estate planning strategies for the business owner · ca life lic 0g60621 [agent name] ... federal...

National Life Insurance Company®

National Life Group® is a trade name of of National Life Insurance Company, Montpelier, VT and its affiliates.

TC74345(0613)1

Estate Planning Strategiesfor the Business Owner

Presented by:

Connie Dello Buono 408-854-1883

[email protected]

CA Life lic 0G60621[Agent Name] is a Registered Representative and Investment Adviser Representative of Equity Services, Inc. Securities and investment advisory services are offered solely by Equity Services, Inc.., Member FINRA/SIPC., [branch office address and telephone number.] [DBA name] is independent of Equity Services, Inc.

mailto:[email protected]


Disclosure

• This information is not intended as tax or legal advice. Please

consult with your Attorney or Accountant prior to acting upon any

of the information contained in this presentation.

• The use of trusts involves complex tax rules and regulations.

Consider enlisting the counsel of an estate planning professional

and your legal and tax advisor s prior to implementing such

sophisticated strategies. The cost and availability of life

insurance will depend on factors such as age, health, and the

type and amount of insurance purchased.


Estate Planning Strategies

How to Transfer

Assets to Your Heirs


Business Succession Planning Components

Estate Planning Strategies:

• Retirement Planning

• Executive Benefits Planning


Business Succession Planning Components

Executive Benefits help

you retain employees who are

key to your business

succession plan.


Executive Benefits Planning

• Attract

• Motivate

• Reward

• Retain

• Select key employee


Business Succession Failures

• No qualified successor

• Lack of planning

• Difficulty separating “self” from the business (a.k.a. fear of

retirement)

• Death of the owner

• Retirement of the owner – without sufficient retirement assets


Business Succession Failures

Death of the business owner + Lack of capital = Need for

Estate Planning



Estate planning is easy to put off, but once

death strikes, it’s too late.


Estate Planning Benefits to Family

• Keeps the business in the family

• Equitable treatment of heirs

• Avoids conflict



Benefits Business Succession by:

• Providing liquidity for

the business

• Providing family security

without tapping the business


Federal Estate Tax Today

American Taxpayer Relief Act of 2013

• Rates

• Exemptions

• Portability


Consequences of Not Planning

• Estate and Income Taxes

• Administrative Fees

• Other Legal Expenses


Estate Planning Process

• Data Gathering Interview

• Evaluation of Existing Plan

• Establish Goals

• Collect Data

• Develop Plan

• Implement Plan

• Periodic Review


Goals of Estate Planning

• Provide for spouse and family

• Maximize estate left to beneficiaries

• Minimize tax burden

• Provide estate liquidity

• Reduce expenses


Unlimited Marital Deduction

• Transfer assets to surviving spouse

• Defers estate taxes

• Utilized incorrectly, can actually increase estate taxes


Gift Tax Exclusion

• Gradually transfer assets out of the estate while living

• 2013 Annual Gift Tax Exclusion

- $14,000/donee

- $28,000/married couple

• 2013 Lifetime Gift Tax Exclusion and GST

-$5.25m


Gift Tax Example:

YouYour

SpouseTotal Gift

Child 1 $14,000 $14,000 $28,000

Child 2 $14,000 $14,000 $28,000

Child 3 $14,000 $14,000 $28,000

Total Gifts Qualifying for Exclusion: $84,000


Generation-Skipping Transfer Tax

• Special tax on amounts transferred two or more generations

down the line

• 2013 exemption = $5,250,000


Generation-Skipping Transfer Tax

John John

Mary

Peter Peter

Estate tax (40%)Estate tax (40%)

+

GST tax (40%)

Estate tax (40%)



• Will

• Buy-Sell Arrangement

• Life Insurance

• Irrevocable Life Insurance

Trust

• Living Trust

• Personal Residence Trust

• QTIP

• Dynasty Trust

• Charitable Remainder Trust

• Family Limited Partnership

• GRATs

• Long Term Care

Long-term care insurance is available through representatives who are independently contracted through one or more

insurers who provide this type of insurance contract. Long-term care insurance is not underwritten nor issued by

National Life Insurance Company.


Estate Planning Strategy: Your Will

A will is the most fundamental part of your estate plan.



• Creating trusts to manage assets

• Selecting a guardian for minor children

• Authorizing business continuation plans

A will provides the foundation for an estate plan

and provides for other wealth transfer strategies

such as:



Why both spouses should have a will:

• Allows for specific personal bequests

• Allows for separate charitable interests

• Joint wills between spouses can potentially lead to unexpected

legal problems


Estate Planning Strategy: Buy-Sell Agreements

• Buy-Sell Agreements define terms for the

purchase and sale of your business in the

event of your death, disability or retirement.


Estate Planning Strategy: Buy-Sell

Types of buy-sell arrangements:

• Cross Purchase

• Entity Purchase


Estate Planning Strategy: Life Insurance

• Makes capital available at the moment it becomes needed

• Avoids probate

• In some cases, proceeds will pass to beneficiaries free of estate

tax

• Death proceeds are generally received income tax-free



Life insurance can provide:

• capital to provide family security

• estate liquidity



For business owners, life insurance provides:

• Needed capital to fund a business transfer

• Protection from the loss of a key employee

• Equalizes inheritances to heirs



• When combined with a trust, life insurance can

become an even more important estate planning tool.


