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What is Probate in Estate Planning?

Wed, 26 Jun 2024 13:45:28 GMT

What is Probate, and Why is it Important?

The question above is commonly asked, and yet to answer it we must first break the question down into parts. As such, the first question to ask is, what is probate? According to the American Bar Association , it is “the formal legal process that gives recognition to a will and appoints the executor or personal representative who will administer the estate and distribute assets to the intended beneficiaries.” From there, things can diverge from state to state. During probate in Florida , the decedent’s assets generally pay for the proceeding’s cost, the decedent’s funeral expenses, and any outstanding debts, with the remainder distributed amongst the various beneficiaries. Furthermore, the proceeding only applies to probate assets, which are those that are owned solely by the decedent at death, or by the decedent and one or more co-owners without a provision for automatic succession of ownership at death. So, for example, a life insurance policy payable to the decedent’s estate is a probate asset, whereas a life insurance policy payable to a beneficiary is not.

Where things become more interesting is when considering what is deemed a probate asset. Firstly, if there is a valid will, it will be admitted so the court can transfer the assets listed therein to the named beneficiaries. If there is no will, a probate procedure might be necessary to transfer the probate assets to those entitled to them under Florida law. In Nevada , the procedure for when a will is lacking or invalid is called Administration. Moreover, in Nevada, if the value of assets exceeds $20,000 or real estate is involved, then probate will be necessary to distribute the assets. There are various exceptions to these guidelines, depending on the circumstances of each case. These exceptions are not available to pay debts, and it is the attorney’s responsibility to identify these assets to the court.

Of course, some elements of probate make it cumbersome, or even undesirable. Creditors can access your assets, and there are no tax benefits. Furthermore, the probate process can be lengthy, particularly if there are complications. The possibility of challenges is also present, which is probably the last thing you would want your loved ones to have to deal with. And on top of everything else, the entire process is public for all to see. Surely, there must be a better way…

And there is. Probably the best example is trusts, which are subject to probate only in the sense that the court will see that there is a trust, and set it aside. The trust remains private, and, depending on the type of trust, is shielded from creditors. The assets are passed to the trustee(s), who is/are tasked with distributing the assets to the named beneficiaries. Some trusts even offer tax advantages. Perhaps the most beautiful part of trusts is their flexibility. They can take multiple forms and serve various purposes, and if done correctly can truly set up the decedent’s loved ones in the best possible way.

Learn More About Estate Planning

Asset protection is the best way to keep your wealth secured for you and future generations. Find out more about estate planning and how The Second Estate can help you secure your family’s future.

Investment Grade Insurance Contracts

Wed, 19 Jun 2024 15:23:55 GMT

What is an Investment Grade Insurance Contract?

An investment-grade insurance contract, or IGIC, is a type of insurance that allows you to invest your money without paying taxes on its development while simultaneously allowing you to utilize it when you need it without paying taxes on the money you spend. This means you may save your money, earn interest, and earn interest on your interest while just sharing a small portion of it with the government.

You can also leave it to your heirs without having to pay taxes on it. So there are no taxes as it grows, no taxes when it is distributed, and no income taxes when the death benefit is handed on to your heirs.

The differences between IGICs and government-regulated vehicles like IRAs and 401(k)s don’t end there. IGICs, unlike typical retirement plans, do not expose investors to stock market risk while yet providing competitive returns. They don’t charge any fees for utilizing the money (and you have the option of repaying it), and it comes with a death benefit in addition to the monetary value. Furthermore, the death benefit is permanent and unassailable. There is no term that is set to end after a set number of years. It’s also free of charge.

Long-term care and chronic-care expenditures are another advantage. Because the death benefit is guaranteed, you may be able to spend a portion of it while you’re still alive to pay for assisted living or long-term expenditures.

Strategic Advantages

Because this investment account was acquired with after-tax money, all of these tax advantages are accessible. So, rather of deducting your premium payments like you would with an IRA or 401(k), you would forego the immediate but little tax benefit of a qualifying account in return for significant and long-term tax advantages. Learn how investment-grade insurance contracts fit within a tax strategies plan.

Long-Term Benefits

In most circumstances, once your money is invested in an IGIC, it, its growth, and the death benefit will never be taxed again. There are a few of small exceptions, which we’ll go through later.

Your general health is a consideration in qualifying for this plan, just like it is for any other life insurance product, therefore not everyone will be eligible. However, you can be the contract owner but not the insured, thus this technique can still be used if you have an insurable interest in someone who is insurable, such as a spouse, kid, or important employee.

Why Haven’t I Heard of an IGIC?

Life insurance was almost solely used for, well, insuring lives for a long time. Its purpose was to provide for the survivors by replacing the deceased breadwinner’s income.

With cash-value life insurance, the insured not only purchased a death benefit, but also built up a cash reserve that could be used while they were still living, such as an emergency fund or retirement account.

However, because life insurance contracts offer significant tax advantages over other more typical investment vehicles, clever investors began to utilize it as a means of investing money rather than simply insuring lives.

Unlike a standard life insurance policy, which devotes the majority of the premium to the death benefit and only a small portion to the cash account, an investment-grade policy devotes far more premium to the cash value and very little to the death benefit. Instead of being set aside for your heirs, your money will be invested. It does, however, have the same tax protections as any other insurance contract because it is still an insurance contract.

So, what exactly are those tax benefits?

To best understand the advantages of an investment-grade insurance contract, it is vital to start with some simple terminology.

There are three stages of wealth accumulation. The first is the accumulation stage , where you are earning and putting away money into an investment. Next, is the distribution stage , where you are reaping what you’ve sown and can pull money out of the investment vehicle. And lastly, there is the wealth transfer stage , which is when you pass on what’s left of your accumulation to others.

During the accumulation stage of a standard retirement account, the government entices you to put money into a 401k, IRA, or other qualified account by promising to reduce your taxable income by the amounts you put into those accounts. In exchange, the government will not charge taxes on the amounts until you take money out at the distribution stage, but you must do it on government’s terms. So what exactly does that imply?

The average American pays around 12.5% in taxes. So, what the government is actually providing to the typical American is the following:

Accumulation Stage

You’ll save $125 in taxes for every $1,000 you deposit into a qualifying account that year.
However, you may only contribute a certain amount each year (up to $6,000 for IRAs and $19,000 for 401ks in 2019)
The money you deposit into these accounts will be invested and should increase over time.
However, you are responsible for all of the investment’s risks. If the economy collapses and the value of your account is halved, you will lose 100% of your money

Distribution Stage

Then, when you’re 59.5 years old, you may start pulling the money out, and you’ll have to pay taxes on it as ordinary income.
However, if you take any of the money before you turn 5912, you’ll have to pay a 10% penalty as well as taxes on the withdrawal
Furthermore, you must pay taxes on the whole withdrawal, including the principle and all profits
You can keep the money in the account past 5912, if you want to optimize the growth.
However, whether you want to or not, you must begin drawing money out of the account at the age of 72, at which time it qualifies as income and is fully taxed

Transfer Stage

If you pass away while the account balance is still positive, the account is handed on to your heirs.
However, that sum is included in your taxable estate, and any money removed from the account will be subject to income tax.

Now let’s have a look at how investment-grade insurance contracts operate in a similar situation…

IGIC Accumulation Stage

You pay taxes first with an investment-grade insurance policy. After then, you must pay your premiums. That implies that for every $1,000 invested in insurance, the ordinary American will have already paid $125 in taxes. With a few exceptions, those are the only taxes they or their heirs will ever owe on this account.
Unlike a qualifying account, you are not restricted to investing $6,000 or $18,000 each year. There is no limit as long as there is an insurable interest.
And, although a qualifying account carries a significant financial risk, insurance contracts are risk-free. You’ll get a guaranteed minimum return on your investment (typically about 4–5% in compounded interest) plus non-guaranteed dividends, regardless of how bad the economy is doing.

