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15 Hottest Estate Planning Ideas For 2012 Presented By: Jeffrey R. Matsen & Timothy 15 Hottest Estate Planning Ideas For 2012 Presented By: Jeffrey R. Matsen & Timothy L. Voorhees 1 Wealth Strategies Counsel

Jeffrey R. Matsen Worth Magazine: Matsen Included In Nation’s “Top 100 Attorneys” Founder and Jeffrey R. Matsen Worth Magazine: Matsen Included In Nation’s “Top 100 Attorneys” Founder and Partner-In-Charge of Wealth Strategies Counsel , the Estate Planning and Business Transaction Department of Bohm, Matsen, Kegel & Aguilera, LLP, of Costa Mesa, California A Southern California “Super Lawyer” (Los Angeles Magazine), with a national reputation for emphasizing wealth preservation for his high net worth and professional, accomplishment-driven clientele Nationally recognized CLE Speaker in the areas of asset protection and LLCs Areas of emphasis include: International and Domestic Asset Protection, Estate Planning & Wealth Preservation, Real Estate Acquisitions & Development, Business Formation & Transactions, Probate, and Trust Administration Certified Business Appraiser by the National Society of Appraiser Specialists Member, Society of Trust & Estate Practitioners (“STEP”) Fellow, Center of International Legal Studies Professor, Chapman University School of Law & Western State University College of Law, in Business & Estate Planning Visiting faculty member, European law schools Awarded highest rating (“AV”) for competency and ethics, as published in the prestigious international Martindale-Hubbell attorney directory Awarded highest rating (“ 10/10 Superb” )by The Nationally Renowned Attorney Rating Service, ‘AVVO’ Recognized as one of “O. C. ’s Top Lawyers” by OC METRO Magazine 2 Wealth Strategies Counsel

Timothy L. Voorhees Designed and Implemented Hundreds of Zero Tax Plans 33 years of Timothy L. Voorhees Designed and Implemented Hundreds of Zero Tax Plans 33 years of experience developing and implementing Zero Tax Plans. JD - Southern Methodist University - Corporate & Estate Planning Law; MBA - Arizona State University - Finance & Accounting Published in Estate Planning Magazine, the Journal of Practical Estate Planning, Insurance News, the elite advisor website of Financial Planning Magazine, and other leading publications. President of the Registered Investment Advisory firm at Voorhees Family Office Services. com and the managing partner of its affiliated tax law firm, Matsen Voorhees LLP Tim teaches Best Tools Workshops for advisers interested in learning how to integrate the most effective zero tax planning tools into financial and estate plans. He also conducts Best Practices Workshops for advisers who seek to integrate advanced Wealth Counseling technologies into their practices Spoken at national conferences of the National Network of Estate Planning Attorneys, ALI-ABA, Kingdom Advisors, the Southern California Tax & Estate Planning Forum, etc. He has also presented at annual conferences for numerous financial advisory firms. Provides mediation and arbitration services as a Certified Christian Conciliator™ Led teams that have developed hundreds of Family Wealth Blueprints® for high net worth clients 3 Wealth Strategies Counsel

Tax Planning Opportunities in 2012 • Taxable gifts in 2012 – $5, 000 lifetime Tax Planning Opportunities in 2012 • Taxable gifts in 2012 – $5, 000 lifetime gift tax exemption (with a 35% tax rate on taxable gifts over $5, 000) – Utilize the additional $4, 000 of gift tax exemption to shelter future growth from estate tax 4 Wealth Strategies Counsel

Tax Planning Opportunities in 2012 • • • $5, 000 gifts in trust Spousal Tax Planning Opportunities in 2012 • • • $5, 000 gifts in trust Spousal access trusts Life insurance trusts Dynasty trusts Income shifting family trusts Asset protection trusts 5 Wealth Strategies Counsel

Top 15 Strategies # 1 2 3 4 5 6 7 8 9 10 Top 15 Strategies # 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Planning Tool ILITs IDITs BDITs Pension Rescue IP/DAF deductions Family Wealth Blueprints Captives Surrogate insureds Buy Sells TCLAT CRT Annuity Arbitrage Defined benefit combination plans LLC Domestic Asset Protection Trust 6 Wealth Strategies Counsel

1. Gifts to an Irrevocable Life Insurance Trust (ILIT) 7 Wealth Strategies Counsel 1. Gifts to an Irrevocable Life Insurance Trust (ILIT) 7 Wealth Strategies Counsel

