Uncategorized | EBS Responsible Wealth

Protected: CONSERVATION EASEMENTS CAN SAVE THE FAMILY FARM OR RANCH

Posted March 28th, 2010 by admin with Comments Off

For some farmers and ranchers a conservation easement, in combination with life insurance to pay estate tax, may be effective in heading off a forced sale and loss of an entire way of life. The purpose of this white paper is to explain in layman terms how a conservation easement can help you and your family pay less income tax, less estate tax, and help preserve the land for your children and grandchildren. We will address what is in it for you and your family. We are not going to discuss the wonderful non-financial reasons for preserving and protecting your land in perpetuity. We want you to understand and appreciate conservation easements from a selfish perspective. Doing something good for society then becomes the icing on the cake. We are not affiliated with any land trust, government agency, or other charitable organization.

Protected: Section 2032A Valuation Discounts May Save the Family Farm or Ranch

Posted March 23rd, 2010 by admin with Comments Off

Why Should Farmers & Ranchers Care About Section 2032A?
Section 2032A is designed to provide an estate tax savings to certain farmers and ranchers. It can allow you to value your real property at an amount that is less than its highest and best use (i.e. housing development); which is how it would normally be valued for purposes of the death tax. For 2010, the maximum amount the value can be reduced is $1,000,000. In future years, the $1,000,000 will be adjusted for inflation, rounded down to the nearest $10,000. So at a 45% estate tax rate (assuming congress finally settles on the same rate as in 2009), the potential death tax savings is $450,000. For some taxable estates of modest size, with less valuable farm or ranch properties, a $1,000,000 reduction in value might help solve your estate tax liquidity problem. For larger estates with more valuable properties, it might be just a spit in the bucket.

Protected: Section 6166 Deferral of Estate Taxes Related To A Closely Held Business

Posted March 3rd, 2010 by admin with Comments Off

Many closely held businesses do not survive the death of the owner. While there can be a variety of non-tax reasons, the lack of liquidity planning, much of which caused by federal transfer tax laws, can be a dominant factor. Insufficient liquidity with which to pay the estate tax may cause a forced sale or liquidation of the business. This writing is intended to give the layperson an overview of Section 6166, a section of the Internal Revenue Code that is supposed to provide some relief.

Why is Section 6166 Important to A Business Owner?

The estate tax is usually due within nine months after a decedent’s death. Subject to meeting a variety of rules, some of which are unclear and subjective, Section 6166 allows an estate to defer estate taxes for up to 14 years on the portion of the estate tax related to a closely held active trade or business. The deferred tax is subject to interest at favorable rates. Depending on the facts and circumstances, an estate can be eligible to pay interest only for the first five years followed by ten equal installments of principal, plus interest.

THE ZERO ESTATE TAX PLAN AND THE TESTAMENTARY CHARITABLE LEAD ANNUITY TRUST

Posted February 23rd, 2010 by admin with Comments Off

By using a Zero Estate Tax Plan or Testamentary Charitable Lead Annuity Trust, you may be able to:

Leave your entire estate to your family and favorite charities
Pay no estate tax
Keep control over your assets during your lifetime
Have a simple plan that can be changed at any time up until your death
Have a plan that works even if the estate tax is ever permanently eliminated

Zero Estate Tax Plan

The Charitable IRA (see our separate explanation of a Charitable IRA) accomplishes a great deal for both the heirs and charity. The same approach can be applied with all the estate assets – in other words, a Zero Estate Tax Plan (ZETP). You would 1) determine in advance an appropriate inheritance for the heirs, 2) make gifts to a Wealth Replacement Trust of the funds necessary to purchase insurance in that amount, and 3) arrange at death to leave all estate assets to your favorite charities. The financial advantage of this arrangement is

CHARITABLE IRA

Posted February 13th, 2010 by admin with Comments Off

(For purposes of this discussion a Qualified Plan will also be referred to as IRA)

Although an IRA may be a valuable asset while a person is alive, it is severely taxed at death. In fact, the IRA is a tax magnet at death since the combination of estate and income taxes can produce a long-range effective tax rate in excess of 65%.

