based on the benefit amount, the storage medium storing second program code means executable by the programmable controller for calculating a second amount for transfer to the heir at the insured person's death at a predetermined age using the life insurance policy if the first amount has been paid on the insurance policy, the second program code means executable by the programmable controller calculating a third amount for transfer to the heir at the insured person's death at the predetermined age using another estate planning alternative if the first amount has been contributed to the estate; and a display device for displaying the second and third amounts to provide a numerical illustration of a comparison between the life insurance policy and the another estate planning alternative.

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11. The apparatus according to claim 10, wherein the second program code means is operative to account for applicable taxes in calculating the second and third amounts.

12. The apparatus according to claim 10, wherein the storage medium stores third program code means executable by the programmable controller for calculating an internal rate of return for the life insurance policy based on the first and second amounts, the third program code means also calculating another internal rate of return for the another estate planning alternative based on the first amount and the third amount.

13. The apparatus according to claim 10, wherein the display device displays the first, second and third amounts arranged in a table in correspondence with the life insurance policy and with the another estate planning alternative for each year up to the insured person's death at the predetermined age.

14. The apparatus according to claim 1, wherein the another estate planning alternative is selected from the group consisting of keeping the first amount in the estate, gifting the first amount to the heir and gifting the first amount to a trust.

15. A computer-readable storage medium for storing program code means for, when executed, causing a computer to perform a method for displaying a plurality of estate planning alternatives including a life insurance policy for transferring estate assets to an heir upon an insured person's death, the computer comprising an input device for entering information for setting a benefit amount produced by a life insurance policy and by other investment options for paying the predetermined estate tax, the computer-related apparatus further comprising a display device, the method comprising: setting a benefit amount of a life insurance policy payable upon the person's death; calculating a first amount periodically payable on the life insurance policy based on the benefit amount; calculating second amounts for transfer to the heir at the person's death at each of a plurality of different ages using the life insurance policy if the first amount has been paid on the insurance policy; calculating third amounts for transfer to the heir at the person's death at each of the ages using a plurality of estate planning alternatives if the first amount has been contributed to the estate; and displaying the second and third amounts to thereby provide a comparison between the life insurance policy and the estate planning alternatives.

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