The Perfect Estate Planning Storm By: Together, current economic conditions and the New Tax Rules are intriguing! There has never been a better opportunity than today! Seldom in the history of the Tax Code has there been a Lifetime Unified Exemption that has been so attractive. How are you positioned to take advantage of this unique opportunity? Proven Estate Planning Strategies remain today that may disappear in the future which can assist you in leaving a legacy to a philanthropic cause that is important to you and, at the same time, benefitting your family and those who you care about. The tax law changes that occurred this year may have a favorable impact on your Philanthropic and Estate Planning. Wonderful opportunities are available for the well-informed!
The Perfect Estate Planning Storm Are you prepared to take advantage of this unique opportunity? If one is interested in taking advantage of several dynamic planning strategies that favorably impact philanthropic and estate planning outcomes, now may be the ideal moment in history! Never in the history of the Tax Code has the Lifetime Unified Exemption been so attractive. For example, a husband and wife can jointly transfer, free of gift tax, $10,500,000 in assets to children and grandchildren while alive! If fractional discounts, for lack of marketability and control are employed through Limited Liability Companies (LLC) and Family Limited Partnerships (FLP), the Unified Exemption may be expanded by 20% to 40%, dependent upon the type of gifted assets. For those that understand and appreciate the difference between Gift Taxes (exclusive) and Estate (death) Taxes (inclusive), in conjunction with one of the lowest gift tax rates (40%) in history, as noted in the example on the right side of this page, it may be beneficial to actually pay gift taxes today, especially if significant asset appreciation is expected! Given the new, rather favorable federal gift tax rate (40%), one is further encouraged to consider this rather attractive option. The Perfect Estate Planning Storm is further enhanced by several current economic conditions: 1) From a philanthropic perspective, the Federal Discount Rate (7520 Rate ) is currently at historic lows, which makes use of Grantor and Non-Grantor-Styled Charitable Lead Annuity Trusts (CLATs) very attractive. (See attached CLAT explanation for further details.) 2) If families wish to initiate loans to the next generation for the acquisition of a business or to help with the purchase of a home, the Mid-Term/Long-Term loan rates are at extreme lows. 3) Because of the economic conditions related to the 2008-2009 market declines, lower valuations for real estate and business interests may occur, creating an ideal environment to transfer assets to the next generation. 4) The Generation Skipping Tax Exemption, equal to the Unified Exemption ($5,250,000 per individual) is also at an all-time high. 5) Under the new tax regime, the Unified Credit is portable, thereby allowing more flexibility in the application of the Credit. What is the difference between paying Gift Taxes while alive versus paying Estate Taxes upon death? Example: Assumes that in both scenarios the Lifetime Unified Exemption (Unified Credit) has been totally exhausted. Therefore, both gift tax and death tax assessment occur with no offsetting Unified Credit. Let s also assume the new Federal Gift and Estate Tax rate of 40%. $6,000,000 Estate - Death Family $3,600,000 Tax (IRS) $2,400,000 $6,000,000 Estate - Lifetime Family $4,300,000 Tax (IRS) $1,700,000 Note: Because gift taxes are deemed Exclusive when a gift of $4,300,000 occurs, the gift tax of 40% represents $1,700,000. Therefore, a potential tax savings occurs (when compared to taxes upon death--- $2,400,000) that approximates $700,000.
The Perfect Estate Planning Storm (continued) Fortunately, the new 2013 Legislation did not negatively impact a number of important planning techniques such as: Fractional discounts, for lack of marketability and control, remain available on properly accomplished intra-family transfers employing entity structures, i.e., Limited Liability Companies (LLC) and Family Limited Partnerships (FLP). NOTE: New Federal Legislation does not preclude the ability to apply fractional discounts on family assets transferred from one generation to the next. Under the new Federal tax rules, the Unified Exemptions are portable, i.e., spousal flexibility, allowing one spouse to utilize the others exemption. Non-Grantor CLAT NOTE: The portability regulations were extended. A Grantor-styled Irrevocable Trust that causes the Grantor to assume all income tax liability on the growth of the Trust assets, whereas the asset itself is deemed by the IRS to be outside one s taxable estate remain valid (assumes that the published rules are carefully followed). NOTE: New Federal Legislation did not eliminate Grantor Styled Trusts. Two types of CLAT s can be implemented: 1) Grantor-Styled CLAT 2) Non-Grantor styled CLAT If you were to decide in favor of a Non-Grantor CLAT, you will receive no income tax deduction up front when you establish the Trust. And, you will incur no personal income tax liability on the potential growth of your CLAT assets. Importantly, upon completion of the reversion period, you will have the choice of taking back the asset or passing on to the next generation with any appreciation, free of transfer (gift) taxes, just as you do with a Grantor-styled CLAT. Grantor CLAT Under the current, very low 7520 Rate, both types of CLAT s are extremely attractive! Assume, hypothetically, that you have experienced a 2013 taxable event (selling a business or a highly appreciated asset), and you have an interest in further support of your favorite charity. If you establish a Grantor-styled CLAT, 100% of the