Irrevocable Life Insurance Trusts (ILIT) • Estate tax-free • Income tax-free • Utilize the Irrevocable Life Insurance Trusts (ILIT) • Estate tax-free • Income tax-free • Utilize the $5, 000 exemption and the GST exemption amounts • Determine need based on 2012 rates or 2013 rates? 8 Wealth Strategies Counsel

Irrevocable Life Insurance Trust (ILIT) Liquidity Strategies • A type of trust which holds Irrevocable Life Insurance Trust (ILIT) Liquidity Strategies • A type of trust which holds a life insurance policy on the grantor’s life so as to benefit the grantor’s children without the imposition of future estate, gift and/or GST tax. • To the extent that the grantor’s estate has insufficient liquid assets to cover the estate tax liability, trust assets can be lent to the estate or used to purchase assets from the estate. • To the extent that the grantor does not hold any “incidents of ownership”, none of the trust assets will be included in his/her taxable estate. 9 Wealth Strategies Counsel

2. Sales to an Intentionally Defective Irrevocable Trust (IDIT) 10 Wealth Strategies Counsel 2. Sales to an Intentionally Defective Irrevocable Trust (IDIT) 10 Wealth Strategies Counsel

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3. Beneficiary Defective Irrevocable Trusts (BDITs) 16 Wealth Strategies Counsel 3. Beneficiary Defective Irrevocable Trusts (BDITs) 16 Wealth Strategies Counsel

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4. Pension Rescue 21 Wealth Strategies Counsel 4. Pension Rescue 21 Wealth Strategies Counsel

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5. IP/DAF Strategy 24 Wealth Strategies Counsel 5. IP/DAF Strategy 24 Wealth Strategies Counsel

Charitable Trust Application NOTE PAYMENT SALE/CAPITALIZE WIDGET, INC. (S CORP. ) ROYALTY CLIENTS: HUSBAND Charitable Trust Application NOTE PAYMENT SALE/CAPITALIZE WIDGET, INC. (S CORP. ) ROYALTY CLIENTS: HUSBAND AND/OR WIFE IP LLC (MANAGER MANAGED) LICENSE 98 -99% NON-VOTING PREFERRED UNITS GIFTED TO DDF Wealth Strategies Counsel

6. Family Wealth Blueprint 26 Wealth Strategies Counsel 6. Family Wealth Blueprint 26 Wealth Strategies Counsel

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7. Captives 29 Wealth Strategies Counsel 7. Captives 29 Wealth Strategies Counsel

Enhanced Captive Sample Plan Wealth Strategies Counsel Enhanced Captive Sample Plan Wealth Strategies Counsel

9) Captive Case Study Wealth Strategies Counsel 9) Captive Case Study Wealth Strategies Counsel

8. Surrogate Insureds 32 Wealth Strategies Counsel 8. Surrogate Insureds 32 Wealth Strategies Counsel

Sample fact-pattern: • Mom has a taxable estate and she needs to move assets Sample fact-pattern: • Mom has a taxable estate and she needs to move assets to irrevocable trusts • To minimize or avoid gift, estate, and capital gains taxes on the transfer of assets to the irrevocable trust, we need to sell assets to a grantor trust. • When we sell assets, we normally take back a note but we can instead take back a split dollar agreement to get better potential economics. • Split dollar agreements only work when there is insurance. • To make the illustration work very well, do not use traditional insurance; instead use high cash value insurance. • Keep cash value high and keep insurance costs very low. We do this by insuring kids or grandkids. Wealth Strategies Counsel

Ideal Clients • Clients who want to transfer 90% or more of their wealth Ideal Clients • Clients who want to transfer 90% or more of their wealth to the next generation. • Clients desiring to transfer wealth from G 1 into trust for the benefit of G 2 and/or G 3 while still retaining control over assets and/or income from assets. • Clients desiring to provide financial security through dynasty trust planning • Clients who want a strategy supported with IRS rulings and tax court cases 34 Wealth Strategies Counsel

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9. Buy-Sells 36 Wealth Strategies Counsel 9. Buy-Sells 36 Wealth Strategies Counsel