Some of the problems that lead to the significant shrinkage in values passed on to family members are:

IRA assets do not receive a step up in basis at death like other assets you own.
IRA assets are subject to estate tax at death.
Your family will have to pay income tax on the IRA after your death (although they may be entitled a deduction for estate tax previously paid).
You cannot make gifts from the IRA to family members during your lifetime without triggering an income tax consequence.

Although your family may be entitled to stretch out the income tax on distributions over their remaining life expectancy (so called “Stretch IRA”), the income tax will ultimately have to be paid. In addition, if there are insufficient assets outside the IRA to pay the estate tax related to the IRA, or if you do not wish to use those other assets, taxable distributions will need to come from the IRA to cover the estate tax. This is very tax inefficient.

Protected: GRANTOR TRUST

Posted February 3rd, 2010 by admin with Comments Off

The Grantor Trust (GT) is an important tool in the wealth transfer arena. It is significant by itself and is also used in a variety of techniques.

In general, an irrevocable trust is a separate taxpayer that files a separate income tax return. The trust is entitled to a deduction for income distributed to the beneficiaries. The beneficiaries are usually taxed only on the income distributed to them. The income that is retained by the trust and not distributed to the beneficiaries is taxed to the trust.

Sometimes the general method of taxation can be altered; involuntarily or voluntarily. Certain provisions in a trust may cause the grantor of the trust to be taxed on all the income of the trust, whether or not the income is distributed to the beneficiaries. Certain provisions in a trust may cause the assets of the trust to be included in the grantor’s estate at death even though those assets have been irrevocably transferred to the trust. The rules for taxing the grantor for income tax purposes are not identical to

Protected: SALE OF A MINORITY INTEREST IN S CORPORATION STOCK TO A GRANTOR TRUST

Posted February 3rd, 2010 by admin with Comments Off

The sale of a Minority Interest in S Corporation Stock (S Minority) to a Grantor Trust (GT) is a concept that is based upon utilizing a number of legal principles that otherwise would not be connected. The appeal of this technique is that it uses rules that are mandated, based upon the relevant provisions of the Code, revenue rulings, and case law. Creative planning and careful drafting of legal documents are at the heart of this concept.

CHARITABLE REMAINDER TRUSTS

Posted January 23rd, 2010 by admin with Comments Off

A charitable remainder trust can be a wonderful planning technique when one owns low basis/ high value assets. Under a charitable remainder trust you would generally contribute appreciated assets to the trust and retain an interest for your life or the joint life of you and your spouse.

There are two types of charitable remainder trusts. An Annuity Trust pays you a fixed amount for the rest of your lives, regardless of what happens to the value of the principal in the trust. A Unitrust pays you a percentage of the fair market value of the assets, as recalculated each year. After you both die whatever assets then remaining in trust will be paid to the charities of your choosing.

Protected: SALE OF FAMILY LIMITED PARTNERSHIP INTERESTS TO A GRANTOR TRUST

Posted January 23rd, 2010 by admin with Enter your password to view comments.

The sale of Family Limited Partnership (FLP) interests (see our separate explanation of a FLP) to a Grantor Trust (GT) (see our separate explanation of a GT) is a concept that is based upon utilizing a number of legal principles that otherwise would not be connected. The appeal of this technique is that it uses rules that are mandated, based upon the relevant provisions of the Code, revenue rulings, and case law. Creative structuring, financial modeling, and careful drafting of legal documents are at the heart of this concept.

Protected: QUALIFIED PERSONAL RESIDENCE TRUST – “QPRT”

Posted January 20th, 2010 by admin with Comments Off

A QPRT is an irrevocable trust into which you place your primary residence or second residence but retain the right to live in that residence for a specified period of time. It is very similar to the GRAT (see our separate explanation of a GRAT) except that you retain the right to live in the house as opposed to receiving payments.

We use the IRS’s arbitrary rules to establish a discounted gift tax value for the remainder interest that will pass to your children. That gift usually computes out to be approximately 25% – 35% of the value of the residence at the time the trust is set up. Unlike a GRAT, it is difficult to zero out the gift. At the end of the stipulated time period, the residence, including all the appreciation, can pass to your children estate tax free.

You must survive to the end of the