© 2013 wealthcounsel, llc surviving and thriving in 2013 and beyond 1 a wealthcounsel presentation
TRANSCRIPT
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©2013 WealthCounsel, LLC
Surviving and Thriving in 2013 and Beyond
1A WealthCounsel Presentation
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©2013 WealthCounsel, LLC
Introducing Your Presenters . . .
2A WealthCounsel Presentation
C. Dennis Brislawn, Jr.William A. Conway
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©2013 WealthCounsel, LLC
What Changed in 2013
• Federal Estate Tax Exemption – $5,250,000 – Inflation-adjusted
• Generation Skipping Tax Exemption – $5,250,000– Inflation-adjusted
• Annual Exemption – $14,000
• Obama Admin Proposal to Reduce Estate, GST, and Gift Tax Exemptions to $3,500,000
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©2013 WealthCounsel, LLC
What Changed in 2013
• State Estate Tax– Decoupling– Additional Tax Structures
• Income Taxes– Dividends– Step-up in Basis
• ObamaCare• Medicaid• Health Care Decision-Making
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2013 Income Tax Rates
• 10%, 15%, 25%, 28% rates from Bush Administration tax cuts made permanent
• 33% and 35% rates made permanent up to certain threshold levels -Single taxpayers $400,000 Married filing jointly $450,000
Head of households $425,000Married filing separately $225,000
• Amounts of income above these threshold levels are taxed at 39.6%
Threshold amounts adjusted for inflation
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2013 Capital Gains & Dividends• Maximum rate stays at 15% for taxpayers with
incomes at or below threshold amounts• Tax rate increases to 20% for taxpayers above
threshold amounts on previous slide• 3.8% Medicare Surtax applies on AGI over $250,000
joint; $200,000 single • This results in a 23.8% tax rate on capital gains and
dividends to higher income taxpayers
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2013 Itemized Deduction Limitation• Limitations on itemized deductions applies as AGI rises above
the following threshold amounts: Single taxpayers $250,000 Married filing jointly $300,000
Head of households $275,000Married filing separately $150,000
• Itemized deductions are phased out at a rate of 3% over the threshold levels, up to a maximum of 80%
• Deductions not included – investment interest, medical expenses and casualty and gambling loses
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2013 Personal Exemption Phaseout
• The exemption phaseout starts once adjusted gross income (AGI) exceeds your threshold:
- $250,000 (single)- $300,000 (married/joint)- $275,000 (head of household)- $150,000 (married filing separately)• For each $2,500 of AGI over threshold, personal
exemption deductions ($3,900) are reduced by 2%
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©2013 WealthCounsel, LLC
2013 Personal Exemptions Phaseout Range
Filing Status Phaseout Begins Phaseout Ends
Married Filing Jointly 300,000 422,500
Single 250,000 372,500
Head of Household 275,000 397,500
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0.9% Medicare Payroll Surtax in 2013
• The Medicare payroll surtax on employees is increased by 0.9% on earned incomes over $200,000 for single filers and $250,000 for joint filers
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3.8% Medicare Surtax on Investment Income in 2013
• New Medicare surtax of 3.8% on investment income is added for AGIs in excess of $200,000 for single filers and $250,000 for joint filers
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©2013 WealthCounsel, LLC
2013 Tax Rates
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What to Do Now – The < $5.25M Client• Estate tax issue is off the table for this strata of client. The
estate-planning drivers will be:
• Income tax minimization planning• Detail-oriented trust and estate administration
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Desired distributions Asset protection
Probate avoidance Appreciation removal
Naming decision makers Generation skipping
Tax avoidance Retention of financial benefit
Exemption leveraging Retention of control
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What to Do Now – The < $5.25M Client
• Income tax minimization strategies– Charitable trust planning to create a partially
taxable income stream for the philanthropic– Partially taxed single premium annuities (SPIA) are
attractive in this environment– The Alaska Community Property Trust provides a
double stepped-up basis and is programmed into WealthDocx
