Certified General Accountant’s Certified General Accountant’s Association of Barbados Association of Barbados

Annual ConferenceAnnual Conference

Wealth CreationWealth Creation

James A. Lavorgna, J.D., LL.M, CFPDistinguished Fellow - Royal Society of Fellows

Business Services International, Inc.

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IntroductionIntroductionThe Royal Society of Fellows (RSOF) is the premier professional cross-disciplinary societystructured as a global think-tank, that educates, trains and certifies professionals in international tax, compliance, anti-money laundering and corporate and computer security.

A distinguished specialist faculty of academics and practitioners provide its membership opportunities for networking, practical instruction, education, training and intelligence on cross-border tax planning, financial and estate planning and compliance for individuals and companies.

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The RSOF:

 Provides professional and social networking events.

Establishes professional ethical and quality standards through academically accredited professional development programs

Provides a forum for recognition of an individual’s level of quality contribution to his profession and academia.

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What type of membership is available in the RSOF?

The RSOF recognizes the following levels of membership: RSOF Member; Associate Fellow; Fellow; and Distinguished Fellow.

What are the annual dues to become an RSOF member?

Currently the annual dues are $200.00.

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Annual ConferencesAnnual Conferences

The Society hosts conferences that provide education, resources and networking opportunities through both formal and social interaction. Many friendships and alliances occur at these conferences. The conferences have been held in the following destinations:

  First Annual Global Conference - Nassau Bahamas Second Annual Global Conference - Miami, Florida Third Annual Global Conference - Cayman Islands Fourth Annual Global Conference - Miami, Florida Geneva Summit (9th & 10th December 2004, Geneva)

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Proposed DestinationsProposed Destinations

Miami, FL November 2005Anguilla May 2006BVI November 2006Barbados May 2007 ?

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Law ReviewLaw Review

The Society hosts a law review, issued through Lexis-Nexis and Westlaw, as well as to the members electronically, twice a year. The law review is the only non-law school member of the National Conference of Law Reviews (NCLR), and presents high quality, footnoted academic and professional papers.

 

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Education And TrainingEducation And Training

The Society has partnered with accredited academic institutions to provide its members a Diploma program and Advanced Certification with high quality interactive education and training in the fields of

  International Taxation Anti-Money Laundering & Compliance Trusts and Administration Companies and Administration International Estate Planning U.S. Taxation E-Commerce

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Recognized DesignationsRecognized Designations

The RSOF and the American Academy of Financial Management have partnered to confer joint designations for:

Chartered Wealth Manager – International Tax Chartered Trust and Estate Planner-Global Estate Planning Certified Compliance Analyst – Anti-money Laundering

In-house Executive Training Classes are held for groups of 10 or more. Designations are recognized world-wide and by the National Association of Securities Dealers in the United States.

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Master Financial ProfessionalMaster Financial Professional

RSOF/AAFM accepts graduates of university Finance Programs on a case-by-case basis for the MFP Designation.  When a University is state sponsored and recognized, we usually recognize the business school, etc.

Thus, Graduates from University of West Indies with a degree in finance, tax, economics, or accounting and another advanced degree, and 5 years professional experience would be eligible for the MFP (no additional courses would be necessary). RSOF membership and AAFM certification fee required.

In addition, holders of this designation would receive credit towards the CWM and CTEP designations and would qualify for a 25% tuition deduction. 

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Master of Laws ProgramMaster of Laws Program

The Society's academic partner, St. Thomas University School of Law in Miami, Florida provides an ABA approved, on-line LL.M Master of Laws in International Taxation with concentrations in Offshore Financial Centers, Global Estate Planning, U.S. Taxation, and E-commerce to lawyers and non-lawyers.

 The Society has also developed an accredited J.S.D. (doctoral) program in the above fields.

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U.S. Patriot ActU.S. Patriot Act

The Patriot Act - Title III : “The International Money The Patriot Act - Title III : “The International Money Laundering Abatement And Financial Anti-Laundering Abatement And Financial Anti-Terrorism Act of 2001”Terrorism Act of 2001”

• Grants Grants sweepingsweeping powers to the U.S. Treasury powers to the U.S. Treasury

• Significantly enhances the Bank Secrecy Act by Significantly enhances the Bank Secrecy Act by imposing more stringent recordkeeping and imposing more stringent recordkeeping and anti-money laundering requirements on certain anti-money laundering requirements on certain financial institutionsfinancial institutions

• Expands BSA to include war against Expands BSA to include war against international terrorism and political corruptioninternational terrorism and political corruption

• Expands forfeiture and subpoena powersExpands forfeiture and subpoena powers

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Targeted Vulnerable SystemsTargeted Vulnerable Systems

• U.S. Financial Sector - Bulk Currency, Courier Hubs, Banks, U.S. Financial Sector - Bulk Currency, Courier Hubs, Banks, Money Service Businesses, Casinos, Insurance Companies, Money Service Businesses, Casinos, Insurance Companies, Internet, NGOs, Charities, and Alternate Money Remittal SystemsInternet, NGOs, Charities, and Alternate Money Remittal Systems

• Commercial & Trade Sector - Importers, Manufacturers, High Commercial & Trade Sector - Importers, Manufacturers, High

Technology Industries, Bio-technology Companies, Chemical Technology Industries, Bio-technology Companies, Chemical Companies, Health Care Industries, IT Services, and Munitions Companies, Health Care Industries, IT Services, and Munitions and Defense Industriesand Defense Industries

• Transportation Sector - Brokers and Freight Forwarders, and Transportation Sector - Brokers and Freight Forwarders, and International and Domestic Carriers and Express Parcel Courtier International and Domestic Carriers and Express Parcel Courtier Hubs (Air, Rail and Sea).Hubs (Air, Rail and Sea).

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Immigration and Customs Immigration and Customs Enforcement StrategyEnforcement Strategy

• Identify domestic and international methods used by Identify domestic and international methods used by criminal and terrorist organizations to earn, move and criminal and terrorist organizations to earn, move and store their illicit profits.store their illicit profits.

• Establish national and international networks with Establish national and international networks with private industry and combine ICE Investigative private industry and combine ICE Investigative divisions under the umbrella of Economic Security. divisions under the umbrella of Economic Security.

• Recommend security enhancements to the private Recommend security enhancements to the private sector and to existing regulations and statutes.sector and to existing regulations and statutes.

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Financial InvestigationsFinancial Investigations

• Attack the systems, both where the system itself is corrupt Attack the systems, both where the system itself is corrupt or where the system is being exploited by criminal or where the system is being exploited by criminal organizations (money orders, wire transfers). organizations (money orders, wire transfers).

• Apply a multi-faceted approach to investigating these Apply a multi-faceted approach to investigating these systems, going beyond enforcement and involving industry systems, going beyond enforcement and involving industry outreach and working groups with associated law outreach and working groups with associated law enforcement, regulatory, and industry partners. enforcement, regulatory, and industry partners.

• Investigate the susceptibility and use of “Trade Based Investigate the susceptibility and use of “Trade Based Money Laundering Systems” as a means of facilitating the Money Laundering Systems” as a means of facilitating the financing and support of criminal organizations, to include financing and support of criminal organizations, to include terrorist financiers.terrorist financiers.

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•Utilized Bank Secrecy Act (BSA) information Utilized Bank Secrecy Act (BSA) information as a source of developing targets and as a source of developing targets and enhancing criminal investigations. enhancing criminal investigations.

