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Everything the Financial Advisor Needs To Know About Estate Planning


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A presentation guiding financial advisors on estate planning

Published in: Economy & Finance, Business
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Everything the Financial Advisor Needs To Know About Estate Planning

  1. 1. Everything the Financial Advisor Needs to Know About Estate Planning (in 45 minutes or less) The Wilsey Law Firm Presents:
  2. 2. What You’ll Learn <ul><li>Why Should You Care? </li></ul><ul><li>Estate Planning Basics </li></ul><ul><li>Where the Estate Tax is Headed </li></ul><ul><li>How to Pass Wealth from One Generation to the Next </li></ul><ul><li>How to Protect Assets from Creditors and Predators </li></ul><ul><li>How to Plan for Qualified Retirement Plans </li></ul>
  3. 3. Why Should You Care??? because your client does!!!
  4. 4. Wealth Manager v. Investment Generalist <ul><li>Russ Alan Prince, “Cultivating the Middle Class Millionaire” </li></ul><ul><ul><li>Clients with Net Worth of $3 to $10 million </li></ul></ul><ul><ul><ul><li>83.8% want to work with “Wealth Manager”, as opposed to “Financial Advisor” or “Investment Advisor” </li></ul></ul></ul><ul><li>True “Wealth Managers” have double the average gross production as “financial advisors” or “investment advisors” according to Prince </li></ul>
  5. 5. Wealth Manager??? <ul><li>Holistic approach used to enhance client’s entire financial and family situation </li></ul><ul><ul><li>Investments </li></ul></ul><ul><ul><li>Estate Planning </li></ul></ul><ul><ul><li>Insurance </li></ul></ul><ul><ul><li>Credit </li></ul></ul><ul><li>77.9% of Advisors describe themselves as Wealth Managers </li></ul><ul><ul><li>8.4% of advisors actually are according to Mr. Prince’s definition </li></ul></ul><ul><ul><ul><li>These advisors fail to manage a client’s overall wealth situation </li></ul></ul></ul><ul><ul><ul><ul><li>They lose business as a result </li></ul></ul></ul></ul>
  6. 6. Where does estate planning fit in??? <ul><li>Client’s with $3 to $10 million </li></ul><ul><ul><li>93.6% want to make sure their heirs are adequately taken care of. </li></ul></ul><ul><ul><ul><li>53% worry about having enough money for retirement </li></ul></ul></ul><ul><ul><li>Far and away the largest concern is estate planning </li></ul></ul><ul><li>If you can address this concern, then you can address their financial concerns (and your business concerns) </li></ul>
  7. 7. Estate Planning Basics
  8. 8. Estate Tax <ul><li>Not Going Away </li></ul><ul><li>You Clients should plan now, not wait to see “where it settles” </li></ul><ul><ul><li>Its never going to settle </li></ul></ul><ul><ul><li>Their assets will only appreciate </li></ul></ul><ul><ul><ul><li>Lack of action will make the problem worse </li></ul></ul></ul>
  9. 9. Estate Tax Exemption <ul><li>Maximum Amount passing free of estate taxes (double for spouses) </li></ul><ul><ul><li>2007 $2,000,000 </li></ul></ul><ul><ul><li>2008 $2,000,000 </li></ul></ul><ul><ul><li>2009 $3,500,000 </li></ul></ul><ul><ul><li>2010 no estate tax </li></ul></ul><ul><ul><li>2011 $1,000,000 </li></ul></ul>
  10. 10. Gifting Rules <ul><li>$12,000 per person per year to as many people as desired </li></ul><ul><li>$1,000,000 gifting during the life </li></ul><ul><ul><li>above $12,000 annual limit </li></ul></ul><ul><ul><li>cumulative, not gifts per person </li></ul></ul><ul><li>Money left to charity passes free of estate tax </li></ul>
  11. 11. The Revocable Living Trust More Than a Piece of Paper!!!
