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InKnowVision April 2013 HNW Technical PPT - PA and SCINs
 

InKnowVision April 2013 HNW Technical PPT - PA and SCINs

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In this session we will be looking at two actuarially-based estate planning solutions that can be very powerful in the right situations. ...

In this session we will be looking at two actuarially-based estate planning solutions that can be very powerful in the right situations.

Both of these solutions depend on careful analysis of life expectancy. We will be looking at the advantages of using actuarial firms to develop life expectancy profiles and show you how InKnowVision has used those profiles to help deliver superior results to our high net worth clients.

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    InKnowVision April 2013 HNW Technical PPT - PA and SCINs InKnowVision April 2013 HNW Technical PPT - PA and SCINs Presentation Transcript

    • Technical Webinar©2012. InKnowVision LLC. All rights reserved. www.inknowvision.com
    • S C O T T H A M I L T O N , C E OI N K N O W V I S I O N , L L CPrivate Annuities and SCINsCopyright InKnowVision, LLC 2012
    • Goals Learn basics on techniques Learn when to consider PAs or SCINsCopyright InKnowVision, LLC 2012
    • SCIN Overview Lifetime transfer of cash or property outright or intrust in exchange for interest bearing note Interest Only AmortizingPropertyPaymentsGrantorTrustCopyright InKnowVision, LLC 2012
    • SCIN OverviewCopyright InKnowVision, LLC 2012 At death, note obligation ends.
    • SCIN - Advantages Removal of transferred asset and unpaid note balance from transferor-seller’s estate Bypasses generation-skipping transfer rules Cash flowCopyright InKnowVision, LLC 2012
    • SCIN - Requirements Transfer is irrevocable – sort of? Installment sale tax treatment is automatic if any payments are madeafter the year of sale (Non-grantor trust) election to opt out if desired Installment treatment is not for sales of marketable securities – use entity Sales to related parties are generally subject to 2-year third-party resalerestrictions – discussed laterCopyright InKnowVision, LLC 2012
    • SCIN - Requirements Consideration for transferred property must take into accountmortality risk associated with seller’s death while note is outstanding Interest Premium Principal Premium A combination Note term must be less than seller’s life expectancyCopyright InKnowVision, LLC 2012
    • Interest vs. Principal Premium SCIN Compare.xlsxCopyright InKnowVision, LLC 2012
    • SCIN -Tax TreatmentGrantor Trust No gain or loss recognized on initial sale No income or deduction recognized on payments No change in basisCopyright InKnowVision, LLC 2012
    • SCIN -Tax Treatment Non-Grantor or Individual buyer Seller’s adjusted tax basis is recovered over life expectancy Gain is recognized by seller ratably over the applicable lifeexpectancy Gain = Present value of SCIN – basisCopyright InKnowVision, LLC 2012
    • Two Year Resale Rule If property sold for SCIN is sold to related party, resale within 2 yearstriggers gain to original seller If sold after, no gain recognized by original seller If grantor trust, gain recognized regardlessCopyright InKnowVision, LLC 2012
    • Gift and Estate Tax No gift tax if FMV of note payments = FMV of property sold Effective for estate freeze Zero estate inclusion with note since no payments are made to sellerafter deathCopyright InKnowVision, LLC 2012
    • When Would You Consider Appreciating estate with significant tax exposure Lifetime transfer of closely held business to family members or keyemployees Shorter than normal life expectancy LE ReportsCopyright InKnowVision, LLC 2012
    • IRS Life Exp.
    • Private Annuity Overview Lifetime transfer of cash or property outright or intrust in exchange for annuity payable over Seller’s life (or joint life with another individual) Shorter of (a) or a fixed term of yearsPropertyPaymentsGrantorTrustCopyright InKnowVision, LLC 2012
    • Private Annuity Overview Annuity issued by other than insurance carrierCopyright InKnowVision, LLC 2012
    • Private Annuity Overview Annuity payments may be level or increasing0246810121 2 3 4 5 6 7 8 9 10Copyright InKnowVision, LLC 2012
    • Private Annuity - Advantages Removal of transferred asset from client’s estate Not a generation-skipping transfer Cash flowCopyright InKnowVision, LLC 2012
    • Private Annuity - Requirements Transfer is irrevocableCopyright InKnowVision, LLC 2012
    • Private Annuity - Requirements Annuity payments cannot be secured or tied toincome produced by transferred property Securing the payments in any way causes immediate gainrecognition for tax purposes Tying annuity payments to transferred property’s income mayresult in inclusion in seller’s estate Therefore, the buyer should possess wherewithal to satisfyannuity obligation independentlyCopyright InKnowVision, LLC 2012
    • Private Annuity -Tax TreatmentGrantor Trust No gain or loss recognized No income recognized No change in basisCopyright InKnowVision, LLC 2012
    • Private Annuity -Tax Treatment Non-Grantor or Individual buyer Seller’s adjusted tax basis is recovered over life expectancy Gain is recognized by seller ratably over the applicable lifeexpectancy Gain = Present value of annuity – basis Immediate gain recognition if annuity payments are secured Ordinary income once basis is fully recoveredCopyright InKnowVision, LLC 2012
    • Annuity Breakdown Example $1 MM value $100,000 tax basis Seller age 60 4% 7520 rate $49,605 annuity paymentsTax Treatment of Annuity Payments45%47%8%Ordinary Income Capital Gain BasisCopyright InKnowVision, LLC 2012
    • Gift and Estate Tax No gift tax if PV of annuity = FMV of property Effective for estate freeze Zero estate inclusion with single life annuity since no future paymentsare made to seller If joint & survivor annuity Seller’s estate includes PV of survivor’s payments If survivor is seller’s spouse, no federal estate tax due tounlimited estate tax marital deductionCopyright InKnowVision, LLC 2012
    • When Would You Consider Appreciating estate with significant tax exposure Lifetime transfer of closely held business to family members or keyemployees Shorter than normal life expectancyCopyright InKnowVision, LLC 2012