© 2013 WealthCounsel, LLC Surviving and Thriving in 2013 and Beyond 1 A WealthCounsel Presentation.

©2013 WealthCounsel, LLC

Surviving and Thriving in 2013 and Beyond

1A WealthCounsel Presentation


Introducing Your Presenters . . .


C. Dennis Brislawn, Jr.William A. Conway


What Changed in 2013

• Federal Estate Tax Exemption – $5,250,000 – Inflation-adjusted

• Generation Skipping Tax Exemption – $5,250,000– Inflation-adjusted

• Annual Exemption – $14,000

• Obama Admin Proposal to Reduce Estate, GST, and Gift Tax Exemptions to $3,500,000

3


What Changed in 2013

• State Estate Tax– Decoupling– Additional Tax Structures

• Income Taxes– Dividends– Step-up in Basis

• ObamaCare• Medicaid• Health Care Decision-Making

4

2013 Income Tax Rates

• 10%, 15%, 25%, 28% rates from Bush Administration tax cuts made permanent

• 33% and 35% rates made permanent up to certain threshold levels -Single taxpayers $400,000 Married filing jointly $450,000

Head of households $425,000Married filing separately $225,000

• Amounts of income above these threshold levels are taxed at 39.6%

Threshold amounts adjusted for inflation

5

2013 Capital Gains & Dividends• Maximum rate stays at 15% for taxpayers with

incomes at or below threshold amounts• Tax rate increases to 20% for taxpayers above

threshold amounts on previous slide• 3.8% Medicare Surtax applies on AGI over $250,000

joint; $200,000 single • This results in a 23.8% tax rate on capital gains and

dividends to higher income taxpayers

6

2013 Itemized Deduction Limitation• Limitations on itemized deductions applies as AGI rises above

the following threshold amounts: Single taxpayers $250,000 Married filing jointly $300,000

Head of households $275,000Married filing separately $150,000

• Itemized deductions are phased out at a rate of 3% over the threshold levels, up to a maximum of 80%

• Deductions not included – investment interest, medical expenses and casualty and gambling loses

7

2013 Personal Exemption Phaseout

• The exemption phaseout starts once adjusted gross income (AGI) exceeds your threshold:

- $250,000 (single)- $300,000 (married/joint)- $275,000 (head of household)- $150,000 (married filing separately)• For each $2,500 of AGI over threshold, personal

exemption deductions ($3,900) are reduced by 2%

8


2013 Personal Exemptions Phaseout Range

Filing Status Phaseout Begins Phaseout Ends

Married Filing Jointly 300,000 422,500

Single 250,000 372,500

Head of Household 275,000 397,500

9

0.9% Medicare Payroll Surtax in 2013

• The Medicare payroll surtax on employees is increased by 0.9% on earned incomes over $200,000 for single filers and $250,000 for joint filers

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3.8% Medicare Surtax on Investment Income in 2013

• New Medicare surtax of 3.8% on investment income is added for AGIs in excess of $200,000 for single filers and $250,000 for joint filers

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2013 Tax Rates

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What to Do Now – The < $5.25M Client• Estate tax issue is off the table for this strata of client. The

estate-planning drivers will be:

• Income tax minimization planning• Detail-oriented trust and estate administration

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Desired distributions Asset protection

Probate avoidance Appreciation removal

Naming decision makers Generation skipping

Tax avoidance Retention of financial benefit

Exemption leveraging Retention of control

What to Do Now – The < $5.25M Client

• Income tax minimization strategies– Charitable trust planning to create a partially

taxable income stream for the philanthropic– Partially taxed single premium annuities (SPIA) are

attractive in this environment– The Alaska Community Property Trust provides a

double stepped-up basis and is programmed into WealthDocx

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• Family Income Shifting Through Family Entities• Installment Sales of Real Estate and Business

Assets or Entities • Tax-Free Cash Value of Life Insurance Held

Within an Accessible Grantor Retirement Trust

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• Remove or Reduce IRA and 401K Assets from Owner and Beneficiary Income Taxes (IRA Annuitization and Life Insurance Within an ILIT)

• Retirement Trust for Maximum IRA Stretch • Potential IRA/401K Roth Conversions

17


Increase the depth of our client service:•Elder law issues, avoiding estate depletion to fund nursing home costs and long-term care insurance•“Legacy Planning” - an expanded conversation with clients about how they can pass their non-financial wealth and preserve family harmony (using heirloom property, for example)