Why Buy-Sell Plans Are Needed Only 30% of businesses make it to G 2 Why Buy-Sell Plans Are Needed Only 30% of businesses make it to G 2 and a mere 3% still generate profits in G 3 60% of families waste away their wealth by the end of the second generation. 75% of parents worry that heirs’ lives may be adversely affected by wealth. 90% of families have little or nothing left of money received from grandparents. 95% of all traditional inheritance plans fail. Wealth Strategies Counsel

Opportunities for Financial Advisers Sale of life insurance for Death Benefit Sale of disability Opportunities for Financial Advisers Sale of life insurance for Death Benefit Sale of disability insurance for disability purposes Sale of cash value life insurance for retirement benefits 38 Wealth Strategies Counsel

Opportunities for Business Entities Establish clear sale terms to avoid future disputes Smooth transition Opportunities for Business Entities Establish clear sale terms to avoid future disputes Smooth transition when transferring ownership and control Prevent unwanted people from acquiring interest in business 39 Wealth Strategies Counsel

Opportunities For the Deceased Owner’s Heirs • Create a ready buyer for shares in Opportunities For the Deceased Owner’s Heirs • Create a ready buyer for shares in an illiquid closely-held entity • Establish “Arms Length” valuation for estate tax purposes • Relieve heirs of on-going management hassles • Avoid having heirs negotiate fire sales terms as part of a forced sale 40 Wealth Strategies Counsel

Opportunities for Surviving Owners • Eliminate involvement of deceased owner’s inactive heirs • Eliminate Opportunities for Surviving Owners • Eliminate involvement of deceased owner’s inactive heirs • Eliminate stressful negotiations with surviving spouse or family members • Provide for deceased owner’s family tax efficiently using life insurance proceeds, not precious business cash 41 Wealth Strategies Counsel

How to Fund Buy-Sell Agreements Tax-Efficiently 1. 2. 3. 4. 5. 6. 7. Leveraged How to Fund Buy-Sell Agreements Tax-Efficiently 1. 2. 3. 4. 5. 6. 7. Leveraged Buy-Sell Strategy Charitable LLC Strategy Charitable Stock Redemption ESOP IRS-Funded Buy-Sell Ch. ESOP Capital Split Dollar Wealth Strategies Counsel

Leveraged Insurance Funded Buy Sell Money Source Loan to Corporation Interest is Deductible IRS Leveraged Insurance Funded Buy Sell Money Source Loan to Corporation Interest is Deductible IRS Corporation Split Dollar Loan to Entity Cross Purchase Entity Shareholders Pay tax on Imputed Interest plus small premium Wealth Strategies Counsel

10. TCLAT 44 Wealth Strategies Counsel 10. TCLAT 44 Wealth Strategies Counsel

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11. CRT 48 Wealth Strategies Counsel 11. CRT 48 Wealth Strategies Counsel

Multi-Class CRT © Tim Voorhees, JD, MBA 1998 -2009 Wealth Strategies Counsel Multi-Class CRT © Tim Voorhees, JD, MBA 1998 -2009 Wealth Strategies Counsel

© Tim Voorhees, JD, MBA 1998 -2009 Wealth Strategies Counsel © Tim Voorhees, JD, MBA 1998 -2009 Wealth Strategies Counsel

CRUT Suitable Clients Charitably inclined Wants regular income Needs income tax deduction Wants to CRUT Suitable Clients Charitably inclined Wants regular income Needs income tax deduction Wants to sell appreciated assets Wants to diversify concentrated equity position Wants tax exempt environment for trading 51 Wealth Strategies Counsel

12. Annuity Arbitrage 52 Wealth Strategies Counsel 12. Annuity Arbitrage 52 Wealth Strategies Counsel

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$1 Million Annuity or IRA Value Wealth Strategies Counsel $1 Million Annuity or IRA Value Wealth Strategies Counsel

5. Benefits after Estate tax Wealth Strategies Counsel 5. Benefits after Estate tax Wealth Strategies Counsel

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13. Defined Benefit Combo Plans 58 Wealth Strategies Counsel 13. Defined Benefit Combo Plans 58 Wealth Strategies Counsel

59 Wealth Strategies Counsel 59 Wealth Strategies Counsel

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14. LLC 61 Wealth Strategies Counsel 14. LLC 61 Wealth Strategies Counsel

15. Domestic Asset Protection Trust 62 Wealth Strategies Counsel 15. Domestic Asset Protection Trust 62 Wealth Strategies Counsel