IGIC Distribution Stage

While the distribution stage of a qualifying account does not begin until age 5912 (without suffering hefty penalties) and must be completed by age 72, the distribution stage of an insurance contract is completely flexible.
You can utilize the cash value of your account at any time, starting the day after you make your first premium payment and ending when you die. That is, at any moment , for any reason , and in any quantity (up to the accumulated cash value, which includes principal, interest, and dividends). There are no consequences for withdrawing early. There are no mandatory minimum distributions. It’s all about flexibility and freedom.
You can use the cash value either by withdrawing it directly from the account (this isn’t recommended because you’ll lose interest-earning potential and could trigger a taxable event), or you can can use it as collateral for a low-interest loan (which we highly recommend because if done correctly, the cash-value of your account will always earn more interest than what the loan accrues, and you’ll never owe money).
These loans are always tax-free, and cash value withdrawals are tax-free up to your cost basis (this is the amount you’ve paid in premiums throughout the policy’s lifetime). Dividends, likewise, are tax-free, unless your capital gains exceed your cost basis.

IGIC Transfer Stage

You’ll probably be pleased you placed your money into an insurance contract rather than a qualifying account when you retire and live off the riches you acquired throughout the accumulation period. Despite all of the benefits we’ve discussed so far, the insurance contract truly shines at the transfer step.

Both qualifying accounts and insurance contracts have cash value accounts that have built up over time. However, the insurance policy includes a lot more, such as a death benefit. A death benefit that is considerably greater than the amount you put into the account.

Instead, we start with how much money you want to/can afford to put away each month using an investment-grade insurance policy. Then, using the IRS’s insurance contract methodology, we create the contract with as near to the lowest death-benefit-to-cash-value ratio as possible. That way, you get the most of your money. Fees and commissions are kept to a minimum, yet you still get all of the advantages listed above because it’s still an insurance contract.

We Can Help Protect Your Money

There are a variety of options for setting up an investment-grade insurance contract, including long-term care, early access to the death benefit for terminal illness, accidental death riders, early paid up additions, and much more.

The Second Estate can assist you in correctly structuring your strategy.

How Do I Set Up an Investment Grade Insurance Contract?

Please give us a call!

When it comes to life insurance, the agent will usually decide how much coverage you require first. The agent will do a study to determine how much your heirs rely on your income and how much money they would require in a lump-sum payment to replace it. The account’s financial worth will be an afterthought. Because the majority of the commissions are derived from the policy premiums paid toward the death benefit, the insurance agent receives significantly larger commissions this way.

Special Needs Trusts

Wed, 19 Jun 2024 14:42:14 GMT

A special needs trust (SNT) is a trust that will preserve the beneficiary’s eligibility for needs-based government benefits such as Medicaid and Supplemental Security Income (SSI). Because the beneficiary does not own the assets in the trust, he or she can remain eligible for benefit programs that have an asset limit. As a general rule the trustee will supplement the beneficiary’s government benefits but not replace them. Examples of supplemental needs are costs for sitters, companions, and dental or medical expenses not covered by Medicare or Medicaid.

A first-party SNT , also referred to as a “self-settled” or “(d)(4)(A) trust,” is funded with assets or income that belong to an individual with a disability (see definition below) and who is the beneficiary of the trust. In order for the assets of this type of trust not to count for Medicaid or SSI purposes, federal law requires that the beneficiary must be under the age of 65 when the trust is created and funded; the trust must be irrevocable and provide that Medicaid will be reimbursed upon the beneficiary’s death or upon termination of the trust, whichever occurs first; and the trust must be administered for the sole benefit of the beneficiary. Typically the funding comes from a personal injury settlement or inheritance the beneficiary receives directly.

A third-party SNT , frequently referred to as a supplemental needs trust, is funded with assets belonging to a person other than the beneficiary. In fact, no funds belonging to the beneficiary may be used to fund the trust. Typical funding comes from gifts, an inheritance from parents or grandparents, and proceeds of life insurance policies. This trust has no provisions to pay back Medicaid upon the trust’s termination; rather, the person creating the trust decides how the trust estate is distributed when the beneficiary dies.

Grantor — A grantor is the person who creates and funds the trust. This person is also commonly referred to as a settlor or trustor. In first-party SNTs, the grantor is actually the beneficiary because the law requires that the trust be funded with the beneficiary’s own money, but that it be established by a parent, grandparent, legal guardian or a court. In third-party SNTs, the grantor is anyone other than the beneficiary, usually a parent or other family member.

Trustee — A trustee is the person or entity who manages the trust assets and administers the trust provisions. A trustee can be a family member, friend or colleague of the beneficiary, a professional, or a combination of the two. A professional trustee generally is a corporate trust department or an attorney. It is common for more than one person to serve as trustee at the same time.

Successor Trustee — A successor trustee is nominated in the trust agreement and is the person or entity to take over when the initial trustee is no longer able to serve. The trust agreement usually has specific requirements that the successor trustee must satisfy before assuming the trustee role.

Beneficiary — A beneficiary is the person for whose benefit the trust is established. In first-party SNTs, the beneficiary must be a person who is classified as disabled by the Social Security Administration (SSA). In some states, the beneficiary of a third-party special needs trust must also be a person with a disability.

Remainder beneficiary — When the trust ends (usually upon the beneficiary’s death), the remainder beneficiaries are the individuals who will receive any remaining trust assets. In first-party SNTs, the state’s Medicaid division is typically the first remainder beneficiary (note that in some states, Medicaid is not considered a beneficiary but rather a creditor). After Medicaid is reimbursed for the services it provided to the beneficiary, if trust assets still remain, they usually pass to the beneficiary’s estate, or in some cases to persons named as remainder beneficiaries in the trust instrument. In third-party SNTs, the grantor of the trust decides who the remainder beneficiaries are. Medicaid should never be named as a remainder beneficiary of a third-party SNT.

Compensation — Unless the trust agreement states otherwise, trustees are usually entitled to compensation for their services. Compensation is usually set forth in state law. If a corporate trustee is serving, it usually receives a fixed amount, based upon the value of the trust estate. All compensation is reportable as taxable income to the trustee.

Trust Estate — The trust estate consists of assets placed into the trust and managed by the trustee for the benefit of the beneficiary. It also includes income earned from invested trust assets.

Schedule A — Also known as a schedule of assets, Schedule A identifies all of the assets owned by your trust. It is important for the trustee to keep this schedule up to date.

Irrevocable — An irrevocable trust is a trust that cannot be revoked or changed. All first-party SNTs must be irrevocable. A third-party SNT can be either irrevocable or revocable.

Revocable — A revocable trust is a trust in which the grantor can revoke or change the trust terms at any time. Only third-party SNTs can be revocable. Revocable trusts usually become irrevocable no later than the death of the grantor, if not sooner.

Testamentary — A testamentary trust is a trust created under a last will & testament and is not funded until the death of the person who created the will. A testamentary trust can only be a third-party SNT.

Inter vivos — “Inter vivos” is a Latin term that means “among the living” or “during life.” An inter vivos trust is a trust established during the lifetime of the person creating the trust. All first-party SNTs are inter vivos. An inter vivos third-party SNT can be revocable or irrevocable.

Disability — The beneficiary of a first-party SNT must have a disability recognized by section 1614(a)(3) of the Social Security Act. You can visit http://www.ssa.gov/disability/professionals/bluebook/ for a complete list of SSA-recognized disabilities for adults and children.

Bond or Surety — At times, a trustee is required to obtain a bond, which provides protection to the beneficiary against the possibility of fraud, negligence or loss of trust assets by the trustee. A bond is similar to an insurance policy in that if the trustee negligently or fraudulently lost trust assets, the bonding company agrees to pay a specified amount of money to reimburse the trust. Frequently when family members are serving as trustee, courts or Medicaid will require the trustee to obtain a bond.

Accounting — The accounting is an explanation of the trust activity for a specified time period (usually a year). The accounting is prepared by the trustee, or an accountant or attorney hired by the trustee to prepare the accounting on the trustee’s behalf. The accounting can be simple or very detailed. It is important to review the language in the trust agreement to know what the accounting requirements are. For example, in addition to providing the accounting to the beneficiary, the trustee may need to file the accounting with the court, the Social Security Administration or the state Medicaid agency.