transferred assets are tax deductible today and can help serve as an offset to your capital gains transaction. You may choose a distribution rate (usually 5% or 6% of the CLAT principal) and make distributions to a charity for a period of 14 to 16 years, i.e., a charitable contribution. You will not receive a deduction for each distribution, and you will incur a phantom tax liability on the growth or income gains of your CLAT principal throughout the duration of the Trust. It is possible to reduce or eliminate the phantom tax liability through other planning techniques, just as it is possible to reduce the reversion period through the utilization of discounting strategies, i.e., FLP s or LLC s. You have the choice at the end of the reversion period to reclaim the funding asset (CLAT Principal) or pass it on to your children. If you choose to reward your children with the CLAT Principal, under current tax law, there are no transfer (gift) taxes imposed, regardless of the size or growth of the assets! One should be aware that if the CLAT assets earn less than the 5% to 6% distribution rate, principal depletion will occur. To the contrary, if the underlying CLAT assets earn more than the cumulative distributions, the appreciation is not subject to gift taxes, assuming the CLAT assets are transferred to children. Interestingly, through the use of a Non-Grantor Testamentary CLAT, created upon death, it is possible to totally eliminate the confiscatory estate tax assessment of those assets allocated to a testamentary CLAT and essentially divorce the IRS from your estate. The CLAT Planning Strategy is well documented in the Tax Code, and can be accomplished without the risk of IRS scrutiny, assuming competent Legal Counsel and careful adherence to the statutory regulations. www.coyotefinancial.com (480) 905-3260 28039 N 95 th Street Scottsdale, AZ 85262
The Perfect Estate Planning Storm (continued) The New Tax Rules do not limit the duration of all GST-styled Irrevocable Trusts to a 90-year term as originally proposed by the President. NOTE: Under current law, it is possible in some states (no Rule Against Perpetuity) to forever perpetuate a Trust. No restrictions were imposed upon the term of Grantor Retained Annuity Trusts (GRAT s). NOTE: It is still possible to layer GRAT s and select short durations for maturity. The New Tax Law did not eliminate the use of Qualified Personal Residence Trusts (QPRT s). NOTE: Under the new law, a home can be transferred to an Irrevocable Trust at a discounted value, and be protected from judgment creditors and ultimately be removed from one s estate if the Grantor(s) outlive the term of the Trust. Increased Income Tax Rates. NOTE: Both income tax and capital gain tax rates have been increased. Please note the attached Schedule for the exact amounts. Fortunately, there is now zero ambiguity on the following Rate Structures: 1. The Estate Tax Rate has increased to 40%. 2. The Gift Tax Rate has increased to 40%. 3. The Generation Skipping Tax Rate increases to 40% and is firmly established at $5,250,000. 4. The Lifetime Unified Exemption is firmly established at $5,250,000. 5. The Unified Exemption, upon death, is firmly established at $5,250,000. Concluding Observations: As evidenced by the tax and economic landscape, at least for the present, immense opportunities exist for the informed to reward the philanthropic organizations that they support and to further preserve the financial integrity of accumulated assets for children and grandchildren. Unfortunately, procrastination, being too busy and planning denial may prove to adversely impact your philanthropic and estate planning situation; so be proactive and act today! Sources: Trusts & Estates Magazine, May 2012, Using Lifetime Exemptions Today The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 Department of Treasury Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2012 2022, is President and CEO of Coyote Financial, Inc., a financial services organization that designs and implements a wide range of wealth management programs that focus on Asset Protection, Estate Planning, Asset Management, Retirement and Life Insurances Planning. He is a Registered Representative of Cetera Advisor Networks. Securities, Investments and Advisory Services are offered through Cetera Advisor Networks, Member SIPC. Advisory Services also offered through AdvisorNet Financial. Coyote Financial, Cetera Advisor Networks and AdvisorNet Financial are not affiliated companies. Coyote Financial, AdvisorNet Financial and Cetera Advisor Networks and their agents and representatives do not give legal or tax advice. You should consult with your qualified tax advisor or legal professional to assess your specific situation prior to implementing any investment or estate planning recommendations discussed or mentioned herein. www.coyotefinancial.com (480) 905-3260 28039 N 95 th Street Scottsdale, AZ 85262
How We Define our Wealth Management Process What We Do! At Coyote Financial, Wealth Planning is an ongoing process. We coordinate our planning activities with your key advisors and then translate your goals and objectives into specific wealth accumulation, preservation and asset protection strategies. Horizontal integration combined with a Total Picture perspective facilitates wellinformed decision-making. We work with you and your trusted advisors to develop a comprehensive written plan to serve as a roadmap to realize your financial goals. THERE ARE NO SIMPLE SOLUTIONS TO COMPLICATED PROBLEMS JUST INTELLIGENT ONES! We work with passion, vigor and integrity to deliver substantive results. It is our goal to exceed your planning expectations. Our team approach that incorporates finance, legal, tax planning, insurance, and professional asset management often generates more