18

“Endangered Strategies”- Obama Budget

• Obama Proposals make these “endangered strategies”: – Grantor trusts still avoid estate tax, including (IDGTs)

and (ILITs)– Discounts are still allowed on non-business interests

or for transfers to minority interests– The 10 year minimum term for Grantor Retained

Annuity Trusts (GRATs) was not enacted – 2 year rolling GRATs remain available

– No 90-year limit on the GST tax exemption was adopted. Dynasty Trusts are still possible

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What to Do Now – The > $5.25M Client

• Money can be loaned or property sold for an installment note with 3 - 9 year rates as low as .87% in January 2013 (1% Section 7520 rate)

• Ideal time for intra-family loans and sales

20

Business Tax Extensions-Opportunities

• Reduction in S Corporation recognition period - 5-year (formerly 10 years) holding period for built-in gains tax for sales occurring in 2012 and 2013. Carry forwards and installment sale rules are also clarified.

• 100% exclusion for capital gain from sale of qualified small business stock extended for stock acquired before January 1, 2014 if the stock is owned longer than five years. – The AMT preference rules do not apply.

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Addressing Change

Flexibility & Certainty

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Addressing Change

• Flexibility- Trust Protectors/Advisors- Marital Deduction Formulas- Disclaimers- Revocable Irrevocable Trust- Self-Settled Trusts – 14 states

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Addressing Change

• Certainty

- Freeze Transactions

- After-Care Planning

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What’s NOT Changing

• The Fundamentals– Avoiding Living & Death Probate– Protection of Surviving Spouse– Philanthropic Objectives– Planning for Heirs

• Youth• Responsibility & Skill• Divorce Protection• Preventing “Affluenza”

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• Business Planning-BusinessCounsel BizDoxs – Entrance– Growth– Maintenance– Mergers/Acquisitions – Exit

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• Retirement Planning– Roth IRA Conversions– IRA Planning Via “StandAlone” Retirement Trusts– Stretch– Annuitization & Replacement– Reengineering Closely-Held Businesses

27



Income Tax Planning

•Mobility to avoid state income taxes- Seven states impose no income tax, EG. Texas,Fla,Wy- Two states tax only dividend and interest income

•Income Shifting – within Family

•Opportunity Shifting- newly Established Businesses

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• Elder Law Planning

• Special Needs Planning

• Asset Protection Planning

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• Need for Life Insurance – Debt Liquidity– Income Replacement– Estate Equalization– Pay State Death Taxes – 21 States, EG. Md,DC,Pa,NY,etc– Wealth Replacement for Charitable Giving– Buy-Sell– Capital Gains Tax Liquidity (post-mortem)– Supplemental “Tax Free “Retirement Planning

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A Few Questions

1. How have you responded to change?

2. What has worked?

3. What has not worked?

4. What do you need to succeed?

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What’s Changing in Financial Services

• Products/Services

• Advisory vs. Commission

• Equity Indexed Products

• Private Annuities

• Captive Insurance Companies

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What’s NOT Changing in Financial Services

• Need for Estate Planning

• Need for Client Centric Planning

• Financial Compliment to Legal Solutions

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Reframe Your Referral Network


©2013 WealthCounsel, LLC 35

Developing a Teamwork Approach that Produces Consistent Results




Inclusion of the Entire Team

ClientAttorney

CPA

InvestmentAdvisor

InsuranceAgent


Reframe Your Approach to Client Prospects




The Client Meeting

• Tax Concerns– Income Tax Concerns– Estate Taxes, now or future

• Family Concerns– Asset Protection for/from Children– Asset Protection for Self– Second Marriage Protection for Spouse– Marriage/Divorce Protection for Children

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The Client Meeting

• Disability Concerns– Guardianship

• Creditor Concerns– Frivolous Lawsuits

• Long Term Care– Resources Available– Nursing Home Draining Resources

• Post-Death Concerns– Probate– Fighting

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The Client Meeting

• Business Concerns– Losing Business to Lawsuits– Loss of Asset Protection – Entity Piercing– Lack of Exit Plan – Out-of-Date Buy-Sell Agreements– Lack of Maintenance Plan

