Estate Planning Workshop

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Did you know that besides family members, there are also others in line for your assets? Uncle Sam, creditors, business partners, and others.

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  • Estate Planning Workshop

    1. 1. Welcome <ul><li>Associates of Sagemark Consulting are registered representatives of Lincoln Financial Advisors Corp. Securities offered through Lincoln Financial Advisors Corp., a broker-dealer. Investment advisory services offered through Sagemark Consulting, a division of Lincoln Financial Advisors, a registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates. </li></ul><ul><li>Please remember that all clients are different and individual suitability should be determined. It is not our position to offer legal or tax advice. Seek the advice of a professional advisor prior to making a tax-related investment and/or insurance decision. </li></ul><ul><li>CRN200702-2002903 </li></ul><ul><li>©2007 Sagemark Consulting </li></ul>
    2. 2. Estate Planning Strategies Andy Hoang Financial Planner January 16, 2009
    3. 3. Workshop Materials z PRESENTATION GUIDE ESTATE PLANNING WORKBOOK EVALUATION
    4. 4. You’re Unique <ul><li>Less than 1% of Americans owe estate taxes </li></ul>Source: Internal Revenue and National Center for Health statistics, with calculations by Citizens for Tax Justice ( www.ctj.org ), 1/10/2007
    5. 5. We’re Unique
    6. 6. Where Do You Start? ESTATE PLANNING LIFETIME PLANNING Financial Planning
    7. 7. Determine Priorities Inflation Cruise Long-term care Spouse’s security Reducing taxes Sale of business Charity Retirement income Grandchildren
    8. 8. Establish Objectives <ul><li>1. Identify </li></ul><ul><li>2. Prioritize </li></ul><ul><li>3. Quantify </li></ul>
    9. 9. Planning Priorities <ul><li>1. Providing for your financial security while you’re alive </li></ul><ul><li>2. Maximizing your estate for family and charity following your death, given your particular objectives </li></ul>
    10. 10. Lifetime Planning <ul><li>Can I afford to retire? </li></ul><ul><li>Can I afford to give money to my children or charity while I’m alive? </li></ul><ul><li>Will I outlive my assets? </li></ul>
    11. 11. What’s Wrong With This Picture? Income Expenses
    12. 12. Problem
    13. 13. Do I Have Enough Capital?
    14. 14. Financial Condition Model <ul><li>An effective planning model: </li></ul><ul><li>Provides you with a long term perspective </li></ul><ul><li>Demonstrates various ‘what if’ scenarios </li></ul><ul><li>Projects, versus predicts the future </li></ul>
    15. 15. Financial Condition Model Capital + or - Sources of Income Less Expenses and Living Needs = Direction of Net Worth
    16. 16. Planning Priorities <ul><li>Providing for your financial security while you’re alive </li></ul><ul><li>Maximizing your estate for your family and charity, given your objectives </li></ul>
    17. 17. Planning Strategies Living Planning Estate Planning
    18. 18. Estate Planning <ul><li>What are my estate costs? </li></ul><ul><li>How can I reduce and freeze these costs? </li></ul><ul><li>Do I have enough liquidity to pay my estate costs? </li></ul>
    19. 19. What’s Wrong With This Picture? Estate Family Estate Settlement Costs
    20. 20. Estate Settlement Costs Family Federal and State Taxes Probate Debts Final Expenses Liquidation Costs
    21. 21. Cost Variables <ul><li>Estate size </li></ul><ul><li>Ownership </li></ul><ul><li>Wills and trusts </li></ul><ul><li>Types of assets </li></ul><ul><li>Beneficiary designations </li></ul><ul><li>Tax rates </li></ul><ul><li>Tax relief and incentive provisions </li></ul>
    22. 22. Estate Tax Bite $2,000,000 Marginal Rate (effective 2007) Taxable Estate
    23. 23. Calendar Year Deathtime Exemption Tax Rates 2007 $2.0 Million 45% 2008 $2.0 Million 45% 2009 $3.5 Million 45% 2010 Taxes Repealed Top Income Tax Rate (Gift Tax Only) 2011 $1.0 Million 55% Applicable Credit Amount
    24. 24. $6.3 Million Estate Growing at 6% <ul><li>Year Estate 2nd Death Tax </li></ul><ul><li>2005 $6.3 $1.5 </li></ul><ul><li>2008 $7.5 $1.5 </li></ul><ul><li>2009 $7.9 $0.3 </li></ul><ul><li>2010 $8.4 $ 0 </li></ul><ul><li>2011 $8.9 $3.7 </li></ul>
    25. 25. Estate Distribution Personal Estate $100,000 Real Estate $100,000 Savings Investments $250,000 Qualified Plans & IRAs $450,000 Life Insurance $500,000 Business Interest $1,200,000 CHARITY IRS FAMILY Taxation 35% ____________ 45% ____________ 45% ____________
    26. 26. What Are My Current And Future Estate Tax Costs? <ul><li>Estate costs today </li></ul><ul><li>What will my estate costs be at life expectancy? </li></ul>
    27. 27. Estate Planning <ul><li>What are my estate costs? </li></ul><ul><li>How can I reduce and freeze these costs? </li></ul><ul><li>Do I have enough liquidity to pay my estate costs? </li></ul>
    28. 28. Estate Tax Reduction Strategies <ul><li>Will and trust strategies </li></ul><ul><li>Lifetime planning strategies </li></ul>
    29. 29. What’s Wrong With This Picture? The News Heirs in Shock ... Matriarch Leaves No Will!
