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Preserving the Larger Estate (Estate Tax Magic) Dymond • Reagor • Colville, LLP 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

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slide1
Preserving the Larger Estate

(Estate Tax Magic)

Dymond • Reagor • Colville, LLP

conditions of use
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 to:Dymond • Reagor • Colville, LLP8400 E. Prentice Ave., Suite1040Greenwood Village, CO 80111 (303) 793-3400
proper estate planning
Proper Estate Planning

Caring for loved ones as if you were still there

  • With your resources
  • With your love
  • With your wisdom
the estate planning process
The Estate Planning Process
  • Educate
  • Design
  • Draft
  • Implement

It’s Not about Documents - It’s About Results

how to distribute to your heirs
How to Distribute to Your Heirs
  • Outright
  • no protection
  • In Trust
  • creditor protection
  • predator protection
  • self protection
  • estate tax protection
basic estate and gift tax rules
Basic Estate and Gift Tax Rules
  • It’s 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
maximizing the use of the credit shelter exemption
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
maximizing the use of the gstt exemption
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
preserving the larger estate
Preserving the Larger Estate
  • Create a source of funds to pay Uncle Sam’s Share
  • Decrease the size of the taxable estate
creating a source to pay uncle sam
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
the inheritance trust
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
tom and cindy client
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
tom and cindy client15
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
tom and cindy client16
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
tom and cindy client17
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
solution 1
Solution 1
  • Draw on Investment Accounts until exhausted
  • Then Sell Cyber Stock as needed to meet wants/desires
solution 121
Solution 1
  • Good News - will work
    • Able to meet income needs
    • Available in PDF Format
  • Bad News
    • Failure to diversify
    • Significant Estate Taxes
solution 2
Solution 2
  • Clients sell cyber stock and add net proceeds to investment account
sell asset
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

solution 226
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
tax favored trusts
Tax Favored Trusts

CHARITABLE REMAINDER TRUSTS

charitable remainder trust
Charitable Remainder Trust

Asset

CRT

Receive annual income for life

Receive income tax deduction

At Death:

Balance Goes to Charity

solution 3
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.
charitable remainder trust30
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

solution 333
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
tax favored trusts34
Tax Favored Trusts

QUALIFIED

PERSONAL RESIDENCE

TRUSTS

(QPRT)

qualified personal residence trust
Qualified PersonalResidence Trust

Residence

QPRT

Retain right to reside in residence

for a term of years

solution 4
Solution 4
  • Use 8 Qualified Personal Residence Trusts
    • 4 each for the Family and Vacation Residence
  • Family Residence
    • Cindy contributes 25% interest to 2 QPRT’s
    • Tom Contributes 25% interest to 2 QPRT’s
  • Vacation Residence
    • Cindy contributes 25% interest to 2 QPRT’s
    • Tom Contributes 25% interest to 2 QPRT’s
qualified personal residence trust37
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

solution 440
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
decreasing the size of your estate
Decreasing the Sizeof Your Estate
  • Giving it away
    • annual exclusion and Unified Credit
    • ILIT’s, CRT’s, and QPRT’s
  • 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
typical flp estate plan
Typical FLP Estate Plan

GP

2%

Limited Partners

98%

Mgt.

Company

Client

Client’s

Living Trust

Gifting

Trust

tax favored trusts43
Tax Favored Trusts

GRANTORRETAINED ANNUITYTRUSTS

(GRAT’s)

grantor retained annuity trust
Grantor RetainedAnnuity Trust

Family Business

GRAT

Retain income stream

for a term of years

solution 5
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 GRAT’s 10 and 12 year terms
grantor retained annuity trust47
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

the next step
The Next Step
  • Contact Clients
    • Current and
    • Prospective
  • Schedule a Workshop
    • Basic
    • Advanced
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