Copyright 2007 Asset Accumulation, Protection, Preservation, and Transfer, LLC
Copyright 2007 Big Canoe & Bent Tree May 22, 2007
Copyright 2007 Asset Accumulation, Protection, Preservation, and Transfer, LLC Go Navy!
Copyright 2007 Bridging the Gap and Minimizing Conflict In an uncertain world…
Copyright 2007 Registered Investment Advisory Firm John A. Cory, Member Securities offered through Resources Horizons Group, LLC, broker-dealer, Member FINRA, SIPC Asset Accumulation, Protection, Preservation, and Transfer, LLC
Copyright 2007 Resource Horizons Group, LLC commission FINRA, SIPC APT fee SEC ADV Compensation
Copyright 2007 Fee versus Commission RIA: Fiduciary duty Broker Dealer: Suitability Compensation: Investment vehicle or product
Copyright 2007
Mankind’s Dilemma “This is mankind’s age-old dilemma in the face of death: What man really fears is not so much extinction, but extinction with insignificance. Man wants to know that his life has somehow counted, that he has left a trace, a trace that has meaning. And in order for anything once alive to have meaning, its effects must remain alive in eternity some way.” ~ Ernest Becker
Copyright 2007 Family Financial Philosophy Financial Independence: savings, income, liquidity Family Legacy Community Legacy: church/college Avoid Tax Legacy
Copyright 2007 How important is it for you personally that you receive/provide any of the following as an inheritance? Values & Life Lessons Instructions & Wishes to Be Fulfilled Personal Possessions of Emotional Value Financial Assets or Real Estate
Copyright 2007 Legacy Gap The differing views of baby boomers and their parents (generation gap) combined with lack of meaningful discussion (communication gap) about the full scope of issues relating to legacy planning results in a legacy gap.
Copyright 2007 Why don’t we talk about legacy? Discomfort with “death” and “inheritance” Fear of conflict among family members Uncertainty over issues of fairness
Copyright 2007 Personal discomfort with the topics of inheritance and death are the biggest barriers to discussion Perceived barrier: Upset –It would upset my parents/children to talk about death Discomfort –I am uncomfortable discussing inheritance with my parents/children Conflict –It would raise conflict in my family
Copyright 2007 Which one of the following was the greatest source of conflict in the transfer of your parents’ inheritance & legacy? Fulfilling last wishes Distribution of personal possessions Distribution of real estate Choice of executor Understanding choices Distribution of finances
Copyright 2007 Every child has a right to share equally in the inheritance of a parent Equality or Inequality? Disinheritance Skip a generation
Copyright 2007 Children deserve more if they provide care, less if they cause conflict Deserves more if child… Provides care for parent Has greater financial need Shares parent's values and beliefs Has more dependents Is more financially responsible Special Needs child/grandchild Deserves less if child… Has caused conflict or disrespects family Dependencies (drugs/alcohol)
Copyright 2007 Put “Fears” into Perspective Postponing uncomfortable discussions does not eliminate the need to deal with the issues sooner or later Fears and concerns may prove to be exaggerated or unfounded Family members in conflict may welcome the opportunity for discussion and resolution Avoiding the potential for conflict now may result in greater conflict later
Copyright 2007 So here’s what others are feeling. How about you? Four Pillars of Legacy 1.Values & Life Lessons 2.Instructions & Wishes to be Fulfilled 3.Personal Possessions of Emotional Value 4.Financial Assets and/or Real Estate
Copyright 2007 Values & Life Lessons For example: Ethics & morality Faith & religion Customs & traditions Memories & stories How do you talk about these?
Copyright 2007 Values & Life Lessons… …a closer look Ethics & morality What are your standards for behavior? Why are they important to you? Faith & religion What do you believe and how did you come by those beliefs? Customs & traditions What family routines or rituals have been important and/or enjoyable over the years? Memories & stories What are the past experiences worth retelling over the years?
Copyright 2007 Instructions & Wishes to be Fulfilled For example: Taking care of a loved one or pet Ensuring that someone finishes their education Instructions for funeral arrangements
Copyright 2007 Personal Possessions of Emotional Value Items that carries emotional or sentimental value regardless of financial value (which may be little or none) For example: Dad’s baseball glove or tie Mom’s yellow pie plate Family rocking chair Family grandfather’s clock
Copyright 2007 Personal Possessions of Emotional Value Suggestions (which may reduce tension) For example: –Lifetime gifts or advancements –Separate personal property list –Parents tag or color code items –Alternating round selection –Family silent auction –Sentimental auctions (virtual points; no $)
Copyright 2007 Financial Assets & Real Estate For example: Savings and Investments Residence and other real estate Other possessions with significant economic value
Copyright 2007 Communication is the KEY Family Conference: Parents responsibility to initiate Informal agenda Advisor presence Talk
Copyright 2007 Remembrance: Children are the Fruit Fruit tells you about the tree It’s never too late
Copyright 2007 Flexibility & Control In an uncertain world…
Copyright 2007 Uncertain World Political: Iraq, Iran, Israel, Terrorists, Congress Economic: Oil and Gas Flexibility and Control
Copyright 2007 There have always been reasons not to invest
Copyright 2007 Impact of Events
Copyright 2007 October 1987
Copyright 2007 October 1987
Copyright 2007 Impact of Events
Copyright /11
Copyright /11
Copyright /11
Copyright 2007 Impact of Events
Copyright 2007 Enron
Copyright 2007 Enron Sarbanes-Oxley: Corporate Governance Pension Reform Backdating Stock Options
Copyright 2007 Judge Learned Hand “Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich and poor; and all do right, for nobody owes any public duty to pay more than the law demands; taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.”