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Expanding Your Solution Set


• Thriving Strategies : Post AFTA-Math


Issue Driven Solutions New Rules 1. Reduce and/ or eliminate current and future

income taxes

2. Asset Protection

3. Provide means for future estate and generation-skipping tax inoculation

Old ingredients, new recipes

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New Thriving Solutions For the New Rules

Recipes for New Income Tax Solutions Using

Old and New Ingredients

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Some Legal Recipe Ingredients• Revocable “Living” Trusts• Irrevocable Trusts

– Irrevocable Life Insurance Trusts (ILITs}– Stand Alone “Dry” IRTs, - EG. for IRAs – Intentional Grantor Trust for Asset Protection– Inter- Vivos QTIPs

• Family LPs & LLCs• Retirement Plans (IRAs, 401(k)s)

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Some Financial Recipe Ingredients• Life Insurance

– Insured• Single Life• Survivorship

– Design Options • Low premium , high death benefit• High premium , low death benefit• Single premium , Modified Endowment (MEC)

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Some Financial Ingredients

• Life Insurance– Types

• Cash Value Policies– UL, guaranteed or non– Variable UL – non-guaranteed only– Equity indexed, guaranteed or non– Whole Life –guaranteed

• Term Policies

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Some Financial Ingredients

• Annuities – Right Tool for the Right Job – Deferred= “Surprise” LIFO Income Tax

– Immediate Annuities• SPIAS (Single Premium Immediate Annuities)

– Flavors of Immediate Annuities• Life only• Longer of Term of Years or Life• Multiple Lives

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Annuitize the IRA

• Purchase an Immediate Annuity(within the IRA) Using Some IRA Assets

• Use Annuity Distribution from IRA to fund:– Payment of Income Tax Due– Life Insurance Premiums for Tax Free Inheritance– Increase Standard of Living

• Life Insurance Trust (ILIT)Owns Life Insurance

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Annuitize the IRA

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IncomeIncome

IRA

Annuity

IRA

Annuity

ILITILIT

OwnerOwnerHeirsHeirs OwnerOwner


Annuitize the IRA

• Advantages– Pension like performance – Guaranteed lifetime income (not tied to market

performance)– Eliminates income tax to heirs on inherited assets– Eliminates all estate tax/GST if coupled with ILIT – Guaranteed death benefit to age 100 and beyond

• Disadvantage– Depends on health- for insurability– Some of IRA is now committed to income generation

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Annuitize the IRAA. Existing Plan at Death

$1,000,000 IRA - 300,000 Income Tax$ 700,000

To Beneficiaries

B. Existing Plan at Death

$1,000,000 IRA - 400,000 Estate Tax - 300,000 Income Tax$ 300,000 To Beneficiaries

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Annuitized IRA Plan

$1,000,000 Insurance within ILIT

$1,000,000 Beneficiaries Estate, Income GST Tax Free


$1,000,000 Beneficiaries Estate, Income GST Tax Free


Annuitize the IRA

– Example:IRA owner: age 70, healthy male (non-smoker}IRA value: $1,000,000Tax Rate: 30%

– Result:Annual Annuity Payment $75,350Less Income Tax at 30% ($22,600)Less Annual Ins. Premium ($25,000)Net Net Annual Income $27,750

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Annuitize CASH/BONDS

• Variation- May Use CD’s or BONDS (guaranteed assets) to Purchase an Immediate Annuity

• Creates a self funded tax favored “pension”

• Use the Annuity Payments to fund:– Income Tax Due – much reduced because of exclusion– Insurance Premiums for Enhanced Wealth Transfers– Increase Standard of Living

• Life Insurance Trust Owns Life Insurance

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Annuitize CASH

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CASHCASH

AnnuityAnnuity

ILITILIT

OwnerOwnerHeirsHeirs OwnerOwner

IncomeIncome


Annuitize CASH

– Example: Life OnlyCASH owner: age 80, healthy male –non smoker Account value: $1,000,000Tax Rate: 30%

– Result:Annual Annuity Payment $113,300

Taxable Portion is ONLY $15,732 really!Less Income Tax at 30% ($ 4,720)Less Annual Ins. Premium ($ 55,000)Net Net Annual Income $ 53,580

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Annuitize CASH

• Advantages– Dramatically increases after tax cash flow (not income),

guaranteed for life (not tied to market performance – in ‘pension like fashion ‘)