Business persons have always had concern over the exposure that personal assets have claims Business persons have always had concern over the exposure that personal assets have claims against the business. Wealth Strategies Counsel

Ø Corporate form of business entity with the shield of limited liability has been Ø Corporate form of business entity with the shield of limited liability has been invoked for centuries Ø Over the last few decades expending theories of liability and proliferation of litigation has given increased emphasis to asset protection planning to the extent that it is now a well recognized area of practice Ø Potential liability is a major concern to doctors, other professionals and persons of high net worth. 64 Wealth Strategies Counsel

Why the Increased Liability Exposure? Ø Victim Oriented Society Ø Deep pocket Ø Plaintiff Why the Increased Liability Exposure? Ø Victim Oriented Society Ø Deep pocket Ø Plaintiff lawyers Ø Increased media and society awareness Ø High notoriety for malpractice and other errors and omissions type of action 65 Wealth Strategies Counsel

Inside Creditors ØDefinition: Inside creditors are those creditors whose claim is directed against the Inside Creditors ØDefinition: Inside creditors are those creditors whose claim is directed against the business operation or real estate which is operated and owned inside a business entity. Creditor Business Ops or Real Estate of LLC or LP Wealth Strategies Counsel

Business owners and real estate investors need to closely examine their own business entity Business owners and real estate investors need to closely examine their own business entity structure Ø C or S Corps Ø LLCs Ø Segregation of Assets Ø Equity Stripping Devices Wealth Strategies Counsel

Doctor and dentist clients need to be aware of proper structure for practice ØProfessional Doctor and dentist clients need to be aware of proper structure for practice ØProfessional corporations ØSegregation of assets ØSub S election ØShare holder agreements ØOther practice structure items Wealth Strategies Counsel

Protecting Against Inside Debts or Claims Operating Businesses: Ø C Corporations Ø S Corporations Protecting Against Inside Debts or Claims Operating Businesses: Ø C Corporations Ø S Corporations Ø Limited Liability Companies Wealth Strategies Counsel

Real Estate assets need to be protected! 1. Insurance 2. LLCs or FLPs Wealth Real Estate assets need to be protected! 1. Insurance 2. LLCs or FLPs Wealth Strategies Counsel

Warning!!! Ø Jointly owned real estate should generally not be held as individuals or Warning!!! Ø Jointly owned real estate should generally not be held as individuals or in General Partnerships Ø Tremendous liability potential: You MUST consider LLCs or FLPs! Wealth Strategies Counsel

Divided You Stand, United You Fall General Rules: Ø If you own everything in Divided You Stand, United You Fall General Rules: Ø If you own everything in one company or in your own name, one lawsuit can result in the loss of everything you own Ø If you own things in separate companies, then only the entity involved in the suit is at risk Ø Segregate your most valuable assets (i. e. , real estate in separate LLC, equipment in separate LLC) Wealth Strategies Counsel

Segregate Business Assets Ø Real estate should be held in LLC and leased to Segregate Business Assets Ø Real estate should be held in LLC and leased to professional practice or business Ø Equipment can be held in LLC and leased to professional practice or business Ø Separate liability protected entity for different business or practice functions and operations Wealth Strategies Counsel

Outside Creditors ØDefinition: Outside creditors are those creditors whose claims arise outside the purview Outside Creditors ØDefinition: Outside creditors are those creditors whose claims arise outside the purview of the business entity and are generally asserted against the business or real estate owner personally. LLC or LP Member/Partner Creditor Wealth Strategies Counsel

Claimants or Creditors Ø Clients of professionals, i. e. , malpractice claims, doctors, dentists, Claimants or Creditors Ø Clients of professionals, i. e. , malpractice claims, doctors, dentists, lawyers, CPAs, architects, engineers, etc. Ø Future claimants of real estate investor or business owner. Ø Claims of spouse relative to potential divorce. Ø Claimants and creditors of children or elderly parents. Ø Claimants of high risk business owner. Ø The buyer of a business who subsequently suffers buyer’s remorse and goes against seller for fraud, misrepresentation, etc. Ø General tort claimants, i. e. , traffic accidents, etc. Ø Contract claimants, i. e. , personal guarantees, bonding and other contractual claims. Ø Government agencies, i. e. , the IRS, state taxing authorities and environment base claims (extra care has to be taken with respect to planning to protect assets against governmental claims). Wealth Strategies Counsel