– Suspicious Activity Reports (SAR)Suspicious Activity Reports (SAR)

– Currency Transaction Reports (CTR)Currency Transaction Reports (CTR)

– Currency or Monetary InstrumentsCurrency or Monetary Instruments Reports (CMIR)Reports (CMIR)

– Foreign Bank Account Reports (FBAR)Foreign Bank Account Reports (FBAR)

– Reports of Cash Payment Over $10,000Reports of Cash Payment Over $10,000 Received in a Trade or Business Received in a Trade or Business

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USA PATRIOT Act Money USA PATRIOT Act Money Laundering SectionsLaundering Sections

Section 314(a)Section 314(a) Cooperative Efforts to Deter Money LaunderingCooperative Efforts to Deter Money Laundering

Section 315Section 315 Foreign Corruption OffensesForeign Corruption Offenses

Section 317Section 317 Long-Arm Jurisdiction over Foreign Money LaunderersLong-Arm Jurisdiction over Foreign Money Launderers

Section 319Section 319 Subpoena and Summons Authority Over Subpoena and Summons Authority Over Corresponding AccountsCorresponding Accounts

Section 320Section 320 Proceeds of Foreign CrimesProceeds of Foreign Crimes

Section 353 Section 353 Penalties for Violating Geographic Targeting OrdersPenalties for Violating Geographic Targeting Orders

Section 371Section 371 Bulk Cash SmugglingBulk Cash Smuggling

Section 373Section 373 Illegal Money Transmitting BusinessesIllegal Money Transmitting Businesses

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Section 314 (a) RequestsSection 314 (a) Requests

Section 314(a) - encourages the sharing of financial information with government authorities. With the assistance of FinCEN this is accomplished by requesting that financial institutions conduct cross-checks to identify any and all accounts associated with the target(s) of investigation.

In an effort to minimize the burden placed on financial institutions, ICE has employed a three prong vetting system to ensure that only the most important and necessary requests are forward to financial institutions.

1 - requests must be approved by the local SAC field office 2 - approved by the Headquarters Financial Investigations Unit 3 - reviewed by FinCEN Chief Counsel Office

The 314(a) request has proven to be an invaluable investigative tool. In one of the larger cases, information was requested on 48 subjects of investigation and allowed investigators to identify an additional 287 individuals/entities from 100 different financial institutions.

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314(a) Case Example314(a) Case Example• The Virginia Based Charities investigation is an ICE-led, multi agency task force The Virginia Based Charities investigation is an ICE-led, multi agency task force investigation of suspected money laundering, tax fraud, and terrorist material investigation of suspected money laundering, tax fraud, and terrorist material support violations allegedly being committed by individuals and companiessupport violations allegedly being committed by individuals and companies associated with SAFA TRUST, INC. Hundreds of charitable organizations ofassociated with SAFA TRUST, INC. Hundreds of charitable organizations of SAFA TRUST are suspected of channeling funds to Hamas, and PalestineSAFA TRUST are suspected of channeling funds to Hamas, and Palestine Islamic Jihad terrorist groups.Islamic Jihad terrorist groups.

• The task force continues to examine and analyze records obtained from thirty-The task force continues to examine and analyze records obtained from thirty- three search warrants executed on businesses and residences associated with three search warrants executed on businesses and residences associated with SAFA TRUST and Internet servers used by targets of this investigation. SAFA TRUST and Internet servers used by targets of this investigation.

• As of 2004 33 search warrants were executed, 547 boxes of documentary evidence As of 2004 33 search warrants were executed, 547 boxes of documentary evidence seized, 420 Grand Jury subpoenas issued for bank accounts and brokerage seized, 420 Grand Jury subpoenas issued for bank accounts and brokerage accounts. Two suspects of been arrested, one has been convicted of accounts. Two suspects of been arrested, one has been convicted of immigrations violations and one suspect has been indicted for violations of immigrations violations and one suspect has been indicted for violations of immigration law and the International Emergency Economic Powers Act (IEEPA).immigration law and the International Emergency Economic Powers Act (IEEPA).

• The USA PATRIOT Act eliminated judicial geographical limitations on searchThe USA PATRIOT Act eliminated judicial geographical limitations on search warrants, which allowed warrants signed in Virginia, to be executed in sevenwarrants, which allowed warrants signed in Virginia, to be executed in seven other judicial districts during this investigation. It also allowed for FinCEN toother judicial districts during this investigation. It also allowed for FinCEN to use Section 314a (Request for Information) to identify over 200 additional bankuse Section 314a (Request for Information) to identify over 200 additional bank and other financial institution accounts.and other financial institution accounts.

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Section 315 – Foreign Section 315 – Foreign Corruption OffensesCorruption Offenses

• Section 315 amended 18 USC 1956 to include foreignSection 315 amended 18 USC 1956 to include foreign corruption crimes as predicate money laundering corruption crimes as predicate money laundering offenses. Section 320 provides for the Civil Forfeiture ofoffenses. Section 320 provides for the Civil Forfeiture of criminally derived proceeds of foreign corrupt practices.criminally derived proceeds of foreign corrupt practices.• Crimes to include, under Section 315 of the USA PATRIOT Act:Crimes to include, under Section 315 of the USA PATRIOT Act:

1) bribery of a foreign public official or 1) bribery of a foreign public official or misappropriation of public funds by a foreign publicmisappropriation of public funds by a foreign public officialofficial

2) smuggling munitions or technology with military 2) smuggling munitions or technology with military applications applications

3) any “offense with the respect to which the United3) any “offense with the respect to which the United States would be obligated by multilateral treaty” toStates would be obligated by multilateral treaty” to extradite or prosecute the offenderextradite or prosecute the offender

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Foreign Public Corruption Unit

Due to an increasing trend of criminal referrals from Central, South Due to an increasing trend of criminal referrals from Central, South American and Caribbean governments seeking US assistance, an American and Caribbean governments seeking US assistance, an ICE-led multi agency foreign public corruption unit was created in ICE-led multi agency foreign public corruption unit was created in South Florida to identify, locate and seize assets of corrupt South Florida to identify, locate and seize assets of corrupt government officials involved in the theft of embezzlement of government officials involved in the theft of embezzlement of governmental funds. governmental funds.

ICE investigations have indicated that the criminally derived ICE investigations have indicated that the criminally derived proceeds are being funneled to the United States for the purchase proceeds are being funneled to the United States for the purchase of assets.of assets.

Foreign corruption investigations were enhanced by the new Foreign corruption investigations were enhanced by the new enforcement provisions provided for by the USA PATRIOT Act enforcement provisions provided for by the USA PATRIOT Act Sections 315 and 320.Sections 315 and 320.

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Section 371 - Bulk Cash SmugglingSection 371 - Bulk Cash Smuggling 31 USC 5332 - Bulk Cash Smuggling Makes it a crime to for anyone

knowingly to conceal more than $10,000 in currency or monetary instruments on their person or in any conveyance, article of luggage, merchandise, or other container, and to transport or transfer or attempt to transport or transfer monetary instruments into or out of the U.S. for the purpose of evading the CMIR Reporting requirement. Agent should seek to add this charge along with the failure to report – 31 USC 5316(a).*

*It should also be noted that 31 USC 5332 can be charged during pipeline stops involving the concealment of currency of more than $10,000, if it can be established the currency was going to be imported or exported into or out of the U.S. to avoid the reporting requirement in violation of 31 USC 5316(a). NO BORDER CROSSING is required.