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What to Do Now – The < $5.25M Client
• Family Income Shifting Through Family Entities• Installment Sales of Real Estate and Business
Assets or Entities • Tax-Free Cash Value of Life Insurance Held
Within an Accessible Grantor Retirement Trust
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What to Do Now – The < $5.25M Client
• Remove or Reduce IRA and 401K Assets from Owner and Beneficiary Income Taxes (IRA Annuitization and Life Insurance Within an ILIT)
• Retirement Trust for Maximum IRA Stretch • Potential IRA/401K Roth Conversions
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What to Do Now – The < $5.25M Client
Increase the depth of our client service:•Elder law issues, avoiding estate depletion to fund nursing home costs and long-term care insurance•“Legacy Planning” - an expanded conversation with clients about how they can pass their non-financial wealth and preserve family harmony (using heirloom property, for example)
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“Endangered Strategies”- Obama Budget
• Obama Proposals make these “endangered strategies”: – Grantor trusts still avoid estate tax, including (IDGTs)
and (ILITs)– Discounts are still allowed on non-business interests
or for transfers to minority interests– The 10 year minimum term for Grantor Retained
Annuity Trusts (GRATs) was not enacted – 2 year rolling GRATs remain available
– No 90-year limit on the GST tax exemption was adopted. Dynasty Trusts are still possible
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What to Do Now – The > $5.25M Client
• Money can be loaned or property sold for an installment note with 3 - 9 year rates as low as .87% in January 2013 (1% Section 7520 rate)
• Ideal time for intra-family loans and sales
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Business Tax Extensions-Opportunities
• Reduction in S Corporation recognition period - 5-year (formerly 10 years) holding period for built-in gains tax for sales occurring in 2012 and 2013. Carry forwards and installment sale rules are also clarified.
• 100% exclusion for capital gain from sale of qualified small business stock extended for stock acquired before January 1, 2014 if the stock is owned longer than five years. – The AMT preference rules do not apply.
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©2013 WealthCounsel, LLC
Addressing Change
Flexibility & Certainty
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©2013 WealthCounsel, LLC
Addressing Change
• Flexibility- Trust Protectors/Advisors- Marital Deduction Formulas- Disclaimers- Revocable Irrevocable Trust- Self-Settled Trusts – 14 states
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©2013 WealthCounsel, LLC
Addressing Change
• Certainty
- Freeze Transactions
- After-Care Planning
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©2013 WealthCounsel, LLC
What’s NOT Changing
• The Fundamentals– Avoiding Living & Death Probate– Protection of Surviving Spouse– Philanthropic Objectives– Planning for Heirs
• Youth• Responsibility & Skill• Divorce Protection• Preventing “Affluenza”
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©2013 WealthCounsel, LLC
What’s NOT Changing
• Business Planning-BusinessCounsel BizDoxs – Entrance– Growth– Maintenance– Mergers/Acquisitions – Exit
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©2013 WealthCounsel, LLC
What’s NOT Changing
• Retirement Planning– Roth IRA Conversions– IRA Planning Via “StandAlone” Retirement Trusts– Stretch– Annuitization & Replacement– Reengineering Closely-Held Businesses
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©2013 WealthCounsel, LLC
What’s NOT Changing
Income Tax Planning
•Mobility to avoid state income taxes- Seven states impose no income tax, EG. Texas,Fla,Wy- Two states tax only dividend and interest income
•Income Shifting – within Family
•Opportunity Shifting- newly Established Businesses
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©2013 WealthCounsel, LLC
What’s NOT Changing
• Elder Law Planning
• Special Needs Planning
• Asset Protection Planning
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©2013 WealthCounsel, LLC
What’s NOT Changing
• Need for Life Insurance – Debt Liquidity– Income Replacement– Estate Equalization– Pay State Death Taxes – 21 States, EG. Md,DC,Pa,NY,etc– Wealth Replacement for Charitable Giving– Buy-Sell– Capital Gains Tax Liquidity (post-mortem)– Supplemental “Tax Free “Retirement Planning
