Estate Planning Strategies for the Business Owner

Transcription

1 National Life Group is a trade name of of National Life Insurance Company, Montpelier, VT and its affiliates. TC74345(0613)1 Estate Planning Strategies for the Business Owner Presented by: Connie Dello Buono motherhealth@gmail.com CA Life lic 0G60621 [Agent Name] is a Registered Representative and Investment Adviser Representative of Equity Services, Inc. Securities and investment advisory services are offered solely by Equity Services, Inc.., Member FINRA/SIPC., [branch office address and telephone number.] [DBA name] is independent of Equity Services, Inc.

2 Disclosure This information is not intended as tax or legal advice. Please consult with your Attorney or Accountant prior to acting upon any of the information contained in this presentation. The use of trusts involves complex tax rules and regulations. Consider enlisting the counsel of an estate planning professional and your legal and tax advisor s prior to implementing such sophisticated strategies. The cost and availability of life insurance will depend on factors such as age, health, and the type and amount of insurance purchased.

3 Estate Planning Strategies How to Transfer Assets to Your Heirs

4 Business Succession Planning Components Estate Planning Strategies: Retirement Planning Executive Benefits Planning

5 Business Succession Planning Components Executive Benefits help you retain employees who are key to your business succession plan.

6 Executive Benefits Planning Attract Motivate Reward Retain Select key employee

7 Business Succession Failures No qualified successor Lack of planning Difficulty separating self from the business (a.k.a. fear of retirement) Death of the owner Retirement of the owner without sufficient retirement assets

8 Business Succession Failures Death of the business owner + Lack of capital = Need for Estate Planning

9 Estate Planning Strategies Estate planning is easy to put off, but once death strikes, it s too late.

10 Estate Planning Benefits to Family Keeps the business in the family Equitable treatment of heirs Avoids conflict

11 Estate Planning Strategies Benefits Business Succession by: Providing liquidity for the business Providing family security without tapping the business

12 Federal Estate Tax Today American Taxpayer Relief Act of 2013 Rates Exemptions Portability

13 Consequences of Not Planning Estate and Income Taxes Administrative Fees Other Legal Expenses

14 Estate Planning Process Data Gathering Interview Evaluation of Existing Plan Establish Goals Collect Data Develop Plan Implement Plan Periodic Review

15 Goals of Estate Planning Provide for spouse and family Maximize estate left to beneficiaries Minimize tax burden Provide estate liquidity Reduce expenses

16 Unlimited Marital Deduction Transfer assets to surviving spouse Defers estate taxes Utilized incorrectly, can actually increase estate taxes

17 Gift Tax Exclusion Gradually transfer assets out of the estate while living 2013 Annual Gift Tax Exclusion - $14,000/donee - $28,000/married couple 2013 Lifetime Gift Tax Exclusion and GST -$5.25m

18 Gift Tax Example: You Your Spouse Total Gift Child 1 $14,000 $14,000 $28,000 Child 2 $14,000 $14,000 $28,000 Child 3 $14,000 $14,000 $28,000 Total Gifts Qualifying for Exclusion: $84,000

19 Generation-Skipping Transfer Tax Special tax on amounts transferred two or more generations down the line 2013 exemption = $5,250,000

20 Generation-Skipping Transfer Tax John Mary Peter Estate tax (40%) Estate tax (40%) John Peter Estate tax (40%) + GST tax (40%)

21 Estate Planning Strategies Will Buy-Sell Arrangement Life Insurance Irrevocable Life Insurance Trust Living Trust Personal Residence Trust QTIP Dynasty Trust Charitable Remainder Trust Family Limited Partnership GRATs Long Term Care Long-term care insurance is available through representatives who are independently contracted through one or more insurers who provide this type of insurance contract. Long-term care insurance is not underwritten nor issued by National Life Insurance Company.

22 Estate Planning Strategy: Your Will A will is the most fundamental part of your estate plan.

23 Estate Planning Strategy: Your Will A will provides the foundation for an estate plan and provides for other wealth transfer strategies such as: Creating trusts to manage assets Selecting a guardian for minor children Authorizing business continuation plans

24 Estate Planning Strategy: Your Will Why both spouses should have a will: Allows for specific personal bequests Allows for separate charitable interests Joint wills between spouses can potentially lead to unexpected legal problems

25 Estate Planning Strategy: Buy-Sell Agreements Buy-Sell Agreements define terms for the purchase and sale of your business in the event of your death, disability or retirement.

26 Estate Planning Strategy: Buy-Sell Types of buy-sell arrangements: Cross Purchase Entity Purchase

27 Estate Planning Strategy: Life Insurance Makes capital available at the moment it becomes needed Avoids probate In some cases, proceeds will pass to beneficiaries free of estate tax Death proceeds are generally received income tax-free

28 Estate Planning Strategy: Life Insurance Life insurance can provide: capital to provide family security estate liquidity

29 Estate Planning Strategy: Life Insurance For business owners, life insurance provides: Needed capital to fund a business transfer Protection from the loss of a key employee Equalizes inheritances to heirs

30 Estate Planning Strategy: Life Insurance When combined with a trust, life insurance can become an even more important estate planning tool.

31 Estate Planning Strategy: Irrevocable Life Insurance Trust How It Works: Bypass Probate Avoids Federal Estate Tax Annual Gift Irrevocable Trust Heirs Premiums Death Proceeds Insurance Company

32 Estate Planning Strategy: Irrevocable Life Insurance Trust IRS Rules for establishing an ILIT: Insured can have no incidents of ownership 3 Year Rule

33 Estate Planning Strategy: Irrevocable Life Insurance Trust Gift tax to consider: Gift taxes apply Trustee must apply for policy directly to avoid tax problems

34 Estate Planning Strategy: Irrevocable Life Insurance Trust Role of the Trustee: May pay estate-related cost from trust May make loans May purchase estate assets

35 Estate Planning Strategy: Irrevocable Life Insurance Trust Summary: Taxpayers can remove substantial assets from their gross estate Insurance proceeds can be a source of income for the surviving family, while providing funds to pay estate taxes for the estate Other Considerations: Cash Flow Loss of control Administrative costs

36 Estate Planning Strategy: Living Trust Living trusts are intended to manage assets during periods of disability and at death.

