Advanced Estate Planning

1
Preserving the Larger Estate
(Estate Tax Magic)
Dymond Reagor Colville, LLP
2
Conditions of Use

• This presentation is posted under the concept of
  shareware.
• If after viewing the presentation you decide you
  want to use it, go ahead but, please pay for it.
• Cost 75
• Send toDymond Reagor Colville, LLP8400 E.
  Prentice Ave., Suite1040Greenwood Village, CO
  80111 [phone]

3
Proper Estate Planning

• Caring for loved ones as if you were still there
• With your resources
• With your love
• With your wisdom

4
The Estate Planning Process

• Educate
• Design
• Draft
• Implement

Its Not about Documents - Its About Results
5
How to Distribute to Your Heirs

• Outright

• no protection

• In Trust

• creditor protection
• predator protection
• self protection
• estate tax protection

6
Disinheriting that One Relative
7
Basic Estate and Gift Tax Rules

• Its a tax on everything
• Estate and gift taxes begin at 37
• 10,000 annual exclusion
• Unlimited marital deduction
• 650,000 unified credit
• Unlimited charitable deduction
• Use it or lose it

• Indexed for future inflation
• Increases to 1,000,000 by 2006

8
Maximizing the Use ofthe Credit Shelter Exemption

• One Dimensional Planning
• All to Spouse
• Wastes One Unified Credit
• Two Dimensional Planning
• Use of Credit Shelter Trust on First Death
• Saves a Minimum of 258,500 in Estate Taxes

9
Maximizing the Use ofthe GSTT Exemption

• Multi-Dimensional Planning
• Create trusts that are exempt from estate
  taxesfor future generations
• Proper lifetime and testamentary allocation
  ofthe generation-skipping transfer tax exemption
• Dynasty Trusts

10
The Power of Generation-Skipping

810,000
Vs.
1,000,000
11
Preserving the Larger Estate

• Create a source of funds to pay Uncle Sams Share
• Decrease the size of the taxable estate

12
Creating a Source toPay Uncle Sam

• Leave it to your heirs to solve the problem
• liquidate assets
• borrow

• Invest money now
• uncertainty
• income and estate taxes

• Inheritance Trust
• income tax free
• estate tax free

13
The Inheritance Trust
Annual Gifts Qualify for annual exclusion
Irrevocable Trust

• Trustee invests gifts
• guaranteed return
• estate and income tax free

• Allows Maker to Control Proceeds
• Proceeds Available to Pay Taxes and Expenses
• Preserves the Estate

14
The Inheritance Trust

• Create an Irrevocable Trust
• Allows a completed gift - assets out of estate
• Trustee Invests Proceeds of the Gift
• Guaranteed Return
• Income and Estate Tax Free
• Allows Maker to Control Proceeds
• Proceeds Available to Pay Taxes and Expenses
• Preserves the Estate

15
Tom and Cindy Client

• Both 57 years of age
• Children - Peter, Paul and Mary
• Internet Business - just sold to Wahoo
• Tax Free Exchange
• 3,000,000 - 0 Tax Basis
• Wants to retire
• After Tax Wants 150,000 per year
• 3 annual inflation adjustment

16
Tom and Cindy Client

• 2 Joint Checking Accounts 5,000
• 2 Savings Accounts - 2.5 40,000
• Investment Accounts - 9.0 2,000,000
• Cyber Stock - growth 4.0 3,000,000

17
Tom and Cindy Client

• Family Residence - 4 600,000
• Rental Value 24,000 per year
• 2 annual inflation adjustment
• Vacation Residence - 4 750,000
• Rental Value - 30,000 per year
• 2 annual inflation adjustment
• Personal Property - 0 123,000
• 2 IRA Accounts - 8.0 260,000

18
Tom and Cindy Client

• Current Gross Estate
• 6,778,000
• Current Projected Annual Income
• 181,000
• Gross Income Needed to Meet After Tax Wants
• 217,391

19
Solution 1

• Draw on Investment Accounts until exhausted
• Then Sell Cyber Stock as needed to meet
  wants/desires

20
(No Transcript)
21
(No Transcript)
22
Solution 1

• Good News - will work
• Able to meet income needs
• Available in PDF Format
• Bad News
• Failure to diversify
• Significant Estate Taxes