Special needs trusts are complex. The language used in special needs trusts can vary greatly from one trust agreement to another and from state to state. It is essential for trustees and trust beneficiaries to understand the terms in the written trust agreement. A legal professional experienced in special needs planning can ensure that the trust document will meet the needs of the trust beneficiary, the person who is funding the trust and the trustee who is administering the trust.

The Second Estate can help you make the best use of a range of trusts and other financial programs to protect your hard-earned money. Schedule a free appointment now to get started!

Land Trusts

austin@builtbyviv.com (Austin Hoffman) — Wed, 19 Jun 2024 14:33:26 GMT

A land trust is a revocable living trust. A land trust gives you no tax protection. You won’t pay any less tax because you have a land trust. And you really don’t have any asset protection. What then is its value? The answer is “anonymity.”

It becomes extremely difficult for some trial lawyer to track you down and drag you into court. They have to go through a lot of barriers to find you. With a land trust you own the land placed within the trust because you own the trust. For example, you can own an LLC and take title to the property in the name of the land trust. The LLC becomes the beneficiary of that land trust. You can appoint a family member, a friend or whoever you choose, even another entity, as the trustee. The trustee and the beneficiary are known to the public, but you have the opportunity to hide out.

Putting your personal residence in a land trust is an excellent idea. From the IRS perspective it’s a revocable trust. It’s not a business asset, it’s just a trust.

What are the pros and cons of a land trust?

On the pro side:

it hides the true owner/beneficiary of the property
it provides seasoning of title
it potentially avoids the due on sale clause in mortgages with “subject to” purchases

On the con side:

it is revocable
there are no tax benefits
closing transactions can be difficult in some states
there is additional paperwork and costs

Create A Foundation

Wed, 19 Jun 2024 12:54:53 GMT

Using your riches to leave a philanthropic legacy may be as simple as establishing a foundation. You may make a difference in the world, be recognized for it, and save money on taxes. The Internal Revenue Service recognizes a private foundation as a type of tax-exempt charitable organization (the other is a public charity).

A foundation is a charitable organization that is usually established by a single contribution. A foundation is meant to endure in perpetuity without the need for additional money, even if the donor continues to finance it. The foundation is administered by trustees who invest the funds, and the proceeds from the investments are subsequently utilized to finance charity activities.

Private foundations can either create their own charities and finance them with grants (a “private operating foundation”) or use those funds to fund other charities (a “private operating foundation”) (“private non-operating foundations”).

You can deduct your gift to a foundation if you donate to one. There are also additional tax advantages. There is no financial gain when you give a valued asset to a fund. You can claim a charity deduction for the full market value of appreciated shares in publicly listed firms. In most cases, these gifts do not result in the application of estate taxes.

You may even offer some money to family members by having the foundation reward them for their efforts. In order to qualify for these advantages, you must be willing to make annual gifts totaling at least 5% of your net investment assets. Additionally, foundations are subject to a 1% to 2% excise tax.

A foundation may be the ideal choice for you if you want to immortalize your name via philanthropic contributions.

Dynasty Trusts

Wed, 19 Jun 2024 12:52:45 GMT

A dynasty trust is a kind of irrevocable trust irrevocable trust while being irreversible which permits riches to be preserved inside a single family for numerous generations without paying taxes. The tenure of a dynasty trust and the tax advantages are the two main advantages that come with dynasty trusts.

Dynasty Trusts Last Almost Forever

A dynasty trust is able to exist for up to 21 years after the death of the last beneficiary who was alive when the trust was founded (this is the rule against perpetuities). For example, if a grantor named one of his or her grandchildren as a beneficiary, and that grandchild is a baby who lives to be 100, the dynasty trust will span 121 years. Normally, the grantor makes his or her children the beneficiaries and when the last child dies, the generations below become the beneficiaries (grandchildren, great-grandchildren, etc.)

However, several states are changing, or even repealing, this rule. A dynasty trust can continue up to 365 years in Nevada, according to a 1987 statute (NRS 111.1031(1)(b)) and a 2015 Nevada Supreme Court ruling, Bullion Monarch Mining, Inc. v. Barrick Goldstrike Mines, Inc. They can last up to 90 years in California.

Tax Benefits of Dynasty Trusts

The tax advantages may be the most appealing element of a dynasty trust. Your beneficiaries could be subject to estate taxes if you never set up a trust. A non-dynasty trust allows one generation of beneficiaries to benefit from tax savings, but whatever is left over after that generation is liable to estate taxes. However, if you set up a dynasty trust, the assets you place in it are only liable to the federal gift/estate tax one time which is when you fund it. Though the money remains and expands over multiple generations, it is never taxed again.

What to Beware Of

Despite its many benefits, any increase on the assets inside the dynasty trust will still be subject to capital gains tax, thus most people who create them prefer to invest them with non-income producing assets (cash, growth stocks without dividends, life insurance profits, tax-free municipal bonds, etc.).

Asset Protection Trusts

Wed, 19 Jun 2024 12:49:42 GMT

One of the most powerful and best trusts is the asset protection trust. The asset protection trust, unique to all others, is made to benefit the trust’s creator (called a self-settled trust). Basically, an asset protection trust allows someone to cede legal ownership of assets while continuing gaining the benefits from them. This protects them from creditors who can only reach the debtor’s assets.

Domestic asset protection trusts are self-settled trusts that are only allowed in a few states (including Nevada). To benefit from the advantages of domestic asset protection trusts, the trust must typically contain the following characteristics:

Be irreversible. Once you put your money in, the asset distribution terms you set in the trust can’t be amended, except a few exceptions, and you can’t take the assets back unless you follow the trust’s conditions;
Include a spendthrift clause (a provision that precludes a beneficiary from surrendering his or her rights to a trust’s assets, so protecting the assets from creditors);
A Nevada resident, bank, or trust corporation must be one of the trustees.
The trustee cannot be the settlor or beneficiary.

Nevada is widely regarded as the best state in which to set up a domestic asset protection trust because it has the shortest seasoning period (the assets are safe for two years after they are placed in the trust), there is no state income or corporate income tax, and there are no exceptions for certain types of creditors. Not only this but no creditor can reach your assets, whether it is a divorcing spouse, alimony, child support, or bankruptcy. None of it infiltrates your trust as long as it is set up correctly.

As a result, the domestic asset protection trust is one of the most potent asset protection options available.

Understanding Charitable Remainder Trusts

Wed, 19 Jun 2024 12:41:36 GMT

How to Secure a Lifetime Income, Save Taxes, and Benefit a Charity

Since 1969, countless families have used charitable remainder trusts (CRTs) to increase their income, save taxes, and benefit charities.

What does a CRT do?

A CRT lets you convert a highly appreciated asset like stock or real estate into lifetime income. It reduces your income taxes now and estate taxes when you die. You pay no capital gains tax when the asset is sold. It also lets you help one or more charities that have special meaning to you.

How does a CRT work?

You transfer an appreciated asset into an irrevocable trust. This removes the asset from your estate, so no estate taxes will be due on it when you die. You also receive an immediate charitable income tax deduction.

The trustee then sells the asset at full market value, paying no capital gains tax, and reinvests the proceeds in income-producing assets. For the rest of your life, the trust pays you an income. When you die, the remaining trust assets go to the charities you have chosen. That is why it is called a charitable remainder trust.

Why not sell the asset myself and reinvest?

You could, but you would pay more in taxes, and there would be less income for you. Consider the following example.

Years ago, Max and Jane Brody (ages sixty-five and sixty-three) purchased some stock for $100,000. It is now worth $500,000. They would like to sell it and generate some retirement income.

If they sell the stock, they would have a gain of $400,000 (current value less cost) and would have to pay $60,000 in federal capital gains tax (15 percent capital gains rate applied to the $400,000 gain). That would leave them with $440,000. (See chart below.)

