For producer use only. Not for distribution to the public. W ALLS A ROUND W EALTH OLA 1865 0114...

For producer use only.Not for distribution to the public.

WALLS AROUND WEALTH

OLA 1865 0114

Comprehensive Planning, IncDerek Archey, CFP, ALMI

248-457-2312 x [email protected]


• A legacy plan should reflect a client’s unique goals and needs

• Life insurance producer plays an important role:

• A bridge between client goals and desired results

• Must ask questions to help clients identify and articulate goals in order to be able to recommend the appropriate strategies

Legacy Planning


The American Taxpayer Relief Act

2014 Estate, Gift and Generation Skipping Transfer Tax

• $5.34 million exemption

• 40% top tax bracket


Reframing the Legacy Planning Conversation

Shift Emphasis

Taxes Goals / Values


• Transfer taxes

• Divorce

• Creditors

• Beneficiaries’ lack of asset management skills

• Overspending

• Substance abuse

How Is Wealth Lost from Generation to Generation?


Influencing the Behavior of Beneficiaries

• Wealthy parents have two major concerns:

• Children are not going to live as well as they do

• Wealth that parents leave their children is going to spoil them

• How do you bridge the gap between these two competing concerns?

• Answer: Dynasty Trust


• “Family Bank” trust

• Legacy trust

• Incentive trust

• Generation-skipping trust

Dynasty Trust


What Is a Dynasty Trust?

• A trust with a long term

• Not just for the “ultra-wealthy”

• Offers tax and non-tax advantages

• Tax advantages are maximized when trust is funded with life insurance

• Leverage GSTT exemption which is based on premiums, not death benefit

• Death benefit received federal income tax-free


Gifting to the Trust


Grantors(Grandparents)

Dynasty Trustfor Children & Grandchildren

Created using $10.68 million lifetime gift tax exemptions and allocating GSTT exemption

(1)

Rokovich, Carey

Please remove both boxes on this slide with the following text:Ongoing annual gifts of $28k...Can be split gifts


(1)







(2)



Trust purchases survivorship life insurance policy on lives of grandparents

Rokovich, Carey








(2)




(1)

BeneficiariesChildren or Grandchildren


Death benefit magnifies trust assets through leverage of

premium amounts


Rokovich, Carey





BeneficiariesChildren or Grandchildren


Death benefit magnifies trust assets through leverage of

premium amounts


(3)




(2)




(1)

Rokovich, Carey



• Policy proceeds not included in insured’s taxable estate if no incidents of life insurance policy ownership exist at any time within three years prior to death

• To keep policy proceeds out of grantor’s estate, applicant and owner should be third party, such as Dynasty Trust

• Grantor then gifts premiums to third-party owner

Dynasty Trust Considerations:Estate Exclusion


• Generation-skipping transfer tax (GSTT)

• Dynasty Trust helps leverage GSTT exemption

• Proper use of GSTT exemption preserves assets for future generations

• Rule against perpetuities

• Dynasty Trust usually created in state without rule against perpetuities (RAP)*

• In state with RAP, Dynasty Trust term limited to life spans of named beneficiaries, plus 21 years

Dynasty Trust Planning Considerations

*Clients must seek advice from competent legal counsel concerning trust setup matters.


Separate Taxpayer for Estate and Gift Tax PurposesOne in the Same for Income Tax Purposes

Dynasty Trust

Intentionally Defective Grantor Trusts

GrantorDynasty Trust


• Effective way to transfer significant assets to successive generations of beneficiaries

• Provides creditor protection

• Divorce consequences

• Irresponsible spending

• Continuity of asset management

• May contain incentives for beneficiaries

Benefits of a Dynasty Trust


• Generations of a family can manage charitable bequests

• Heirs can serve on foundation board

• Reasonable expenses may be paid to board and travel for foundation business may be reimbursed

• Removes assets from taxable estate

Private Foundation


• Reduced federal income tax deduction

• 30% of AGI

• Deduction for property based on cost basis rather than fair market value

• Self-dealing rules

• Minimum distribution requirements

Private Foundation (cont.)


