Seminar pm - retirement challenges withaudio 54-67

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Section 6 Five Challenges for Retirees

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  • At some point their becomes a time when you realize that you can’t take it all with you and you need to plan how your going to transfer what’s left to your beneficiaries. A living trust is the most common way to do that.
  • Let’s take a look at the estate tax rates. In 2007 and 2008 anything over $2,000,000 was subject to an estate tax at the rate of 45%. In 2009 the exempt amount changed from $2,000,000 and went up to $3,500,000. So anything over $3,500,000 was taxed at the rate of 45%. Now in 2010 there will be no estate taxes. We can’t be certain what the exemption and tax level will be in 2011 & 2012. The current estate tax code indicates that the exemption will be at $1,000,000 and the tax rate for any thing above that level will be 55%, but this is certainly subject to change.
  • Now we don’t really know how they wanted their estates to pass on, but let’s have a little fun and take a look at a few celebrity estates and see what happened to them in the context of how much of their estate went to taxes and settlement costs.
  • When John D. Rockefeller died his estate was worth (go through numbers)
  • Now when Elvis died ,(pause), and I’m not saying he’s dead.( pause for laughter ). (Go through the numbers)
  • When Marilyn Monroe died her estate was worth (go over numbers)
  • We certainly want to avoid this kind of taxation and one of the most common estate planning tools is called a revocable living trust, which means you can change the trust anytime you want. The reasons to have a trust are –(read slide)
  • If you're married and have a Revocable Living Trust you need to make sure it is an A-B trust or bypass trust. (read bullet points – starting with the 2 nd bullet) Put quite simply it can double the exemption amount. If you’re married and have a trust that you’re not sure if it’s an A-B Trust I would encourage you to have someone take a look at it just to make sure the trust is set up properly.
  • Now there are advantages and disadvantages to a Credit Shelter Trust. (Read underlined bullet points) Now, if you have a substantial estate that could be subject to estate taxes you might need to do some advanced estate planning and set up an Irrevocable trust. This is a trust that once established can’t be changed. That’s why it’s called Irrevocable. Let’s take a look at what I’m talking about.
  • This is an example of an Irrevocable Life Insurance Trust. The concept is really quite simple. All we do is to establish an Irrevocable Life Insurance Trust that owns a life insurance policy which pays off when your gone. This takes the life insurance outside of your estate and provides a tax free death benefit to the beneficiaries. Let’s say you figure that the beneficiaries of your estate might have to pay $500,000 is estate taxes when the estate is settled. Well, all you would have to do is have a Life insurance policy for $500,000 that pays off on your death and the beneficiaries can use that tax free death benefit to pay the estate taxes. Now not everyone needs an Irrevocable Life Insurance trust, but if you have a large estate and want to pass it on to the beneficiaries in an efficient manner it’s certainly something worth looking at to see if this should be part of your estate plan.
  • Now are you ready for a joke break. (pause) OK, here’s my joke. Any grandpas in the room? Well here’s grandpa watching TV and his grandson comes over to him and says grandpa make a noise like a frog, (click) (pause for sound effect) Grandpa say’s ok, but tell me why. Grandson says come on grandpa make a noise like a frog, again grandpa says I will if you tell me why. So grandson says ok and lowers his voice and says “well I heard grandma tell mom in the kitchen that when you croak were all going to Hawaii”. (pause) Obviously grandma has an estate plan, maybe grandpa doesn’t know about it but, grandma has a plan.
  • Planning how your estate will pass on to the next generation is something you can’t neglect. You want to make sure it is set up properly.
  • Read slide
  • If you have a large estate you need to be sure your estate plan is set up properly. If it’s not set up properly it could result in an irreversible mistake. If this is important to you be sure and check off estate planning on your worksheet. Estate Planning is just one of the things we do for our clients.
  • Seminar pm - retirement challenges withaudio 54-67

