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TRUSTS – WEALTH CREATION AND RETENTION

William A. Conway

Law Office of William A. Conway

6718 Whittier Avenue

Suite 250

McLean, Virginia 22101

E. Ronald Lara, CFP

Lara, Shull & May, Ltd.

7600 Leesburg Pike

Suite 120 East

Falls Church, Virginia  22043

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William A. Conway, Esq.

• Professional career includes tax attorney, investment banker, and legal educator.

• Is included in both Who's Who in Finance and Industry and Who's Who in American Law.

• Is dedicated to building wealth enhancement strategies for his clients using advanced planning.

• Radio program, “Family Fortunes,” is on WTNT 570 AM in the Washington Metro area Saturday mornings.

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E. Ronald Lara, CFP

• Founded Lara, Shull & May, Ltd. in 1981. • Specializes in tax efficient strategies to

maximize wealth.• Has co-created two powerful investment

strategy tools: The Lifetime Success Solution® and The Retirement Success Solution®.

• Manages the U.S. Treasury Bond Management Program.

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Outline

• Reality of Client Desires from Wealth Planning

• Reality of Existing Wealth Planning

• Power of Trusts

• Taxation

• Marketing

• Benefits to Advisor Team Members

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Reality of Client Desires from Wealth Planning

1. Reduce or eliminate current and future income taxes

2. Provide future estate and generation-skipping tax inoculation

3. Asset Protection for spouse and descendants

Old ingredients, new recipes

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Reality of Existing Wealth Planning

• Only 5-10% of clients who have “completed” plans have continuing trusts for non-spousal beneficiaries.

• More than 50% of married clients who have completed plans will fail to achieve desired protections for the surviving spouse.

• It’s NOT “all taken care of”

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Main Ingredients

• Revocable “Living” Trusts

• Stand-Alone Revocable Trusts, e.g., Retirement Trusts, Educational “529” Trusts

• Irrevocable Trusts “IRTs”– ILITs– Stand Alone “Dry” IRTs– Intentionally Defective Trusts “IDGTs”– Inter Vivos QTIPs

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Main Ingredients (Continued)

• FLPs & LLCs• Retirement Plans (IRAs, 401(k)s) • Managed Accounts• Mutual Funds

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Main Ingredients (Continued)

• Life Insurance– Insured

• Single Life• Survivorship

– Design– Types

• Cash Value Policies– -UL, guaranteed or

non– Variable UL – non-

guaranteed only– Equity indexed,

guaranteed or non• Term Policies

• Annuities– Deferred Variable and

Fixed Annuities– Immediate Annuities

• Life only• Longer of Term of

Years or Life

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Magical Mystical Power of Trusts

“Everything is possible”

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Basic Trust Terms

Grantor = Maker of Trust = Trustmaker

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Basic Trust Terms

Beneficiary - One who is benefited by the Trust.

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Basic Trust Terms

Trustee – One who controls the assets in a trust.

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Basic Trust Terms

Continuing Trusts – Multigenerational Trusts –

Dynasty Trusts

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Types of Trusts

• Revocable Trust

• Irrevocable Trust

• Grantor Trusts

• Non Grantor Trusts

• Accessible Irrevocable Trust

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Basic Trust Terms

Intentionally-Defective Grantor Trust “IDGTs”

• Shifts asset value from estate of Trustmaker

• Trustmaker retains income tax obligation

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Grantor Trust Taxation

• A revocable trust’s income and expenses flow through to its trustmaker—the grantor.

• Grantor trusts income taxes are the same as the grantors for income tax purposes; sale by grantor to grantor does not trigger income tax.

• Income tax paid by the grantor is not subject to gift tax.

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Trusts are Separate Taxpayers

• Applies to Non-Grantor Trusts– Have their own tax return and tax accounting– Receive income and pay expenses– Income is subject to tax either to the trust or

the beneficiaries

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Non Grantor Trust Taxation

• If a trust accumulates income, the trust pays the tax.

• If a trust distributes the income, the beneficiaries pay the tax.

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Taxation of Retained Income

• Capital Gains taxed at 15% maximum

• Dividends taxed at 15% maximum

• Interest taxed at 35% after $10,000 net income

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“The” Tax Problem Myth

• The “HIGHER” Levels of Income Tax only apply to interest income + rents

• Trusts pay federal income tax for capital gain and dividends at 15% rate

• Tax issue solved by investment and income tax management

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“The” Tax Problem Myth

• Even for interest income the rate is relative NOT absolute

• Comparison is between beneficiaries’ “AFTER DISTRIBUTION” Tax Rate and Trust Rate

Married Single Trust

28% $128,000 $77,000 $5,000

33% $195,000 $160,000 $7,500

35% $350,000 $350,000 $10,000

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The Planning Myth

• Its “all taken care of”

• Most tax practitioners estimate that only 5%-10% of “planned” estates of taxable estates have continuing trusts

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Working together can minimize the overall tax impact and ensure the

plan meets the client’s unique planning objectives.

• Asset Protection

• Income Taxation Reduction

• Future Transfer Tax Inoculation

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Marketing Concepts

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Magical Mystical Power of Trusts

The odds of keeping money under management is 5x more

likely with a Trust.

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Marketing Concepts

How would you feel if…?

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Reality of Life

• Divorce from survivor’s future spouse

• Divorce of children

• Lawsuits against spouse or children– Accidents– Malpractice– Business Failure– Cosignatory on spouse’s or children’s debts

Future wealth transfer taxation

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Toothpaste Tube Planning

• Are the assets protected or exposed?

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Marketing Concepts

• What will be the estate tax rate in– Chelsea Clinton’s first term?– Jenna Bush’s second term?

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Magical Mystical Power of Trusts

If you could protect it all,

why would you not?

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Planning to Achieve

“Planning is not hoping, not expecting, but achieving.”

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Planning to Achieve

Lead. Do not take line of least resistance.

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Magical Mystical Power of Trusts

Best for client and for advisor team

“Everything is possible”