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©2013 WealthCounsel, LLC
A Few Questions
1. How have you responded to change?
2. What has worked?
3. What has not worked?
4. What do you need to succeed?
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©2013 WealthCounsel, LLC
What’s Changing in Financial Services
• Products/Services
• Advisory vs. Commission
• Equity Indexed Products
• Private Annuities
• Captive Insurance Companies
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©2013 WealthCounsel, LLC
What’s NOT Changing in Financial Services
• Need for Estate Planning
• Need for Client Centric Planning
• Financial Compliment to Legal Solutions
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©2013 WealthCounsel, LLC
Reframe Your Referral Network
34A WealthCounsel Presentation
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©2013 WealthCounsel, LLC 35
Developing a Teamwork Approach that Produces Consistent Results
Reframe Your Referral Network
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©2013 WealthCounsel, LLC 36
Reframe Your Referral Network
Inclusion of the Entire Team
ClientAttorney
CPA
InvestmentAdvisor
InsuranceAgent
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©2013 WealthCounsel, LLC
Reframe Your Approach to Client Prospects
37A WealthCounsel Presentation
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©2013 WealthCounsel, LLC 38
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©2013 WealthCounsel, LLC
The Client Meeting
• Tax Concerns– Income Tax Concerns– Estate Taxes, now or future
• Family Concerns– Asset Protection for/from Children– Asset Protection for Self– Second Marriage Protection for Spouse– Marriage/Divorce Protection for Children
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©2013 WealthCounsel, LLC
The Client Meeting
• Disability Concerns– Guardianship
• Creditor Concerns– Frivolous Lawsuits
• Long Term Care– Resources Available– Nursing Home Draining Resources
• Post-Death Concerns– Probate– Fighting
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©2013 WealthCounsel, LLC
The Client Meeting
• Business Concerns– Losing Business to Lawsuits– Loss of Asset Protection – Entity Piercing– Lack of Exit Plan – Out-of-Date Buy-Sell Agreements– Lack of Maintenance Plan
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©2013 WealthCounsel, LLC
Expanding Your Solution Set
42A WealthCounsel Presentation
• Thriving Strategies : Post AFTA-Math
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©2013 WealthCounsel, LLC
Issue Driven Solutions New Rules 1. Reduce and/ or eliminate current and future
income taxes
2. Asset Protection
3. Provide means for future estate and generation-skipping tax inoculation
Old ingredients, new recipes
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©2013 WealthCounsel, LLC
New Thriving Solutions For the New Rules
Recipes for New Income Tax Solutions Using
Old and New Ingredients
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©2013 WealthCounsel, LLC
Some Legal Recipe Ingredients• Revocable “Living” Trusts• Irrevocable Trusts
– Irrevocable Life Insurance Trusts (ILITs}– Stand Alone “Dry” IRTs, - EG. for IRAs – Intentional Grantor Trust for Asset Protection– Inter- Vivos QTIPs
• Family LPs & LLCs• Retirement Plans (IRAs, 401(k)s)
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©2013 WealthCounsel, LLC
Some Financial Recipe Ingredients• Life Insurance
– Insured• Single Life• Survivorship
– Design Options • Low premium , high death benefit• High premium , low death benefit• Single premium , Modified Endowment (MEC)
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©2013 WealthCounsel, LLC
Some Financial Ingredients
• Life Insurance– Types
• Cash Value Policies– UL, guaranteed or non– Variable UL – non-guaranteed only– Equity indexed, guaranteed or non– Whole Life –guaranteed
• Term Policies
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©2013 WealthCounsel, LLC
Some Financial Ingredients
• Annuities – Right Tool for the Right Job – Deferred= “Surprise” LIFO Income Tax