Copyright 2007 American Family Philanthropic Blue Plot Plat
Copyright 2007 Asset Accumulation
Copyright 2007 Investment Pyramid Aggressive: Leveraged stock/real estate Moderate: Growth stocks, Real estate Conservative: GNMA’s, Utility stocks Defensive: Treasuries, Certificates of Deposit Increased Risk/Reward
Copyright 2007 Investment Policy Statement Objectives: Return & Risk Tolerance Financial Independence College Charitable Giving Start Own Business Constraints: Taxes, Debt, Liquidity, Time Horizon Investment Policy Statement
Copyright 2007 Asset Protection
Copyright 2007 Q: Are you a TARGET? Malpractice Divorce Partner Officer, Director, Advisory Board (actual or implied) Accident at home Real estate (environmental) Car accident Employee action Professional
Copyright 2007 Asset Preservation
Copyright 2007 History of Estate Tax 1797: Stamp Act 1802: Repealed 1862: Civil War 1870: Repealed 1898: Spanish American War 1902: Repealed 1916: WW I 1924,1930’s,1976 – 1993 (9 Acts) 2001: EGTRRA
Copyright $3.5M 2002 $1M 2004 $1.5M 2006 $2M Unified Credit
Copyright 2007 Powers of Attorney, Living Wills Financial Health Choice of Agent Successors Durable: Competency Powerful: Springing
Copyright 2007 Unified Credit Trust Estate Children’s Trust Surviving Spouse Outright Personal property to spouse Residence to spouse Balance to spouse outright Unified Credit Trust All income to spouse or sprinkle with children Principal to spouse for health, support, and maintenance(and children) Spousal $5,000 or 5% power
Copyright 2007 Unified Credit Trusts Two spouses: two unified credits Principal: health, education, support, and maintenance Trustee selection
Copyright 2007 Qualified Terminable Interest Property Trusts Control distribution of assets after second spouse’s death Protect children of prior marriage Doesn’t pass to second spouse QTIP
Copyright 2007 QTIP Trusts Estate Children’s Trust Surviving Spouse QTIP All income to spouse Principal to only spouse for health, support, and maintenance First to die spouse controls ultimate beneficiaries Unified Credit Trust All income to spouse or sprinkle with children Principal to spouse for health, support, and maintenance (and children) Spousal $5,000 or 5% power
Copyright 2007 Disclaimer Trusts Estate Disclaimer Surviving Spouse All to spouse outright Unified Credit Trust All income to spouse or sprinkle with children Principal to spouse for health, support, and maintenance (and children) Spousal $5,000 or 5% power
Copyright 2007 Incentive Trusts Flexibility versus ruling from the grave Education, ministry, teaching, matching income, Eagle Scout, pro athlete
Copyright 2007 Life Insurance Trusts Not includable in estate Effectively increases unified credit Crummey provisions (30 day beneficiary notice and rights) Trustee/separate bank account
Copyright 2007 Generation Skipping Trusts Dynasty Trusts Rule Against Perpetuities Dynasty Trusts $1 Million Gift and $2 Million Grandchildren’s Exemption Georgia: vest within 90 years Delaware, Nevada, Alaska, South Dakota
Copyright 2007 Charitable Remainder Trusts Win-Win situation Charitable Deduction: FMV of future interest Avoid capital gains tax Retain income Variable annuity: defer income Remainder to charity Irrevocable: not beneficiary
Copyright 2007 Donor Advised Funds / Community Foundations / Private Foundations Control versus administrative costs Prohibited transactions: Self-dealing, excise tax Sponsoring institutions
Copyright 2007 Family Limited Partnerships Estate tax reduction: valuation discounts Maintain Control Asset protection Income tax spreading Business purpose Charging order
Copyright 2007 Valuation Lack of Control (Minority) Discount Lack of Marketability Discount Built-in-Gain Discount
Copyright 2007 Structure of an FLP FLP General Partners – 1% Father Mother LLC or S Corp Limited Partners – 99% Father Mother Children Real Estate Marketable Securities
Copyright 2007 Section 529 Plans Income tax deferral/forgiveness No income limit Student not legal owner Five year / $60,000 Transfer to another relative State specific Alternative to Educational Accounts / IRA’s
Copyright 2007 Asset Transfer
Copyright 2007 Pension Protection Act of 2006 Non Spouse Beneficiaries can rollover in Plans: Permanent tax withdrawals 401(k): Encourages automatic enrollment 401(k): Automatically increases savings rate Diversification out of company stock Winner: Cash Balance Plans (favors young)