  12. 12. Trust Reviews <ul><li>Hidden Gem for Advisors </li></ul><ul><li>Allow you to bond with client </li></ul><ul><li>Allow you greater access into assets </li></ul><ul><li>Be careful of liability </li></ul>
  13. 13. The 10 Revocable Living Trust Keys™ <ul><li>Avoid 100% of Death Probate Fees </li></ul><ul><li>Avoid 100% of Lifetime Probate Fees </li></ul><ul><li>Health Care Decisions in the Event of Incapacity </li></ul><ul><li>Protect Minor Children </li></ul><ul><li>Minimize Estate Taxes </li></ul><ul><li>Provide Asset Protection for Surviving Spouse </li></ul><ul><li>Protect against Surviving Spouse Remarriage </li></ul><ul><li>Protect Children from Losing Inheritance </li></ul><ul><li>Prevent 2 nd Estate Tax </li></ul><ul><li>Comprehensive Estate Plan </li></ul>
  14. 14. RLT Survivor BYPASS QTIP RESIDUE RLT Survivor Child Exempt Child Non-Exempt Dynasty Trust
  15. 15. LLCs In Estate Planning New and Improved Family Limited Partnership
  16. 16. 3 Benefits of LLCs <ul><li>Creditor Protection </li></ul><ul><li>Discount at Death </li></ul><ul><li>Discount in Lifetime Gifting </li></ul><ul><ul><li>This is the only issue with the IRS </li></ul></ul>
  17. 17. RLT Survivor BYPASS QTIP RESIDUE RLT Survivor Child Exempt Child Non-Exempt Dynasty Trust
  18. 18. THE SPOUSAL GIFTING TRUST Understanding the Ultimate Trust
  19. 19. Spousal Gifting Trust <ul><li>Removes Assets From Estate </li></ul><ul><li>Protects Assets from Creditors </li></ul><ul><li>Allows for Greater Gifting to Kids in Future </li></ul><ul><li>Allows you to Retain Control of Assets </li></ul><ul><li>Flexible Investment Options </li></ul>
  20. 20. What it is <ul><li>Husband Creates Trust for Wife </li></ul><ul><li>Wife Creates Trust for Husband </li></ul><ul><li>Each spouse is trustee of the other’s Trust </li></ul><ul><ul><li>Each spouse can use their trust for Health, Education, Maintenance and Support </li></ul></ul><ul><li>Each spouse is main beneficiary of the other’s Trust </li></ul><ul><ul><li>Passes to kids, grandkids, upon death </li></ul></ul><ul><ul><li>Not to other spouse </li></ul></ul>
  21. 21. How Money Gets in SGT <ul><li>Crummey Gifts </li></ul><ul><ul><li>Spouse </li></ul></ul><ul><ul><li>Kids </li></ul></ul><ul><ul><li>Grandkids </li></ul></ul><ul><li>Use $1,000,000 exemption </li></ul><ul><li>Have Trust Purchase Property </li></ul>
  22. 22. Results (10% growth) $6,948,227.60 $17,370,569.00 $96,000.00 5 30 $2,419,296.00 $6,048,240.00 $96,000.00 5 20 $673,196.80 $1,682,992.00 $96,000.00 5 10 $257,879.50 $644,699.00 $96,000.00 5 5 $42,240.00 $105,600.00 $96,000.00 5 1 Estate Tax Savings Amount in SGTs Annual Gifts made to SGTs Number of Family Members Year of SGT
  23. 23. Supercharge the SGT <ul><li>Combine with discounts in LLC to produce amazing results </li></ul><ul><li>Example </li></ul><ul><ul><li>5 family members (spouses, three kids) </li></ul></ul><ul><ul><li>$12k per year each family member </li></ul></ul><ul><ul><li>10% growth </li></ul></ul><ul><ul><li>33% discount </li></ul></ul><ul><ul><ul><li>$18k per person instead of $12k </li></ul></ul></ul><ul><ul><ul><li>$1,500,000 exemption instead of $1,000,000 </li></ul></ul></ul>