23
Solution 2

• Clients sell cyber stock and add net proceeds to
  investment account

24
Sell Asset
Asset 3,000,000
750,000 - Capital Gains Tax
2,250,000
139,725 Net Annual Income
1,237,500 Estate Taxes
202,500 Gross Annual Income
To Heirs 1,012,500
25
(No Transcript)
26
(No Transcript)
27
Solution 2

• Good News
• Income needs met
• Increased Diversification - Safety
• Bad News
• Huge Capital Gains Tax
• Makes it a tough sale
• Still have large estate tax

28
Tax Favored Trusts

• CHARITABLE REMAINDER TRUSTS

29
Charitable Remainder Trust
Asset
CRT
Receive annual income for life Receive income tax
deduction
At Death Balance Goes to Charity
30
Solution 3

• Gift Cyber Stock to 9 CRUT
• CRUT sells stock and invests in diversifies
  portfolio returning 9
• Purchase 3,000,000 second to die life insurance
  policy to be owned by a wealth replacement trust.

31
Charitable Remainder Trust
Asset - 3,000,000
Tax Savings 101,882
CRT
3,000,000
Tax Deduction 328,650
Wealth Replacement Trust
Annual Income 186,300
- 28,800 Annual Gift 157,500
At Death 3,000,000 to Charity
3,000,000
32
(No Transcript)
33
(No Transcript)
34
Solution 3

• Capital Gains Taxes
• 750,000 Less with a CRT
• After Tax Annual Income
• 17,775 More with a CRT
• Estate Taxes
• 1,237,500 Less with a CRT
• Net to Charity
• 3,000,000 More with a CRT
• Net to Heirs
• 1,762,500 More with a CRT

35
Tax Favored Trusts

• QUALIFIED
• PERSONAL RESIDENCE
• TRUSTS

(QPRT)
36
Qualified PersonalResidence Trust
Residence
QPRT
Retain right to reside in residence for a term of
years
37
Solution 4

• Use 8 Qualified Personal Residence Trusts
• 4 each for the Family and Vacation Residence
• Family Residence
• Cindy contributes 25 interest to 2 QPRTs
• Tom Contributes 25 interest to 2 QPRTs
• Vacation Residence
• Cindy contributes 25 interest to 2 QPRTs
• Tom Contributes 25 interest to 2 QPRTs

38
Qualified PersonalResidence Trust
Residences 1,350,000
QPRT
Retain right to reside in residence for term of
years
28 years
Value of Gift - 382,453 Gift Tax - 210,349
Value of Residence at death 3,892,548
Estate Taxes - 2,140,901
39
(No Transcript)
40
(No Transcript)
41
Solution 4

• Removed real estate and future appreciation from
  gross taxable estate
• at a significant discount
• Increased transfer of wealth through payment of
  rent to children

42
Decreasing the Sizeof Your Estate

• Giving it away
• annual exclusion and Unified Credit
• ILITs, CRTs, and QPRTs
• Reduce the value of what you have
• the less what you have is worth theless you are
  taxed
• the Family Limited Partnership
• Combining the two
• give it away but keep control

43
Typical FLP Estate Plan
Limited Partners 98
GP 2
Clients Living Trust
Client
Mgt. Company
Gifting Trust
44
Tax Favored Trusts

• GRANTORRETAINED ANNUITYTRUSTS

(GRATs)
45
Grantor RetainedAnnuity Trust
Family Business
GRAT
Retain income stream for a term of years
46
Solution 5

• Create a Family Limited Partnership (FLP) with
  the Investment Accounts
• 2 General Partnership Interest - retained
  through LLC
• 98 Limited Partnership - gifted to 2 GRATs 10
  and 12 year terms

47
(No Transcript)
48
Grantor RetainedAnnuity Trust
Family Business 1,960,000
GRAT
Retain income stream of 176,400/yr. for term
years
28 years
Value of Gift - 135,278 Gift Tax - 74,403
Value of Property at death 4,847,579
Estate Taxes - 2,666,168
49
(No Transcript)
50
(No Transcript)
51
(No Transcript)
52
The Next Step

• Contact Clients
• Current and
• Prospective
• Schedule a Workshop
• Basic
• Advanced