in-depth solutions to identified planning deficiencies. We function as a Strategic Business Partner aggressively helping you pursue your best financial interests AN UNDERSTANDING OF THE SUBJECTIVE ELEMENTS SUPPORTS THE RIGHT FINANCIAL OUTCOMES Asking the right questions in conjunction with good listening skills leads to an understanding of past experiences, personal values and planning attitudes. Effective strategic planning must be founded upon careful adherence to the subjective issues. Clients frequently identify planning solutions through their answers to qualified questions INNOVATIVE PLANNING REQUIRES THE SKILLFUL APPLICATION OF INDIVIDUALLY TAILORED PLANNING STRATEGIES It is not uncommon to discover that conventional legal concepts, traditional planning techniques, and mainstream tax approaches prove inadequate for achieving the goals of successful individuals. We make a strong effort to think outside the box and deliver unique planning techniques, is President and CEO of Coyote Financial, Inc., a financial services organization that designs and implements a wide range of wealth management programs that focus on Asset Protection, Estate Planning, Asset Management, Retirement and Life Insurance Planning. He is a Registered Representative of Cetera Advisor Networks. Securities, Investments and Advisory Services are offered through Cetera Advisor Networks LLC, Member SIPC. Advisory Services also offered through AdvisorNet Financial. Coyote Financial, Cetera Advisor Networks and AdvisorNet Financial are not affiliated companies. Coyote Financial, AdvisorNet Financial and Cetera Advisor Networks and their agents and representatives do not give legal or tax advice. You should consult with your qualified tax advisor or legal professional to assess your specific situation prior to implementing any investment or estate planning recommendations discussed or mentioned herein. www.coyotefinancial.com (480) 905-3260 28039 N 95 th Street Scottsdale, AZ 85262
Beyond the Cliff: The 2013 Tax Landscape The lower income, capital gains, dividends, estate, and gift tax rates enacted during President George W. Bush s presidency had been scheduled to increase on January 1, 2013 for all taxpayers. These tax increases, plus the imposition of automatic spending cuts also set to begin on the same date, became known as the fiscal cliff. The Congressional Budget Office and Chairman of the Federal Reserve Ben Bernanke had predicted a recession if legislation was not enacted to prevent the fiscal cliff from occurring. Despite some anxious moments for investors at the end of 2012, Congress and the President agreed on legislation that permitted tax increases only for higher income-earners. The result was the American Taxpayer Relief Act of 2012 (the Act ) signed by the President on January 2, 2013. The ACT addresses many expiring tax rates and provisions but postpones the imposition of mandatory federal spending cuts for two months. Although many tax rates and provisions are made permanent, they could, in fact, change as a result of negotiations over the federal debt limit, mandatory federal spending cuts, and overall tax reform. Absent further tax legislation, the following tax rates and provisions will apply in 2013: 2012 2013 Income tax rates 10, 15, 25, 28, 33, 35% 10, 15, 25, 28, 33, 35, 39.6%* Long-term capital gains rate Qualified dividends rate Medicare tax on earned income 1.45% 2.35%** 20% for 39.6% tax bracket 20% for 39.6% tax bracket Medicare tax on net investment income 0% 3.8%*** Social Security (FICA) tax 4.2% 6.2%**** Itemized deductions & personal exemption Full use at all income levels Phase-out beginning at $250,000 adjusted gross income for single filers and $300,000 for married joint filers Estate, gift & GST tax exemption amount $5,120,000 (portable) $5,250,000 (portable) Highest estate, gift & GST tax rate 35% 40% Annual gift tax exclusion $13,000 $14,000 I * The 39.6% rate applies to singles with taxable income of $400,000 and married joint filers with taxable income of $450,000. ** The 0.9% Medicare tax increase applies to wages and self-employment income exceeding $200,000 for single filers and $250,000 for married joint filers. *** The 3.8% Medicare tax applies to the lesser of 1) net investment income or 2) excess modified adjusted gross income exceeding $200,000 (single filers) or $250,000 (married joint filers). **** Assessed on wages and self-employment income up to Social Security age base of $113,700 for 2013. The Act contains many provisions that taxpayers may find beneficial: IRA qualified charitable distributions have been extended for 2012 and 2013. This allows IRA owners age 70 ½ or older to make tax-free gifts of up to $100,000 from the IRA directly to certain qualified charities. Two special opportunities are available through January 31, 2013. The exclusion from income of cancelled mortgage debt up to $2 million on a principal residence has been extended through 2013. 401(k), 403(b) and governmental 457(b) plan participants may convert to a Roth account within their existing plan at any time. The deduction for state and local sales taxes in lieu of state income taxes has been extended through 2013. The $2,000 contribution limit to Coverdell educating savings accounts in permanently extended, and qualified education expenses remain tax-free for elementary and secondary school (as well as post-secondary school). Relief from the Alternative Minimum Tax has been made permanent by increasing the exemption amount and annually adjusting it for inflation. This piece is designed to provide accurate and authoritative information on the subjects covered. It is not, however, intended to provide specific tax, legal, or other professional advice. For specific assistance, the services of an appropriate official should be sought.