– Immediate Annuities• SPIAS (Single Premium Immediate Annuities)
– Flavors of Immediate Annuities• Life only• Longer of Term of Years or Life• Multiple Lives
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©2013 WealthCounsel, LLC
Annuitize the IRA
• Purchase an Immediate Annuity(within the IRA) Using Some IRA Assets
• Use Annuity Distribution from IRA to fund:– Payment of Income Tax Due– Life Insurance Premiums for Tax Free Inheritance– Increase Standard of Living
• Life Insurance Trust (ILIT)Owns Life Insurance
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©2013 WealthCounsel, LLC
Annuitize the IRA
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IncomeIncome
IRA
Annuity
IRA
Annuity
ILITILIT
OwnerOwnerHeirsHeirs OwnerOwner
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©2013 WealthCounsel, LLC
Annuitize the IRA
• Advantages– Pension like performance – Guaranteed lifetime income (not tied to market
performance)– Eliminates income tax to heirs on inherited assets– Eliminates all estate tax/GST if coupled with ILIT – Guaranteed death benefit to age 100 and beyond
• Disadvantage– Depends on health- for insurability– Some of IRA is now committed to income generation
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©2013 WealthCounsel, LLC
Annuitize the IRAA. Existing Plan at Death
$1,000,000 IRA - 300,000 Income Tax$ 700,000
To Beneficiaries
B. Existing Plan at Death
$1,000,000 IRA - 400,000 Estate Tax - 300,000 Income Tax$ 300,000 To Beneficiaries
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Annuitized IRA Plan
$1,000,000 Insurance within ILIT
$1,000,000 Beneficiaries Estate, Income GST Tax Free
$1,000,000 Insurance within ILIT
$1,000,000 Beneficiaries Estate, Income GST Tax Free
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©2013 WealthCounsel, LLC
Annuitize the IRA
– Example:IRA owner: age 70, healthy male (non-smoker}IRA value: $1,000,000Tax Rate: 30%
– Result:Annual Annuity Payment $75,350Less Income Tax at 30% ($22,600)Less Annual Ins. Premium ($25,000)Net Net Annual Income $27,750
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©2013 WealthCounsel, LLC
Annuitize CASH/BONDS
• Variation- May Use CD’s or BONDS (guaranteed assets) to Purchase an Immediate Annuity
• Creates a self funded tax favored “pension”
• Use the Annuity Payments to fund:– Income Tax Due – much reduced because of exclusion– Insurance Premiums for Enhanced Wealth Transfers– Increase Standard of Living
• Life Insurance Trust Owns Life Insurance
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©2013 WealthCounsel, LLC
Annuitize CASH
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CASHCASH
AnnuityAnnuity
ILITILIT
OwnerOwnerHeirsHeirs OwnerOwner
IncomeIncome
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©2013 WealthCounsel, LLC
Annuitize CASH
– Example: Life OnlyCASH owner: age 80, healthy male –non smoker Account value: $1,000,000Tax Rate: 30%
– Result:Annual Annuity Payment $113,300
Taxable Portion is ONLY $15,732 really!Less Income Tax at 30% ($ 4,720)Less Annual Ins. Premium ($ 55,000)Net Net Annual Income $ 53,580
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Annuitize CASH
• Advantages– Dramatically increases after tax cash flow (not income),
guaranteed for life (not tied to market performance – in ‘pension like fashion ‘)
– No income/estate tax to heirs on ILIT owned insurance – Ties guaranteed insurance policy to guaranteed cash
flow
• Disadvantages– Largely depends on insurability
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Annuitize Your CASH
A. Existing Plan at Death
$1,000,000 CASH - 160,000 State Estate Tax
$ 840,000 To Beneficiaries
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Annuitized CASH Plan
$1,000,000 Insurance within ILIT
$1,000,000 BeneficiariesEstate, Income,GST
Tax Free
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IRA Retirement Trust
• Guarantees Income Tax Deferral “Stretch” Plan
• Asset/Divorce Protection for Beneficiaries
• Opportunity for Significant Income Deferral While Providing Trust Benefits
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Stand-Alone Retirement IRA Trust