    1. 1. WHEN YOU REALIZE THAT YOU CAN’T REALLY TAKE IT ALL WITH YOU, IT’S TIME FOR A GOOD FINANCIAL PLAN TO HELP MAXIMIZE YOUR ESTATE AND MINIMIZE TAXES Representative is not an attorney but can help review the documents and recommend a local attorney that specializes in Estate planning. Estate planning can involve a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional regarding your individual situation before implementing any strategy.
    2. 2. Estate Tax Rates and Applicable Exclusions Estate Tax Rate 45% 45% 45% 0 ? ? Source: www.irs.gov ? ?
    3. 3. CELEBRITY ESTATES
    4. 4. Estate Erosion John D. Rockefeller Gross Settlement Net Percentage Estate Costs Estate Lost $26,905,182 $17,124,988 $9,780,194 64% Source: ecalife.com/uploaded_images/files/estate_tax_of_famous_people.pdf
    5. 5. Estate Erosion Elvis Presley Gross Settlement Net Percentage Estate Costs Estate Lost $10,165,434 $7,374,635 $2,790,799 73% Source: ecalife.com/uploaded_images/files/estate_tax_of_famous_people.pdf
    6. 6. Estate Erosion Marilyn Monroe Gross Settlement Net Percentage Estate Costs Estate Lost $819,176 $448,750 $370,426 55% Source: ecalife.com/uploaded_images/files/estate_tax_of_famous_people.pdf
    7. 7. Revocable Living Trust <ul><li>Provides flexibility </li></ul><ul><li>May be self-administered </li></ul><ul><li>Avoids probate </li></ul><ul><li>Ensures privacy </li></ul><ul><li>Provides asset management during incapacity or after death </li></ul>Representative is not an attorney but can help review the documents and recommend a local attorney that specializes in Estate planning. Estate planning can involve a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional regarding your individual situation before implementing any strategy.
    8. 8. Credit Shelter Trust <ul><li>Also known as a family trust, A-B trust or bypass trust </li></ul><ul><li>Protects the applicable exclusion amount on the first spouse to die </li></ul><ul><li>Can provide income to the surviving spouse </li></ul><ul><li>Removes assets from the surviving spouse’s estate </li></ul>Representative is not an attorney but can help review the documents and recommend a local attorney that specializes in Estate planning. Estate planning can involve a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional regarding your individual situation before implementing any strategy.
    9. 9. Credit Shelter Trust Advantages Achieves tax goal while giving surviving spouse maximum access to and control over trust assets With this type of trust, if the children of the marriage are minors or have special needs, or if the surviving spouse were to otherwise need the money, he or she would be able to access the property that passes to the trust under the deceased spouse’s exemption (although access would be limited, see Disadvantages). Preserves assets for descendants Because assets that fund the credit shelter trust bypass the surviving spouse's estate, they are preserved for the ultimate intended beneficiaries. This can be especially attractive when there are children from a previous marriage. Protects assets from future creditor claims Because a bypass trust is irrevocable, future creditors of the beneficiaries (the surviving spouse or the children) will be unable to reach the assets while they are in the trust. So, this strategy also works well if the children are adults and the parents don’t want them to own property outright for some reason. If this is the case, a spendthrift provision should be included in the trust agreement. Disadvantages Surviving spouse's access to the credit shelter trust must be restricted The deceased spouse can give the surviving spouse access to all, a portion, or none of the income from the credit shelter trust. If access to principal is allowed, it must be limited to health, education, maintenance, or support only. Health, education, maintenance, and support, or “HEMS”, are four magic words used by the IRS, and there’s some guidance about what they mean, but the surviving spouse will have to be careful when withdrawing principal to make sure the money's use will fall within these parameters. Adds complexity to the surviving spouse's life If the surviving spouse is trustee, he or she will have to maintain separate records for the trust, and ensure that he or she does not overstep the trustee's powers.
    10. 10. How an Irrevocable Life Insurance Trust Works You as Grantor Irrevocable Life Insurance Trust __________________ Insurance Policy Annual Exclusion Gifts Take note, however, that if the insured/transferor dies within three years of the date from which the policy was transferred, the life insurance proceeds will be included in his estate for tax purposes. This does not mean that the beneficiary will not receive the money, it merely means that your estate will have to report the proceeds as being part of your estate when computing the estate tax. For this reason, where the insured has a spouse, the ILIT should usually contain a fail-safe clause, providing that if the insured/transferor dies within three years of the transfer of any policy to the ILIT, then the proceeds of such policies will be held separately under the ILIT and administered for the surviving spouse in a way that will qualify for the estate tax marital deduction. This arrangement will render those proceeds tax free if the insured dies within three years and is survived by is spouse. The trade-off is that whatever is left of these proceeds will then be included in the estate of the surviving spouse. If the insured dies after a crucial three-year period, the fail-safe clause would not apply and the entire trust could provide for the family.
    11. 11. PLEASE, GRANDPA, MAKE A SOUND LIKE A FROG?
    12. 12. YOUR FAMILY COULD REMAIN WITH ONLY THIS! ESTATE TAXES Taxpayer Relief Act of 1997 on the Unified Credit Exemption equivalent.
    13. 13. YOUR FAMILY WILL REMAIN WITH ONLY THIS! IF YOU HAVE A SUBSTANTIAL IRA ALONG WITH A LARGE ESTATE OUR GOVERNMENT CAN TAKE A LARGE PORTION OF YOUR IRA Taxpayer Relief Act of 1997 on the Unified Credit Exemption equivalent.
    14. 14. IF YOU HAVE A LARGE ESTATE YOU CERTAINLY SHOULD COME IN TO HAVE A PRIVATE CONSULTATION TO MAKE SURE YOUR ESTATE IS SET UP PROPERLY

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