If they reinvest and earn a 5 percent return, that would provide them with $22,000 in annual income. Multiplied by their life expectancy of twenty-six years, this would give them a total lifetime income (before taxes) of $572,000. Because they still own the assets, there is no protection from creditors, and no charitable income tax deduction is available.

What happens if they use a CRT?

If they transfer the stock to a CRT instead, the Brodys can take an immediate charitable income tax deduction of approximately $160,000. Because they are in a 35 percent tax bracket, this will reduce their current federal income taxes by $56,000.

The trustee will sell the stock for the same amount (see chart below), but because the trust is exempt from capital gains tax, the full $500,000 is available to reinvest. The same 5 percent return will produce $25,000 in annual income which, before taxes, will total $650,000 over their lifetimes. That is $78,000 more in income than if the Brodys had sold the stock themselves. Further, because the assets are in an irrevocable trust, they are protected from creditors.

What are my income choices?

You can receive a fixed percentage of the trust assets (like the Brodys), in which case your trust would be called a charitable remainder unitrust. With this option, the amount of your annual income will fluctuate, depending on investment performance and the annual value of the trust.

The trust will be revalued at the beginning of each year to determine the dollar amount of income you will receive. If the trust is well managed, it can grow quickly because the trust assets grow tax-free. The amount of your income will increase as the value of the trust grows.

Sometimes the assets contributed to the trust, like real estate or stock in a closely held corporation, are not readily marketable, so income is difficult to pay. In that case, the trust can be designed to pay the lesser of the fixed percentage of the trust’s assets or the actual income earned by the trust. A provision is usually included so that if the trust has an off year, it can make up any loss of income in a better year.

Can I receive a fixed income instead?

Yes. You can elect instead to receive a fixed income, in which case the trust would be called a charitable remainder annuity trust. This means that, regardless of the trust’s performance, your income will not change.

This option is usually a good choice at older ages. It does not provide protection against inflation like a unitrust does, but some people like the security of being able to count on a definite amount of income each year. It is best to use cash or readily marketable assets to fund an annuity trust.

In either type of CRT (unitrust or annuity trust), the Internal Revenue Service (IRS) requires that the payout rate stated in the trust cannot be less than 5 percent or more than 50 percent of the initial fair market value of the trust’s assets.

Who can receive income from the trust?

Trust income, which is generally taxable in the year it is received, can be paid to you for your lifetime. If you are married, it can be paid for as long as either of you lives.

The income can also be paid to your children for their lifetimes or to any other person or entity you wish, provided that the trust meets certain requirements. In addition, there are gift and estate tax considerations if someone other than you receives it. Instead of lasting for someone’s lifetime, the trust can also exist for a set number of years (up to twenty).

Do I have to take the income now?

No. You can set up the trust and take the income tax deduction now but postpone taking the income until later. By then, with good management, the trust assets will have appreciated considerably in value, resulting in more income for you.

How is the income tax deduction determined?

The deduction is based on the amount of income received, the type and value of the asset, the ages of the people receiving the income, and the Section 7520 interest rate, which fluctuates. You can click this link to find the latest Section 7520 interest rates. Generally, the higher the payout rate, the lower the deduction.

The income tax deduction is usually limited to 30 percent of adjusted gross income, but it can vary from 20 percent to 60 percent, depending on how the IRS defines the charity and the type of asset. If you cannot use the full deduction the first year, you can carry it forward for up to five additional years. Depending on your tax bracket, the type of asset, and the type of charity, the charitable deduction can reduce your income taxes by 10 percent, 20 percent, 30 percent, or even more.

Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, you can deduct up to 100 percent of your charitable cash contributions to qualifying charities made in the 2020 calendar year. You can find more information regarding this temporary benefit by visiting this web page .

What kinds of assets are suitable?

The best assets are those that have greatly appreciated in value since you purchased them, specifically publicly traded securities, real estate, and stock in some closely held corporations. (S corporation stock does not qualify. Mortgaged real estate usually will not qualify, either, but you might consider paying off the loan.) Cash can also be used.

Who should be the trustee?

You can be your own trustee. But you must be sure that the trust is administered properly—otherwise, you could lose the tax advantages or be penalized. Most people who name themselves as trustee have the paperwork handled by a qualified third party administrator.

However, because experience with investments, accounting, and government reporting is required, some people select a corporate trustee (a bank or trust company that specializes in managing trust assets) as trustee. Some charities are also willing to be trustees.

Before naming a trustee, it is a good idea to interview several candidates and consider their investment performance, services, and experience with these trusts. Remember, you are depending on the trustee to manage your trust properly and to provide you with income.

Do I still have some control?

Yes. For as long as you live, the trustee you select—not the charity—controls the assets. Your trustee must follow the instructions you put in your trust. You can retain the right to change the trustee if you become dissatisfied. You can also change the charity (to another qualified charity) without losing the tax advantages.

Can I make any other changes?

Generally, once an irrevocable trust is signed, you cannot make any other changes. Be sure you understand the entire document and that it is exactly what you want before you sign.

Sounds great for me. But if I give away the asset, what about my children?

If you have a sizable estate, the asset you place in a CRT may only be a small percentage of your assets, so your children may be well taken care of. However, if you are concerned about replacing the value of this asset for your children, there is an easy way to do so.

As the illustration below shows, using the income tax savings and part of the income you receive from the charitable remainder trust, you can fund an irrevocable life insurance trust. The trustee of the insurance trust can then purchase enough life insurance to replace the full value of the asset for your children or other beneficiaries.

Why use a life insurance trust?

With a trust, the insurance proceeds will not be included in your estate, so you avoid estate taxes. You can keep the proceeds in the trust for years, making periodic distributions to your children and grandchildren. And any proceeds that remain in the trust are protected from irresponsible spending and creditors (even spouses).

Life insurance can be an inexpensive way to replace the asset for your children. (Every dollar you spend in premium buys several dollars of insurance.) Insurance proceeds are available immediately, even if you and your spouse both die tomorrow. Further, in addition to avoiding estate taxes, the proceeds will be free from probate and income taxes.

So what is the catch?

There really is no catch. Combining a charitable remainder trust with an irrevocable life insurance trust is a winning formula for everyone—you, your children, and the charity.

You convert an appreciated asset into lifetime income, and because you pay no capital gains tax when the asset is sold, you receive more income than if you had sold it yourself and invested the sales proceeds. You receive an immediate charitable income tax deduction, reducing your current income taxes. And by removing the asset from your estate, you reduce estate taxes that may be due when you die.

With the life insurance trust replacing the full value of the asset, your children receive much more than if you had sold the asset yourself and paid capital gains and estate taxes. The proceeds are also free of income and estate taxes, as well as probate.

Finally, you will make a substantial gift to a favorite charity. Because the charity knows it will receive the gift at some point in the future, it can plan projects and programs now—benefiting even before receiving the gift.

Should I seek professional assistance?

Yes. If you think a charitable remainder trust would be of value to you and your family, speak with an estate planning attorney, insurance professional, corporate trustee, investment adviser, CPA, or your favorite charity. Be sure an attorney experienced in CRTs prepares the documents.

Benefits of a Charitable Remainder Trust

Convert an appreciated asset into lifetime income
Reduce your current income taxes with charitable income tax deduction
Pay no capital gains tax when the asset is sold
Reduce or eliminate your estate taxes
Gain protection from creditors for the gifted asset
Benefit one or more charities
Receive more income over your lifetime than if you had sold the asset yourself
Leave more to your children or others by using a life insurance trust to replace the gifted asset

The Second Estate can help you make the best use of a range of trusts and other financial programs to protect your hard-earned money. Schedule a free appointment now to get started!

Why not sell the asset myself and reinvest?

You could, but you would pay more in taxes, and there would be less income for you. Consider the following example.

Years ago, Max and Jane Brody (ages sixty-five and sixty-three) purchased some stock for $100,000. It is now worth $500,000. They would like to sell it and generate some retirement income.

What happens if they use a CRT?