Additionally, the USA PATRIOT Act (Section 371) enhanced ICE’s ability to USA PATRIOT Act (Section 371) enhanced ICE’s ability to investigate the inbound/outbound smuggling of bulk cash by authorizing investigate the inbound/outbound smuggling of bulk cash by authorizing exclusive investigative jurisdictionexclusive investigative jurisdiction of 31 USC 5332 offenses of 31 USC 5332 offenses

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Foreign Public Corruption Unit Foreign Public Corruption Unit Case StudyCase Study

In the courts of Nicaragua, former government officials were accused of In the courts of Nicaragua, former government officials were accused of the following criminal offenses:the following criminal offenses:• Laundering of money and/or assets derivedLaundering of money and/or assets derived from illicit activitiesfrom illicit activities• Fraud Fraud • Theft of government propertyTheft of government property• Embezzlement of public fundsEmbezzlement of public funds• Public corruptionPublic corruption

May 10, 2002, Nicaraguan Prosecutor files an official request for US May 10, 2002, Nicaraguan Prosecutor files an official request for US assistance to identify and recover assets in the USassistance to identify and recover assets in the US

Investigative efforts have revealed that funds obtained by these illicit Investigative efforts have revealed that funds obtained by these illicit activities were funneled through bank accounts in Panama, and used to activities were funneled through bank accounts in Panama, and used to purchase high value assets in the United States.purchase high value assets in the United States.

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Section 371 - Bulk Cash SmugglingSection 371 - Bulk Cash Smuggling

31 USC 5332 - 31 USC 5332 - Bulk Cash SmugglingBulk Cash Smuggling

Three ElementsThree Elements : :

1. More than $10,0001. More than $10,000

2. Concealed2. Concealed

3. To evade the reporting requirement in 3. To evade the reporting requirement in violation of Title 31 USC 5316 violation of Title 31 USC 5316

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Bulk Cash Smuggling Case ExamplesBulk Cash Smuggling Case Examples

Border Related - Border Related - In December 2002, ICE agents initiated an investigation following the interception of two DHL packages destined for a country of concern. The packages contained approximately $280,000 concealed in articles of clothing. ICE agents subsequently conducted search warrants at a residence and retail businesses involved in the distribution of counterfeit clothing. The search warrants resulted in the seizure of $2 million in additional U.S. currency. The primary subject was indicted on 31 USC 5332 bulk cash smuggling charges and is scheduled for trial in May 2004. A civil complaint has been filed by the Assistant United States Attorney’s office for the forfeiture of the currency.

Non-Border Related - Non-Border Related - On August 15, 2003, the Mississippi Highway Patrol stopped an individual for traffic violations. A search of the vehicle resulted in the seizure of $1,100,000 concealed within the vehicle. ICE agents conducted a follow-up investigation and determined the individual was traveling to Mexico, from North Carolina, to deliver the currency. On October 8, 2002, subject was indicted for violations of 18 USC 1956 and 31 USC 5332. On November 28, 2002, subject pled guilty to 31 USC 5332 (BCS) and was sentenced to 42 months incarceration.

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Section 373- Illegal Money Service Business

Amended 18 USC 1960 by providing three ways a MSB can be prosecuted:

• MSB operates without a state license.* MSB operates in violation of Treasury regulation

requiring registration with FinCEN MSB knowingly transfers money derived from a

criminal offense, or transfers money intended to be used for unlawful purpose. Investigator does not need to trace the money. *Knowledge requirement removed; not necessary to prove target knew license was required or operating without a license was a crime.

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Section 373- Illegal Money Service Business Case Example

• USA PATRIOT Act enhanced 18USC1960 which allowed searches for a wider range of documents than would have been allowed under other criminal violations.

• A referral from the financial community initiated an investigation into a business unlawfully transmitting funds from the U. S. to a country of concern via the United Arab Emirates.

• This investigation has resulted in the execution of 34 search warrants, three wire intercepts, 13 individuals and one corporation indicted for transferring $12 million to Iraq in violation of money laundering laws, six arrests and the seizure of 4 businesses/bank accounts ($12 million in substitute assets from bank accounts). The issuance of sanctions/penalties totaling $12 million is pending.

• The primary subject has been convicted of money laundering.

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Major Money Laundering Major Money Laundering Countries in 2004Countries in 2004

Antigua and Barbuda, Australia, Austria, Bahamas, Belize, Bosnia and Herzegovina, Brazil, Burma, Cambodia, Canada, Cayman Islands, China, Colombia, Costa Rica, Cyprus, Dominican Republic, France, Germany, Greece, Guernsey, Haiti, Hong Kong, Hungary, India, Indonesia, Isle of Man, Israel, Italy, Japan, Jersey, Latvia, Lebanon, Liechtenstein, Luxembourg, Macau, Mexico, Netherlands, Nigeria, Pakistan, Panama, Paraguay, Philippines, Russia, Singapore, Spain, Switzerland, Taiwan, Thailand, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, and Venezuela.

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Barbados Anti-Terrorism ActBarbados Anti-Terrorism Act

The Barbados Anti-Terrorism Act, 2002-6, Section 4, gazetted on May 30, 2002, criminalizes the financing of terrorism. The Government Of Barbados circulates lists of terrorists and terrorist entities to all financial institutions in Barbados. During 2003 and 2004, no evidence of terrorist financing was discovered in Barbados.

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Doing Business With The U.S.Doing Business With The U.S.

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DomicileDomicile

U.S. citizens and U.S. domiciliaries (USDs) are subject to U.S. estate, gift and generation-skipping transfer taxation on their worldwide assets. Nondomiciliary aliens are subject to these taxes only on situs assets. The test is whether he or she is "domiciled" in the U.S.

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Domicile AcquiredDomicile Acquired

Domicile is acquired in the U.S. if a person is present in the U.S., even for a short period of time, if he or she has no present intention of ever leaving.

Residence, without the intent to remain permanently in the U.S., does not result in domicile.

Once an individual is domiciled, the intention to change domicile will not change domicile unless accompanies by actual removal

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Establishing DomicileEstablishing Domicile

Domicile is established when physical presence and the intent to remain in that place permanently coincide

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U.S. Income TaxesU.S. Income Taxes

–       Federal, State, Local, Sales, Use–       State Tax – Highest state tax is

Vermont at 9.5%.–       Capital Gains – Maximum 15%–       Dividends – Maximum 15%

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Income Tax RatesIncome Tax Rates

Tax rate Single filers Married filing jointly or qualifying

widow/widower

Married filing

separately Head of household

10% Up to $7,150 Up to

$14,300 Up to $7,150 Up to $10,200

15% $7,151 - $29,050 $14,301 - $58,100 $7,151 - $29,050 $10,201 - $38,900

25% $29,051 - $70,350 $58,101 - $117,250 $29,051 - $58,625 $38,901 - $100,500

28% $70,351 - $146,750 $117,251 - $178,650 $58,626 - $89,325 $100,501 - $162,700

33% $146,751- $319,100 $178,651 - $319,100 $89,326 - $159,550 $162,701 - $319,100

35% $319,101 or more

$319,101 or more

$159,551 or more

$319,101 or more

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Corporate Tax RatesCorporate Tax Rates

Taxable income over Not over Tax rate  $ 0 $ 50,000 15%

50,000 75,000 25% 75,000 100,000 34% 100,000 335,000 39% 335,000 10,000,000 34% 10,000,000 15,000,000 35% 15,000,000 18,333,333 38% 18,333,333 .......... 35%

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Personal Service And Holding Personal Service And Holding CompaniesCompanies

Personal Service Corporations Personal service corporations are subject to a

flat tax of 35% regardless of their income. Personal Holding Company Personal holding companies are subject to an

additional tax on any undistributed personal holding company income. (Code Sec. 541)

Year Rate  2005 15.0% 2000 and prior years 39.6%

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Accumulated Earnings TaxAccumulated Earnings Tax

In addition to the regular tax, a corporation may be liable for an additional tax on accumulated taxable income in excess of $250,000 ($150,000 for personal service corporations). (Code Sec. 531)

Year Rate  2005 15.0% 2000 and prior years 39.6%

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Transfer TaxesTransfer Taxes

Probate - StateIncome With Respect To A DecedentEstate Taxes – Federal & State Inheritance Tax -StateGift Tax – Federal & StateGeneration Skipping Tax –Federal

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ProbateProbate• Probate is a legal process that takes place after

someone dies. It includes: • proving in court that a deceased person's will is

valid (usually a routine matter) • identifying and inventorying the deceased

person's property • having the property appraised • paying debts and taxes, and • distributing the remaining property as the will (or

state law, if there's no will) directs.

