MR SAMPLE MRS SAMPLE

Transcription

1 For MR SAMPLE and MRS SAMPLE

2 makes this software available through a licensing agreement with the software manufacturer solely to introduce general concepts in financial planning. Protective does not create, maintain, endorse or recommend this software and is not responsible for the accuracy of the content. Neither Protective nor its representatives offer tax or legal advice. We recommend that you consult a tax or legal advisor regarding your individual situation. Page 2 of 26

3 Important Notes These pages depict certain estate planning options. These options may include simple wills, marital trusts, family trusts, credit shelter trusts, living trusts, grantor retained trusts, charitable remainder trusts, special business entities, life insurance (with or without a trust), taxable and charitable gifts. Inclusion of one or more of these options does not constitute a recommendation of that option over any other option(s). This illustration simply shows the effect of the option shown on your estate and potential estate taxes, based on certain assumptions detailed in the illustration. This report provides only broad, general guidelines, which may be helpful in shaping your thinking about and discussing your estate planning needs with your professional advisors. The quality of this report is dependent upon the accuracy of data furnished by you. No legal or accounting advice is being rendered by this report or through any other oral or written communications. This report provides estimates based on our general understanding of current tax laws. Unless otherwise indicated, the tax aspect of the federal Generation-Skipping Transfer Tax (GSTT) is not reflected. The GSTT is similar to an additional level of estate tax on certain transfers to grandchildren, or individuals two or more generations removed from the transferor, whether by direct gift or where such transfers may occur through trust or other arrangements where such persons may be beneficiaries. Please discuss legal and accounting matters directly with your counselors in each of those areas. Calculations contained in this report are estimates only. Actual results may vary substantially from the figures shown. All rates of return are hypothetical and are not a guarantee of future performance of any asset, including insurance or other financial products. All inflation rates are estimates provided by you. This analysis is based on information provided by you. It should be kept in mind that property passes by deed first, next by contract, and then by will. To implement any planning option it may be necessary to change ownership or designated beneficiary before your revised will and any planning options will be effective. Because your estate planning concerns and goals may change in the future, periodically monitoring actual results and making appropriate adjustments are essential components of your program. During the course of planning, gifting strategies may be proposed that include the acquisition of insurance and other financial products. When this occurs, additional information about the specific product, including a prospectus when required will be provided for your review. You should consult your own tax and legal advisor before utilizing any planning option shown so that it can be evaluated based on your own needs and circumstances. Page 3 of 26

4 Assumptions Assets and assumptions for a 6/14/2006 analysis of the estate of MR SAMPLE, age 65, and MRS SAMPLE, age 64 State Inheritance Tax based on Florida Your Current Plan This analysis assumes that MR is the first to die in 0 years and MRS dies 0 years later. Income Tax Rates Pre-retirement Income Tax Rate: % Post-retirement Income Tax Rate: % Pre-retirement Capital Gains Tax Rate: % Post-retirement Capital Gains Tax Rate: % Post-retirement rates start in year 1 Income Tax Rate for Income in Respect of a Decedent: % Inflation Rate for Federal Indexed Values: 3.000% Assets Cash Account (Checking, CDs, Cash) Initial Value: $0 Owner: Joint Interest Rate: 5.000% Ordinary Income Joint Stocks (Stocks) Initial Value: $100,000 Owner: Joint Basis: $0 Appreciation Rate: 8.000% Tax Deferred Capital Gains Joint Personal Property (Property) Initial Value: $300,000 Owner: Joint Basis: $0 Appreciation Rate: 0.000% Tax Deferred Capital Gains Joint Personal Residence (Residence) Initial Value: $750,000 Owner: Joint Basis: $0 Appreciation Rate: 2.000% Tax Deferred Capital Gains Joint Checking, CDs, Money Mar (Checking, CDs, Cash) Initial Value: $50,000 Owner: Joint Interest Rate: 2.000% Ordinary Income Joint Other Real Estate (Property) Initial Value: $500,000 Owner: Joint Basis: $0 Appreciation Rate: 8.000% Tax Deferred Capital Gains Joint Mutual Funds (Mutual Fund) Initial Value: $800,000 Owner: Joint Basis: $0 Appreciation Rate: 8.000% Tax Deferred Capital Gains Page 4 of 26

