InKnowVision May 2013 HNW Technical PPT

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This infrequently used technique can be very powerful when working with high net worth clients.

We will look at a few examples where InKnowVision has used this structure to create significant income and estate tax savings and paired this technique with wealth replacement trusts in order to deliver full value to the family.

In this presentation we will explore how to present the concept to clients and also take a look into the variables that go into the ultimate calculation.

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InKnowVision May 2013 HNW Technical PPT

  1. 1. Technical Webinar©2013. InKnowVision LLC. All rights reserved. www.inknowvision.com
  2. 2. I N K N O W V I S I O N , L L CS C O T T H A M I L T O N , J D , C E OW W W . I N K N O W V I S I O N . C O M6 3 0 - 5 9 6 - 5 0 9 0Charitable Life Estates© 2012 InKnowVision, LLC
  3. 3. Case Study© 2012 InKnowVision, LLC 77 and 74 year old House worth 4.5M Deduction-$4M+ Tax Savings-$1.8M
  4. 4. Why Do a Charitable Life Estate© 2012 InKnowVision, LLC Income tax deduction for client No change in lifestyle Satisfy charitable giving intent
  5. 5. When would you use it?© 2012 InKnowVision, LLC Owner does not care about keeping home in family Can benefit from current income tax deduction Has some charitable intent Can replace some or all of the gift with life insurance
  6. 6. When would you not use it?© 2012 InKnowVision, LLC Owner cares about keeping home in family Cannot benefit from current income tax deduction Has no charitable intent Cannot replace some or all of the gift with lifeinsurance
  7. 7. What Type of Property Qualifies?© 2012 InKnowVision, LLC Any property used by the taxpayer as a personalresidence even though it is not used as the principalresidence. Single family homes Condos Co-ops
  8. 8. What Type of Property Qualifies?© 2012 InKnowVision, LLC QPRT definition may apply to include mobile home Boat house trailer if contains sleeping space, toilet, and cooking facilities
  9. 9. Farms© 2012 InKnowVision, LLC Farm means any land used by the taxpayer or his tenant forthe production of crops, fruits, or other agriculturalproducts or for the sustenance of livestock. Includes improvements Not limited to houselike barns, house, etcand reasonable landlike a QPRT
  10. 10. Can cost of furnishings be deducted?© 2012 InKnowVision, LLC No
  11. 11. Is rental property OK?© 2012 InKnowVision, LLC Yes Ltr. Rul. 8711038
  12. 12. How do you do it?© 2012 InKnowVision, LLC Deed - Irrevocable transfer of property to charity Reservation of life estate
  13. 13. Agreement© 2012 InKnowVision, LLC Life Tenants Who are they? Are their more than one? Is there a line of succession? Term of Year Who are tenants? Successor tenants
  14. 14. Other Agreement Terms© 2012 InKnowVision, LLC Who maintains the premises Who insures the property against loss and liability Who repairs the premises in the event of damage Prohibition on additional liens or encumbrances
  15. 15. Agreement Terms© 2012 InKnowVision, LLC What if life tenant wants to sublet Vacate Sell with or without repurchase Access for periodic inspection
  16. 16. Additional Items© 2012 InKnowVision, LLC Obtain clear title Environmental concerns Property tax valuation and transfer tax expense
  17. 17. The Deduction© 2012 InKnowVision, LLC The donor is entitled to acharitable contributionincome tax deduction inan amount equal to thenet present value of thecharitable remainderinterest.
  18. 18. Deduction Calculation Elements© 2012 InKnowVision, LLC FMVof the property FMV of depreciable property Estimated useful life of the depreciable property Salvage value of the depreciable improvements Measuring term of the agreement and AFR
  19. 19. FMV of Property© 2012 InKnowVision, LLC If over $5,000, must have a qualified appraisal FMV reduced by any indebtedness
  20. 20. Depreciable Property© 2012 InKnowVision, LLC If any part of the real property is subject toexhaustion, wear and tear, or obsolescence, a specialfactor is used in valuing the remainder interest inthat part Depreciation computed using straight-line over theassets useful life
  21. 21. Estimated Useful Life© 2012 InKnowVision, LLC How long will the depreciable part of property beuseful for its intended purpose? OK to use depreciation schedule for similar property 27.5 years for residential property
  22. 22. Salvage Value© 2012 InKnowVision, LLC What will the depreciable property be worth at theend of the useful life?
  23. 23. What is the Term?© 2012 InKnowVision, LLC Term of years or measuring life? Terminal illness (7520)
  24. 24. Calculator© 2012 InKnowVision, LLC
  25. 25. I want to leave-what are my options?© 2012 InKnowVision, LLC Rent Sell Gift
  26. 26. Options© 2012 InKnowVision, LLC Rent the property Income comes to life tenant
  27. 27. Options© 2012 InKnowVision, LLC Sell the property Replace the property sold Buy new property subject to life estate No replacement Divide proceeds
  28. 28. Options© 2012 InKnowVision, LLC Accelerate the gift
  29. 29. What about capital improvements?© 2012 InKnowVision, LLC Treated as an additional contribution Additional tax deduction
  30. 30. Bargain Sale of Remainder Interest© 2012 InKnowVision, LLC Part gift/sale of remainder interest Charity pays cash Reduces tax deduction May cause gain to be recognized
  31. 31. Debt Encumbered Property© 2012 InKnowVision, LLC If the transferred property is subject to indebtedness,however, the transaction is subject to the bargainsale rules. When debt encumbered property is transferred tocharity by outright gift, the entire amount of theindebtedness is considered an amount realized bythe donor.
  32. 32. Application of $250,000 Capital Gain Exclusion© 2012 InKnowVision, LLC Yes
  33. 33. Gift Tax Return© 2012 InKnowVision, LLC Yes
  34. 34. InKnowVision – Next Steps© 2012 InKnowVision, LLC Set up a call to discuss our process 630-596-5090 Check out our website www.inknowvision.com Join our newsletter list Join our LinkedIn group Call us about a case

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