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Raymond C. Odom JD CFP The Northern Trust SVP- Director of Wealth Transfer Services 312-444-5243 © Raymond C. Odom 2011 N O R.

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Presentation on theme: "Raymond C. Odom JD CFP The Northern Trust SVP- Director of Wealth Transfer Services 312-444-5243 © Raymond C. Odom 2011 N O R."— Presentation transcript:

1 Raymond C. Odom JD CFP The Northern Trust SVP- Director of Wealth Transfer Services © Raymond C. Odom 2011 N O R T H E R N T R U S T Wealth Fulfillment: Turning Estate Planning Apathy to Philanthropic Passion

2 Wealth Changing Estate Planning Apathy to Philanthropic Passion 2 TRA 2010 Changes The Wealth Transfer Conversation Elective repeal of estate tax on 2010 decedents Increased the lifetime gift exemption from $1 million to $5 million* Created a top transfer tax rate of 35% instead of 45% or 55%* Allows the surviving spouse to use the “Deceased Spousal Unused Exemption Amount* Current Financial Issues and Trends Tenfold Decrease in Taxable Estates * The Tax Relief and Unemployment Insurance Reauthorization and Job Creation Act of 2010 only implements these changes for the tax years 2011 and 2012

3 Wealth Changing Estate Planning Apathy to Philanthropic Passion 3 TRA 2010 Temporary Transfer Tax Relief Current Financial Issues and Trends * Executors for 2010 decedents could elect into the “no estate tax/modified carryover basis” regime or pay estate tax and use a $5,000,000 exemption **Indexed for inflation the new amount for 2012 is $5,120, ? TaxExemptionRateExemptionRateExemptionRateExemptionRate Gift$1M45%$1M35%$5M**35%$1M(?)55%(?) Estate$3.5M45%All*35%*$5M**35%$1M(?)55%(?) GST$3.5M45%$5M0%$5M**35%$1M(?)**55%(?)

4 Wealth Changing Estate Planning Apathy to Philanthropic Passion 4 All Personal Wealth Is Transferred The key question – “What would the wealth owner do with their financial assets if there were no obstacles to the achievement of their wealth transfer goals?” Planned giving is as important for non-charitable beneficiaries as it is for charities  Successful planned giving to family and charity = giving that accomplishes the donor’s goals for family and charity  Defining the purpose for a specific wealth transfer may be more important for a gifts to family and other non-charitable beneficiaries than it is for charity All Personal Wealth is Consumed, Confiscated or Contributed

5 Wealth Changing Estate Planning Apathy to Philanthropic Passion 5 C-Level = Consumption/Confiscation/Contribution  Vision and Values  Intentions and Commitments  Goals and Objectives  Strategies  Tactics  Methods * Graphic adapted from presentation by John A. Nersesian Nuveen Investments Start Above C-Level Or You May Drown The Conversation The C- Level = Consumption, Confiscation or Contribution

6 Wealth Changing Estate Planning Apathy to Philanthropic Passion 6 The IRA Example Most clients have an IRA and some do not need it for lifestyle consumption needs  For those over 70 ½ RMDs deplete the amount they would otherwise like to give away Wealthy clients often forget rollover IRA money is often fully taxed but on a deferred basis Taxes on an IRA can be particularly egregiously confiscatory Contributing an IRA to charity instead of children may better achieve the clients goals Knowing the Purpose For Specific Wealth Transfers Can Create Charitable Gifting Opportunities Via 2011 IRA Distributions

7 Wealth Changing Estate Planning Apathy to Philanthropic Passion 7 C- Level Planning Example #2 Charitable Lead Trusts fdjzjfafdjfafafkdkfk * Assumptions for the Charitable Lead Trust are a 7% total return and a 7520 rate of 1.4% from October of Calculations by Steve Leimberg NumberCruncher Charitable Lead Trust Strategy $100,000 Contribution CLT TRUST BENEFICIARIES CHARITY Donor 20 years of $5,768 contributions to charity Total gift to charity $115,360 At the end of 20 year kids get $150,506 from trust*

8 Wealth Changing Estate Planning Apathy to Philanthropic Passion 8 The VIM and Vigor of Permanent Philanthropy The ABCs A = Real Assets What you value B= Behaviors What you really want Cs = Culmination Outcome of Transfer Internal Assets BecomingCompetency Career Calling (Not College) Relational Assets Being RelatedCare, Closeness Companionship Social AssetsBelongingCommunity, Culture Charity Spiritual AssetsBelievingCause, Commitment

9 Wealth Changing Estate Planning Apathy to Philanthropic Passion 9 D-E-F : “Below C-level” Transfer Tax Minimization Tools D is for Discount = Discount the value of all assets subject to estate tax  Market Value Economic Cycle Discounts (Real Estate)  Restrictions On Liquidity  Time Value Discounts - t he present value for a future gift  Qualified Personal Residence Trusts  Charitable Lead Trusts E is for Exemption = Tax Exemption or Exclusion  Annual exclusion is still $13,000/person/year  Applicable lifetime Exemption is now $5,000,000 with portability  Charitable deduction is an exemption/exclusion for transfer tax F is for Freeze = Techniques for transferring future growth of an asset  Giving away future returns/ freezing current estate tax values D= Discount E = Exemption (Exclusion) F = Freeze (Future Value)

10 Wealth Changing Estate Planning Apathy to Philanthropic Passion 10 New Conversation Idea – A Nonqualified Charitable Trust? For illustrative purposes only. Not legal or tax advice. : Sample Profile: 80 year widow with $2,000,000 legacy wealth wants to continue donations after death but wants a fund to help with future educational costs and provide scholarships for students to attend her alma mater Results: The $2 million gift is transfer tax free in 2011 or 2012 The trust can deduct the yearly charitable gifts The trustee avoids private foundation restrictions The trustees can make discretionary distributions to descendants in perpetuity if state law permits The trust may still be subject to state law charitable trust rules Annual contributions charities $2,000,000 Nonqualified Charitable Trust $2,000,000 Nonqualified Charitable Trust College Expenses for Descendants Scholarships for the Alma Mater

11 Wealth Changing Estate Planning Apathy to Philanthropic Passion 11 Disclosures IRS CIRCULAR 230 NOTICE: To the extent that this communication or any attachment concerns tax matters, it is not intended to be used, and cannot be used by a taxpayer, for the purpose of avoiding any penalties that may be imposed by law. For more information about this notice, see LEGAL, INVESTMENT AND TAX NOTICE: This information is not intended to be and should not be treated as legal advice, investment advice or tax advice. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal or tax advice from their own counsel. OTHER IMPORTANT INFORMATION: This presentation is for your private information and is intended for use in general audiences of professional advisers only. The information is intended for illustrative purposes only and should not be relied upon as investment advice or a recommendation to buy or sell any security. Northern Trust and its affiliates may have positions in, and may effect transactions in, the markets, contracts and related investments described herein, which positions and transactions may be in addition to, or different from, those taken in connection with the investments described herein. Opinions expressed are current only as of the date appearing in this material and are subject to change without notice. All materials are subject to the retroactive or prospective application of any future tax law. Not FDIC Insured | No Bank Guarantee | May Lose Value


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