5 Assumptions (continued) Assets (cont.) Your Current Plan Joint Bonds (Bond) Initial Value: $400,000 Owner: Joint Basis: $400,000 Current Yield: 4.000% (Annual Income) Qualified Plans MR's IRA and Pensions (Qualified) Initial Value: $2,000,000 Owner: MR Interest Rate: 8.000% Income MR's Annual Income (Ordinary Income) Owner: MR Income: $150,000 Starting in year 1 for 1 years Annual Increase: 3.000% MRS's Annual Income (Ordinary Income) Owner: MRS Income: $0 Starting in year 1 for 1 years Annual Increase: 3.000% Existing Life Insurance MR's Insurance (Policy on MR) Face Amount: $150,000 Owner: MR Annual Premium: $4,000 Beneficiary: MRS Liabilities Other Debts - MRS's Liability: $250, Annual Rate: 0.000% Owner: MRS Payment: $0 Starting in year 1 Frequency of Payments: Annual Expenses Living Expenses Initial Amount: $120,000 Starting in year 1 for 1 years Annual Increase: 3.000% Percent continuing after death: % Page 5 of 26

6 Assumptions (continued) Expenses (cont.) Your Current Plan Living Expenses Retired Initial Amount: $90,000 Starting in year 2 Annual Increase: 3.000% Percent continuing after death: % Page 6 of 26

7 Your Current Plan This analysis assumes that MR and MRS both die today. MR dies first. Projected Growth of Assets MR's Assets MRS's Assets Values Today $3,446,000 $5,011,540 Values at MR's death $3,446,000 $1,450,000 Adjustments at MR's Death Life Insurance in Estate 1 150,000 Estate Total in 2006 $3,596,000 $1,450,000 Combined Estate Total $5,046,000 1 Incidents of ownership or beneficiary designation cause inclusion of death proceeds in estate. Page 7 of 26

8 Your Current Plan MR Dies in 2006, MRS Dies in 2006 Combined Gross Estate $5,046,000 in 2006 Taxes, Expenses and Probate $34,460 $5,011,540 Remaining Estate at MRS's death $5,011,540 in 2006 Taxes, Expenses Probate, Debts $1,612,420 Net Distributions to Heirs $3,399,120 less: Income Tax on Income in Respect of Decedent ($326,760) Total to Family $3,072,360 Page 8 of 26

9 Your Current Plan Flowchart Calculations At First Death in 2006 At Second Death in 2006 Remaining Estate MRS's Assets using Assumed Growth Rates $1,450,000 $5,011,540 plus Other Funds (Net Inheritance) 3,561,540 equals Remaining Estate $5,011,540 $5,011,540 includes IRA Rollover of $2,000,000 Total Net Taxes Due Federal Estate Tax before Credits $0 $1,972,643 less Applicable Credit $780,800 $780,800 State Tax $0 $0 less State Tax Credit $0 $0 equals Total Net Taxes Due $0 $1,191,843 Taxes, Expenses, Probate, Debts Probate and Administrative Fees $34,460 $170,577 plus Liabilities Paid Off $0 $250,000 Total Net Taxes Due $0 $1,191,843 Total Taxes, Expenses, Probate and Debts $34,460 $1,612,420 Income Tax on Income in Respect of Decedent $0 $326,760 Additional Funds Needed Total Taxes, Expenses, Probate and Debts $34,460 $1,362,420 Income Tax on Income in Respect of Decedent $0 $326,760 plus Liabilities Paid Off $250,000 equals Additional Funds Needed 1 $34,460 $1,939,180 1 If Additional Funds Needed at first death were provided, funds needed at second death could be reduced. The method of providing these funds can alter the amount needed. Page 9 of 26