What are my income choices?

Can I receive a fixed income instead?

Who can receive income from the trust?

Trust income, which is generally taxable in the year it is received, can be paid to you for your lifetime. If you are married, it can be paid for as long as either of you lives.

Do I have to take the income now?

How is the income tax deduction determined?

What kinds of assets are suitable?

Who should be the trustee?

Do I still have some control?

Can I make any other changes?

Generally, once an irrevocable trust is signed, you cannot make any other changes. Be sure you understand the entire document and that it is exactly what you want before you sign.

Sounds great for me. But if I give away the asset, what about my children?

Why use a life insurance trust?

So what is the catch?

There really is no catch. Combining a charitable remainder trust with an irrevocable life insurance trust is a winning formula for everyone—you, your children, and the charity.

Should I seek professional assistance?

Benefits of a Charitable Remainder Trust

Convert an appreciated asset into lifetime income
Reduce your current income taxes with charitable income tax deduction
Pay no capital gains tax when the asset is sold
Reduce or eliminate your estate taxes
Gain protection from creditors for the gifted asset
Benefit one or more charities
Receive more income over your lifetime than if you had sold the asset yourself
Leave more to your children or others by using a life insurance trust to replace the gifted asset

The Second Estate can help you make the best use of a range of trusts and other financial programs to protect your hard-earned money. Schedule a free appointment now to get started!

Charitable Remainder Trusts

Wed, 19 Jun 2024 12:32:58 GMT

A type of irrevocable trust is a charitable remainder trust. It’s an instrument you may finance and once you put assets in, you can’t pull them out or change the trust’s conditions. A charitable remainder trust, unlike most other irrevocable trusts, is set up to benefit both you and the charity of your choice.

The first step in creating a charitable remainder trust is to draft a trust agreement, which lays out the trust’s conditions, including naming a trustee and naming the charity(ies) to which you intend to leave money after your death.

You finance your trust with an appreciated asset once you’ve formed it which is an asset with a higher market value than book value or taxable value. If sold it will generate capital gains.

The assets you transfer to an irrevocable trust no longer belong to you or your estate, so there will be no estate taxes to pay when you die. Because it’s a charitable remainder trust, you’ll get a tax deduction right away as it is labeled a charitable contribution. After that, the trustee sells the appreciated asset at full market value where there are no capital gains taxes to pay.

The trustee uses the trust’s liquid assets to reinvest the funds in income-producing assets. The trustee takes the revenue generated by those assets and returns it to you, the grantor. This may happen right away, or you could set up the trust so that payments start later, once the assets have (ideally) increased. These payments will continue for the rest of your life once they begin. The remaining assets are given to the charity(ies) of your choice in the manner you specify in the trust upon your death.

A benevolent remainder trust can be established in two ways. The first, known as a charitable remainder unitrust (CRUT), ties your annuity (the income generated by the trust and distributed to you) to a proportion of the fair market value of the donated assets. As a result, the annual income will fluctuate with the market and the trust’s annual value. The CRUT is revalued each year to determine your income, but you can include a provision that allows for an increase in income in a good year to compensate for a decrease in income in a bad year. There are no taxes on annual gains because the government wants you to leave money for charity when you die (at least 10% must be left).

A charitable remainder annuity trust, or CRAT, is another alternative. A CRAT is intended to give a steady income rather than one that fluctuates. Your income is constant regardless of how the assets perform. If the CRUT or CRAT assets represent all or most of your assets, but you still want to leave something substantial for friends or family, you can do so relatively cheaply by using the charitable remainder trust’s income tax savings to purchase life insurance and fund an irrevocable life insurance trust . It’s a technique to replace the gifted asset on the cheap so you can benefit from a charitable remainder trust while also leaving something to your children.

Click here for more in-depth analysis of charitable remainder trusts and how they can work for you.

How could a charitable remainder trust play out in real-world terms?

Suppose you have a property with a significant value, perhaps a property purchased by an ancestor that has greatly appreciated over the decades. You’d like to get the cash out of that property, but you don’t want to get “hammered” by a huge tax bill. A charitable remainder trust can be an excellent way to handle the situation. Here’s how it can work.

First set up the charitable remainder trust. Then transfer the property into the trust. This is a non-taxable event. The ultimate beneficiary of the trust must be a legitimate charitable beneficiary, a 501(c)3. It can be the community college, your church, your own foundation, or any number of things. Most often the property goes into the CRT and is then sold to someone with the proceeds going to the charity. This is usually set up as a 20-year process in which you get the use of the income during that period. Once the funds are in the CRT, you set up a 20-year annuity at a payout of eight percent. The income can be considerable.

For instance, if the trust has $1 million in it, your yearly income is $80,000. The deal is better than that because you also get a current tax deduction, which is generally 40 percent of the donation. Using this example, that’s a $400,000 tax deduction – right now. Who could complain about a deal like that? The kids, that’s who.

Lawyers frequently hear from kids whose parents have created a Charitable Remainder Trust. “They’re giving away my inheritance!” There are ways to create a CRT and still provide an inheritance. Here’s how you do it–again, using the $1 million previously mentioned example:

Set up an irrevocable life insurance trust. Use for example $20,000 per year for the first five years in a second to die policy for mom and dad. That twenty grand so massively funds the program that you never have to pay a premium again. Those are covered by the cash values in the policy. Get a whole life policy which can never be cancelled. At $20,000 a year you can acquire a substantial policy, say $1 million or $2 million. You get a current tax deduction of eight percent guaranteed for life.

Ultimately, the charity gets the property, you get income from the CRT, and the kids get a couple of million dollars tax free. Everybody wins.

Keep an important point in mind. A Charitable Remainder Trust is a terrific vehicle for tax planning, but it’s difficult to use for asset protection. It’s just too complex a process to be effective for most people.

Let’s look the pros and cons:

On the pro side:

liability protection
you can raise capital
fringe benefit deductions
audit protection

On the con side:

there are set-up costs
you face double taxation
it can be an inflexible mechanism with partners
it’s difficult to use for long-term real estate projects
an irrevocable trust is just that: irrevocable

Irrevocable Life Insurance Trusts

Wed, 19 Jun 2024 12:23:00 GMT

First things first, what is a trust?

A trust is a legal arrangement that provides for the ownership, management, and distribution of property. Think of a trust as a box into which someone places property. The person placing the property into the trust is known as the grantor of the trust. The person that oversees the property in the box is the trustee. Finally, the person who receives the benefit of the property held in the box is known as the beneficiary.

What is an irrevocable trust?

An irrevocable trust is simply a trust with terms and provisions that cannot be changed by the grantor. This is distinguished from a revocable trust, which is commonly used in estate planning and allows the grantor to change the terms of the trust and/or take the property back at any time.

Why would I want to use an irrevocable trust?

Using an irrevocable trust allows you to minimize estate tax, protect assets from creditors, and provide for family members who are minors, financially irresponsible, or who have special needs.

How do I create an irrevocable trust?

To create a trust, the grantor enters into a written trust agreement. He or she names a trustee to hold the property according to the terms of this trust agreement. The trust agreement identifies the beneficiaries and tells the trustee when distributions of trust property (including the original assets placed in trust, as well as the income on such assets) should be made to the beneficiaries. A well drafted trust agreement should plan for certain contingencies, such as what to do if the initial beneficiaries are no longer living.

What are the trustee’s duties?

The trustee is the person who is responsible for all aspects of the administration of a trust. The primary duties of any trustee are twofold: (1) to prudently invest and protect the assets of the trust, and (2) to make distributions to the trust beneficiaries according to the terms of the trust agreement. If desirable, more than one individual may be named to serve as co-trustee. Some individuals will name a family member or friend as the primary or alternate trustee. However, other individuals do not have family members or friends that they feel could (or should) take on this role. In such event, it may make sense to name a qualified bank or trust company to undertake this responsibility. The trustee is required to act in the best interest of the trust beneficiaries. This duty of loyalty is known as fiduciary duty, and it places a very high (and legally enforceable) standard of care and expectations upon the trustee.

