3. ESTATE PLAN
COMPONENTS
Other
Business Assets
Interests
Bank
Accounts Home
Real
Estate
Profit
Sharing Life
Plan Insurance
Pension IRAs
Stocks Plan
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4. WHY PLAN?
After Death
• Control Who Receives Assets
• Pay Minimum Legal Fees, Taxes
During Life
• Control Assets, Medical Decisions in
Event of Incapacity.
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9. Advanced Health Care Directive
It’s estimated that four out of five Americans do not have a living
will or any other written health care or end-of-life directive to help
their families make decisions for them if they become
incapacitated. Health care and end-of-life advance planning, if
done right, accomplishes four things:
Ensures that the person you want to speak for you has the legal
authority to do so
Helps ensure that your wishes about your health care are known
and respected
Avoids unnecessary, intrusive, and costly medical treatment at the
point you not longer want it
Reduces the suffering experienced by your loved ones, because
they will have your guidance
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14. PLAN #6 REVOCABLE LIVING
TRUST
Avoids Probate at Death
Prevents Court Control of Assets at Incapacity
Provides Maximum Privacy
Quick Distribution of Assets to Beneficiaries
Assets Can Stay in Trust
Prevents Unintentional Disinheriting
Reduces or Eliminates Estate Taxes
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16. YOU KEEP CONTROL
Buy/Sell Assets as Before
Change/Cancel Any Time
Trust Contains Your Instructions
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17. SIX STEP
PLAN OF
ACTION
1. Inventory Assets/Debts
2. Write Down Your Objectives.
Before and After You Die.
3. Select a Professional to Help
4. Have Legal Documents Prepared
5. Put Plan into Action
6. Review and Change As Needed
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18. 2013 Tax Rates are Going Up!
60
55%
50
39% 39%
40
35% 35%
30
2012
20% 2013
20
15% 15%
10
3.8%
0%
0
Income Dividend Rate Capital Gains Healthcare Estate & Gift
Rate Surtax Tax Rate
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19. 2013 Exemptions are going down
Gift Tax: $5,120,000 - $1,000,000
Estate Tax: $5,120,000 - $1,000,000
Generation Skipping Transfer Tax (GST):
$5,120,000 - $1,000,000
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20. Potential Tax Ranges for Higher-Income
Individuals
Current No Agreement Obama Romney
Income 35% 39.6% 39.6% 28%
Capital Gains 15% 20% 20% 15%
Dividends 15% 39.6% 39.6% 15%
Estate & Gift
Exemption $5.12 mil $1 mil $3.5 mil $0
Rate 35% 55% 45% 0%
Health Care Surtax on 0 3.8% 3.8% 0%
Investments
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21. “The Cinderella Gift”
2012 Gift to Children
$10 million gift $0 tax
Resulting in $10M net of Taxes
Exclusion $5,120,000 each for Mom & Dad
Disappears at Midnight December 31, 2012
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22. Your Opportunity to make “The Cinderella Gift” disappears on
1/1/2013
2013 Gift to Children
$10 Million Gift $3.6M paid in taxes
Resulting in $6.4M net of Taxes
Exclusion $1,000,000 each for Mom & Dad
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23. The Window for
Planning is Closing
Utilize the following Wealth Transfer
Concepts:
• Freeze
• Squeeze
• Burn
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24. “Freeze”
$25,000,000.00
$20,000,000.00
$15,000,000.00
$10,000,000.00
$5,000,000.00
$-
2012 2022
• Freeze Value of estate at Current
Lower level
• Values are at historic lows
• Shift Appreciation to children and
avoid tax on appreciation
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25. Squeeze
Application of FLP Discounts, Minority
Interest, Lack of Marketability,
Assets Transferred Worth $10M
Apply Discount to Value of 35%
Taxable Value of Gift is only $6.5M
$3.5M Disappears from the Tax System
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29. Wealth Transfer Techniques
Gifts
Outright
Discounted Gifts Using Entities
Family Limited Partnership
Family Limited Liability Company
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30. Wealth Transfer Techniques
• Gifts In Trust
• Dynasty Trust
• Irrevocable Life Insurance Trust
• Qualified Personal Residence Trust
• Grantor Retained Annuity Trust
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31. Gifting
Illustration
2012
Fair Market Value of LLC Interests 2012
owned by Client: Value of 100% interest discounted
due to lack of control & lack of Value after discounting:
$5,882,000 marketability
$4,000,000
“SQUEEZE
”
49% of 1900 Main 49% of 100 Smith
Street, LLC Street LLC 49% of Main Street, LLC and
49% of 100 Smith Street, LLC to
Grandchildrens Trusts
Smith Family Investments, LLC
Value John Trust:
of 10% after discounting: Jim Trust: Jacob Trust: Jenny Trust:
9.8% Main Street; 9.8% of 9.8% Main Street; 9.8% of Jessie Trust:
9.8% Main Street; 9.8% of
$700,000
Smith Street Smith Street
9.8% Main Street; 9.8% of
Smith Street 9.8% Main Street; 9.8% of
Smith Street Smith Street
• Appreciation accrues in Grandchildrens Trust.
• 49% of income transferred to trusts;
• Each trust can pay its own taxes on income, or Grandparent’s estate can pay taxes on behalf of trust,
resulting in an even greater estate tax benefit. See slide to follow.
• Client remains majority owner of each entity with control.
32. Management of Family LLC
• Manager: Dad
• Responsible for all decisions regarding LLC
• Manager can only be removed by majority vote
Grandchild
Trust
Dad
49%
51% 51% of income from Colorado and California
properties distributed to Dad
49% of income Colorado and
California properties distributed to
Grandchildren’s Trust
Grandchild’s
Dad’s Estate
Trust
Dad provides instructions to Trust on how and when distributions are
made
To Trustee
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34. Retirement and Legacy Arrangement
• Create an Irrevocable Life Insurance Trust (ILIT) to purchase and own a
cash value life insurance policy on your life (e.g., a NYLIC Custom Whole
Life Insurance Policy)
• Lend cash to the ILIT in exchange for an interest bearing note.
• The trustee of the ILIT utilizes the cash to pay premiums on the life
insurance policy.
• During your retirement, Trustee supplements your retirement income by
making payments on the promissory note to you.
• At death, if structured properly, you leave an income and estate tax free and
asset protected legacy pursuant to the terms of the trust for the beneficiaries
of the ILIT in an amount equal to the life insurance policy’s death benefit
proceeds less any outstanding premium loans and accrued interest. 34
35. The Time to Act is Now
Don’t Wait Until December!
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36. Schedule your FREE initial consultation today!
Monica Goel, Partner
Tredway Lumsdaine & Doyle LLP
8141 E. 2nd Street, Suite 500
Downey, CA 90241
562-923-0971
Connect with us: Scan to visit our website:
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