10 Your Current Plan Sources of Cash To maintain cash flow each year it may be necessary to withdraw a portion of the earnings or even liquidate one or more assets. Based on the information you supplied, each of your assets has been prioritized as to which asset would be used first, which would be last, and with all others in between. This same priority list is used at MR's death to determine which assets would be used for any additional liquidity needs. The following assets are utilized in your Current Plan: Between now and MR's death At MR's death Cash Account (Liquid) Each year any unspent income is added to a taxable Cash Account which grows at 5.000% annual interest. This account is the first asset used to satisfy cash flow needs. No other assets were needed to provide cash flow. Cash Account (Liquid) This account is the first asset used to satisfy liquidity needs for estate taxes and expenses. Assets owned by the decedent are used first, then half of jointly owned assets, then any remaining assets. No other assets were needed to provide cash flow. Between MR's death and MRS's death Cash Account (Liquid) This account is the first asset used to satisfy cash flow needs. Joint Checking, CDs, Money Markets (Checking, CDs, Starting Cash) in year Starting year is the first year this asset is used. See Priority Details for information. Page 10 of 26

11 Proposed Expenses and Gifts Your Proposed Plan This analysis of the proposed plans of MR and MRS assumes that the following plans for expenses and gifts replace your current plans. Expenses are referring to expenses that are consumed that is, they are not used to purchase other assets and are in addition to expenditures shown elsewhere in this proposed plan. Expenses Living Expenses Initial Amount: $120,000 Starting in year 1 for 1 years Annual Increase: 3.000% Percent continuing after death: % Living Expenses Retired Initial Amount: $90,000 Starting in year 2 Annual Increase: 3.000% Percent continuing after death: % Page 11 of 26

12 Effects of Additional Planning This analysis assumes that MR and MRS both die today. MR dies first. Projected Growth of Assets MR's Assets MRS's Assets Values Today $3,446,000 $5,011,540 Values at MR's death $3,446,000 $1,450,000 Adjustments at MR's Death Life Insurance in Estate 1 150,000 Estate Total in 2006 $3,596,000 $1,450,000 Combined Estate Total $5,046,000 1 Incidents of ownership or beneficiary designation cause inclusion of death proceeds in estate. Page 12 of 26

13 Effects of Additional Planning MR Dies in 2006, MRS Dies in 2006 Combined Gross Estate $5,046,000 in 2006 Taxes, Expenses and Probate $34,460 Bequests $3,450,000 Remaining Estate at MRS's death $3,450,000 in 2006 $1,411,540 Family Trust $1,411,540 Taxes, Expenses Probate, Debts $851,950 Family Trust $1,411,540 Net Distributions to Heirs $2,748,050 less: Income Tax on Income in Respect of Decedent ($447,165) Total to Family $3,712,425 Page 13 of 26

14 Effects of Additional Planning At First Death in 2006 Flowchart Calculations At Second Death in 2006 Family Trust with Growth at 5.000% $1,411,540 $1,411,540 Remaining Estate MRS's Assets using Assumed Growth Rates $1,450,000 $3,450,000 plus Other Funds (Net Inheritance) 2,000,000 equals Remaining Estate $3,450,000 $3,450,000 includes IRA Rollover of $2,000,000 Total Net Taxes Due Federal Estate Tax before Credits $583,493 $1,290,250 less Applicable Credit $780,800 $780,800 State Tax $0 $0 less State Tax Credit $0 $0 equals Total Net Taxes Due $0 $509,450 Taxes, Expenses, Probate, Debts Probate and Administrative Fees $34,460 $92,500 plus Liabilities Paid Off $0 $250,000 Total Net Taxes Due $0 $509,450 Total Taxes, Expenses, Probate and Debts $34,460 $851,950 Income Tax on Income in Respect of Decedent $0 $447,165 Additional Funds Needed Total Taxes, Expenses, Probate and Debts $34,460 $601,950 Income Tax on Income in Respect of Decedent $0 $447,165 plus Liabilities Paid Off $250,000 equals Additional Funds Needed 1 $34,460 $1,299,115 1 If Additional Funds Needed at first death were provided, funds needed at second death could be reduced. The method of providing these funds can alter the amount needed. Page 14 of 26