Copyright 2007 Stretch IRA No Stretch IRA Loses Tax Deferral Taxes Due on Full Amount No Legacy Left for Children ® IRA ACCOUNTS OWNERSONGRANDCHILD IRA ACCOUNTS IRA ACCOUNTS IRA ACCOUNTS OWNER SON
Copyright 2007 What Happens to Your IRA When You Die Spousal rollover Inherited IRA: only spouse recalculates (others: minus one) Rules depends if death occurs before age 70 ½ Avoid 5 year rule (pre 70 ½) Avoid ESTATE as beneficiary
Copyright 2007 IRA Distribution Rules Death Occurs Before 70 1/2 Individual Beneficiary Spouse Beneficiary Multiple Beneficiary Rollover Recalculate as Inherited IRA Oldest age dictates Begin Dec 31 st of year following Avoid penalties Beneficiary’s life expectancy Begin Dec 31 st of year following Avoid penalties NO BENEFICIARY: December 31st of fifth calendar year following death
Copyright 2007 IRA Distribution Rules Death Occurs After 70 1/2 Individual Beneficiary Spouse Beneficiary Multiple Beneficiary Rollover Recalculate as Inherited IRA Oldest age dictates Begin Dec 31 st of year following Avoid penalties Beneficiary’s life expectancy Begin Dec 31 st of year following Avoid penalties NO BENEFICIARY: Continue annually over the deceased’s lifetime
Copyright 2007 Asset Accumulation
Copyright 2007 The Right Investments Inside IRA Inside IRA Growth Mutual Funds Short-Hold Stocks Taxable Bonds Outside IRA Outside IRA Index/Low Turnover Mutual Funds Long-Hold Stocks Tax-Free Bonds
Copyright 2007 Portfolio Review Diversification Asset Allocation
Copyright 2007 American Family Philanthropic Blue Plot Plat
Copyright 2007
Don’t Procrastinate! Because…
Copyright 2007
Question What are you doing with your life’s resources, gifts, talents, opportunities, and abilities?
Copyright 2007 Life is like the game of MONOPOLY … When it’s all over, it all goes back into the box.
Copyright 2007 He was a great man, but… …the one scenario he forgot to consider in his forecast, was the certainty of Death.
Copyright 2007 Death is the last big move of your Life.
Copyright 2007 Asset Accumulation, Protection, Preservation, and Transfer, LLC Go Dawgs!
Copyright : 1987: 1992: 1999: Asset Accumulation, Protection, Preservation, and Transfer, LLC
Copyright : Law/MBA 1987: CFP 1992: CPA 1999: AAPPT, LLC Asset Accumulation, Protection, Preservation, and Transfer, LLC
Copyright 2007 Business Cycles Business peak Contraction Business peak Expansion Recessionary trough Trend line Time GDP
Copyright 2007 Business Cycles Recession Expansion Inflation Monetary Policy Fiscal Policy
Copyright 2007 Tax Relief Act of 2001: Estate and Gift Tax Increased Unified Credit Reduced estate tax rates Segregate estate and gift tax Basis issues Increased qualified plan /IRA contribution and benefit limits Sunset provision: 1/1/2011
Copyright 2007 Tax Act of 2003 Reduced income tax (10,15,25,28,33,35%) Reduced dividend taxation (max 15%) Reduced capital gains rates (5% - 15%) Marriage penalty relief Sunset provisions Winner: stocks
Copyright 2007 Tax Acts of 2005 / 2006 Extends reduced dividend rates thru 2010 Extends reduced capital gains rates Reduces Kiddie tax age: 14 to 17 for 2006 Tightens Medicaid eligibility All Convert to Roth IRA in 2010 only Age 70 ½ :$100,000 of IRA to charity(06&07) Winner : Investments
Copyright 2007 Investment Process 1. Determine Goals and Risk Level 2. Set Asset Allocation Strategy 3. Diversify Asset Classes and Styles 4. Rebalance and Reallocate 5. Monitor and Re-evaluate
Copyright 2007 Investment Process 1. Determine Goals and Risk 2. Set Asset Allocation Strategy 3. Diversify Asset Classes and Styles 4. Rebalance and Reallocate 5. Monitor and Re-evaluate
Copyright 2007 Asset Allocation
Copyright 2007 Asset Allocation Asset Category Selection Long range target percentage for each category Allowable percentage range increase Selection of actual securities
Copyright 2007 Asset Allocation 91.5% Asset Allocation 4.6% Security Selection 1.7% Market Timing 2.2% Other
Copyright 2007 Time is Money Why let your clients lose either one? It’s no secret that playing the market has its risks. But losing money is only half the story. Have you ever thought about how long it can take your clients to make up those losses?