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Federal Estate TaxFederal Estate Tax

Federal estate tax rates are steep, starting at 39%. The highest marginal rate, for the largest estates, is 47%.

The maximum rate is scheduled to decline gradually to 45% in 2009.

There will be no estate tax in 2010, if the current tax law is not amended.

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Estate Tax ExemptionEstate Tax Exemption

Year Estate Tax Exemption

2003 $1 million

2004-05 $1.5 million

2006-08 $2 million

2009 $3.5 million

2010 No estate tax

2011 $1 million unless Congress extends repeal

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GiftsGifts

If you give away more than $11,000 per year to any one person or non-charitable institution, you are assessed federal "gift tax," which applies at the same rate as the estate tax.

Making gifts of $11,000 or less, however, can yield substantial estate tax savings if you keep at it for several years. You can give an unlimited amount of property to your spouse.

If your spouse is not a U.S. citizen, you can give away up to $114,000 per year free of gift tax. Any property given to a tax-exempt charity avoids federal gift taxes. And money spent directly for someone's medical bills or school tuition is exempt as well.

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Gifts (Continued)Gifts (Continued)

Notice of Large Gifts

For tax years beginning in 2003, recipients of gifts from certain foreign persons may have to report gifts under Sec. 6039F if the total value received in a taxable year exceeds $11,827; in 2002 it was $11,642; in 2001 it was $11,273.

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Generation Skipping TaxGeneration Skipping Tax The generation-skipping transfer (GST) tax applies with respect

to gifts or bequests of property through wills or trusts. It applies when gifts are made or property that is left to a donee or beneficiary who is two or more generations below the donor or decedent.

  Generally, a GST occurs when property benefits a "skip" person

or when only the skip persons may benefit from the property in the future.

A skip person is an individual assigned to a generation more than one generation below the generation of the transferor. The taxes are payable by the transferor or trustee.

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The GST ExemptionThe GST Exemption

Each transferor/decedent has a cumulative $1.5 million exemption from the GST. The exemption is allocated among gifts and bequests by the transferor or his estate.

In other words, if a $750,000 exemption is used for lifetime transfers, $750,000 remains for death transfers.

 

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Transfer of U.S. Situs PropertyTransfer of U.S. Situs Property

The testamentary transfer of U.S. situs property is subject to the GST tax provisions to the extent such property is includable in the gross estate of an NRA decedent.

An inter vivos (lifetime) transfer by an NRA

transferor is subject to the GST tax provisions where the property is situated in the U.S. and the transfer is otherwise subject to the gift tax provisions of I.R.C. Section 2501(a).

These rules apply no matter what the citizenship of the donee or beneficiary.

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NRA Subject to GST Tax Only NRA Subject to GST Tax Only for U.S. Situs Propertyfor U.S. Situs Property

The GST tax may apply to an NRA decedent making transfers during lifetime or at death.

However, the GST tax applies primarily to the transfer of U.S. situs property.

 

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State Estate & Inheritance TaxState Estate & Inheritance Tax

Inheritance Tax – Some States

Estate Tax – Sponge Tax Disappearing

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CONTROLLED FOREIGN CONTROLLED FOREIGN CORPORATIONCORPORATION

A controlled foreign corporation (CFC) is a foreign corporation that is controlled by "U.S. shareholders."  Control means that the U.S. shareholders own more than 50% of the voting stock or value of the foreign corporation.

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U.S. ShareholderU.S. Shareholder For this purpose, a "U.S. shareholder" is a U.S. person 

who owns,  or is considered to own,  at least 10% of the stock or the combined voting power of all classes of stock of a foreign corporation.

Only U.S. persons can be “U.S. shareholders.”  IRC § 957(c) refers to IRC § 7701(a)(30) for the definition of a U.S. person that is very broadly defined to include individuals, partnerships, corporations, trusts and estates.

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CFC Income TaxableCFC Income Taxable

IRC § 951(a)(1) requires certain shareholders of a CFC to include certain amounts in income, even if the corporation makes no distributions. Income passes through and is taxed only to a U.S. shareholder who owns stock in the CFC on the last day in the taxable year on which the corporation is a CFC.

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Deferral of CFC IncomeDeferral of CFC Income

It is possible to legally defer taxes on the foreign source income of a CFC if the income does not come under the definitions of “subpart F income” and is not “U.S. source income.” 

A foreign corporation, owned by U.S. shareholders, with no U.S. source income, is not subject to U.S. taxation; and if it has no subpart F income, then the U.S. shareholders are subject to taxation only when distributions are made.

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Subpart F IncomeSubpart F Income

The following is a general summary of the income that is classified under subpart F.

The five categories of subpart F income: (1)  insurance income (2)  foreign base company income (3)  income from countries subject to international

boycotts (4) illegal bribes, kickbacks and similar payments

(5)  income from countries the U.S. has severed diplomatic relations.

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Foreign Base Company IncomeForeign Base Company IncomeThe major category applicable to most foreign corporations is “foreign base company income,” which is defined to include:

1. 1. foreign personal holding company income

2. 2. foreign base company sales income

3. 3. foreign base company services income

4. 4. foreign base company shipping income foreign 5. base company oil related income

Taxable Subpart F IncomeTaxable Subpart F Income

If the foreign corporation has subpart F income, the income is taxable for each year earned (whether distributed or not), to the extent of earnings and profits, to the 10% or more shareholders who are determined by direct ownership

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U.S. Tax PlanningU.S. Tax Planning

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DISPOSITIVE PROVISIONS OFDISPOSITIVE PROVISIONS OF WITH NO PLANNING WITH NO PLANNING

SETTLORLiving Trust

ALL TO SPOUSENO ESTATE TAX

$6,000,000 TO

HEIRS

UnlimitedMarital Deduction

TAX AT SPOUSES DEATH

$10,000,000

$10,000,000

$6,000,000

40% Estate Tax

100% Joint Property

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DISPOSITIVE PROVISIONS OFDISPOSITIVE PROVISIONS OF PROPOSED ESTATE PLANPROPOSED ESTATE PLANTRADITIONAL PLANNINGTRADITIONAL PLANNING

SETTLORLiving Trust

MARITAL QTIP/QDOT TRUST

TO SPOUSENO ESTATE TAX

$6,600,000TO

HEIRS

FOR LIFE LIMITED BYCERTAIN STANDARD

Credit Shelter Amount UnlimitedMarital Deduction

100% TOHEIRS

40% ESTATE TAX AT SPOUSES

DEATH

$10,000,000Equalized Estates

$1,500,000 $8,500,000

$5,100,000

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DISPOSITIVE PROVISIONS OFDISPOSITIVE PROVISIONS OF PROPOSED ESTATE PLANPROPOSED ESTATE PLAN