    30. 30. Will and Trust Strategies Simple Will Both Alive Total Estate $5,000,000 Husband’s Death Fed Estate Tax $0 Wife’s Death Fully Taxable* *Less wife’s Credit. Other allowable deductions and credits may also be available. No assumptions is made for state death taxes. Wife’s Estate Wife’s Heirs $3,650,000 Wife’s Property Wife’s: From Husband: Husband’s estate $2,500,000 Outright to Wife Husband’s estate $2,500,000 Estate Tax $1,350,000 $2,500,000 2,500,000
    31. 31. Will and Trust Strategies Credit Trust Will Wife’s Estate $3,000,000 Total Distribution $4,550,000 By-Pass Trust $2,000,000 Husband’s Estate $2,500,000 Outright to Wife $500,000 Both Alive Total Estate $5,000,000 Husband’s Death Fed Estate Tax $0 Wife’s Death Fed Estate Tax $450,000 Husband’s Heirs $2,000,000 Estate Tax $450,000 Wife’s Heirs $2,550,000 Estate Tax $0 Wife’s Property Wife’s: From Husband: $2,500,000 500,000
    32. 32. Will and Trust Strategies Credit, QTIP Trust Will *Assumes pro-rate share of net federal estate tax Total Distribution $4,550,000 QTip Trust $500,000 Husband’s Estate $2,500,000 Wife’s Property $2,500,000 Wife’s Estate $2,500,000 Estate Tax $375,000* Wife’s Heirs $2,125,000 Husband’s Heirs $425,000 Husband’s Heirs $2,000,000 By-Pass Trust $2,000,000 Wife’s Death Fed Estate Tax $450,000 Husband’s Death Fed Estate Tax $0 Both Alive Total Estate $5,000,000 Estate Tax $0 Estate Tax $75,000*
    33. 33. Will and Trust Strategies Credit, QTIP, Insurance Trust *Assumes pro-rate share of net federal estate tax. Life insurance is purchased subject to underwriting approval. Tax Payment Trust Insurance Death Benefit $450,000 Beneficiaries $450,000 QTip Trust $500,000 Husband’s Estate $2,500,000 Wife’s Property $2,500,000 Wife’s Estate $2,500,000 Estate Tax $375,000* Wife’s Heirs $2,125,000 Husband’s Heirs $425,000 Husband’s Heirs $2,000,000 By-Pass Trust $2,000,000 Wife’s Death Fed Estate Tax $450,000 Husband’s death Fed Estate Tax $0 Both Alive Total Estate $5,000,000 Estate Tax $0 Estate Tax $75,000* Estate Tax $0
    34. 34. Will Drafting Alternatives Estate Tax Cost Comparison Millions
    35. 35. Evaluation <ul><li>What type of legal documents do I have? </li></ul><ul><li>Simple will </li></ul><ul><li>Credit trust will </li></ul><ul><li>Credit/QTIP </li></ul><ul><li>Credit/insurance trust </li></ul>
    36. 36. Evaluation Do I have the legal documents that help meet my objectives?