Typical Clients Ø Professionals, doctors, dentists, lawyers, CPAs, architects, engineers, etc. Ø Potential recipients Typical Clients Ø Professionals, doctors, dentists, lawyers, CPAs, architects, engineers, etc. Ø Potential recipients of substantial inheritances from parents or other family members. Ø Business owners Ø Sellers of businesses. Ø Individuals with high risk businesses or dealings with investors. Ø Individuals who have to sign personal guarantees and bonds, i. e. , contractors and other business owners. Ø Officers and directors of public companies. Ø Owners of boats, airplanes or extreme vehicles. Ø Real estate investors and owners. Ø Celebrities, high net worth and high visibility individuals. Ø Wealthy spouse in second marriage. Ø Children of wealthy individuals. Wealth Strategies Counsel

The Charging Order ØCreditor of a partner or LLC member cannot reach partnership assets The Charging Order ØCreditor of a partner or LLC member cannot reach partnership assets or seize partnership interest or LLC interest ØLimited to a court order “charging” the interest with the debt ØIf distributions are made with respect to the charged interest, they must be made to the creditor ØCreditor gets only economic rights to distributions, not voting rights or other non-economic rights Wealth Strategies Counsel

Forum Shopping Ø Why Forum Shop? Ø The Charging Order and the “Exclusive Remedy” Forum Shopping Ø Why Forum Shop? Ø The Charging Order and the “Exclusive Remedy” Issue Ø “Most Favorable” Jurisdictions for LLCs 1. 2. 3. 4. Delaware, New Jersey (Florida for LPs) Alaska, Texas and Virginia South Dakota Nevada, Arizona and Wyoming See “Merric and Comer, ” Steve Leimberg’s Asset Protection Planning Newsletters #112 (8, Aug. ’ 07), #114 (28, Aug. ’ 07), #117 (19, Aug. ’ 07) and #127 (17, Apr. ’ 08) Wealth Strategies Counsel

DOMESTIC ASSET PROTECTION TRUSTS Ø The general rule in most states is that creditors DOMESTIC ASSET PROTECTION TRUSTS Ø The general rule in most states is that creditors can reach the interest of the Trustor (the maker of the trust) of domestic self settled trusts Ø Recently, several states have adopted legislation somewhat similar to various offshore jurisdictions that provide by statute various degrees of asset protection for a trustor’s interest as a beneficiary in a self settled trust Ø Alaska, Delaware, South Dakota and Nevada seem to have the best laws. The big advantage of Nevada is the shorter statute of limitation (2 years) Ø If properly set up and maintained, the Domestic Asset Protection Trust will be a significant barrier to creditors and will afford significant leverage to the debtor with respect to its negotiations with the creditor. This is especially true if the assets of the trust that need to be protected are domiciled in a state which is the domiciliary of the Asset Protect Trust Wealth Strategies Counsel

DOMESTIC ASSET PROTECTION TRUSTS Ø The problem is that the courts of the non DOMESTIC ASSET PROTECTION TRUSTS Ø The problem is that the courts of the non domiciliary state may not give effect to the Asset Protection features of the trust Ø However, there is no question that a significant degree of protection is afforded by utilizing the Domestic Asset Protection Trust especially when it comes to negotiating for a settlement with the creditor Ø It is recommended that a professional Trustee be utilized with respect to a Domestic Asset Protection Trust and, in fact, it may be mandatory in many instances Wealth Strategies Counsel

Modular Structuring DAPT or FAPT 95% Member LLC#1 Real Property LLC#2 Liquid Investments Wealth Modular Structuring DAPT or FAPT 95% Member LLC#1 Real Property LLC#2 Liquid Investments Wealth Strategies Counsel

Why Go Offshore? 1) 2) To set up your nest-egg and protect your liquid Why Go Offshore? 1) 2) To set up your nest-egg and protect your liquid funds International Connections 3) Ø Relatives or Family Offshore Ø Own Property Offshore Ø Doing Business Offshore Maximum Protection Wealth Strategies Counsel

Thank You! 695 Town Center Drive | 7 th Floor | Costa Mesa, CA Thank You! 695 Town Center Drive | 7 th Floor | Costa Mesa, CA 92626 Phone: 714. 384. 6500 | Fax: 714. 384. 6551 www. WSCounsel. com | www. Asset. Protection. Pro. com | www. 877 probate. com 83 Wealth Strategies Counsel