TESTAMENTARY ILITTESTAMENTARY ILIT$10,000,000SETTLOR

Living Trust

$1,500,000MARITAL QTIP/QDOT

TRUST

$6,500,000 TO SPOUSENO ESTATE TAX

$5,400,000 + $5 Mil. DB.= $10,500,000

TO HEIRS

FOR LIFE LIMITED BYCERTAIN STANDARD

Credit Shelter Amount Unlimited Marital Deduction

100% TOHEIRS

TAX AT SPOUSES DEATH

$2,000,000 JSWL $5 Million Death BenefitIRREVOCABLE LIFE INSURANCE TRUST

100% TOHEIRS

Gifting

$5,000,000

$1,500,000

Net$3,900,000

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Charitable Remainder Annuity TrustCharitable Remainder Annuity TrustJohn Jones - Age 74 Mary Jones - Age 70 6.38% Annuity Trust

Charity/Family Foundation

PropertyValue $1,000,000

Cost $100,000Gain $900,000

CRATPrincipal

$1,000,000

Annual Annuity Income$63,800

Estimated Income for 2 lives over

20.2 years$1,228,760

Transfer and sell tax-free.Bypass up to $900,000 gainmay save $135,000. Incometax deduction of $272,825may save $95,489.

If trust earns 7.81%, pays 6.38% annuity, trust value increases. After two lives, trust passes without probate to charity.

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PROPOSED ESTATE PLANPROPOSED ESTATE PLANTESTAMENTARY ILIT + Charitable Trust/Family FoundationTESTAMENTARY ILIT + Charitable Trust/Family Foundation

$10,000,000SETTLOR

Living Trust

$1,500,000MARITAL QTIP/QDOT

TRUST

$5,500,000 TO SPOUSENO ESTATE TAX

$3,465,000 + $5 Mil. DB.= $8,465,000 TO HEIRS

Credit Shelter Amount Unlimited Marital Deduction

TAX AT SPOUSES DEATH

$2,000,000 JSWL $5 Million Death BenefitIRREVOCABLE LIFE INSURANCE TRUST

100% TOHEIRS

Gifting

$5,000,000

$1,500,000

Net$3,465,000CRAT

$1,000,000

Family FoundationHeirs Are Directors

$1,667,073

Estate Tax reduces to

37%

63

Non Resident AliensNon Resident Aliens

64

General Rules For U.S. Income Tax purposes, Non-Resident

Alien (“NRA”) subject to tax on: income derived from sources within U.S.; or income effectively connected with conduct of

trade or business within U.S. For estate, gift and generation-skipping

transfer tax purposes, NRA subject to tax only on NRA’s assets situated in the U.S.

65

General Rules (Continued) NRA entitled to a unified credit of $13,000,

exempting $60,000 from U.S. estate tax Unlimited marital deduction for property

transferred to non-U.S. citizen spouse only if is transferred to a Qualified Domestic Trust (“QDOT”)

NRA’s estate is entitled to deductions on a proportionate basis under §2053 and §2054

66

Residency for Income Tax Purposes

Lawful permanent resident of the U.S. at any time during the calendar year (i.e., a “green card” holder);

Present in the U.S. for 183 days or more during the current calendar year;

Present in the U.S. for more than 31 days and less than 183 days during the current calendar year but meets the “substantial presence test”; or

Makes an election to be treated as a resident alien

67

Substantial Presence Test Met if:

The sum of the days present in the U.S. during current year plus 1/3 of the days present in the U.S. in the immediately preceding year plus 1/6 of the days present in the U.S. in the second immediately preceding year equals or exceeds 183 days (unless the individual is present for less than 183 days and has a closer connection to another country)

Example: NRA spent the following days in U.S.2003 120 * 1 = 120

2002 150 * 1/3 = 50

2001 90 * 1/6 = 15

Total 185

68

Residency for Estate and Gift Tax Purposes

Classification depends upon domicile Domicile means (i) having a physical presence and

(ii) present intention to remain indefinitely Subjective Test Possible to be treated as resident of U.S. for

purposes of income tax and not estate and gift tax

69

Income Derived from Sources within U.S. for Income Tax Purposes

Dividends from domestic corporations Rental income from real property located in

U.S. U.S. royalties Capital gain from the sale of real property

located in the U.S. Salary for services performed within the U.S. Interest on debt obligations. Exception for (i)

portfolio interest, and (ii) bank deposit interest (but not money market accounts)

70

Property Situated within U.S. for Estate Tax Purposes

Real property Tangible personal property Shares of domestic corporations Debt obligations issued by the U.S. or a U.S.

person unless income would be exempt portfolio interest

Deposits with a branch in U.S. of a foreign corporation, if the branch is engaged in the commercial banking business

But consider treaty override provisions.

71

Property Situated Outside U.S. for Estate Tax Purposes

Real and tangible property located outside U.S. Shares of stock issued by a corporation which is not

a domestic corporation Insurance death benefit on the decedent’s life Deposits with a branch outside of the U. S. of a

domestic corporation or domestic partnership if the branch is engaged in the commercial banking business

Any debt obligation, the primary obligor of which is neither (i) a U.S. person, nor (ii) U.S. government

72

Gift Tax Considerations Subject to gift tax on tangible personal property situated in

U.S. Transfers of intangible personal property (i.e., stock in U.S.

corporations) not subject to gift tax NRA entitled to annual present interest exclusion NRA entitled to unlimited marital deduction on gift to U.S.

citizen spouses Gift splitting not available Joint tenancies in real property between spouses (after

7/13/88) not deemed a taxable gift Joint tenancies with respect to personal property is subject to

gift tax

73

Planning Techniques for NRA’s with U.S. Assets

Minimize contacts with U.S. to avoid resident status

Form foreign corporation to hold U.S. assets Ensure that corporate formalities are followed Consider home country tax consequences But §2036 may be applicable

Favor assets not subject to U.S. income tax (bank deposit) versus assets subject to U.S. income tax (deposit with U.S. broker)

74

Planning Techniques for NRA’s with U.S. Real Property

Foreign partnership or LLC Foreign grantor trust Foreign corporation U.S. corporation owned by a foreign corporation

75

Planning Techniques for NRA’s with U.S. Beneficiaries

Outright gifts of non-U.S. assets to U.S. beneficiaries

Foreign Grantor Trust Trust income can grow tax free (except for U.S.

source income) during NRA’s life Subject to accumulation distribution penalties

after grantor’s death

76

Use of Foreign Trusts

A trust is a foreign trust if it fails either: Court Test or Control Test

77

Court Test Safe harbor:

Trust instrument does not direct that trust be administered outside U.S.; and

Trust is administered exclusively within the U.S; and

Trust does not have an automatic migration clause

OR U.S. court is able to exercise primary supervision

over administration of trust

78

Control Test One or more U.S. persons have authority to control

all substantial decisions of the trust Substantial decisions include:

Distribution decisions Selection of beneficiaries Power to terminate Power to remove, add or replace trustees Investment decisions

79

Foreign Trusts

Foreign grantor trust with U.S. grantor and U.S. beneficiaries

Foreign non-grantor trust Foreign grantor trust with NRA grantor

80

Taxation of Foreign Grantor Trust with U.S. Person as Grantor

Taxed in same manner as a domestic grantor trust Foreign trust will be deemed to have a U.S.

beneficiary unless both of the following tests are satisfied: No part of income or principal of trust may be paid or

accumulated for the direct or indirect benefit of a U.S. person; and

If the trust is terminated, no part of the income or principal can be paid, either directly or indirectly, to a U.S. person

