wealth strategies counsel 1 15 hottest estate planning ideas for 2012 presented by: jeffrey r....

Wealth Strategies Counsel1

15 Hottest Estate Planning Ideas For 15 Hottest Estate Planning Ideas For 2012 2012Presented By: Jeffrey R. Matsen & Timothy L. Voorhees

Wealth Strategies Counsel

Founder and Partner-In-Charge of Wealth Strategies Counsel , the Estate Planning and Business Transaction Department of Bohm, Matsen, Kegel & Aguilera, LLP, of Costa Mesa, California

A Southern California “Super Lawyer” (Los Angeles Magazine), with a national reputation for emphasizing wealth preservation for his high net worth and professional, accomplishment-driven clientele

Nationally recognized CLE Speaker in the areas of asset protection and LLCs

Areas of emphasis include: International and Domestic Asset Protection, Estate Planning & Wealth Preservation, Real Estate Acquisitions & Development, Business Formation & Transactions, Probate, and Trust Administration

Certified Business Appraiser by the National Society of Appraiser Specialists

Member, Society of Trust & Estate Practitioners (“STEP”) Fellow, Center of International Legal Studies Professor, Chapman University School of Law & Western State

University College of Law, in Business & Estate Planning Visiting faculty member, European law schools Awarded highest rating (“AV”) for competency and ethics, as

published in the prestigious international Martindale-Hubbell attorney directory

Awarded highest rating (“10/10 Superb” )by The Nationally Renowned Attorney Rating Service, ‘AVVO’

Recognized as one of “O.C.’s Top Lawyers” by OC METRO Magazine

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Jeffrey R. MatsenJeffrey R. MatsenWorth Magazine: Matsen Included In Nation’s “Top 100 Attorneys”Worth Magazine: Matsen Included In Nation’s “Top 100 Attorneys”


33 years of experience developing and implementing Zero Tax Plans.

JD - Southern Methodist University - Corporate & Estate Planning Law; MBA - Arizona State University - Finance & Accounting

Published in Estate Planning Magazine, the Journal of Practical Estate Planning, Insurance News, the elite advisor website of Financial Planning Magazine, and other leading publications.

President of the Registered Investment Advisory firm at Voorhees Family Office Services.com and the managing partner of its affiliated tax law firm, Matsen Voorhees LLP

Tim teaches Best Tools Workshops for advisers interested in learning how to integrate the most effective zero tax planning tools into financial and estate plans. He also conducts Best Practices Workshops for advisers who seek to integrate advanced Wealth Counseling technologies into their practices

Spoken at national conferences of the National Network of Estate Planning Attorneys, ALI-ABA, Kingdom Advisors, the Southern California Tax & Estate Planning Forum, etc. He has also presented at annual conferences for numerous financial advisory firms.

Provides mediation and arbitration services as a Certified Christian Conciliator™

Led teams that have developed hundreds of Family Wealth Blueprints® for high net worth clients

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Timothy L. VoorheesTimothy L. VoorheesDesigned and Implemented Hundreds of Zero Tax PlansDesigned and Implemented Hundreds of Zero Tax Plans

http://www.vfos.com/

http://vfos.com/brochures/bt

http://vfos.com/brochures/bp


•Taxable gifts in 2012

– $5,000,000 lifetime gift tax exemption (with a 35% tax rate on taxable gifts over $5,000,000)

– Utilize the additional $4,000,000 of gift tax exemption to shelter future growth from estate tax

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Tax Planning Opportunities in Tax Planning Opportunities in 20122012


• $5,000,000 gifts in trust• Spousal access trusts• Life insurance trusts• Dynasty trusts• Income shifting family trusts• Asset protection trusts

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Tax Planning Opportunities in 2012


Top 15 Strategies

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# Planning Tool1 ILITs2 IDITs 3 BDITs4 Pension Rescue5 IP/DAF deductions6 Family Wealth Blueprints7 Captives8 Surrogate insureds9 Buy Sells10 TCLAT11 CRT 12 Annuity Arbitrage13 Defined benefit combination plans14 LLC15 Domestic Asset Protection Trust


1. Gifts to anIrrevocable Life Insurance

Trust (ILIT)

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• Estate tax-free

• Income tax-free

• Utilize the $5,000,000 exemption and the GST exemption amounts

• Determine need based on 2012 rates or 2013 rates?