Who should I name as trustee?

Any individual, other than the grantor, may serve as trustee of a trust, including the grantor’s spouse, children, family members, or friends. Of course, given the fiduciary duties required of a trustee, you’ll want to choose someone who is honest, diligent, and trustworthy (no pun intended!). If you would rather have an independent party act as trustee, there are a number of very well qualified professional trust companies in the community. If desirable, more than one individual may be named to serve as co-trustee.

Who can be a beneficiary of a trust?

Anyone other than the grantor may be named as a beneficiary of the Trust. Different family circumstances may dictate the need to structure the trust for different beneficiaries.

Can I amend the trust agreement?

As the name implies, once the trust agreement is signed, it cannot be amended or revoked. However, the trust agreement should be drafted in a flexible manner to allow the trustee to address unforeseen changes in circumstances.

What are the tax benefits of establishing an irrevocable trust?

Generally, if you make a gift of an asset to a beneficiary during life, the asset is not included in your taxable estate at your death. An irrevocable trust provides an alternative to simply giving an asset to a beneficiary in order to reduce your taxable estate. With a trust, you can set the timing of distributions (i.e. when the beneficiary attains 30 years of age) as well as the reasons for distributions (i.e. for education only). Therefore, if your estate is close to or in excess of $2 million, including life insurance proceeds, and you are not comfortable making outright gifts to beneficiaries, you should consider setting up an irrevocable trust to take advantage of the substantial estate tax savings such a trust offers.

What are the non-tax benefits of establishing an irrevocable trust?

Another significant benefit of an irrevocable trust is that it provides substantial protection from creditors. Once assets are transferred to the trust, they no longer belong to the grantor, rather, they become the legal property of the trustee to hold for the beneficiaries. This means that the grantor’s future creditors cannot place a lien on assets transferred to the trust because those assets no longer belong to the grantor. Similarly, creditors of a beneficiary of an irrevocable trust generally cannot place a lien against trust assets until such assets are actually distributed to the beneficiary.

How much can I transfer into the trust?

There is no limit to how much you can transfer into the trust. Of course, the trust is irrevocable, so once you have transferred the assets, you can’t use them or benefit from those assets, and if you do, they will likely be included in your estate for tax purposes. If you transfer over a certain amount, you will be required to file a gift tax return and may be have to pay a gift tax on the transfer.

How much can I transfer without causing gift tax?

Each year, you may make a tax-free transfer of an amount up to the gift tax annual exclusion amount to as many individuals as you desire. In order to qualify for the annual exclusion, the gift must be a “present interest” gift. A present interest gift is a gift over which the beneficiary has full control at the time the gift is made. For instance, if John gives Jane $10,000 in cash, Jane has full control over this amount immediately. Therefore, the gift will be deemed a “present interest” gift and it will qualify for the annual exclusion. However, if John gives Jane a check for $10,000 in December and does not allow Jane to cash it until the following year in February, Jane does not have immediate use of the funds when she receives the check in December. This gift is not a present interest gift and does not qualify for the annual exclusion. In this case, the entire amount of the gift is taxable even though the total dollar amount is less than the gift tax annual exclusion. A gift to a trust is generally not considered a present interest gift.

Is there a way to qualify gifts to a trust for the annual exclusion?

Yes. In order to make a gift to a trust qualify for as a present interest gift, the beneficiary must be given the right to withdraw the transferred funds for a specified period of time after the gift is made. This right to withdraw the funds is often referred to as a Crummey Withdrawal Right (so named after the creator of this technique, Mr.Crummey…seriously, that was his name!). Beneficiaries must be notified of this right to withdraw each time a transfer is made to the trust in order to ensure that the transfer qualifies as an annual exclusion gift.

Can I make gifts to the trust that exceed the annual exclusion amount?

Yes. In addition to the gift tax annual exclusion amount, each person may make tax-free gifts throughout his or her lifetime, or upon death, up to the gift and estate tax exemption amount . People who have stock or real estate that they believe will appreciate significantly often make larger gifts to the trust to not only remove the asset from their taxable estate, but also to remove all of the future appreciation.

Do I need to file a gift tax return for transfers to the trust?

Gifts to an irrevocable trust are treated as gifts to the underlying trust beneficiaries. If the grantor’s aggregate annual gifts to a beneficiary (whether through the trust or outside of the trust) did not exceed the gift tax annual exclusion amount, a federal gift tax return is not required (assuming Crummey Withdrawal Rights were given to the trust beneficiaries). However, a gift tax return is required if (1) the grantor made gifts in excess of the annual exclusion; (2) the grantor desired to use his or her spouse’s annual exclusion amount (to increase his or her gift to double the gift tax annual exclusion amount per beneficiary); or (3) the trust was designed as a “generation skipping trust.”

What assets can I transfer to an irrevocable trust?

Frankly, just about any asset can be transferred to an irrevocable trust, assuming the grantor is willing to give it away. This includes cash, stock portfolios, real estate, life insurance policies, and business interests. Of course, some assets are better to place in trust than others.

What are the best assets to place in a trust?

If your goal is to transfer assets into an irrevocable trust in order to reduce your taxable estate, certain assets can be used to leverage your gift tax annual exclusion. In other words, if you place highly appreciating assets in trust, you will not only transfer the initial amount, but all future growth (income and appreciation as well). Thus, some assets are “better” than others when it comes to excluding the asset from your estate and maximizing the amount that will pass tax-free to beneficiaries. For instance, if you place a certificate of deposit in trust, it may grow at a rate of 3% per year. However, if you place real estate in trust, it may grow at a rate of 6% per year. In five years, there may be a significant difference between what you retained in your estate and what has grown in the trust. Now, if you were renting the real estate, the additional net income grows in the trust and you have enhanced the initial transfer even further. Moreover, suppose you have a life insurance policy with a current value of $10,000 and a death benefit of $1 million. If you place the policy in trust, you have turned your $10,000 transfer into a $1 million tax-free benefit for your beneficiaries. The benefit of transferring life insurance policies is more fully explained below.

Can I sell assets to the Trust?

Yes. You may sell assets to your trust for fair market value.

Why would I want to sell assets to the trust?

Irrevocable trusts are often set up as grantor trusts, which simply means that they are not recognized for income tax purposes (all of the income tax attributes of the trust, such as income, loss, gains, etc. is passed on to the grantor of the trust). The trust can therefore purchase a grantor’s asset for immediate payment or on an installment basis, with no recognition of gain and no gift tax consequences. The sale of an asset to an irrevocable trust is often recommended if the asset to be transferred is a life insurance policy, or if the asset is in excess of the annual exclusion amount and is expected to appreciate rapidly.

Can I make additions to the trust in future years?

Yes. If the grantor desires the gift to qualify for the annual gift tax exclusion, the trustee must follow the Crummey withdrawal notice procedure each time a gift is made to the trust. A copy of these notices should be kept with the trust records in the event the trust is ever audited.

What is an ILIT?

ILIT is an acronym for irrevocable life insurance trust. It is really nothing more than an irrevocable trust that is designed to hold one or more life insurance policies on the life of the grantor. The trust and tax laws are the same for irrevocable trusts regardless of whether they hold life insurance or any other type of asset. Because life insurance policies are so commonly transferred to (or purchased by) irrevocable trusts, such trusts have received their own name, ILIT.

Once I set up a trust, how do I actually transfer assets to the trust?

To transfer cash or securities, the trustee will open an account in the trust’s name, and the grantor will instruct his or her bank or broker to move the funds from his or her account to the trust’s account. For real estate, a deed is used to transfer legal title of the property from the grantor to the trust. All future insurance and property tax statements should be sent to the trustee and paid with trust funds. Finally, to transfer an existing life insurance policy, the grantor simply needs to obtain and complete a change of ownership form and change of beneficiary form from his or her life insurance company.

If I transfer my life insurance policy to a trust, are the benefits immediate?