– No income/estate tax to heirs on ILIT owned insurance – Ties guaranteed insurance policy to guaranteed cash

flow

• Disadvantages– Largely depends on insurability

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Annuitize Your CASH

A. Existing Plan at Death

$1,000,000 CASH - 160,000 State Estate Tax

$ 840,000 To Beneficiaries

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Annuitized CASH Plan


$1,000,000 BeneficiariesEstate, Income,GST

Tax Free


IRA Retirement Trust

• Guarantees Income Tax Deferral “Stretch” Plan

• Asset/Divorce Protection for Beneficiaries

• Opportunity for Significant Income Deferral While Providing Trust Benefits

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Stand-Alone Retirement IRA Trust

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Stand-Alone Retirement/Education

Trust

• Income Tax Free 529 Held by Trust During Life

• All Assets are Asset Protected

• Enhanced by IRA Proceeds at Death

• All Assets Are Income Tax Free or Deferred

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Life Insurance Retirement Trust • ILIT with Carefully Drafted Loan Provisions to Provide

Supplemental Retirement Benefits to Grantor and Spouse

• Trust Owned Low Death Benefit, High Cash Value Policy

• Spouse or Grantor May Borrow Cash Value -Tax Free

• Maintain Estate Tax Exclusion for Death Benefits

“Have It Both Ways”

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Survivorship Life Policy as Legacy Gift• Survivorship (second to die) Policy as alternative

investment within ILIT

• Policy design is opposite of Retirement ILIT –for maximum insurance leverage

• Thus low cash value, high death benefit policy

• Estate Tax, Income Tax and GST Legacy Gift

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Self-Settled Asset Protection Trusts

• Hot Trend in Law

• 14 States and counting

• Gift tax defective? – Could be, especially where no estate concerns

• Logic behind law

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Intergenerational Income Shifting• Children (over 22) are in lower income tax brackets

• Parents have high income tax

• Create FLP/LLC (with low/no discounts) family entity

• Hire Family Managers- W-2 or 1099 income on/off switch

• Gifts of Interests to Children –”Opportunity Shifting”

• Frees up annual exclusion gifts for other purposes

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New Rules Reducing/Eliminating Discounts

• Discounts from entity no longer needed

• New battleground is income not estate tax

• Continued asset protection desired

• Amend all previous “discount clauses” in FLP/LLC agreements to provide “put right”, or withdrawal right etc.

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New Rules –Income Tax Avoidance Community Property Trusts

“Normal "Tax Result, sale if both spouses are alive:

FMV $ 3,500,000Basis (100,000)Capital Gain $3,400,000

Capital Gains Tax 23.8%State Tax 6%Total Cap Gain Tax $1,020,000

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Strategy : Community Property Trusts

Non-Community Property StateSale After 1st Spousal Death

Deceased Spouse’s FMV $1,750,000

Adjusted Basis $1,750,000 Capital Gain -0-

Non Community Property State

Surviving Spouse FMV $1,750,000

Adjusted Basis - 50,000

Capital Gain $1,700,000 Combined Tax Rate 30% Total Tax $ 510,000

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Community Property State Sale After 1st Spousal Death

$3,500,000

$3,500,000

-0-

Community Property State

$3,500,000

$3,500,000

-0-

-0-

-0-


• How does the Holder of the Power of Attorney and/or Successor Trustee gain control over:

• Passwords for Financial Accounts ?• Facebook/Social Media /Photo Accounts ? • Restate all Trusts / Create New POAs

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Restatements for Digital Assets

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Review of Thriving Strategies

• IRA Annuitization• Stand-Alone Retirement Trusts• Retirement Life Insurance Access ILITs• “Guaranteed” Survivorship Life Policy within

an ILIT as a Legacy Gift• Self-Settled Asset Protection Trusts

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Review of Thriving Strategies• Domestic Self-Settled Asset Protection Trust• Income Shifting with Family Entities• Reducing or Eliminating Discounts• Community Property Trusts –Alaska Sited • Amendment/Restatements to All POAs/ Estate

Plans For Access to Digital Assets-

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Additional Thriving Strategies

• Senior Asset Protection Trust

• Maintenance Programs

• Life Insurance Audits- Especially ILIT owned

• Social Security Analysis and Payout Strategies

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Thank You

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© 2013 WealthCounsel, LLC Surviving and Thriving in 2013 and Beyond 1 A WealthCounsel Presentation.

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