37 Estate Planning Strategy: Living Trust How it works: Living Trust Heirs Assets Will Probate Heirs

38 Estate Planning Strategy: Living Trust A Living Trust Enables You To: Maintain control during your lifetime Plan for incapacity Avoid costs and delays of probate Guarantee privacy

39 Estate Planning Strategy: Personal Residence Trust A personal residence trust removes a grantor s home from his estate while still letting him or her live in it until death.

40 Estate Planning Strategy: Personal Residence Trust How it works: Your House 10 Year Personal Residence Trust Outlive Trust Don t Outlive Trust House to Heirs Not Taxable House to Heirs Taxable

41 Estate Planning Strategy: Personal Residence Trust Advantages: Transfer asset at a discount Reduces gross estate You retain rights to live in home Works with any residence

42 Example Using 10-Year Trust Gift Tax Exemption Available: $5,250,000 Total Gifts to Children: $1,500,000 Gift Tax on Home Valued at $700,000: $290,000 Total Exemption Still Available: $3,460,000 This example is purely hypothetical and for illustrative purposes. Your results will likely differ.

43 Estate Planning Strategy: QTIP A QTIP potentially takes advantage of the unlimited marital deduction and still lets the grantor control the disposition of certain assets at the second spouse s death.

44 Estate Planning Strategy: QTIP Example: Balance of Barbara s estate in excess of $5,250,000* Lifetime Income QTIP Remainder Amount Eric Children or Grandchildren * This amount represents the applicable exclusion amount (the amount that may be passed to heirs estate tax-free in 2012). This illustration is purely hypothetical and for illustrative purposes. Your results likely will differ.

45 Estate Planning Strategy: Grantor Retained Annuity Trust Provides income-producing assets by gifting a remainder interest to an irrevocable trust.

46 Estate Planning Strategy: Grantor Retained Annuity Trust You $$$$$ Annuity Payments Grantor Retained Annuity Trust End of Trust Beneficiaries

47 Estate Planning Strategy: Grantor Retained Annuity Trust Tax Implications: Does not qualify for gift tax exclusion Greater the value of the annuity, the lower the assessed gift

48 Estate Planning Strategy: Grantor Retained Annuity Trust At the End of the Trust: Outlive trust and avoid estate tax Do not outlive trust and it will be included in estate

49 Estate Planning Strategy: Grantor Retained Annuity Trust Advantages: Reduces asset transfer costs Avoids tax on appreciating gifts Provides income Things to know: Administrative costs Grantor must live for full term to realize full tax benefits

50 Estate Planning Strategy: Charitable Remainder Trust Remove property from your estate Potential lifetime income Benefit your favorite charity

51 Estate Planning Strategy: Charitable Remainder Trust As a charitable donation, there is no gift tax associated with a CRT transfer of assets at the end of the trust term.

52 Estate Planning Strategy: Charitable Remainder Test Tax Benefits: No gift tax with transfer Immediate income tax deduction No tax on appreciated values Things to know: Gift is irrevocable Loss of access to principal Tax deductions may be subject to limits

53 Estate Planning Strategy: Charitable Remainder Trust Primary Types of CRTs: Annuity trust Unitrust

54 Example: Charitable Remainder Trust CRAT Contribution: $1,000,000 Payout Rate: $50,000 annually for life Age of Donor: 65 Kathryn Charitable Deduction: $255,065 Kathryn s Annual Income: $50,000 Remainder to Charity: $1,000,000 * This examples is purely hypothetical and for illustrative purposes only. Your results will likely differ

55 Estate Planning Strategy: Charitable Remainder Trust How it works: Donor or Other Beneficiaries During Trust: Lifetime Income You $$$$ Charitable Remainder Trust At End of Trust: Remaining $$$$ Charitable Organization

56 Estate Planning Strategy: Dynasty Trust Makes use of the GST exemption to transfer assets to future generations, while meeting other estate objectives.

57 Estate Planning Strategy: Dynasty Trust How it works: Assets Dynasty Trust Income to Heirs Principal to Heirs at Trust Termination

58 Estate Planning Strategy: Dynasty Trust Benefits: Favorable tax treatment Flexibility Ability to create a family legacy Protection from creditors Things to know: Trust can t be amended Costs and ongoing trustee fees

59 Estate Planning Strategy: Family Limited Partnership Limited Partnership Parents transfer assets and receive partnership interests Partnership interests eventually transferred to children

60 Estate Planning Strategy: Family Limited Partnership Jones Family Limited Partnership 2% General Partnership 98% Limited Partnership $28,000 worth of FLP units per year, per child

61 Estate Planning Strategy: Family Limited Partnership Advantages: Transfer assets to family members when and under what circumstances they want Flexibility Protecting and preserving assets from creditors Things to know: Must have valid business purpose and discounts are subject to scrutiny by the IRS. The financial outlay associated with an FLP could be significant

62 Estate Planning Strategy: Family Limited Partnership Example: The Jones want to transfer $1 million to their children, gift-tax free. If they don t use FLP unit discount: 14 years for transfer If they do use an FLP unit discount: 10 years for transfer

63 Proper Estate Planning Will Require a Strong Professional Team Attorney Accountant Qualified Financial Practitioner

64 Estate Planning Strategies Questions & Answers

65 Thank You