Determination of whether trust has U.S. beneficiary is made annually

81

Foreign Trusts with U.S. Grantor

Exceptions to the general rule under §679 include: Transfer to a foreign trust by reason of the

death of the U.S. transferor Transfer to various tax-exempt foreign trusts Transfer to a foreign trust in exchange for the

property’s fair market value If NRA transfers property to a foreign trust and

becomes U.S. person within 5 years, the transfer is deemed to take place on date NRA became U.S. person

82

Taxation of Foreign Non-Grantor Trust

Trust is taxed as NRA U.S. source income is subject to U.S. income

tax Distributions to U.S. beneficiary taxable to

U.S. beneficiary Applicability of “throwback rules” Difficult, if not impossible, to cleanse the

accumulated income

83

Taxation of Foreign Grantor Trust with NRA Grantor

Most beneficial from a tax perspective No U.S. income tax except on U.S. source income Distributions to U.S. person do not carry out DNI

84

Taxation of Foreign Grantor Trust with NRA as Grantor (Cont’d)

Revocable without consent of another or with consent of subservient person

or

The grantor and/or the grantor’s spouse are the sole beneficiaries of the trust during grantor’s lifetime

85

Recognition of Gain on Transfers to Foreign Trusts and §684

Immediate recognition of gain upon transfer of appreciated property by a U.S. person to a foreign trust

Applies to direct, indirect and constructive transfers to a foreign trust

86

Recognition of Gain on Transfers to Foreign Trusts and §684 (Cont’d)

Exceptions: A transfer to a foreign trust which is a grantor trust A transfer to a foreign trust which is exempt under

501(c)(3) A transfer to a foreign trust by reason of death of

the U.S. person if property is includable in the transferor’s estate

A transfer to a foreign trust in exchange for fair market value

87

Use of Domestic Situs Trusts for Non-U.S. Beneficiaries

Advantages: Grantor/Beneficiaries may be domiciled in civil law

jurisdictions that do not recognize trusts Stable political/economic environment Well established trust law Several states offer ability to continue in perpetuity Creditor protection

88

Reporting Requirements – Form 3520

Foreign gifts received by U.S. person which in aggregate exceed $11,000

U.S. person receiving a distribution from a foreign trust

U.S. grantor must report transfers to trust Return due on same date as the taxpayer’s

personal income tax return 35% penalty for failure to report

89

Reporting Requirements – Form 3520-A

U.S. person treated as owner of foreign trust must ensure that foreign trust files Form 3520-A annually

Return due on March 15th

Penalty equal to 5% of gross value of trust’s assets

90

Pre-Immigration Planning

Realize gains on appreciated securities prior to establishing residency

Make gifts to NRA spouse before residency to avoid limitations

Make gifts to third parties Liquidate or reorganize foreign corporations to

avoid CFC, PFIC or FPHC Consider transfers to irrevocable trust to remove

from donor’s estate Consider purchasing offshore life insurance

91

Traditional Income Tax Traditional Income Tax Planning OnshorePlanning Onshore

Qualified Retirement Plans

Pension, 401(k) IRA, Roth IRA

Tax Advantage Products

Commercial Annuities

Individual Retirement Arrangement

ROTH IRA

Tax Free Municipal Bonds

Life Insurance

92

Transfer MechanismsTransfer Mechanisms

Charitable Instruments

Installment Sales

Private Annuities

93

Offshore PlanningOffshore Planning

94

TRUSTEE

Duress Clause

Migration Or

Flight Clause

Trust Enforcer Clause:

Emergency Trust

Trust Protector

ClauseSETTLOR TRUST ASSETS

Offshore Asset Protection TrustOffshore Asset Protection Trust

ENABLER

TRUST PROTECTORENABLES” SAFETY & FLEXIBILITY

OTHER JURISDICTIONSSAFETY AND FLEXIBILITY

Settlor

95

DISPOSITIVE PROVISIONS OFDISPOSITIVE PROVISIONS OF PROPOSED ESTATE & ASSET PROTECTION PLANPROPOSED ESTATE & ASSET PROTECTION PLAN

TESTAMENTARYTESTAMENTARY

FAMILY FOUNDATION

SETTLOR

MARITAL QTIP TRUST

ADULT CHILDRENSEPARATE SHARE TRUSTS

DEFECTIVE GRANTORTRUST

1

2

43 5

6

7

VARYING %

LIFELINE

LIFELINE

BARBADOSASSET

PROTECTIONTRUST

NEVADA SELF SETTLED APT

NEST EGG

SEPARATE SHARETRUSTS

FOR LIFE LIMITED BYAN ASCERTAINABLE STANDARD

50%50%

-AT DEE’S DEATH

100%

96

PROPOSED OFFSHORE ASSET PROTECTION PROPOSED OFFSHORE ASSET PROTECTION BARBADOS ASSET PROTECTION TRUSTBARBADOS ASSET PROTECTION TRUST

BarbadosAPTDOMESTIC

DEFECTIVE GRANTOR

TRUST

IBC

SETTLOR

OPPLI

OFFSHOREBANK

OFFSHORETRUSTEE

CO.

EVENT OF DURESS MOVES TRUST & ASSETS TO APT

GRANTOR

PROTECTOR

100%

INVESTMENTCUSTODOAN

“NEST EGG”

100%

LETTER OF WISHES

DISCRETIONARYBENEFICIARIES

97

INVESTMENT 4

DIVERSIFICATION REQUIREMENTS OFIRC SECTION 817

1. NO SINGLE INVESTMENT CONSTITUES 55% OF VUL PORTFOLIO;

2. NO TWO INVESTMENTS CONSTITUTE 70% OF VUL PORTFOLIO;

3. NO THREE INVESTMENTS CONSTITUTE 80% OF VUL PORTFOLIO;

4. NO FOUR INVESTMENTS CONSTITUTE 90% OF VUL PORTFOLIO

VARIABLE LIFE INSURANCE POLICY

OUTSIDE WRAPPER = LIFE INSURANCE

INVESTMENT 3

INVESTMENT 2

INVESTMENT 2</=55%

90%1,2,3,4

80%1,2,3

70% 1,2,3

SOPHISTICATED USE

OF TRADITIONAL

PRIVATE PLACEMENT

VARIABLE LIFE

INSURANCE

WITH APT FEATURES

U.S. Compliant Offshore Private Placement Life Insurance OPPLI

98

Non U.S. Compliant OPPLINon U.S. Compliant OPPLI

No Cash Value TestInsurance Cove Can Be As Low As 1%No Diversification RequirementsFreely Invest Worldwide Including U.S.

99

Traditional Traditional Offshore Private Offshore Private

Banking Banking Now Available Now Available

Onshore in the United Onshore in the United StatesStates

100

“The trend to erode protection and enforce exchange of information is putting pressure on the offshore centers…Consequently it is our view that wealth managers should expect the number of offshore centers to decline from the current level of well over 50. Some 20 or 30 may be sustainable in the future, but the number may be even smaller…” _

PricewaterhouseCoopers Global Private Banking/Wealth Management Survey 2003 The Future of Offshore Investing

101

ColoradoColorado

Colorado is the world's newest international offshore center.

Revolutionary new laws with extraordinary client protections.

Colorado has the first and only international private banking center of its kind in the United States.

102

International OffshoreInternational Offshore

Colorado offers statutorily mandated asset protection.

Client anonymity equaling or exceeding many offshore regions in the world.

Non-US citizens who are non-US residents can be protected against political uncertainty and economic instability.