Irrevocable Life Insurance Trusts (ILIT)

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• A type of trust which holds a life insurance policy on the grantor’s life so as to benefit the grantor’s children without the imposition of future estate, gift and/or GST tax.

• To the extent that the grantor’s estate has insufficient liquid assets to cover the estate tax liability, trust assets can be lent

to the estate or used to purchase assets from the estate.

• To the extent that the grantor does not hold any “incidents of ownership”, none of the trust assets will be included in his/her taxable estate.

Irrevocable Life Insurance Trust (ILIT)Liquidity Strategies

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2. Sales to an Intentionally Defective Irrevocable Trust

(IDIT)

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3. Beneficiary Defective Irrevocable Trusts (BDITs)

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4. Pension Rescue

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5. IP/DAF Strategy

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CLIENTS:HUSBAND AND/OR

WIFE

WIDGET, INC.(S CORP.)

IP LLC(MANAGER MANAGED)

98-99% NON-VOTING

PREFERRED UNITS GIFTED TO DDF

ROYALTY

LICENSE

NOTE PAYMENT

SALE/CAPITALIZE

Charitable Trust Charitable Trust ApplicationApplication


6. Family Wealth Blueprint

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7. Captives

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Enhanced Captive Sample Plan


9) Captive Case Study


8. Surrogate Insureds

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Sample fact-pattern: • Mom has a taxable estate and she needs to move assets to irrevocable trusts• To minimize or avoid gift, estate, and capital gains taxes on the transfer of assets to the irrevocable trust, we need to sell assets to a grantor trust.• When we sell assets, we normally take back a note but we can instead take back a split dollar agreement to get better potential economics. • Split dollar agreements only work when there is insurance. • To make the illustration work very well, do not use traditional insurance; instead use high cash value insurance. • Keep cash value high and keep insurance costs very low. We do this by insuring kids or grandkids.


Ideal ClientsIdeal Clients

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• Clients who want to transfer 90% or more of their wealth to the next generation.

• Clients desiring to transfer wealth from G1 into trust for the benefit of G2 and/or G3 while still retaining control over assets and/or income from assets.

• Clients desiring to provide financial security through dynasty trust planning

• Clients who want a strategy supported with IRS rulings and tax court cases


9. Buy-Sells

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Why Buy-Sell Plans Are NeededWhy Buy-Sell Plans Are Needed

Only 30% of businesses make it to G2 and a mere 3% still generate profits in G3

60% of families waste away their wealth by the end of the second generation.

75% of parents worry that heirs’ lives may be adversely affected by wealth.

90% of families have little or nothing left of money received from grandparents.

95% of all traditional inheritance plans fail.


Opportunities for Financial AdvisersOpportunities for Financial Advisers

Sale of life insurance for Death Benefit Sale of disability insurance for disability purposes Sale of cash value life insurance for retirement benefits

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Opportunities for Business EntitiesOpportunities for Business Entities

Establish clear sale terms to avoid future disputes Smooth transition when transferring ownership and

control Prevent unwanted people from acquiring interest in

business

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Opportunities For the Deceased Owner’s HeirsOpportunities For the Deceased Owner’s Heirs

• Create a ready buyer for shares in an illiquid closely-held entity

• Establish “Arms Length” valuation for estate tax purposes

• Relieve heirs of on-going management hassles• Avoid having heirs negotiate fire sales terms as

part of a forced sale

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Opportunities for Surviving OwnersOpportunities for Surviving Owners

• Eliminate involvement of deceased owner’s inactive heirs

• Eliminate stressful negotiations with surviving spouse or family members

• Provide for deceased owner’s family tax efficiently using life insurance proceeds, not precious business cash