The Hilton Family Foundation

97%

BarronHilton

(Age 80)

Family Foundation

$2.3 Billion

Children & Grandchildren

$71 Million

3%

Source: USA Today, December 27, 2007


Private Foundation with a Legacy Trust

Legacy Trustfor Children & Grandchildren

Grandparents(Grantors)

Trust created using $5.34 Million lifetime gift tax exemption and allocating portion of GSTT exemption


Private Foundation with a Legacy Trust (cont.)

Family Foundatio

n Trust Owns Survivorship Lifefor Children or Grandchildren

Legacy Trust

Grandparents(Grantors)

Initial Contribution


Private Foundation with a Legacy Trust (cont.)

Family Foundation

At Death:

BeneficiariesChildren or

Grandchildren

Can serve on board & direct bequests

Trust Owns Survivorship Lifefor Children or Grandchildren

Legacy Trust

Results: • Reduced estate taxes

• Protected wealth for generations

• Community influence for heirs

100% of Estate


A blended family is one to which the husband and/or wife bring together children and assets from a previous relationship.

What Is a Blended Family?


• No Plan + Family Fallout

• Traditional Plan Fosters Family Discord

Blended Family Estate Planning Issues


What Is a Blended Family?

Carol(Age 65)

Mike(Age 65)

JanMarsha Cindy Greg

Previous Marriage

Current net worth: $15 Million


Carol & Mike’s Living Trust

Carol(Age 65)

Mike(Age 65)

Living Trust$15 Million


Carol & Mike’s Living Trust (cont.)

Carol(Age 65)

Survivor’s Trust

$7.5 Million

Exemption Trust

$5.34 Million

QTIP Trust

$2.16 Million

Available to Carol during her lifetime

At Mike’s Death:


Carol & Mike’s Living Trust (cont.)

Survivor’s Trust

$7.5 Million

Exemption Trust

$5.34 Million

QTIP Trust

$2.16 Million

At Carol’s Death:

Marsha

Jan

Cindy

Greg


• Carol is 32 and Mike is 71

• Mike has three children from a previous marriage

• Mike is currently worth $10 Million

Blended Family–Younger Second Spouse


Blended Family–Younger Second Spouse (cont.)

Carol(Age 32)

Mike(Age 71)

PeterGreg Bobby

Current net worth: $10 Million

Previous Marriage


At Carol’s Death in 40–50 years:

Carol & Mike’s Living Trust–Younger Second Spouse

At Mike’s Death:

Carol(Age 32)

Mike(Age 71)

Exemption Trust

$5.34 Million

QTIP Trust

$4.66 Million


Available to Carol during her lifetime

Greg

Peter

Bobby

Carol(Age 65)


Mike’s Living Trust & Dynasty Trust

BobbyAt Mike’s Death...

Dynasty Trust(with Life Insurance)

Greg

Carol

Exemption Trust

$5.34 Million

Peter

Mike


QTIP Trust

$4.66 Million

Greg Jr. Peter Jr. Bobby Jr.

Greg III Peter III Bobby III

Next Generation...

Next Generation...

At Carol’s Death...


• Establish a Revocable Living Trust

• Including marital and bypass trusts

• Purchase a separate life insurance policy to specifically benefit only those children born of a previous marriage

• Consider establishing a Legacy Trust if facing potential estate tax liability or desire third-party trustee control of trust funds

Planning for Blended Families


• At death, trust receives death benefit

• Children from insured’s prior relationship will receive these proceeds free of federal estate and income tax

• Clients can make sure bulk of their assets is available for current spouse and children of second relationship or marriage

Planning for Blended Families (cont.)


• Less than half of all households (48%) are husband and wife households.

• Between 2000 – 2010:

• 40% increase in opposite-gender partner households

• 80% increase in same-gender partner households.

• Unmarried households are most common in New England, Washington DC, and the Pacific coastal states.

