SAMPLE of an Action Checklist

Transcription

1 SAMPLE of an Action Checklist for Mr. & Mrs. Client Status Action Ideal Plan Goals - Identified and Prioritized o Ages for children to have significant access to wealth ? o Never force monies out of trust for them Hold in a Dynasty Trust? Wills Update Wills Ensure you have proper Wills established with A/B type trusts to take full advantage of each spouse s Unified Credit (currently $ per spouse) no matter the order of survivorship Ensure you have proper Wills established with kiddie provisions Also, each spouse should consider implementing the following documents: Durable Powers of Attorney Durable Medical Powers of Attorney Living Wills HIPAA Authorization Forms Choose executor and trustees See also Nautilus Document Summaries and Memo Comments Fulfill distribution goals and objectives Ensure proper continuity with current law A/B Trusts can save up to $1,845,000 in estate and state taxes, over a simple Will Enough assets in each Mr. and Mrs. s name individually Beneficiary Designation Review and update beneficiary designations of all annuities, pension / retirement plans, and life insurance. Provide SFG a copy of the beneficiary designation for investments or insurance not held with SFG Asset Titling Consider re-titling your SFG account (currently Joint WROS) into Joint TIC so each spouse will have enough assets to fully fund a By-Pass Trust no matter the order of survivorship Charitable Remainder Trust (CRT) Consider adding CRT to both of your new Wills 6% for 20 years Change beneficiary designations of all qualified pension plans: Primary Spouse; Secondary CRT At the first death, your qualified plan assets will rollover to the surviving spouse At the survivor s death, the qualified plan assets will pass to the CRT trust and payout 6% to your heirs for 20 years. Then, the balance will pass to the charities of your choice Could save up to $235,000 in estate and IRD taxes Charitable Lead Trust (CLT) Add provisions for a CLT in your Wills

2 At the second death, all assets can pass to the CLT The term can for the least amount of time to save the maximum in estate taxes Assumed a 2-layer term of 7 & 15 years The CLT will payout 6% of the initial balance to Charity annually Then, upon the end of the CLT term, all assets will pass to your heirs This CLT is designed to minimize estate taxes, which would save about $2,059,000 Use a Master Buy-Sell with estate and LP have note going into LT 529 Plans Could consider establishing 529 College Saving plans for each of your children Land Limited Partnerships (LP) Establish an LP to hold all current land Mgt LLC can be 1% General Partner and Mr. & Mrs. Client can each be 49.5% Limited Partner Complete warranty deeds to retitle land into LP (do not transfer parcels containing home, shop, and other buildings). Do two (2) warranty deeds: one to retitle a 1% interest in all land from Mr. & Mrs. Client to Mgt LLC, and another to retitle all land from Mgt LLC and from Mr. & Mrs. Client to the Land LP Establish lease agreements for rent (review prior years farm income to determine amounts) Set up checking account If client has other passive income sources, review passive and non-passive income tax issues, as well as farm loss restriction issues Ensure total debt on land is not in excess of total basis (if transferring loans to LP also transfer land loans only) If/when any of this LP will be gifted, include Gifted Partnership Units: 30-Day Put Right language in document Also, if gifted outright to individuals, need to prepare gift assignment of LP interests and crummey notices Valuation discounts for minority interest and marketability could save $2,800,000 in estate and MN taxes (assuming a 25% discount) Liability protection, Protection against creditors and predators Ease of income and expense management Farm S-Corp Establish an S-Corp to run your farming operation Reduce self employment taxes Liability protection Machinery LLC Establish a Limited Liability Company (LLC) to hold all farm machinery Asset and creditor protection

3 Master Entity (LLC) Create a Master Limited Liability Company (LLC) to hold General Partnership units of the LP Mr. and Mrs. Client can each own 50% of the LLC interests Asset and creditor protection Control Buy-Sell Planning Set up buy-sell plan with Son Ensure buy-sell plan is properly funded Advantages: Proper distribution of assets at death Minimize and leverage funds to ensure future farm continuation Spousal Support Trust (SST) - Mr. Draft and establish an SST document Mr. will be grantor Mrs. and children will be beneficiaries Set up separate checking account in name of grantor only to fund the trust, so assets will not be included back in estate Gift/Loan about $100,000 to the trust annually The gifts can be leveraged into a tax-free cash death benefit At Mr. s death, Mrs. will have access to the income from the trust At both of your deaths, all your children will receive the cash benefits tax-free A gift tax return may be required, consult SFG or your accountant Provide income for surviving spouse Leverage of funds out of estate, heirs will receive tax-free cash benefits Spousal Support Trust (SST) - Mrs. Could also consider another SST for Mrs. Mrs. will be the grantor Mrs. and children will be beneficiaries Set up separate checking account in name of grantor only to fund the trust, so assets will not be included back in estate Gift/Loan about $100,000 to the trust annually The gifts can be leveraged into a tax-free cash death benefit At Mr. s death, Mrs. will have access to the income from the trust At both of your deaths, all your children will receive the cash benefits tax-free A gift tax return may be required, consult SFG or your accountant Provide income for surviving spouse Leverage of funds out of estate, heirs will receive tax-free cash benefits Irrevocable Family Trust (IFT)