    37. 37. Estate Tax Reduction Strategies <ul><li>Will and trust strategies </li></ul><ul><li>Lifetime planning strategies </li></ul>
    38. 38. Estate Tax Reduction Strategies ESTATE Assets
    39. 39. Lifetime Strategy <ul><li>Gifting </li></ul>
    40. 40. Gifting <ul><li>Annual exclusion </li></ul><ul><li>Applicable exclusion amount </li></ul><ul><li>GST </li></ul>
    41. 41. Gifting and Split Gifting CHILD CHILD CHILD 12,000 +12,000 $24,000 12,000 +12,000 $24,000 12,000 +12,000 $24,000 YOU SPOUSE
    42. 42. Gifting Example <ul><li>$24,000/year to three children over 20 years </li></ul>Estate $72k/year at 4% = $2,140,000 At 50% Savings = $1.07M
    43. 43. Advantages of a Lifetime Gift Total Outlay $1 million* Transfer Tax Savings: $167,000 *Assumes a 50% effective rate on capital Family Family IRS IRS Bequest Gift
    44. 44. Why Doesn’t Everyone Gift? <ul><li>Loss of financial security </li></ul><ul><li>Loss of control </li></ul><ul><li>Payment of taxes </li></ul>
    45. 45. Why Not Gift Just Before You Die? Timing is everything recent US Tax Court ruling highlights the importance of estate planning. An elderly man wrote instructions to his brokerage firm to liquidate securities in order to send $10,000 to each of 20 nieces and nephews, says a report on the case in &quot;Tax Notes,&quot; the weekly Bible on tax matters. But the man died the same day his letter was delivered, before the brokerage firm could carry out his instructions. The firm carried out the instruction two days later and the $200,000 later was excluded from the dead man's estate. The Internal Revenue Service contended that the $200,000 should have been in the estate and subject to tax. The Tax Court rules that the IRS was right because the gifts were not completed before the man died. The man's letter to his brokerage firm did not constitute a trust for the nieces and nephews, the court said, because it made no mention of a trust. (Knight-Ridder) ...... Reprinted by permission: Tribune Media Services A 2005 2006 2007
    46. 46. Evaluation <ul><li>How much can I afford to give away and what’s my comfort level for gifting? </li></ul><ul><li>What are the best assets to gift and the best gifting techniques? </li></ul>
    47. 47. <ul><li>The only way to know </li></ul><ul><li>is to do the modeling </li></ul>Financial Condition Model
    48. 48. Direction of Net Worth Year
    49. 49. Direction of Estate Tax ESTATE TAX NET WORTH Year
    50. 50. Pyramid of Pain Lifetime GSTT Generation Skipping Lifetime Payment of Gift Tax Lifetime Gift of Credit Gift Split Annual Exclusion Do Nothing During Lifetime
    51. 51. Evaluation <ul><li>How much can I afford to give away and what’s my comfort level for gifting? </li></ul><ul><li>What are the best assets to gift and the best gifting techniques? </li></ul>
    52. 52. Lifetime Strategies <ul><li>Family partnerships </li></ul><ul><li>Personal residence trusts </li></ul><ul><li>Grantor trusts </li></ul><ul><li>Family income trusts </li></ul><ul><li>Generation skipping trusts </li></ul><ul><li>Charitable trusts </li></ul>
    53. 53. Estate Planning <ul><li>What are my estate costs? </li></ul><ul><li>How can I reduce and freeze these costs? </li></ul><ul><li>Do I have enough liquidity to pay my estate costs? </li></ul>
    54. 54. What’s wrong with this picture? Estate Sale Auction Auction Auction Estate Sale Estate Sale
    55. 55. The Robbie Family Estate Tax Troubles Robbie Family Estate Problems The News Robbies Sell Dolphins to Pay Estate Tax The News
    56. 56. IBM Monthly Price Ranges November 2001 - October 2002 Financial Planning Slide Presentation Only. This is not an offer or solicitation to buy IBM stock.
    57. 57. Estate Planning <ul><li>Summary and next steps </li></ul>
    58. 58. Key Planning Priorities <ul><li>Providing for your own financial security </li></ul><ul><li>Maximizing your estate for your family and/or charity, given your objectives </li></ul>
    59. 59. Providing For Your Own Financial Security <ul><li>Can I afford to retire? </li></ul><ul><li>Will I outlive my assets? </li></ul><ul><li>Can I afford to give money to my children or charity while I’m alive? </li></ul>
    60. 60. Maximizing Your Estate <ul><li>What are my estate costs? </li></ul><ul><li>How can I reduce and freeze these costs? </li></ul><ul><li>Do I have enough liquidity to pay estate costs? </li></ul>
    61. 61. Next Steps <ul><li>Don’t put off the planning </li></ul><ul><li>Identify and communicate objectives </li></ul><ul><li>Assess your long-range financial situation </li></ul><ul><li>Complete your planning worksheet </li></ul>
    62. 62. Our Commitment <ul><li>Prepare model – no obligation </li></ul><ul><li>Review model one-on-one with a financial planner </li></ul><ul><li>Determine your appropriate options </li></ul><ul><li>If you choose, implement your plan </li></ul>
    63. 63. Any discussion pertaining to taxes in this communication may be part of a promotion or marketing effort. As provided for in government regulations, advice related to federal taxes that is contained in this communication is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue code. Individuals should seek advice based on their own particular circumstances from an independent tax advisor. CRN200702-2002903 ©2007 Sagemark Consulting

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