Estate Planning Strategy: Irrevocable Life Insurance Trust

Annual GiftIrrevocable

Trust Heirs

Insurance Company

Premiums Death Proceeds

How It Works:

• Bypass Probate

• Avoids Federal Estate Tax



IRS Rules for establishing an ILIT:

• Insured can have no incidents of ownership

• 3 Year Rule



Gift tax to consider:

• Gift taxes apply

• Trustee must apply for policy

directly to avoid tax problems


Estate Planning Strategy:Irrevocable Life Insurance Trust

Role of the Trustee:

• May pay estate-related cost from trust

• May make loans

• May purchase estate assets


Estate Planning Strategy:Irrevocable Life Insurance Trust

Summary:

• Taxpayers can remove substantial assets from their gross estate

• Insurance proceeds can be a source of income for the surviving

family, while providing funds to pay estate taxes for the estate

Other Considerations:

• Cash Flow

• Loss of control

• Administrative costs


Estate Planning Strategy:Living Trust

Living trusts are intended to manage

assets during periods of disability

and at death.



How it works:

Living Trust

Will Probate

Heirs

Heirs

Assets



A Living Trust Enables You To:

• Maintain control during your lifetime

• Plan for incapacity

• Avoid costs and delays of probate

• Guarantee privacy


Estate Planning Strategy:Personal Residence Trust

A personal residence trust removes a grantor’s home from his

estate while still letting him or her live in it until death.


Estate Planning Strategy:Personal Residence Trust

How it works:

10 YearPersonal

ResidenceTrust

OutliveTrust

Don’tOutliveTrust

House toHeirs –

NotTaxable

House toHeirs

Taxable

Your

House


Estate Planning Strategy: Personal Residence Trust

Advantages:

• Transfer asset at a discount

• Reduces gross estate

• You retain rights to live in home

• Works with any residence


Example Using 10-Year Trust

Gift Tax Exemption Available: $5,250,000

• Total Gifts to Children: $1,500,000

• Gift Tax on Home Valued

at $700,000: $290,000

Total Exemption Still Available: $3,460,000

This example is purely hypothetical and for illustrative purposes. Your results will likely differ.


Estate Planning Strategy:QTIP

A QTIP potentially takes advantage of the unlimited marital

deduction and still lets the grantor control the disposition of

certain assets at the second spouse’s death.


Estate Planning Strategy: QTIP

QTIP

Eric Children or

Grandchildren

LifetimeIncome

RemainderAmount

Balance of Barbara’s estate in excess of $5,250,000*

Example:

* This amount represents the applicable exclusion amount (the amount that may be passed to heirs estate tax-free in 2012). This

illustration is purely hypothetical and for illustrative purposes. Your results likely will differ.


Estate Planning Strategy:Grantor Retained Annuity Trust

Provides income-producing assets by gifting a remainder interest to

an irrevocable trust.



Grantor

Retained

Annuity TrustAnnuity

Payments

End of Trust

Beneficiaries

$$$$$You



Tax Implications:

• Does not qualify for gift tax exclusion

• Greater the value of the annuity,

the lower the assessed gift



At the End of the Trust:

• Outlive trust and avoid estate tax

• Do not outlive trust and it will be

included in estate



Advantages:

• Reduces asset transfer costs

• Avoids tax on appreciating gifts

• Provides income

Things to know:

• Administrative costs

• Grantor must live for full term to realize full tax benefits


Estate Planning Strategy:Charitable Remainder Trust

• Remove property from your estate

• Potential lifetime income

• Benefit your favorite charity



As a charitable donation, there is no gift tax associated with a CRT

transfer of assets at the end of the trust term.


Estate Planning Strategy:Charitable Remainder TestTax Benefits:

• No gift tax with transfer

• Immediate income tax deduction

• No tax on appreciated values

Things to know:

• Gift is irrevocable

• Loss of access to principal

• Tax deductions may be subject to limits



Primary Types of CRTs:

• Annuity trust

• Unitrust


Example:Charitable Remainder Trust

CRAT Contribution: $1,000,000

Payout Rate: $50,000 annually for life

Age of Donor: 65

Kathryn Charitable Deduction: $255,065

Kathryn’s Annual Income: $50,000

Remainder to Charity: $1,000,000

* This examples is purely hypothetical and for illustrative purposes only . Your results will likely differ



You $$$$ Charitable Remainder Trust

During Trust: Lifetime Income

Donor or Other Beneficiaries

At End of Trust: Remaining

$$$$

How it works:

Charitable Organization


Estate Planning Strategy:Dynasty Trust

Makes use of the GST exemption to transfer assets to future

generations, while meeting other estate objectives.


Estate Planning Strategy:Dynasty Trust

Assets Dynasty Trust

Income to Heirs

Principal to Heirs atTrust Termination

How it works:


Estate Planning Strategy:Dynasty TrustBenefits:

• Favorable tax treatment

• Flexibility

• Ability to create a family legacy

• Protection from creditors

Things to know:

• Trust can’t be amended

• Costs and ongoing trustee fees


Estate Planning Strategy:Family Limited Partnership

• Limited Partnership

• Parents transfer assets and receive partnership interests

• Partnership interests eventually transferred to children



“Jones Family Limited Partnership”

• 2% General Partnership

• 98% Limited Partnership

• $28,000 worth of FLP units per year, per child


Estate Planning Strategy:Family Limited PartnershipAdvantages:

• Transfer assets to family members when and under what circumstances they want

• Flexibility

• Protecting and preserving assets from creditors

Things to know:

• Must have valid business purpose and discounts are subject to scrutiny by the IRS.

• The financial outlay associated with an FLP could be significant



Example:

• The Jones’ want to transfer $1 million to their children, gift-tax

free.

– If they don’t use FLP unit discount: 14 years for transfer

– If they do use an FLP unit discount: 10 years for transfer


Proper Estate Planning Will Require a Strong Professional Team

• Attorney

• Accountant

• Qualified Financial Practitioner



Questions & Answers


Thank You

estate planning strategies for the business owner · ca life lic 0g60621 [agent name] ... federal...

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