Creative Wealth Preservation Techniques

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SOCIETY OF FINANCIAL SERVICE PROFESSIONALS CHARITA
BLE PLANNING JUNE 10, 2015
2013 VADA Family Convention Greenbrier
By John P. Dedon 1775 Wiehle Avenue, Suite
400 Reston, Virginia 20190 (703)
218-2131 John.Dedon_at_ofplaw.com
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Estate Tax
American Taxpayer Relief Act of 2012
Exemption Amount
Year
2013 Forward
5 Million gift and estate exemption 40 tax
rate Presidents Proposal Reversion to 2009
45 rate 3.5 M exemption beginning in 2018
Permanent?
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Interplay of Estate and Income Tax Planning
Post-ATRA

• Decision between gifts and bequests more complex
• Income tax basis of property received by gift
  versus bequest
• Gifts carry-over basis
• Bequests step-up in basis to fair market
  value at death
• Effect of large, inflation adjusted federal
  estate tax exemption
• Can shelter more property from federal estate
  taxes
• Heirs receive basis step-up
• Benefit magnified in states with income taxes but
  not estate taxes
• Must compare total income/capital gains taxes on
  later sale of gifted property vs. estate taxes on
  inherited property

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Income Tax Planning Post-ATRA

• Individuals now face much higher income tax
  exposure
• Maximum federal individual tax rates
• 39.6 income (400,000 (single) / 450,000
  (married))
• 20 capital gain (400,000 / 450,000)
• Pease limitation on itemized deductions for
  adjusted gross income (AGI) over 250,000 /
  300,000
• Effectively raises federal income tax rates by
  1.2
• State income and/or estate tax exposure can
  increase rate to 50
• E.g., VA 5.75 income no estate / MD 5.5
  income 16 estate / DC 8.95 income 16
  estate / CA 13.3 income no estate / NY 9
  income 16 estate

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Planning for the Couple with Assets under 10.5
Million

• Focus on asset management and income tax planning
• Trusts to protect and manage inheritance
• Income tax planning may be more important than
  transfer tax planning
• Portability v. Traditional Credit Shelter Trust

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Planning for the Couple with Assets in Excess of
10.5 Million

• Continue to use transfer tax planning techniques
• Gifts to GST trusts
• Sales to grantor trusts
• GRATs
• Watch basis of gifted assets
• And of course Charity

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TAKE CARE OF BASICS

• Wills
• Revocable Living Trusts
• Advanced Medical Directives (Living Wills)
• Powers of Attorney

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Charitable Advantages

• Satisfy Your Charitable Objectives
• Income Tax Deduction
• Avoid Estate Tax Entirely
• Avoid Capital Gains Tax Entirely
• Control Assets During Your Lifetime For
  Charity
• Allow Your Children to Control Assets Upon
• Your Death For Charity

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Charitable Remainder Trusts Unitrusts and Annuity
Trusts
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Charitable Remainder Annuity Trust Step I
STOCK REAL ESTATE
961,874 (Basis 119,874)
(No Capital Gain)
Charity 257,000 (assumes 6 Growth)
5 Year
Income Tax Deduction 101,224
Annuity 183,000
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Step II
Tax-Free Income - ________
Tax-Free Death Benefit - ________
Charitable Remainder Annuity Trust
INVESTMENT CASH
183,000 x 5 Years Premium
Charity 257,000
Annuity 183,000
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Charitable Lead TrustHusband and Wife 70 Years
Old
- Children - Grandchildren
Net Worth 20 Million Plus
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11 Million to ChildrenBalance To Charitable
Lead TrustTerm 25 30 yearsAnnuity
5Eliminate Estate Tax
Upon Second Death
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Private Foundation vs. Donor Advised
Fund Or Community Foundation
Advantages/Disadvantages
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How To Create A Private Foundation

• Steps
• Entity
• 1023
• Timing
• Trust vs. Corporation