  24. 24. Results of Supercharged SGT $10,422,341 $26,055,853 $144,000 33% $96,000 5 30 $3,628,944 $9,072,360 $144,000 33% $96,000 5 20 $1,009,795.20 $2,524,488 $144,000 33% $96,000 5 10 $386,819 $967,048 $144,000 33% $96,000 5 5 $63,360 $158,400 $144,000 33% $96,000 5 1 Estate Tax Savings Total FMV of SGT Actual FMV of Gifts Discount Discounted Value of SGT Gifts # of Family Members Year Of SGT
  25. 25. RLT Survivor BYPASS QTIP RESIDUE RLT Survivor Child Exempt Child Non-Exempt Dynasty Trust Husband Wife
  26. 26. IRA Accounts <ul><li>Good Beneficiaries </li></ul><ul><ul><li>Spouse Outright </li></ul></ul><ul><ul><li>Charity </li></ul></ul><ul><ul><li>Young Individual </li></ul></ul><ul><ul><ul><li>Stretch IRA Trust </li></ul></ul></ul><ul><li>Bad Beneficiaries </li></ul><ul><ul><li>Estate of Client </li></ul></ul><ul><ul><li>Older Individual </li></ul></ul><ul><ul><li>Trust for Spouse </li></ul></ul><ul><ul><ul><li>exceptions </li></ul></ul></ul>
  27. 27. Stretch IRA <ul><li>Beneficiary of an IRA taking out only the required minimum distribution </li></ul><ul><ul><li>according to age </li></ul></ul><ul><li>Growth exceeds distributions </li></ul><ul><li>Growth is tax free </li></ul>
  28. 28. Option #1 No Stretch <ul><li>Bob </li></ul><ul><ul><li>$2m real estate </li></ul></ul><ul><ul><li>$500k business </li></ul></ul><ul><ul><li>$500k IRA </li></ul></ul><ul><li>Dies in 2013 </li></ul><ul><ul><li>IRA worth $765,298.16 </li></ul></ul>
  29. 29. Result <ul><li>Estate Tax-55%-$420,913.00 </li></ul><ul><li>Income Tax-35%-$147,319 </li></ul><ul><li>State Income Tax-9.3%-$39,145 </li></ul><ul><li>Taxes-$607,378-79% of IRA </li></ul><ul><li>Probably closer to 70% in reality </li></ul><ul><li>$ 157,919 to beneficiaries </li></ul><ul><ul><li>Of $765,298.16 IRA </li></ul></ul>
  30. 30. Option #2 Stretch IRA Trust <ul><li>Bob </li></ul><ul><ul><li>$2m real estate </li></ul></ul><ul><ul><li>$500k business </li></ul></ul><ul><ul><li>$500k IRA </li></ul></ul><ul><li>Dies in 2013 </li></ul><ul><ul><li>IRA worth $765,298.16 </li></ul></ul><ul><li>IRA is properly stretched at death </li></ul>
  31. 31. Stretch Results <ul><li>Jack (Bob’s son) inherits IRA at age 50 </li></ul><ul><li>Jack dies at age 80 </li></ul><ul><li>$7,299,862.71 in distributions </li></ul><ul><li>Still $3,146,894.13 in IRA </li></ul><ul><li>$10,895,441.81 in family wealth created </li></ul>
  32. 32. Further Avoiding the Estate Tax <ul><li>Use client’s $1,000,000 exemption as effectively as possible </li></ul><ul><li>GRAT </li></ul><ul><ul><li>Takes all appreciation out of client’s estate </li></ul></ul><ul><li>Alphabet Soup </li></ul><ul><ul><li>QPRT </li></ul></ul><ul><ul><li>IDGT </li></ul></ul><ul><ul><li>CRUT </li></ul></ul>
  33. 33. Avoid the Estate Tax Entirely <ul><li>Use a Testamentary Charitable Lead Annuity Trust (TCLAT) </li></ul><ul><ul><li>At Death </li></ul></ul><ul><ul><ul><li>Any amounts subject to estate tax go to TCLAT </li></ul></ul></ul><ul><ul><ul><ul><li>Estate Tax Free </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Zero Out the Remainder using 7520 rate </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Whatever’s left goes to kids tax free </li></ul></ul></ul></ul>
  34. 34. THE END QUESTIONS???