Copyright 2007 © American Funds Distributors, Inc.AI What we know for sure… When investing, TIME is more important than TIMING
Copyright 2007 Separately Managed Accounts Individual Ownership Basis Control/Tax Efficiency Customization Technology
Copyright 2007 Guaranteed Investments Certificates of Deposit Annuities
Copyright 2007 Annuities Income tax deferral Fixed or Variable Equity Indexed Guarantees Fees Surrender Charges 10% penalty before age 59 1/2
Copyright 2007 Diversification Exchange Trading Funds (ETF’s) Low Income Housing Tax Credits Oil & Gas / Natural Gas REITS Limited Partnerships Private Placements
Copyright 2007 Types of Joint Tenancy Joint Tenants with Rights of Survivorship Tenants in Common Passage/Estate includable Payable upon Death Accounts
Copyright 2007 Last Will and Testament If properly drafted and executed, avoids bond, returns and inventory Creditor claims resolved Simple Georgia probate Testamentary Trust
Copyright 2007 Probate Public Filing Prove Validity of Will Notice Instant Acknowledgment and Assent Creditor Conclusion
Copyright 2007 Revocable Living Trusts Avoid Probate and “red tape” Successor Trustee if not competent Privacy Pour-over Will needed Avoid ancillary jurisdiction
Copyright 2007 Unlimited Marital Deduction Zero estate tax upon first spouse’s death Waste first spouse to die’s unified credit
Copyright 2007 Disclaimers Decline ownership Passes to next beneficiaries No interest Nine months after death Flexibility … but I don’t want it …
Copyright 2007 Grantor Retained Annuity Income Trusts Leverage Unified Credit Future appreciation to children Remainder to children
Copyright 2007 Personal Residence Trusts Residence and vacation home Leverage unified credit Future appreciation to children Remainder to children
Copyright 2007 Qualified Plan / IRA TRUSTS Irrevocable upon death Identifiable beneficiaries Documentation to plan administrator Avoid payment of debts, admin expenses, estate tax 1. Terms 2. Beneficiaries 3. Trustee 4. Termination
Copyright 2007 Qualified Plan / IRA Trust Statistics say that when children are the sole beneficiaries, 80% of all IRA’s are depleted within two years, resulting in immediate income taxation. Question: Should you consider a trust as the beneficiary of your qualified plan/IRA? Answer: Stretch IRA (Primary Beneficiary: Spouse; Contingent Beneficiary: IRA or Disclaimer Trust)
Copyright 2007 Qualified Plans / 401(k) Profit Sharing/ 401(K) Defined Benefit 412(i) Money Purchase Simple IRA SEP IRA Uni K
Copyright 2007 Asset Protection: Entity Selection C Corp Medical Reimbursement Plan S Corp Pass-through Entity LLC% Owner/Profit – varies; Real Estate LLP No Agreement; State-default LLLP Limited General Partner Liability FLP Estate Tax, Income Tax, Asset Protect FLLP All of the Above
Copyright 2007 Asset Protection Relinquish control LLC, LLP, LLLP, FLP Spendthrift provisions Delaware, Nevada, Alaska, South Dakota Consider off-shore trusts
Copyright 2007 Prenuptial Agreements Protect children Avoid assumption of debts of new spouse Dual attorneys Recording
Copyright 2007 Regain Lost Wealth
Copyright 2007 Indexed Annuities Jan 1, 2000 – Dec 31, 2005 S&P %; IA: zero %; IA: zero %; IA: zero %; IA: % of gain %; IA: % of gain %
Copyright 2007 Where Would You Be Today? ( … )
Copyright 2007 S&P 500 Annual Returns
Copyright 2007 S&P 500 Annual Returns
Copyright 2007 Hypothetical Annual Reset
Copyright 2007 Indexed Annuities Jan 1, 2000 – Dec 31, 2005 S&P %; IA: zero %; IA: zero %; IA: zero %; IA: % of gain %; IA: % of gain %
Copyright 2007 Oil and Gas OPEC Alaska Nuclear
Copyright 2007 Oil and Gas Tax Benefits Write-off % in current year (“at risk”) General Partner: Liability Insurance; six months Remaining 20% Depreciated Depreciation & Depletion of 25%: 5 yrs Depletion Allowances: 15% for life Intangible drilling costs