103

Foreign Capital DepositoryForeign Capital Depository

A Foreign Capital Depository (“FCD”) is a financial institution in which individuals and their business entities, not being citizens or residents of the United States, may deposit assets for investment and safekeeping.

An FCD does not lend money. It does not accept deposits from US citizens or residents. It is uniquely suited to the needs of affluent international families, businesses, and individuals.

104

Federal Reserve SystemFederal Reserve System

Participates in the Federal Reserve System with its own independent account and is able to transact business with the privileges, duties, and obligations applicable.  

105

Does Not Violate Public Policy Does Not Violate Public Policy “Legislative Declaration: (5) For the purposes of this part 3, the general

assembly declares that the recognition of a foreign judgment pursuant to article 62 of Title 13, [the “Uniform Foreign Money-Judgments Recognition Act”] and the execution of a foreign judgment against a customer of a foreign capital depository is repugnant to the public policy of this state if either would: (a) Facilitate the arbitrary or unlawful interference with an individual’s privacy in contravention of international law; (b) Undermine individual rights, including private property rights, provided for in the Colorado constitution and state law; (c) Stimulate or

engender lawsuits motivated by greed or pecuniary speculation and lacking a good faith argument or other legally sound purpose; (d) Facilitate civil prosecution arising from class or ethnic hatred and nurtured by a corrupt legal system; or (e) Threaten the financial stability of the depository or the state by discouraging foreign depositors and investors from becoming customers or by encouraging customers to withdraw their capital from the depository.”

106

The Colorado Foreign Capital The Colorado Foreign Capital Depository ActDepository Act

Colorado Revised Statutes Section 11-37.5-301

“Legislative Declaration: (1) The general assembly finds, determines, and declares that: (a) Political instability, economic insecurity, and financial risk outside the United States create incentives for the transfer and investment of foreign capital derived from legitimate estates and business activities to relatively safe places such as Colorado.” Colorado Revised Statutes Section 11-37.5-102

107

This is just a short list of some of the relationships that the Colorado Foreign Capital Depository Act granted:

  Custodial Duties Trust Powers Power of Attorney Open-Architecture Asset Management Dozens of Other Customized

Relationships

108

How This Benefits Your How This Benefits Your ClientsClients

Every financial institution offers their clients privacy. The difference is that a Colorado Depository offers your client complete and discreet financial anonymity.

For instance, pseudonymous accounts are

established for your identification and your account transactions. It also has the statutory duty to protect and hold all your information confidentially.

109

For instance, it is a crime, punishable by up to several years in prison, for any bank employee to reveal any of the following: your client’s name, any record or document held by the bank that directly or indirectly pertains to your client, or any information contained in any of your client’s documents. Also, the confidential relationship between your client and the bank is protected by restrictions on the disclosure of information belonging to you to government agencies.

 

110

A government official may not request or receive any of your client’s information, except under stringent circumstances where a detailed process involving the submission of an administrative subpoena, a search warrant, or a judicial subpoena is followed.

111

A government official who obtains any of your client’s information must also take every possible precaution to protect your client’s identity. If the government official discloses your client’s identity to any person not officially associated with the investigation, it is a crime, which is not only subject to rigid civil penalties, but also to criminal proceedings. Furthermore, the banking institution must provide for your client’s legal defense in the event that a civil judgment is rendered against your client in a jurisdiction outside the United States and is registered in Colorado.

112

Financial AnonymityFinancial Anonymity

The offshore financial institution is required by Colorado law to protect all your information and to keep such information completely confidential.

Pseudonymous accounts are established for your identification and your account transactions.

113

Powerful Asset ProtectionPowerful Asset Protection

The offshore financial institution is required by law to defend your private interests in US courts as necessary, and is committed to doing so aggressively. Foreign judgments are not easily recognized in Colorado. Plaintiffs bringing legal action against our client’s assets held in Colorado must commence the case in Colorado and are prohibited from hiring counsel on a contingency fee basis.

114

Moreover, there is no simple prejudgment attachment of accounts. Foreign judgments are not automatically entitled to full faith and credit in Colorado. There is no simple domestication of foreign judgments. Plaintiffs who bring unsuccessful legal action against assets held by offshore financial institution shall be liable for the depositor’s lawyer’s fees, and may be liable for damages up to $1 million.

115

SummarySummary

Anonymous Accounts No OECD Problems No FATF Problems A person seeking recognition of a foreign judgment against you is

prohibited by Colorado law from engaging legal counsel on a contingency fee basis.

Short Statutes of Limitation Limits the recognition of foreign judgments. Plaintiff bears the burden of proof and must prove that the decision

was rendered in a system with impartial tribunals or procedures compatible with the required due process of law.

116

Colorado does not recognize extra-territorial judgments:

When the judgments undermine individual rights, including property rights, lawsuits motivated by greed, actions motivated by ethnic hatred, or ones that threaten the financial stability of the depository or the state.

If a lawsuit is unsuccessful, the court in which recognition of a foreign judgment is unsuccessfully sought may award damages up to $1 million against the party, which brought the lawsuit.

Finally, it is a nice place to come to visit your money!

117

A SuccessfulA Successful ApproachApproach to Investment Managementto Investment Management

118

• The Investment Management Team

• Introducing Our Six-Step Investment Process

Building A Successful Building A Successful Investment StrategyInvestment Strategy

119

“In investing, what is comfortable is rarely profitable.”

Robert Arnott Active Asset

Allocation

SOURCE: Journal Of Financial Planning

Emotion All Too Often Guides Emotion All Too Often Guides Investment Investment

DecisionsDecisions

Loss

Enthusiasm

Confidence

Caution

Doubt and

Suspicion

Indifference

Denial

Concern

Fear

Panic

Despair

Greed

CYCLE OF EMOTION

Sell

Buy

120

Objective:

• Increase likelihood of achieving investment goals

Solution:

• Build a Capable Investment Management Team

• Make Decisions within a Disciplined Six-Step Investment Process

Overcoming ObstaclesOvercoming Obstacles

121

INVESTOR

INVESTMENT ADVISOR

PORTFOLIO STRATEGIST

INVESTMENT MANAGERS

Building Your Investment Management Team

122

Interact and communicate with client on an ongoing basis

Deliver Quarterly Performance Reviews

Monitor performance relative to client’s goals and objectives

Suggest changes to client’s investment strategy when client’s financial circumstances change

Our Duties And Our Duties And Responsibilities As Your Responsibilities As Your

Investment AdvisorInvestment Advisor

123

Select asset classes

Determine target asset mix

Analyze investment managers for style and performance

Select and monitor investment managers

Reallocate and rebalance Portfolios

Duties Of The Portfolio Strategist

124

Analyze and identify specific investments based on their area of expertise

Maintain a disciplined investment process and consistent investment style

Provide competitive performance relative to peer group or asset class benchmark

Duties Of The Investment Duties Of The Investment ManagersManagers

125

Step 1: Financial AnalysisStep 1: Financial Analysis

What are Your Client’s Financial Goals and Objectives?