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How to Fund Buy-Sell Agreements Tax-EfficientlyHow to Fund Buy-Sell Agreements Tax-Efficiently

1.Leveraged Buy-Sell Strategy

2.Charitable LLC Strategy

3.Charitable Stock Redemption

4.ESOP

5.IRS-Funded Buy-Sell

6.ChESOP

7.Capital Split Dollar


Corporation

Leveraged Insurance Funded Buy SellLeveraged Insurance Funded Buy Sell

Money Source

Cross Purchase Entity

Loan to CorporationInterest is Deductible

Split Dollar Loan to Entity Shareholders Paytax on Imputed Interest plus small premium

IRS


10. TCLAT

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11. CRT

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MR. AND MRS. SAMPLE

Contribute company to three separate CRT's

NIMCRUT

Payout rate of 8% for the Samples' lives.

MULTI-CLASS CHARITABLE REMAINDER TRUST

SAMPLE FOUNDATION

Remainder of assets pass to Foundation

Remainder interests pass to charity

Initial total income tax deduction of $1,346,423

STANDARD CRT

Payout rate of 22% for 9 years.

FLIP CRT

Payout rate of 5% for the Samples' lives. Distributions start in year 10.

Pays income years 1-9 Pays income years 10+

Pays income for life

ILIT

Trustee purchases $4,000,000 joint policy on Sample's lives

Premiums

© Tim Voorhees, JD, MBA 1998-2009

Multi-Class CRTMulti-Class CRT


-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

Gross income from 3 CRTs

CRT1 CRT2 CRT3 Tax Savings

© Tim Voorhees, JD, MBA 1998-2009


CRUT Suitable ClientsCRUT Suitable Clients

Charitably inclined

Wants regular income

Needs income tax deduction

Wants to sell appreciated assets

Wants to diversify concentrated equity position

Wants tax exempt environment for trading

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12. Annuity Arbitrage

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$1 Million Annuity or IRA Value


5. Benefits afterEstate tax


13. Defined Benefit Combo Plans

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14. LLC

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15. Domestic Asset Protection Trust

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Business persons have always had concern over the exposure that personal assets have claims against the business.


Corporate form of business entity with the shield of limited liability has been invoked for centuries

Over the last few decades expending theories of liability and proliferation of litigation has given increased emphasis to asset protection planning to the extent that it is now a well recognized area of practice

Potential liability is a major concern to doctors, other professionals and persons of high net worth.


Why the Increased Liability Exposure?

Victim Oriented Society

Deep pocket

Plaintiff lawyers

Increased media and society awareness

High notoriety for malpractice and other errors and omissions type of action


Inside Creditors

Definition:

Inside creditors are those creditors whose claim is directed against the business operation or real estate which is operated and owned inside a business entity.

Creditor

Business Opsor

Real Estateof

LLC or LP


C or S Corps

LLCs

Segregation of Assets

Equity Stripping Devices

Business owners and real estate investors need to closely examine their own business entity structure


Doctor and dentist clients need to be aware of proper structure for practice

Professional corporations

Segregation of assets

Sub S election

Share holder agreements

Other practice structure items


Protecting Against Inside Debts or Claims

Operating Businesses: C Corporations

S Corporations

Limited Liability Companies


Real EstateReal Estate

Real Estate assets need to be protected!

1. Insurance

2. LLCs or FLPs


Warning!!!

Jointly owned real estate should generally not be held as individuals or in General Partnerships

Tremendous liability potential: You MUST consider LLCs or FLPs!


General Rules:

If you own everything in one company or in your own name, one lawsuit can result in the loss of everything you own

If you own things in separate companies, then only the entity involved in the suit is at risk

Segregate your most valuable assets (i.e., real estate in separate LLC, equipment in separate LLC)

Divided You Stand, United You Fall


Segregate Business Assets

Real estate should be held in LLC and leased to professional practice or business

Equipment can be held in LLC and leased to professional practice or business

Separate liability protected entity for different business or practice functions and operations


Outside Creditors

Definition:

Outside creditors are those creditors whose claims arise outside the purview of the business entity and are generally asserted against the business or real estate owner personally.