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Stand-Alone Retirement/Education
Trust
• Income Tax Free 529 Held by Trust During Life
• All Assets are Asset Protected
• Enhanced by IRA Proceeds at Death
• All Assets Are Income Tax Free or Deferred
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Life Insurance Retirement Trust • ILIT with Carefully Drafted Loan Provisions to Provide
Supplemental Retirement Benefits to Grantor and Spouse
• Trust Owned Low Death Benefit, High Cash Value Policy
• Spouse or Grantor May Borrow Cash Value -Tax Free
• Maintain Estate Tax Exclusion for Death Benefits
“Have It Both Ways”
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Survivorship Life Policy as Legacy Gift• Survivorship (second to die) Policy as alternative
investment within ILIT
• Policy design is opposite of Retirement ILIT –for maximum insurance leverage
• Thus low cash value, high death benefit policy
• Estate Tax, Income Tax and GST Legacy Gift
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Self-Settled Asset Protection Trusts
• Hot Trend in Law
• 14 States and counting
• Gift tax defective? – Could be, especially where no estate concerns
• Logic behind law
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Intergenerational Income Shifting• Children (over 22) are in lower income tax brackets
• Parents have high income tax
• Create FLP/LLC (with low/no discounts) family entity
• Hire Family Managers- W-2 or 1099 income on/off switch
• Gifts of Interests to Children –”Opportunity Shifting”
• Frees up annual exclusion gifts for other purposes
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New Rules Reducing/Eliminating Discounts
• Discounts from entity no longer needed
• New battleground is income not estate tax
• Continued asset protection desired
• Amend all previous “discount clauses” in FLP/LLC agreements to provide “put right”, or withdrawal right etc.
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New Rules –Income Tax Avoidance Community Property Trusts
“Normal "Tax Result, sale if both spouses are alive:
FMV $ 3,500,000Basis (100,000)Capital Gain $3,400,000
Capital Gains Tax 23.8%State Tax 6%Total Cap Gain Tax $1,020,000
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Strategy : Community Property Trusts
Non-Community Property StateSale After 1st Spousal Death
Deceased Spouse’s FMV $1,750,000
Adjusted Basis $1,750,000 Capital Gain -0-
Non Community Property State
Surviving Spouse FMV $1,750,000
Adjusted Basis - 50,000
Capital Gain $1,700,000 Combined Tax Rate 30% Total Tax $ 510,000
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Community Property State Sale After 1st Spousal Death
$3,500,000
$3,500,000
-0-
Community Property State
$3,500,000
$3,500,000
-0-
-0-
-0-
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• How does the Holder of the Power of Attorney and/or Successor Trustee gain control over:
• Passwords for Financial Accounts ?• Facebook/Social Media /Photo Accounts ? • Restate all Trusts / Create New POAs
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Restatements for Digital Assets
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Review of Thriving Strategies
• IRA Annuitization• Stand-Alone Retirement Trusts• Retirement Life Insurance Access ILITs• “Guaranteed” Survivorship Life Policy within
an ILIT as a Legacy Gift• Self-Settled Asset Protection Trusts
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Review of Thriving Strategies• Domestic Self-Settled Asset Protection Trust• Income Shifting with Family Entities• Reducing or Eliminating Discounts• Community Property Trusts –Alaska Sited • Amendment/Restatements to All POAs/ Estate
Plans For Access to Digital Assets-
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Additional Thriving Strategies
• Senior Asset Protection Trust
• Maintenance Programs
• Life Insurance Audits- Especially ILIT owned
• Social Security Analysis and Payout Strategies
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Thank You
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