Planning for Non-Married Couples


• Differing state common-law/domestic partner laws

• Loss of survivor retirement benefits

• Asset titling

• Real estate planning

• Equalizing estates

• Loss of unlimited marital deduction

• Limitations in gifting

Planning for Non-Married Couples (cont.)


• Agreements

• Cohabitation

• Partnership

• Dissolution

• Grantor Retained Interest Trust

• Legal Adoption of Partner

Planning Tools


“Naming one another as life insurance beneficiaries—an all-around simple way of transferring assets—is the great equalizer.”

— Russell P. Love, McKenna Long & Aldrich

Planning for Nonmarried Couples


• Tom and Pat, both 62

• $10 Million

• No children

• Tom has an estate of $8.5 Million while Pat has an estate of $1.5 Million

Planning for Nonmarried Couples (cont.)



Tom (Age 62)

• Annual gifts of $14,000 per beneficiary

• $5.34 million lifetime gift tax exemption

Legacy Trust with Life

Insurance

Pat(Age 62)

Living Trust

$1.5 M

Living Trust

$8.5 M

LivingTrust

$8.5 M

Net worth: $1.5 MNet worth: $8.5 M



Available to pay estate taxes or make

distributions

Pat(Age 62)

Tom’s Family

At Tom’s Death...

Living Trust

$1.5 M

Living Trust

$8.5 M

LivingTrust

$8.5 M

Legacy Trust with Life

Insurance


• Preserves disabled person’s quality of life without endangering eligibility for government programs.

• Trust funds supplement—do not replace—government assistance

• Two Types:

• Self-settled

• Third party

What Is a Special Needs Trust?


• Funded with the disabled person’s “own” assets

• At disabled beneficiary’s death, remaining trust assets are used to pay back the government for benefits received during lifetime

• Laws and services vary from state to state

Self-Settled Special Needs Trust


• Created and funded by third parties such as parent, grandparent or sibling through will, gift or other transfer of assets

• When disabled beneficiary dies, remaining monies can be left directly to a designated contingent beneficiary

Third-Party Special Needs Trust


Special Needs Trusts

How Do They Work?

Disabled Loved Ones

SSI & Medicaid

Premiums paid for policy on life

of grantor

At death, proceeds paid to the trust

Eligibility for government benefits

maintained

Grantors


• Coordinate planning efforts with all family members so as to not frustrate the benefits of Special Needs Trust

• Uniform Transfer/Gift to Minors Account

• Direct inheritance

Avoiding Common Mistakes


• Ask fact-finding questions

• Determine client’s goals and circumstances

• Propose strategies that are tailored to accomplish goals and address circumstances

Planning a Legacy


This material was not intended or written to be used, and cannot be used, to avoid penalties imposed under the Internal Revenue Code. This material was written to support the promotion or marketing of the products, services, and/or concepts addressed in this material. Anyone to whom this material is promoted, marketed, or recommended should be urged to consult with and rely solely on their own independent advisors regarding their particular situation and the concepts presented here.

Transamerica Life Insurance Company (“Transamerica”) and its representatives do not give tax or legal advice. This presentation is provided for informational purposes only and should not be construed as tax or legal advice. Clients and other interested parties must be urged to rely solely upon their own independent advisors regarding their particular situation and the concepts presented here.

Discussions of the various planning strategies and issues are based on our understanding of the applicable federal income, gift, and estate tax laws in effect at the time of this presentation. However, tax laws are subject to interpretation and change, and there is no guarantee that the relevant tax authorities will accept Transamerica’s interpretations. Additionally, this material does not consider the impact of applicable state laws upon clients and prospects.

Although care is taken in preparing this material and presenting it accurately, Transamerica disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it. This information is current as of January 2014.

OLA 1865 0114


WALLS AROUND WEALTH

OLA 1865 0613

For producer use only. Not for distribution to the public. W ALLS A ROUND W EALTH OLA 1865 0114...

Documents

Transcript of For producer use only. Not for distribution to the public. W ALLS A ROUND W EALTH OLA 1865 0114...