4 Draft and establish an IFT document Children and/or grandchildren to be beneficiaries Gift/Loan funds to the trust annually Can use a joint checking account to fund the trust Set up trust checking account Gift/Loan about $100,000 to the trust annually The gifts can be leveraged into a tax-free cash death benefit At both of your deaths, all of your children will receive the cash benefits tax-free A gift tax return may be required, consult SFG or your accountant Leverage of funds out of estate, heirs will receive tax-free cash benefits Current Life Insurance Review current life insurance in estate Transfer any life insurance on Mr. and Mrs. s life (that will be kept) to their SST(s) out of the estate Review cash value if any and consider gifting issues before any transfers Save 50% of the death benefit, which could be lost to estate and MN taxes if in the estate Split Dollar Can consider Split Dollar loans for a portion of the gifts made to the SST and/or IFT trusts that will be in excess of the current annual exclusion limits Funds loaned to the trusts need to be tracked annually with promissory notes and managed properly Draft and sign split dollar agreement document. Draft and sign collateral assignment document and file with the insurance company. Draft and sign promissory note for the loan. If EOLI on employee/partner, or if paid by an employer/partnership on employee, make sure EOLI Consent form is completed and form 8925 filed each year with employer s tax return If economic benefit method used, make sure split dollar consent form is signed and filed with each party s tax return each year. Eliminate any potential gift taxes Maintain access to the funds in future if needed for Mr. and Mrs. s living needs Reorganize Stock Reorganize/Recapitalize stock into voting and non-voting shares Control Asset and creditor protection Valuation discounts Beneficiary Defective Trust (BDT) Draft and establish a BDT Trust Someone other than Mr./Mrs., can be the grantor Mr. can be the trustee and beneficiary Set up trust checking account Grantor contributes $5,000 to the trust. Hold funds in trust. Must be done before gift and sale documents are completed. Provide SFG a copy of the check

5 Then, Mr. can sell assets to the trust and receive a note back Complete Bills of Sale to transfer all asset interests to the spouse that will make the gift/sale Complete promissory note(s) - All note terms should be less than the life expectancy of the grantor or there could be an implied retained interest at death that could cause the trust assets to be included in the grantor s estate Draft guarantee document to guarantee the trust note until 10% equity in trust. Consider a 5% Guarantee fee on 25% of the note Mr. and Mrs. can choose the ultimate beneficiaries of the trust A gift tax return will be required for the grantor/donor, consult SFG or your accountant Access to income until death, assets available for your use Flexible through use of power of appointment Ability to manage and control the property during lifetime Protected from creditors and predators Reduce estate taxes Other BDT Considerations (D.O. Recommendations) Trust Co. be Independent Special Trustee (IST) IST should initiate all sale actions and any insurance actions. Must include language saying that beneficiary/trustee has no power of appointment over insurance proceeds Must have an independent family trustee to make discretionary distributions Must sell assets to the trust for a reasonable consideration. Discounts are not as much of an issue with the BDT because of the tax burn Grantor gift no more than $5,000 Do crummey for $5,000 grantor gift. Must give the beneficiary the power of withdrawal over the property. Disclose sale in a gift tax return (non-gift transaction) to start statute of limitations Use an appraiser (provide net worth statement of guarantor) to determine the amount of guarantee fee. Have guarantor represented by independent counsel Must pay interest on the note Have trust borrow funds if money is not available Single-member LLC s work best to transfer to a BDT Use guarantors appraised net worth to help determine guarantee fee Cannot refinance BDT notes unless it generally cannot be repaid Intentionally Defective Irrevocable Trust (IDIT) Draft and sign IDIT trust document Spouse to be trustee Spouse and children to be beneficiaries Set up trust checking account Complete Bills of Sale to transfer all asset interests to the spouse that will make the gift/sale Complete promissory note(s) - All note terms should be less than the life expectancy of the grantor or there could be an implied retained interest at death that could cause the trust assets to be included in the grantor s estate Do a combined gift and sale of the Land LP to trust Determine how trust assets will be distributed, once grantor status terminates Appraise the land Appraise the Land LP File a gift tax return

6 Assuming a 25% discount on these assets, save estate taxes of $270,000 now and all future growth of the land will be outside your estate Access to income, assets available for your use Ability to manage and control the property during lifetime Protected from creditors and predators Reduce estate taxes Portfolio Management and Review Transfer liquid portfolio account to SFG for management and review Engagement formula Reallocate $ to _ Have $ Million+ in liquid assets by age 65 (separate from the business) Diversify and Growth Engagement Formula Periodic reviews Guaranteed Service Agreement Master Plan Management & Tax Planning and Preparation Engage us to properly manage your entire Master Plan with quarterly and annual reviews, which is incorporated into your whole plan to manage and measure progress and ensure everything is being maintained properly Integrate your tax return planning and preparation into you Master Plan by engaging us to do your planning and prep Periodic reviews Guaranteed Service Agreement Engagement formula Integrate tax with complete Master Plan and management Reduced annual tax costs