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TRUSTS – WEALTH CREATION AND RETENTION
William A. Conway
Law Office of William A. Conway
6718 Whittier Avenue
Suite 250
McLean, Virginia 22101
E. Ronald Lara, CFP
Lara, Shull & May, Ltd.
7600 Leesburg Pike
Suite 120 East
Falls Church, Virginia 22043
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William A. Conway, Esq.
• Professional career includes tax attorney, investment banker, and legal educator.
• Is included in both Who's Who in Finance and Industry and Who's Who in American Law.
• Is dedicated to building wealth enhancement strategies for his clients using advanced planning.
• Radio program, “Family Fortunes,” is on WTNT 570 AM in the Washington Metro area Saturday mornings.
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E. Ronald Lara, CFP
• Founded Lara, Shull & May, Ltd. in 1981. • Specializes in tax efficient strategies to
maximize wealth.• Has co-created two powerful investment
strategy tools: The Lifetime Success Solution® and The Retirement Success Solution®.
• Manages the U.S. Treasury Bond Management Program.
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Outline
• Reality of Client Desires from Wealth Planning
• Reality of Existing Wealth Planning
• Power of Trusts
• Taxation
• Marketing
• Benefits to Advisor Team Members
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Reality of Client Desires from Wealth Planning
1. Reduce or eliminate current and future income taxes
2. Provide future estate and generation-skipping tax inoculation
3. Asset Protection for spouse and descendants
Old ingredients, new recipes
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Reality of Existing Wealth Planning
• Only 5-10% of clients who have “completed” plans have continuing trusts for non-spousal beneficiaries.
• More than 50% of married clients who have completed plans will fail to achieve desired protections for the surviving spouse.
• It’s NOT “all taken care of”
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Main Ingredients
• Revocable “Living” Trusts
• Stand-Alone Revocable Trusts, e.g., Retirement Trusts, Educational “529” Trusts
• Irrevocable Trusts “IRTs”– ILITs– Stand Alone “Dry” IRTs– Intentionally Defective Trusts “IDGTs”– Inter Vivos QTIPs
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Main Ingredients (Continued)
• FLPs & LLCs• Retirement Plans (IRAs, 401(k)s) • Managed Accounts• Mutual Funds
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Main Ingredients (Continued)
• Life Insurance– Insured
• Single Life• Survivorship
– Design– Types
• Cash Value Policies– -UL, guaranteed or
non– Variable UL – non-
guaranteed only– Equity indexed,
guaranteed or non• Term Policies
• Annuities– Deferred Variable and
Fixed Annuities– Immediate Annuities
• Life only• Longer of Term of
Years or Life
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Magical Mystical Power of Trusts
“Everything is possible”
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Basic Trust Terms
Grantor = Maker of Trust = Trustmaker
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Basic Trust Terms
Beneficiary - One who is benefited by the Trust.
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Basic Trust Terms
Trustee – One who controls the assets in a trust.
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Basic Trust Terms
Continuing Trusts – Multigenerational Trusts –
Dynasty Trusts
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Types of Trusts
• Revocable Trust
• Irrevocable Trust
• Grantor Trusts
• Non Grantor Trusts
• Accessible Irrevocable Trust
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Basic Trust Terms
Intentionally-Defective Grantor Trust “IDGTs”
• Shifts asset value from estate of Trustmaker
• Trustmaker retains income tax obligation
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Grantor Trust Taxation
• A revocable trust’s income and expenses flow through to its trustmaker—the grantor.
• Grantor trusts income taxes are the same as the grantors for income tax purposes; sale by grantor to grantor does not trigger income tax.
• Income tax paid by the grantor is not subject to gift tax.
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Trusts are Separate Taxpayers
• Applies to Non-Grantor Trusts– Have their own tax return and tax accounting– Receive income and pay expenses– Income is subject to tax either to the trust or
the beneficiaries
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Non Grantor Trust Taxation
• If a trust accumulates income, the trust pays the tax.
• If a trust distributes the income, the beneficiaries pay the tax.
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Taxation of Retained Income
• Capital Gains taxed at 15% maximum
• Dividends taxed at 15% maximum
• Interest taxed at 35% after $10,000 net income
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“The” Tax Problem Myth
• The “HIGHER” Levels of Income Tax only apply to interest income + rents
• Trusts pay federal income tax for capital gain and dividends at 15% rate
• Tax issue solved by investment and income tax management
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“The” Tax Problem Myth
• Even for interest income the rate is relative NOT absolute
• Comparison is between beneficiaries’ “AFTER DISTRIBUTION” Tax Rate and Trust Rate
Married Single Trust
28% $128,000 $77,000 $5,000
33% $195,000 $160,000 $7,500
35% $350,000 $350,000 $10,000
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The Planning Myth
• Its “all taken care of”
• Most tax practitioners estimate that only 5%-10% of “planned” estates of taxable estates have continuing trusts
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Working together can minimize the overall tax impact and ensure the
plan meets the client’s unique planning objectives.
• Asset Protection
• Income Taxation Reduction
• Future Transfer Tax Inoculation
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Marketing Concepts
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Magical Mystical Power of Trusts
The odds of keeping money under management is 5x more
likely with a Trust.
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Marketing Concepts
How would you feel if…?
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Reality of Life
• Divorce from survivor’s future spouse
• Divorce of children
• Lawsuits against spouse or children– Accidents– Malpractice– Business Failure– Cosignatory on spouse’s or children’s debts
Future wealth transfer taxation
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Toothpaste Tube Planning
• Are the assets protected or exposed?
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Marketing Concepts
• What will be the estate tax rate in– Chelsea Clinton’s first term?– Jenna Bush’s second term?
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Magical Mystical Power of Trusts
If you could protect it all,
why would you not?
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Planning to Achieve
“Planning is not hoping, not expecting, but achieving.”
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Planning to Achieve
Lead. Do not take line of least resistance.
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Magical Mystical Power of Trusts
Best for client and for advisor team
“Everything is possible”