1: Financial Analysis

126

Our Recommendations

Risk / Return Profile

Investment Policy Statement

Customized Proposal

Client’s Financial Information

Time Horizon

Rate of Return Objective

Risk Tolerance

Liquidity Needs

Tax Considerations

Financial PositionFinancial Position

127

PotentialReturn

Potential Risk/Volatility

Aggressive Growth

Growth

Balanced Growth

Balanced

Balanced Income

Capital Preservation

Conservative Moderate Aggressive

Establishing The Client’s Risk Establishing The Client’s Risk Return ProfileReturn Profile

128

The financial analysis will lead to a written Investment Policy Statement which is designed to:

• Establish reasonable expectations, objectives and guidelines for investing the portfolio

• Set forth an investment structure detailing permitted asset classes and the expected allocation among asset classes

• Create the framework for a well diversified asset mix designed to generate acceptable long-term returns at a suitable level of risk

• Encourage effective communication

Creating an Investment Policy StatementCreating an Investment Policy Statement

129

Step 2: Asset Allocation Step 2: Asset Allocation ModelingModeling

1: Financial Analysis

2: Asset Allocation

3: Portfolio Strategist Selection

4: Investment Manager Selection

5: Monitoring and Rebalancing

6: Reporting

What is the Best Way to Allocate Your Client’s Assets?

130

Stocks

CashReal Estate

Bonds

Asset allocation is the process of allocating investment funds to specific asset classes so that expected return is maximized for a given level of risk.

2: Asset Allocation

Asset Allocation DefinedAsset Allocation Defined

131

According to a respected academic study, asset allocation is responsible for over 90% of variations in portfolio performance.

Brinson, Hood & Beebower, Financial Analysts Journal, 1986Brinson, Singer & Beebower, Financial Analysts Journal, 1991

91.5%Asset Allocation

4.6%Securities Selection

1.8%Timing

2.1%Other Factors

Importance Of Asset AllocationImportance Of Asset Allocation

132

• Analyzes the historical performance attributes of each of the asset classes selected for the portfolio.

• Creates an “optimal” asset mix to maximize the expected return for each level of risk.

STRATEGIC TACTICAL

The Two Primary Approaches to The Two Primary Approaches to Asset AllocationAsset Allocation

Both approaches are founded on the Nobel-Prize winning principles of Modern Portfolio Theory, which:

133

• The strategic approach utilizes Modern Portfolio Theory to develop a long-term target asset mix.

• The target asset mix remains relatively consistent throughout the investment period.

• Periodic rebalancing to the target asset mix controls risk and promotes disciplined selling of winners and buying of losers.

Asset Class Selection & Weighting

Asset Mix

STRATEGIC

Strategic Asset AllocationStrategic Asset Allocation

134

• Establish long-term target asset mix by applying the principals of Modern Portfolio Theory

• Gather proprietary capital market research from investment analysts

• Determine where the most attractive opportunities currently exist

• Adjust asset mix accordingly, within permissible ranges for each Risk/Return profile

TACTICAL

Asset Mix

Proprietary MarketResearch

Tactical Asset AllocationTactical Asset Allocation

Asset Class Selection & Weighting

135

Step 3: Portfolio Strategist Step 3: Portfolio Strategist SelectionSelection

1: Financial Analysis

2: Asset Allocation

3: Portfolio Strategist Selection

4: Investment Manager Selection

5: Monitoring and Rebalancing

6: Reporting

Who is the Right Portfolio Strategist for You?

136

• Substantial research across global capital markets

• Asset allocation and portfolio strategy as a core competency

• Investment Policy Committees composed of senior investment professionals

• Disciplined investment processes

We have developed strategic alliances with institutional investment firms demonstrating:

Portfolio Strategist SelectionPortfolio Strategist Selection

137

Our Portfolio StrategistsOur Portfolio Strategists

3: Portfolio Strategist Selection We use well known Portfolio Strategists for our clients.

138

Domestic Global

Strategic

Tactical

Our Portfolios Strategists’ Our Portfolios Strategists’ Approaches To Asset Approaches To Asset

AllocationAllocation

139

• Strategic or Tactical Asset Allocation

• Domestic or Global

• One or More Portfolio Strategists

• Amount Invested With Each Strategist

• Passive (Index) or Active Management

• Standard or Tax-Managed Model Portfolios

3: Portfolio Strategist Selection

Determine…Determine…

140

Step 4: Investment Manager Step 4: Investment Manager SelectionSelection

1: Financial Analysis

2: Asset Allocation

3: Portfolio Strategist Selection

4: Investment Manager Selection

5: Monitoring and Rebalancing

6: Reporting

Which Investment Approach and Investment Managers are Right For Your client?

141

Mutual Funds

Variable Annuities

Exchange Traded Funds

Privately Managed Accounts4: Investment Manager Selection

Implementing Your Investment Implementing Your Investment StrategyStrategy

There are a variety of ways to implement your investment strategy.

We will work with you to determine the approach that best fits your needs.

142

Implementing Your Investment Implementing Your Investment StrategyStrategy

Selecting an investment management approach that reflects your client’s:

Amount of Investable Resources

Individual Investment Requirements

Tax Considerations

4: Investment Manager Selection

143

The Manager Selection The Manager Selection ProcessProcess

Each Portfolio Strategist has a unique and disciplined process for selecting Investment Managers.

Regardless of the investment approach we ultimately recommend, the client has the assurance of each Strategist’s best efforts in manager review and due diligence.

4: Investment Manager Selection

144

Step 5: Monitoring and Step 5: Monitoring and RebalancingRebalancing

1: Financial Analysis

2: Asset Allocation

3: Portfolio Strategist Selection

4: Investment Manager Selection

5: Monitoring and Rebalancing

6: Reporting

We are on Constant Watch.

As an Investment Advisor, it’s your responsibility to continually monitor your client’s investment portfolio, oversee the Portfolio Strategist’s decisions to rebalance and realign your portfolio, and clearly communicate the changes to you.

145

StrategicRebalance to original target

asset mixTacticalAdjust asset mix based upon

current proprietary researchBoth Monitor performance of

investment managers and replace when necessary

5: Monitoring and Rebalancing

Portfolio Monitoring And Portfolio Monitoring And RebalancingRebalancing

146

Stocks 60%

Bonds 30%

Cash 10%

Cash 5%

Stocks 70%

Bonds 25%

Target Asset Mix

Change in Asset Mix Over Time

Rebalanced to Target Mix

Stocks 60%

Bonds 30%

Cash 10%

Strategic Asset Allocation Strategic Asset Allocation RebalanceRebalance

147

Stocks 60%

Bonds 30%

Cash 10%

Cash 5%

Stocks 70%

Bonds 25%

Target Asset Mix

U.S. Stock Market

Undervalued

U.S. Stock Market

OvervaluedStocks

30%

Bonds 50%

Cash20%

Tactical Asset Allocation Tactical Asset Allocation RebalanceRebalance

148

Step 6: ReportingStep 6: Reporting

1: Financial Analysis

2: Asset Allocation

3: Portfolio Strategist Selection

4: Investment Manager Selection

5: Monitoring and Rebalancing

6: Reporting

Your Client Needs Knowledge, Not Just Information.

We provide clear, ongoing communications.

149

Monthly Custodial Statements

Quarterly Performance Reports

Year-End Tax Planning Report

Online Access to Account Information, Market Commentary, and Investment Research

6: Reporting

Our Reporting And Our Reporting And Communications ProgramCommunications Program

150

Our Approach to Investment Management:

Emphasizes a disciplined process to eliminate an emotional response to short-term market volatility

Delivers great capability to all investment management decision-making

Aligns your investment strategy with your long-term investment objectives and tolerance for risk

INVEST IN THE FUTURE

In SummaryIn Summary

151

Emphasizes the importance of asset allocation

Provides a wide variety of investment approaches to develop a customized investment strategy

Provides on-going monitoring of your portfolio

Delivers clear, timely reporting to keep you on top of your portfolio’s progress

Our Approach to Investment Management:

INVEST IN YOUR FUTURE

In SummaryIn Summary