Everything the Financial Advisor Needs To Know About Estate Planning
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The document provides an overview of key estate planning strategies that financial advisors need to be aware of in order to properly address their clients' estate planning concerns. It discusses the importance of estate planning for clients with $3-10 million in net worth. It then covers estate tax rules, revocable living trusts, LLCs, spousal gifting trusts, IRA beneficiary designations, and techniques for avoiding or minimizing estate taxes such as GRATs, QPRTs, IDGTs, and charitable lead annuity trusts. The goal is to educate advisors on how to take a holistic wealth management approach that incorporates estate planning to better serve clients and grow their business.
Everything the Financial Advisor Needs To Know About Estate Planning
- 1. Everything the Financial Advisor Needs to Know About Estate Planning (in 45 minutes or less) The Wilsey Law Firm Presents: www.wilseylaw.com
- 2. What You’ll Learn Why Should You Care? Estate Planning Basics Where the Estate Tax is Headed How to Pass Wealth from One Generation to the Next How to Protect Assets from Creditors and Predators How to Plan for Qualified Retirement Plans
- 3. Why Should You Care??? because your client does!!!
- 4. Wealth Manager v. Investment Generalist Russ Alan Prince, “Cultivating the Middle Class Millionaire” Clients with Net Worth of $3 to $10 million 83.8% want to work with “Wealth Manager”, as opposed to “Financial Advisor” or “Investment Advisor” True “Wealth Managers” have double the average gross production as “financial advisors” or “investment advisors” according to Prince
- 5. Wealth Manager??? Holistic approach used to enhance client’s entire financial and family situation Investments Estate Planning Insurance Credit 77.9% of Advisors describe themselves as Wealth Managers 8.4% of advisors actually are according to Mr. Prince’s definition These advisors fail to manage a client’s overall wealth situation They lose business as a result
- 6. Where does estate planning fit in??? Client’s with $3 to $10 million 93.6% want to make sure their heirs are adequately taken care of. 53% worry about having enough money for retirement Far and away the largest concern is estate planning If you can address this concern, then you can address their financial concerns (and your business concerns)
- 8. Estate Tax Not Going Away You Clients should plan now, not wait to see “where it settles” Its never going to settle Their assets will only appreciate Lack of action will make the problem worse
- 9. Estate Tax Exemption Maximum Amount passing free of estate taxes (double for spouses) 2007 $2,000,000 2008 $2,000,000 2009 $3,500,000 2010 no estate tax 2011 $1,000,000
- 10. Gifting Rules $12,000 per person per year to as many people as desired $1,000,000 gifting during the life above $12,000 annual limit cumulative, not gifts per person Money left to charity passes free of estate tax
- 11. The Revocable Living Trust More Than a Piece of Paper!!!
- 12. Trust Reviews Hidden Gem for Advisors Allow you to bond with client Allow you greater access into assets Be careful of liability
- 13. The 10 Revocable Living Trust Keys™ Avoid 100% of Death Probate Fees Avoid 100% of Lifetime Probate Fees Health Care Decisions in the Event of Incapacity Protect Minor Children Minimize Estate Taxes Provide Asset Protection for Surviving Spouse Protect against Surviving Spouse Remarriage Protect Children from Losing Inheritance Prevent 2 nd Estate Tax Comprehensive Estate Plan
- 14. RLT Survivor BYPASS QTIP RESIDUE RLT Survivor Child Exempt Child Non-Exempt Dynasty Trust
- 15. LLCs In Estate Planning New and Improved Family Limited Partnership
- 16. 3 Benefits of LLCs Creditor Protection Discount at Death Discount in Lifetime Gifting This is the only issue with the IRS
- 17. RLT Survivor BYPASS QTIP RESIDUE RLT Survivor Child Exempt Child Non-Exempt Dynasty Trust
- 18. THE SPOUSAL GIFTING TRUST Understanding the Ultimate Trust
- 19. Spousal Gifting Trust Removes Assets From Estate Protects Assets from Creditors Allows for Greater Gifting to Kids in Future Allows you to Retain Control of Assets Flexible Investment Options
- 20. What it is Husband Creates Trust for Wife Wife Creates Trust for Husband Each spouse is trustee of the other’s Trust Each spouse can use their trust for Health, Education, Maintenance and Support Each spouse is main beneficiary of the other’s Trust Passes to kids, grandkids, upon death Not to other spouse
- 21. How Money Gets in SGT Crummey Gifts Spouse Kids Grandkids Use $1,000,000 exemption Have Trust Purchase Property
- 22. Results (10% growth) $6,948,227.60 $17,370,569.00 $96,000.00 5 30 $2,419,296.00 $6,048,240.00 $96,000.00 5 20 $673,196.80 $1,682,992.00 $96,000.00 5 10 $257,879.50 $644,699.00 $96,000.00 5 5 $42,240.00 $105,600.00 $96,000.00 5 1 Estate Tax Savings Amount in SGTs Annual Gifts made to SGTs Number of Family Members Year of SGT
- 23. Supercharge the SGT Combine with discounts in LLC to produce amazing results Example 5 family members (spouses, three kids) $12k per year each family member 10% growth 33% discount $18k per person instead of $12k $1,500,000 exemption instead of $1,000,000
- 24. Results of Supercharged SGT $10,422,341 $26,055,853 $144,000 33% $96,000 5 30 $3,628,944 $9,072,360 $144,000 33% $96,000 5 20 $1,009,795.20 $2,524,488 $144,000 33% $96,000 5 10 $386,819 $967,048 $144,000 33% $96,000 5 5 $63,360 $158,400 $144,000 33% $96,000 5 1 Estate Tax Savings Total FMV of SGT Actual FMV of Gifts Discount Discounted Value of SGT Gifts # of Family Members Year Of SGT
- 25. RLT Survivor BYPASS QTIP RESIDUE RLT Survivor Child Exempt Child Non-Exempt Dynasty Trust Husband Wife
- 26. IRA Accounts Good Beneficiaries Spouse Outright Charity Young Individual Stretch IRA Trust Bad Beneficiaries Estate of Client Older Individual Trust for Spouse exceptions
- 27. Stretch IRA Beneficiary of an IRA taking out only the required minimum distribution according to age Growth exceeds distributions Growth is tax free
- 28. Option #1 No Stretch Bob $2m real estate $500k business $500k IRA Dies in 2013 IRA worth $765,298.16
- 29. Result Estate Tax-55%-$420,913.00 Income Tax-35%-$147,319 State Income Tax-9.3%-$39,145 Taxes-$607,378-79% of IRA Probably closer to 70% in reality $ 157,919 to beneficiaries Of $765,298.16 IRA
- 30. Option #2 Stretch IRA Trust Bob $2m real estate $500k business $500k IRA Dies in 2013 IRA worth $765,298.16 IRA is properly stretched at death
- 31. Stretch Results Jack (Bob’s son) inherits IRA at age 50 Jack dies at age 80 $7,299,862.71 in distributions Still $3,146,894.13 in IRA $10,895,441.81 in family wealth created
- 32. Further Avoiding the Estate Tax Use client’s $1,000,000 exemption as effectively as possible GRAT Takes all appreciation out of client’s estate Alphabet Soup QPRT IDGT CRUT
- 33. Avoid the Estate Tax Entirely Use a Testamentary Charitable Lead Annuity Trust (TCLAT) At Death Any amounts subject to estate tax go to TCLAT Estate Tax Free Zero Out the Remainder using 7520 rate Whatever’s left goes to kids tax free