No. The insurance policy must be transferred to the trust at least three years before the insured’s death. This three year rule prevents people from giving away life insurance policies on their deathbeds and “cheating” the IRS out of the estate tax on the proceeds. The three year rule, however, only applies to gifts of policies, not sales of policies. To avoid the three year rule, many clients prefer to transfer cash to the trust and then have the trust purchase the policy from them. Because the trust is a grantor trust, there is no income tax consequence to this type of sale and the three year rule is effectively avoided.

Can I use a trust to purchase a new life insurance policy?

Absolutely. In fact, it is recommended that you establish the trust and then have the trustee apply for life insurance on your life. However, if you have begun the process and applied for the insurance under your own name, you can still proceed with the trust formation.

Are there any special responsibilities placed on an ILIT trustee?

If the trustee considers the existing life insurance to be a good investment, then the trustee’s responsibilities are primarily to hold the policy, receive annual cash transfers to cover policy premiums, keep trust beneficiaries informed, and ultimately, ensure that policy premiums are paid timely. After the insured dies, the policy proceeds are paid to the trustee, and the trustee’s focus shifts from maintaining the policy to managing trust investments and making distributions to trust beneficiaries.

Does the trust need to file annual income tax returns?

Yes. Trusts are separate legal entities and are required to file annual income tax returns. Generally, if income is not distributed to the beneficiaries, it is reported by the trust. If income is distributed to the beneficiaries, it is reported by the beneficiaries. However, trusts are often designed as grantor trusts, which require the grantor to report all income earned by the trust on the grantor’s individual return. This provides several benefits: (1) it doesn’t erode the amount the grantor has gifted to the trust, thus allowing the trust to stay as fully funded as possible; (2) it allows the grantor to pay the tax at the grantor’s tax bracket, which is often less than the highly compressed trust tax brackets; and (3) it allows the grantor to sell assets to the trust without recognition of gain.

Irrevocable Living Trusts

Wed, 19 Jun 2024 12:14:17 GMT

Establishing a trust is one of the simplest and most effective ways to ensure that you retain control over the distribution of your assets for all time, including after you pass away. Simply put, a trust is a mechanism to keep track of who owns and maintains property, as well as how it is managed and distributed. The relationships of the people participating in the trust are characterized as a trust. There is a grantor, a trustee, and a beneficiary in every trust.

The individual who places the property in the trust is known as the grantor.
The trustee is the individual in charge of managing the trust’s assets.
The trust’s beneficiary is the individual who benefits from the trust’s assets.

Why would I want my property in an irrevocable trust?

Putting your property in a trust and knowing that your wishes at the moment of trust creation are irrevocable seems daunting. However, irrevocable trusts offer estate tax advantages, protect the assets in the trust from creditors, and are particularly valuable for providing for family members who may have special needs, are financially irresponsible, or are minors.

How do I create an irrevocable trust?

A trust can be established as easily as creating a written agreement and nothing more than negotiating a written contract. The grantor names a trustee, names the beneficiaries, and specifies how the trustee shall distribute the property and should also account for contingencies, such as the beneficiary’ death.

Once the trust is established, the trustee has obligations of duties in good faith (fiduciary responsibilities) to invest and protect the trust’s assets with caution while he or she is adhering to the trust’s directions.

Besides the grantor, anyone can serve as a trustee. Trustees are frequently a trusted family member or friend, however grantors may want a professional or institution to serve as trustee instead. A trust can have many trustees, and if there are more than one, they are referred to as “co-trustees.” Once again (besides the beneficiary), anyone can be a beneficiary of an irrevocable trust.

Benefits of creating an irrevocable trust

A gift made while you are alive (such as life insurance or proceeds paid while you are alive but transferred upon death) is not counted against your estate’s taxable amount after you die. In many circumstances, you may not wish to offer the beneficiaries a cash settlement. A trust allows you to make a financial gift while avoiding estate taxes and defining asset distribution parameters.

Aside from tax advantages, an irrevocable trust protects the grantor’s assets from creditors. Because the assets transferred to the trust do not belong to the grantor, they are no longer executable. Creditors of the trust’s beneficiary can only seize the assets the moment they have been transferred to the beneficiary’s trust.

An irrevocable life insurance trust, or ILIT, which you can learn more about here , is another option.

Another type of irrevocable trust is a charitable remainder trust, which you can read about here .

Revocable Living Trusts

Wed, 19 Jun 2024 12:09:37 GMT

Our description of a trust is a fiduciary arrangement where you entrust the management of assets to a third party on behalf of one or more beneficiaries. The simplest and most frequent type of trust is a revocable living trust.

A trust is a legal document that specifies how different assets will be handled. The grantor or settlor is the person who establishes the trust and appoints a trustee to manage and distribute the trust assets in accordance with the trust’s conditions. Beneficiaries are whom gain access to the trust’s assets. When you die, your assets (these trust assets) are divided according to the terms of your revocable living trust.

Your assets will not pass to your heirs without going through a court procedure known as probate (which may be time-consuming, costly, and uncertain, not to mention open to the public to see) if you never create a trust. Unless you have a trust, your estate will have to go through probate in order to distribute your assets even if you have a will created.

Because the trust is revocable, you can modify it after it has been established (see irrevocable trusts ) while also moving assets into and out of the trust, amending the trust’s terms, and even canceling it.

Establishing a revocable living trust can also aid in keeping spousal property separate during marriage, and often includes power-of-attorney provisions for medical decisions.

A revocable living trust, which commonly includes power-of-attorney provisions for medical decisions, can also help keep spousal property separate during marriage. Although there are various benefits to creating a revocable living trust, there are a few things it does not do:

They don’t provide many (if any at all) tax benefits
They don’t control any assets that aren’t properly titled in the name of the trust;
They don’t protect your assets inside the trust from creditors.
They do not take the place of the requirement for a strong will (which explains why a will is created at the same time as a trust)

Revocable living trusts are simple to set up and provide some comfort for those with smaller estates and no creditors on the horizon while they would be the start of a comprehensive estate plan for persons with higher-value estates.

Do I Need A Will?

Wed, 19 Jun 2024 12:03:09 GMT

When planning for the future of your property after you die, the first thing many people think about is writing out a will. After all, that is the most common way of thinking. “Everyone needs a will”, people will tell you, so your wishes will come to pass. Not creating one leaves things to chance.

Let’s back up a bit. In order to determine if one needs a will, we should first spell out what a will is, and what purpose it serves. According to Wikipedia , “A will or testament is a legal document that expresses a person’s wishes as to how their property is to be distributed after their death and as to which person is to manage the property until its final distribution.” While there have historically been various documents that have been accepted as wills, and there are multiple provisions necessary for a will to be considered valid, at its most basic a will is created by a testator, who is the person whose will it is. They must be of the right age, demonstrate that they are of sound mind (that they have the mental capacity to do so), and that they are doing so of their own free will. It must be signed and dated, beneficiaries need to be clearly identified, and there must be witnesses. Many of the other conditions vary by state.

Your will has the capacity to do various things. According to the Florida Bar , you can direct real estate sales , make charity gifts, create trusts, establish who is responsible for the tax burden, name a guardian for your minor children (and care for them without the expense of proceedings for guardianship of property), and more. If one fails to create a will (also known as dying “intestate”), Florida law has a fixed formula by which your property will be distributed to your heirs. The formula is rigid and doesn’t care if one of your heirs is in greater need than another. Moreover, if you have no legal heirs, your property will go to the state, an outcome that is unlikely to match your desires. Finally, if you lack a will the court will appoint a personal representative to manage your estate, whether you knew that person or not. The cost of probate may be higher as well, as a will tends to lower expenses and reduce uncertainties.

Returning to the question of whether you need a will, the answer should seem obvious. If you have a positive net worth and a spouse and/or minor children, you should have a will. Furthermore, it is in your best interest to have your will drafted by an attorney. Not only will they be able to ensure that your will is drafted correctly according to your unique wishes and will stand up to potential challenges, but they will also be able to advise you on how to best set up your holdings to maximize the benefits for your beneficiaries, including the use of trusts, thus ensuring that your beneficiaries are set up in the best way possible going forward.