CreditorLLC or LP Member/Partner


Claimants or Creditors

Clients of professionals, i.e., malpractice claims, doctors, dentists, lawyers, CPAs, architects, engineers, etc.

Future claimants of real estate investor or business owner.

Claims of spouse relative to potential divorce.

Claimants and creditors of children or elderly parents.

Claimants of high risk business owner.

The buyer of a business who subsequently suffers buyer’s remorse and goes against seller for fraud, misrepresentation, etc.

General tort claimants, i.e., traffic accidents, etc.

Contract claimants, i.e., personal guarantees, bonding and other contractual claims.

Government agencies, i.e., the IRS, state taxing authorities and environment base claims (extra care has to be taken with respect to planning to protect assets against governmental claims).


Typical Clients Professionals, doctors, dentists, lawyers, CPAs, architects, engineers, etc.

Potential recipients of substantial inheritances from parents or other family members.

Business owners

Sellers of businesses.

Individuals with high risk businesses or dealings with investors.

Individuals who have to sign personal guarantees and bonds, i.e., contractors and other business owners.

Officers and directors of public companies.

Owners of boats, airplanes or extreme vehicles.

Real estate investors and owners.

Celebrities, high net worth and high visibility individuals.

Wealthy spouse in second marriage.

Children of wealthy individuals.


The Charging Order

Creditor of a partner or LLC member cannot reach partnership assets or seize partnership interest or LLC interest

Limited to a court order “charging” the interest with the debt

If distributions are made with respect to the charged interest, they must be made to the creditor

Creditor gets only economic rights to distributions, not voting rights or other non-economic rights


Forum Shopping

Why Forum Shop?

The Charging Order and the “Exclusive Remedy” Issue

“Most Favorable” Jurisdictions for LLCs

1. Delaware, New Jersey (Florida for LPs)2. Alaska, Texas and Virginia3. South Dakota4. Nevada, Arizona and Wyoming

See “Merric and Comer,” Steve Leimberg’s Asset Protection Planning Newsletters #112 (8, Aug. ’07), #114 (28, Aug. ’07), #117 (19, Aug. ’07) and #127 (17, Apr. ’08)


DOMESTIC ASSET PROTECTION TRUSTS

The general rule in most states is that creditors can reach the interest of the Trustor (the maker of the trust) of domestic self settled trusts

Recently, several states have adopted legislation somewhat similar to various offshore jurisdictions that provide by statute various degrees of asset protection for a trustor’s interest as a beneficiary in a self settled trust

Alaska, Delaware, South Dakota and Nevada seem to have the best laws. The big advantage of Nevada is the shorter statute of limitation (2 years)

If properly set up and maintained, the Domestic Asset Protection Trust will be a significant barrier to creditors and will afford significant leverage to the debtor with respect to its negotiations with the creditor. This is especially true if the assets of the trust that need to be protected are domiciled in a state which is the domiciliary of the Asset Protect Trust


DOMESTIC ASSET PROTECTION TRUSTS

The problem is that the courts of the non domiciliary state may not give effect to the Asset Protection features of the trust

However, there is no question that a significant degree of protection is afforded by utilizing the Domestic Asset Protection Trust especially when it comes to negotiating for a settlement with the creditor

It is recommended that a professional Trustee be utilized with respect to a Domestic Asset Protection Trust and, in fact, it may be mandatory in many instances


Modular Structuring

DAPTor

FAPT

LLC#1 LLC#2

95% Member 95% Member

5% Member 5% Member

Real Property Liquid Investments


Why Go Offshore?

2) International Connections

Relatives or Family Offshore Own Property Offshore Doing Business Offshore3) Maximum Protection

1) To set up your nest-egg and protect your liquid funds

wealth strategies counsel 1 15 hottest estate planning ideas for 2012 presented by: jeffrey r....

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