15 Effects of Additional Planning Sources of Cash To maintain cash flow each year it may be necessary to withdraw a portion of the earnings or even liquidate one or more assets. Based on the information you supplied, each of your assets has been prioritized as to which asset would be used first, which would be last, and with all others in between. This same priority list is used at MR's death to determine which assets would be used for any additional liquidity needs. The following assets are utilized in your Current Plan: Between now and MR's death At MR's death Cash Account (Liquid) Each year any unspent income is added to a taxable Cash Account which grows at 5.000% annual interest. This account is the first asset used to satisfy cash flow needs. No other assets were needed to provide cash flow. Cash Account (Liquid) This account is the first asset used to satisfy liquidity needs for estate taxes and expenses. Assets owned by the decedent are used first, then half of jointly owned assets, then any remaining assets. No other assets were needed to provide cash flow. Between MR's death and MRS's death Cash Account (Liquid) This account is the first asset used to satisfy cash flow needs. Joint Checking, CDs, Money Markets (Checking, CDs, Starting Cash) in year 1 1 Joint Mutual Funds (Mutual Fund) Starting in year 1 1 Joint Stocks (Stocks) Starting in year 1 1 Joint Bonds (Bond) Starting in year 1 1 MR's IRA and Pensions (Qualified) Starting in year Starting year is the first year this asset is used. See Priority Details for information. Page 15 of 26

16 Assets Before Death This analysis assumes that MR and MRS both die today. MR dies first. Your Proposed Plan MR's Assets MRS's Assets Values Today $3,446,000 $5,011,540 Values at MR's death $3,446,000 $1,450,000 Adjustments at MR's Death Life Insurance in Estate 1 150,000 Estate Total in 2006 $3,596,000 1 Incidents of ownership or beneficiary designation cause inclusion of death proceeds in estate. Premiums may vary based on many factors, including the age, sex, and health of the insured. This presentation is not valid unless accompanied by an illustration of proposed policy values. Page 16 of 26

17 Estate Calculations MR Dies First in 2006 Calculations at First Death Current Plan Proposed Plan MR's Gross Estate $3,596,000 $3,596,000 Liabilities (0) (0) A. Net Estate $3,596,000 $3,596,000 Estate Expenses Probate and Administrative Fees 34,460 34,460 Final Expenses 0 0 B. Total Expenses $34,460 $34,460 C. Adjusted Gross Estate (A - B) $3,561,540 $3,561,540 Deductions Marital Deduction 3,561,540 2,000,000 D. Total Deductions $3,561,540 $2,000,000 E. Tentative Tax Base (C - D) $0 $1,561,540 Taxes and Credits Federal Estate Tax before Credits 0 583,493 Applicable Credit Amount (780,800) (780,800) Florida Tax 0 0 F. Total Net Taxes Due $0 $0 G. Distributions at MR's Death (C - F) $3,561,540 $3,561,540 Page 17 of 26

18 Estate Transferred to Heirs MR Dies First in 2006 Distributions Following First Death Current Plan Proposed Plan MR's Gross Estate $3,596,000 $3,596,000 Less Liabilities (0) (0) Less Total Expenses (34,460) (34,460) Less Total Net Taxes Due (0) (0) After Tax Estate $3,561,540 $3,561,540 Reduction after Taxes and Expenses 1% 1% Distribution of Estate Assets MR's Bequests 0 150,000 Marital Deduction 3,561,540 2,000,000 Family Trust 1,411,540 Premiums may vary based on many factors, including the age, sex, and health of the insured. This presentation is not valid unless accompanied by an illustration of proposed policy values. Page 18 of 26

19 Assets Between Deaths Your Proposed Plan At MR's death various transactions occur which may use existing assets. These transactions occur before MRS's estate is calculated. Values at MRS's death in $3,450,000 1 There is no asset growth between deaths. Both deaths occur in Page 19 of 26