Learn More About Estate Planning

Asset protection is the best way to keep your wealth secured for you and future generations. Find out more about estate planning and how a lawyer can help you secure your family’s future.

What Is The Best Way to Protect My Assets?

Wed, 19 Jun 2024 11:49:31 GMT

Lawsuits and asset recovery can be expensive. Every year, billions of dollars are recovered in lawsuit settlements. For many of these settlements, the defendant lost their assets to settle the claim.

But that doesn’t have to be the case.

Asset protection is the best way to ensure your hard-earned wealth is secured from creditors and lawsuits in case you find yourself caught up in legal issues. Here’s an overview of some of the best ways to protect your assets from future claims and risks.

Why Do You Need Asset Protection?

If you lose a lawsuit, especially one filed by a creditor, you will most likely lose your assets, such as your car, home (depending on homestead protections in your state), your business, your investments, real tangible property, and the money in your savings or checking account. A lawsuit can also drain you of money in legal fees, cause stress, take up your time and energy, and damage your reputation.

Asset protection planning lets you prepare in advance for these scenarios since you can never be sure when a lawsuit may arise.

The Best Ways to Protect Your Assets

You can use several methods to ensure your most valuable assets are not at risk from creditors and lawsuits. These are some of the most effective:

Asset Protection Trusts

Asset protection trusts are some of the most affordable and effective asset protection tools. They allow you to protect your assets from future creditors, with the option of passing on your wealth to your loved ones after your death.

Roughly 17 U.S. states permit using trusts. Most APTs are set up as irrevocable trusts, meaning no one can change or revoke them once they’ve been set up. Assets you can secure in an asset protection trust include stock, cash, business property, LLCs, and real estate.

Limited Liability Business Entities

It’s crucial that you separate business assets from personal assets. Limited liability business entities are a great legal tool for asset protection, ensuring your most-prized assets are not affected in case of a business dispute or lawsuit from the business’s creditors.

Examples of limited liability business entities you can set up for asset protection include:

Corporations
Limited Liability Companies
Limited Partnerships
Family Limited Partnerships
Limited Liability Limited Partnerships

Retirement Funds

Federal law offers asset protection for certain employer-sponsored retirement plans. Most of these plans are also exempt from bankruptcy, meaning you can still hold on to the assets even after filing for bankruptcy.

The level of protection differs from state to state, but it’s generally higher than ordinary personal assets.

Learn More About Asset Protection

Asset protection is the best way to keep your wealth secured for you and future generations. Find out more about asset protection and how a lawyer can help you secure your possessions.

What is Legacy Planning?

Wed, 19 Jun 2024 11:41:28 GMT

In order to answer the question above, it is important to define what encompasses one’s legacy first, and who has one. While it might be easy to think of a legacy as what someone is remembered by, a legacy can also simply mean having possessions. These include physical possessions such as real estate, jewelry, and even items with sentimental value, as well as intangible possessions such as various accounts, stocks, insurance policies, and annuities.

Of course, since these possessions do have meaning to the person who owns them, it only makes sense that they would want to determine who they will go to once they pass away, or if they become incapacitated. And the only way to do that is through estate planning, whereby their assets are managed according to their wishes. The planning can include the bequest of assets to heirs, the settlement of debts, and the determination of guardianship of minors and pets. Some of the steps that tend to be common in legacy planning are the listing of assets and debts, reviewing accounts, writing a will, and setting up trusts. As such, strategies are also implemented to limit the tax burdens.

While the common perception may be that legacy planning is only something that the ultra-wealthy should consider, as we have demonstrated above, it is something that just about everyone needs to take into account. And estates can be planned with various goals in mind, including preserving familial wealth, providing for loved ones (which can take many forms, including financing an education), and building their long-term legacy by starting a foundation.

The difference between trying to do everything yourself and bringing in help could be substantial. They will have you create lists of all your assets, debts, retirement accounts/insurance contracts, and the like. Once all assets have been accounted for, the first step is generally to write a will, especially if you have minor children (as determining their guardian will most likely be at the top of your list of priorities). It will then be necessary to appoint an executor who will be responsible for locating the assets, determining their value, and overseeing their distribution. This step is not to be overlooked, as having the right person in charge of your legacy can make all the difference (and having the wrong person can be extremely costly to your loved ones).

The executor will also be responsible for the payment of debts and taxes. Fortunately, your hands are not bound in this regard, as there are steps you can take to limit the taxes that will have to be paid, including the setting up of trusts, making gifts to charitable donations, and using special vehicles for education funding.

Click here to find out more about how The Second Estate’s approach to estate planning.

Maintaining the Corporate Veil for Your Entities

Tue, 18 Jun 2024 20:44:11 GMT

Very important!

A key point to remember is that the corporate veil is fragile. You have to treat it carefully and protect it at all times. Once you set up your entity and run it properly you will have created a corporate veil that will be extremely difficult to pierce if it can be pierced at all.

Some investors set up a new corporate entity for every project. For most people that would be overkill. Some investors in highly litigious markets do so and consider the effort and expense just the cost of doing business. This is a matter that you’ll have to consider for yourself.

There are several key maintenance procedures each business owner should complete:

Separate checking between each company, including business and personal finances – No co-mingling.
Create letterhead for each business operation and USE IT!
Have business cards for each business entity and distribute them in each transaction.
Use the entity name on all contracts and legal documents
Title/ownership of all business assets should be in the entity name.
Make sure and complete your annual meetings and maintain a Corporate Book

Buy Sell Agreement

Tue, 18 Jun 2024 20:38:36 GMT

A buy/sell agreement is an agreement among partners or stockholders in which some agree to buy out the interests of others upon some event.

For example, John and Jim are in partnership and John passes away. His share of the property passes to his family and suddenly Jim has a bunch of partners he’s never planned on. These new partners may have an entirely different agenda than the one originally planned by John and Jim.

If there’s a buy/sell agreement in place, Jim has the right to buy out John’s share from John’s heirs. Jim, his plans, and his assets are protected.

The buy/sell agreement doesn’t have to be a large document. All the necessary details can be covered in four or five paragraphs or certainly within a page or two. The agreement can be funded by life insurance so that a payment can be immediately made to the survivor’s family. The survivors don’t have to wait until the property sells to acquire the funds they desire. Life insurance also provides liquidity for the partnership.

The buy/sell agreement should be put in place at the beginning of the partnership or joint venture. It can be part of the original partnership agreement or it can be a separate agreement.

It should cover the “four D’s.” These are:

Death
Disability
Divorce
Departure

In the event that any one of the “four Ds” occurs to a partner, the buy/sell agreement is in force. The other partners can exercise their right to buy out that share of the property. It’s a sound policy for all involved.

Divorces can wreak havoc on the family’s personal life, but they can have the same effect on a partnership or joint venture. Avoid the problem with a buy/sell agreement stipulating that upon a voluntary or involuntary divorce, the agreement kicks in immediately. The partners buy out the divorcing partner’s interest at a fair market price. This eliminates the possibility of having to deal with those unplanned partners before the situation arises. You can also stipulate that once the divorce becomes final, the partner has the right to buy back into the partnership for the same amount. This technique isn’t a means to take advantage of an unfortunate situation. It’s a way to allow a partner to get out of the partnership to deal with personal issues and let him or her back in at a later time. The value of the partnership is never brought into the divorce process.

It’s a good idea to review the buy/sell agreement at your annual meeting. Property values change, so you should change the buy out amount accordingly. If there are a number of properties involved, you can use a line item for each one.

Find Out If A Buy/Sell Agreement Is Right For You.

This strategy and many others are available to you. Set up your free consultation now to find out how The Second Estate can secure your assets and reduce your tax burden.

Investment Trust FAQ

Tue, 18 Jun 2024 20:26:25 GMT

Change Your Family’s Future With an Investment Trust

The Second Estate can protect you and your beneficiaries with an Investment Trust as well as a host of other IRS-approved tools. