advanced estate planning for advisors
DESCRIPTION
This is a great powerpoint for financial advisors and CPAs on advanced trust and estate planning techniquesTRANSCRIPT
Advanced Estate Planning for
Advisors
Presents:
Legend
TRUST
Passes Non-Taxable
Passes Taxable
Passes with a
Discounted Value
Creditor Protected
Trust
Creditor Protected
LLC
Charity
The Revocable Living Trust
More Than a Piece of Paper!!!
Issues Revocable Living Trusts Can(But Usually Don’t) Address
1. Avoid Probate
2. Provide for Incapacity
3. Protect Minor Children
4. Minimize Estate Taxes
5. Provide Asset Protection for Surviving Spouse
6. Ensure Plan is Carried Out
7. Protect Children from Blowing Inheritance
8. Protect Children from Creditors and Lawsuits
9. Protect Children from Divorce
10. Prevent Children from Fighting
11. Dynasty Trust Planning
12. Eliminate All Estate Taxes via a TCLAT
Basic Estate Plan
Revocable Living Trust Pour Over Will Durable Power of Attorney Certificate of Trust Assignment of Personal Property Advanced Health Care Directive HIPPA Authorization Guardianship Nomination Personal Property Memorandum
Simple Revocable Living Trust
Foundation of any Estate Plan Primary Purpose is Usually to Avoid Probate Grantor, Trustee, Beneficiary Funding
Simple Revocable Living Trust
Pros– Avoid Probate
Cons1. Provide for Incapacity2. Protect Minor Children3. Minimize Estate Taxes4. Provide Asset Protection for
Surviving Spouse5. Ensure Plan is Carried Out6. Protect Children from Blowing
Inheritance7. Protect Children from
Creditors and Lawsuits8. Protect Children from Divorce9. Prevent Children from Fighting10. Dynasty Trust Planning11. Eliminate All Estate Taxes via
a TCLAT
Avoid Probate
Trust must be funded to avoid probate
ADVISOR ALERT
Wouldn’t offering to check your client’s financial statements to make sure they are in the name of the trust be a good way to make sure you know what all their investable assets are?
RLT
Pour Over Will
SURVIVING SPOUSE
KIDS
Durable Power ofAttorney
Health CareDirective
HIPPA
Sophisticated Revocable Living Trust
Pros1. Avoid Probate2. Provide for Incapacity3. Protect Minor Children4. Minimize Estate Taxes5. Provide Asset Protection
for Surviving Spouse
Cons1. Ensure Plan is Carried Out2. Protect Children from
Blowing Inheritance3. Protect Children from
Creditors and Lawsuits4. Protect Children from
Divorce5. Prevent Children from
Fighting6. Dynasty Trust Planning7. Eliminate All Estate Taxes
via a TCLAT
Provide for Incapacity
Add Disability Trustee– Manages trust assets in event of disability– Will usually be different than Post Death Trustee
Definition of Incapacity– Wrong Way
According to State Law– Right Way
Spouse and Physician Two Physicians Disability Panel
ADVISOR TIP
Wouldn’t this be a good place to talk about Long Term Care Insurance?– You are 6 times more likely to become
incapacitated then die in any given year– Nursing Home costs can decimate an estate– Good way to protect family
Protect Minor Children
Guardianship Nomination– Post Death Guardians– Disability Guardians– Temporary Guardians
Common Pot Trust– Don’t split shares until children are a certain age– Treat children like the parents would have
ADVISOR TIP
Wouldn’t this be a good opportunity to talk to parents of young children about life insurance to replace income?
Estate Tax Reduction
Trust will split into three parts at death of first spouse– Survivor Trust– Bypass Trust– Marital (QTIP) Trust
ADVISOR TIP
Wouldn’t this be the perfect opportunity to talk about using life insurance as an discounted way to pay the estate tax?– Use someone else’s money to pay the estate tax– But keep control of the cash in the policy
Stay tuned…
Provide Asset Protection for Surviving Spouse
QTIP and Bypass Trusts– If properly drafted, spouse will not be able to lose
assets to creditors, lawsuits, remarriage and divorce, etc.
You can also protect the kids against a future remarriage by requiring a pre-nup or cutting off spouse entirely
ADVISOR ALERT
Wouldn’t this be a good place to talk about using a corporate trustee with the surviving spouse to assist with accounting, tax returns, etc.?
RLT
Pour Over Will
SURVIVING SPOUSE
KIDS
Durable Power ofAttorney
Health CareDirective
BYPASS MARITAL (QTIP)
HIPPA
Protective Revocable Living Trust
Pros1. Avoid Probate2. Provide for Incapacity3. Protect Minor Children4. Minimize Estate Taxes5. Provide Asset Protection for
Surviving Spouse6. Ensure Plan is Carried Out7. Protect Children from Blowing
Inheritance8. Protect Children from
Creditors and Lawsuits9. Protect Children from Divorce10. Prevent Children from Fighting
Cons1. Dynasty Trust Planning2. Eliminate All Estate Taxes via
a TCLAT
Ensure Plan is Carried Out
Do not let children be trustees of each others trust– They will hate each other
If they are trustee of their own trust, they can do whatever they want
Family members may not be willing to take on liability of being trustee
– If they knew what that liability was!!!
Corporate Trustee solves these problems
ADVISOR ALERT
Talking to your clients about what will happen to their kids after they die is a great way to introduce your corporate trustee– Increase your credibility– Make clients plans work– Keep assets
Protect Children from Blowing Inheritance
The average trust, when
received outright, is gone within 18 months– Emotional problems will follow
Corporate Trustee
ADVISOR ALERT
Wouldn’t talking to your client about their child blowing an inheritance be a good time to talk about establishing a financial plan for the child?
Protect Children from Creditors and Lawsuits
If a child does not have the power to distribute assets to themselves, they do not have the power to distribute assets to their creditors
Protective Trust– Corporate Trustee– No Withdrawal Rights
If Beneficiary Must be Trustee– Use Distribution Trustee
ADVISOR ALERT
Wouldn’t discussing children’s creditors be a good time to talk about beefing up your client’s own asset protection plan?– IRAs and 401ks– Life Insurance – Gifting into Trusts– FLLCs– Etc.
Protect Children from Divorce
If the child has the right to receive the property outright, they have the right to put it in a joint account with their spouse, and probably will do so
Protective Trust– Corporate Trustee
Distribution Trustee
ADVISOR ALERT
Take a look at your client’s life insurance policies, and if the beneficiary is a child outright, ask if they want the child’s spouse to be a 50% owner of that policy in the event of a divorce– ILIT– New Policy
Prevent Children from Fighting
Neutral Corporate Trustee– Keep the kids mad at Corporate Trustee, not at
each other– Never use one kid as another’s trustee
Recipe for disaster
Personal Property– Most commonly fought over by kids– Personal Property memorandum
ADVISOR ALERT
If clients have significant personal property that they want to leave to one child or another, they may want to even out distributions with life insurance to keep the peace
RLT
SURVIVING SPOUSE
KIDS
BYPASS QTIP
RESIDUE
CHILD #1 CHILD #2
Legacy Plan Pros1. Avoid Probate2. Provide for Incapacity3. Protect Minor Children4. Minimize Estate Taxes5. Provide Asset Protection for
Surviving Spouse6. Ensure Plan is Carried Out7. Protect Children from Blowing
Inheritance8. Protect Children from Creditors
and Lawsuits9. Protect Children from Divorce10. Prevent Children from Fighting11. Prevent the IRS from Getting a
Second Estate Tax
Cons– Eliminate All Estate Taxes via a
TCLAT
Prevent the IRS from Getting a Second Estate Tax
Generation Skipping (“Dynasty”) Planning Uses GSTT Exemption to carve out trusts
that are designed to pass free of estate and GST tax to future generations
Kids use up non-exempt assets for their use
ADVISOR ALERT
Life Insurance is a great tool for multi-generational planning because you can leverage the GSTT Exemption
RLT
SurvivorBYPASS QTIP
RESIDUE
Child ExemptChild
Non-Exempt
Dynasty Trust
LLCs In Estate Planning
Protect Assets and Minimize Estate Taxes
Revocable Living Trusts and Asset Protection
Revocable Living Trusts Provide No Asset Protection prior to death of first spouse
Client’s creditors can take everything away Insurance can only cover so much
Asset Protection LLC
Putting Asset Protection into Your Revocable Living Trust
LLC– Wyoming or Nevada– Charging Order is sole remedy
Phantom Income
Watch Out for Fraudulent Conveyance Great Tool for Protecting Assets while keeping full
control More than one LLC provides better protection
LLC Estate Planning Bonus
Discounting– All assets in LLC will receive discount when client
dies Significant reduction in estate taxes
Discounts– Depend on assets LLC owns– Depend on Operating Agreement drafting– Depend on state law– Planning is everything
Bullet Resistant, Not Bullet Proof
RLT
SurvivorBYPASS QTIP
RESIDUE
RLT
Survivor
Child ExemptChild
Non-Exempt
Dynasty Trust
THE SPOUSAL GIFTING TRUST
Understanding the
Ultimate Trust
Spousal Gifting Trust
Removes Assets From Estate Protects Assets from Creditors Allows for Greater Gifting to Kids in Future Allows you to Retain Control of Assets Flexible Investment Options
What it is
Husband Creates Trust for Wife Wife Creates Trust for Husband
– Watch for Reciprocal Trust Doctrine
Each spouse is trustee of the other’s Trust– Each spouse can use their trust for Health, Education,
Maintenance and Support
Each spouse is main beneficiary of the other’s Trust– Passes to kids, grandkids, upon death– Not to other spouse
How Money Gets in SGT
Crummey Gifts– Spouse– Kids– Grandkids
Use $1,000,000 exemption– 5 and 5 rule– Funds with at least $240,000
Have Trust Purchase Property
Results (10% growth)
Year of SGT Number ofFamily
Members
Annual Giftsmade to SGTs
Amount inSGTs
Estate TaxSavings
1 5 $96,000.00 $105,600.00 $42,240.00
5 5 $96,000.00 $644,699.00 $257,879.50
10 5 $96,000.00 $1,682,992.00 $673,196.80
20 5 $96,000.00 $6,048,240.00 $2,419,296.00
30 5 $96,000.00 $17,370,569.00 $6,948,227.60
ADVISOR ALERT
Life Insurance is an excellent purchase– Remember that once a trustee beneficiary dies it
goes to the kids, not back to the other spouse– If life insurance is used, this doesn’t matter
Supercharge the SGT
Combine with discounts in LLC to produce amazing results
Example– 5 family members (spouses, three kids)– $12k per year each family member– 10% growth– 33% discount
$18k per person instead of $12k $1,500,000 exemption instead of $1,000,000
Results of Supercharged SGT
YearOf
SGT
# of Family Members
DiscountedValue of
SGT Gifts
Discount ActualFMV of
Gifts
Total FMV
of SGT
Estate Tax Savings
1 5 $96,000 33% $144,000 $158,400 $63,360
5 5 $96,000 33% $144,000 $967,048 $386,819
10 5 $96,000 33% $144,000 $2,524,488 $1,009,795.20
20 5 $96,000 33% $144,000 $9,072,360 $3,628,944
30 5 $96,000 33% $144,000 $26,055,853 $10,422,341
RLT
SurvivorBYPASS QTIP
RESIDUE
RLT
Survivor
Child ExemptChild
Non-Exempt
Dynasty Trust
Husband Wife
Avoid the Estate Tax Entirely
Use a Testamentary Charitable Lead Annuity Trust (TCLAT)– At Death
Any amounts subject to estate tax go to TCLAT– Estate Tax Free– Zero Out the Remainder using 7520 rate– Whatever’s left goes to kids tax free
– Results
TCLAT
$1,000,000 that is subject to estate taxes– 10% growth– 20 years after death– $1,687,493 to charity– $1,894,941.95 to kids
Plus possible foundation management fees
Compare $500,000, same terms– $3.3 million to kids (assuming none distributed)– But $500k went to IRS– No charitable legacy
RLT
BYPASS
RESIDUE
RLT
Child ExemptChild
Non-Exempt
Dynasty Trust
Wyoming Close LLC
Husband Wife
Spousal Gifting Trusts
Survivor QTIP
TCLAT
THE END
QUESTIONS???