20 Estate Calculations MRS Dies Second in 2006 Calculations at Second Death Current Plan Proposed Plan MRS's Gross Estate $5,011,540 $3,450,000 Liabilities (250,000) (250,000) A. Net Estate $4,761,540 $3,200,000 Estate Expenses Probate and Administrative Fees 170,577 92,500 Final Expenses 0 0 B. Total Expenses $170,577 $92,500 C. Adjusted Gross Estate (A - B) $4,590,963 $3,107,500 Deductions D. Total Deductions $0 $0 E. Tentative Tax Base (C - D) $4,590,963 $3,107,500 Taxes and Credits Federal Estate Tax before Credits 1,972,643 1,290,250 Applicable Credit Amount (780,800) (780,800) Florida Tax 0 0 F. Total Net Taxes Due $1,191,843 $509,450 G. Income Tax on Income in Respect of Decedent $326,760 $447,165 H. Distributions at MRS's Death (C - F - G) $3,072,360 $2,150,885 Page 20 of 26

21 Estate Transferred to Heirs MRS Dies Second in 2006 Distributions Following Second Death Current Plan Proposed Plan MRS's Gross Estate $5,011,540 $3,450,000 Less Liabilities (250,000) (250,000) Less Total Expenses (170,577) (92,500) Less Total Net Taxes Due (1,191,843) (509,450) Less Income Tax on Inc. Resp. Dec. (326,760) (447,165) After Tax Estate $3,072,360 $2,150,885 Reduction after Taxes and Expenses 39% 38% Distribution of Estate Assets MRS's Bequests 0 150,000 Family Trust 1,411,540 Other Distributions Income Tax on Income in Respect of Decedent 326, ,165 Total Estate Transferred $3,072,360 $3,712,425 Increased Distributions to Heirs and Others from Additional Planning $640,065 Premiums may vary based on many factors, including the age, sex, and health of the insured. This presentation is not valid unless accompanied by an illustration of proposed policy values. Page 21 of 26

22 Liquidity Needed MR Dies First in 2006 Amount to Preserve Estate Assets Current Plan Proposed Plan Estate Taxes and Expenses Probate and Administrative Fees 34,460 34,460 Final Expenses 0 0 Estate Taxes 0 0 Total Estate Settlement Costs $34,460 $34,460 Life Insurance Available (outside estate) at MR's Death 0 0 Additional Liquidity Outside Estate Needed to Preserve Estate Assets $34,460 $34,460 Other Funds Available Life Insurance Included in the Estate 1 Total Death Proceeds 150, ,000 Proceeds available after taxes 150, ,000 Estimated Percentage of Liquid Assets in the Estate at Death 2 61% 61% 1 Life Insurance included in the estate is a liquid asset that may be used to pay estate settlement costs. However, it is subject to estate taxes. The tax due may be increased, reducing funds available to pay settlement costs. 2 Estimated only, based on existing mix of assets and all other assumptions. Actual liquid assets will depend on a number of factors. Of course, even if liquid assets are available you may not want to use them to pay estate transfer costs. Premiums may vary based on many factors, including the age, sex, and health of the insured. This presentation is not valid unless accompanied by an illustration of proposed policy values. Page 22 of 26

23 Liquidity Needed MRS Dies in 2006 Amount to Preserve Estate Assets Current Plan Proposed Plan Estate Taxes and Expenses Probate and Administrative Fees 170,577 92,500 Final Expenses 0 0 Liabilities 250, ,000 Estate Taxes 1,191, ,450 Income Tax on Income in Respect Decedent 326, ,165 Total Estate Settlement Costs $1,939,180 $1,299,115 Life Insurance Available (outside estate) at MRS's Death 0 0 Additional Liquidity Outside Estate Needed to Preserve Estate Assets $1,939,180 $1,299,115 Estimated Percentage of Liquid Assets in the Estate at Death 1 61% 61% 1 Estimated only, based on existing mix of assets and all other assumptions. Actual liquid assets will depend on a number of factors. Of course, even if liquid assets are available you may not want to use them to pay estate transfer costs. Premiums may vary based on many factors, including the age, sex, and health of the insured. This presentation is not valid unless accompanied by an illustration of proposed policy values. Page 23 of 26

24 State Death Taxes Calculating Your State Death Taxes What Property Is Subject to State Death Taxes? In addition to the federal estate taxes paid on assets held in your estate at death, state death taxes may have to be paid on those same assets. Your state of residence at death will tax all real estate, tangible and intangible property located in the state s boundaries and if you have assets in other states, the other states will tax property located within their boundaries as well. This presentation assumes all your assets will be taxed based on the state death tax laws of the state you have indicated as your residence. How Do State Death Taxes Work? On your federal estate tax return, you receive a credit for state death taxes paid up to a maximum amount (calculated by the federal government). Before 2001, most states assessed their estate taxes based on that maximum allowable federal credit amount. These states are called Pick-up States. EGTRRA 2001 phased out the state death tax credit allowed against the federal estate tax in 25 percent increments between 2002 and For 2005 through 2009, the credit is replaced by a deduction for state death taxes paid and in 2010, the taxes are repealed. Unless further legislative action is taken, most Pick-up States will not assess state death taxes for 2005 through The credit as defined by federal law is $0 for these years, and beyond 2011, if the federal estate tax repeal is made permanent. Decoupled States Using the Pre-EGTRRA Federal Credit to Calculate State Death Taxes In response to the phase out of the Federal State Death Tax Credit, many other states have decoupled to capture revenue. When a state decouples, state law is rewritten to assess a death tax equal to the federal credit as calculated prior to EGTRRA 2001 federal tax law revisions. It is possible that your state may adopt this calculation method in the future to replace revenue lost when the federal credit was repealed. This may result in higher overall transfer taxes for the decedent. Because state death taxes vary greatly from state-to-state and states may revise tax laws at any time, you and your advisor should review your state's laws carefully to assure competent estate planning. Page 24 of 26

25 Additional Details Your Current Plan Calculations assume that MR SAMPLE (age 65) and MRS SAMPLE (age 64) both die today. MR is assumed to die first. MR plans to start receiving Social Security retirement benefits at age 65. MR is eligible for Social Security at 100% of the maximum benefit available. MRS plans to start receiving Social Security retirement benefits at age 65. MRS is eligible for Social Security at 0% of the maximum benefit available. MR is a U.S. Citizen and MRS is a U.S. Citizen. Income Tax Rates Pre-retirement Income Tax Rate: % Post-retirement Income Tax Rate: % Pre-retirement Capital Gains Tax Rate: % Post-retirement Capital Gains Tax Rate: % Post-retirement rates start in year 1 Income Tax Rate for Income in Respect of a Decedent: % Inflation Rate for Federal Indexed Values: 3.000% An IRC Sec rate of 5.000% is used to calculate the remainder interests for trusts, annuities and income in respect of decedent. Income designated as Capital Gains Income is assumed to qualify for long-term capital gains treatment. Calculation of short-term capital gains, adjusted net capital gain or qualified 5-year gain is beyond the scope of this analysis. Probate and Expenses MR: Final Expenses: $0 Estimated Probate Fees: 4.000% Administrative Expenses: 1.000% MRS: Final Expenses: $0 Estimated Probate Fees: 4.000% Administrative Expenses: 1.000% Cash Account Unspent income accumulates in a special account and the balance is available for spending in future years. Accumulation Rate for Cash Account: 5.000% (Taxable) Version: (6/14/2006) Page 25 of 26

26 Priority Details Priorities for Sources of Cash Assets are utilized in the order indicated to provide needed cash flow. At death, additional cash needs will be met with decedent's assets, then joint property. The Cash Account is always used first. For liquid assets, only the amount needed of the asset is used. Fixed Assets are sold with any excess going to Cash Account. Qualified Plans are used as needed except when 'Safe Harbor' distributions have started. Priority of Assets Availability 1 Cash Account (Checking, CDs, Cash) Use as needed 2 Joint Checking, CDs, Money Markets (Checking, CDs, Cash) Use as needed 3 Joint Mutual Funds (Mutual Fund) Use as needed 4 Joint Stocks (Stocks) Use as needed 5 Joint Bonds (Bond) Use as needed 6 MR's IRA and Pensions (Qualified) Use as needed 7 Joint Other Real Estate (Property) Sell if needed 8 Joint Personal Property (Property) Sell if needed 9 Joint Personal Residence (Residence) Sell if needed Page 26 of 26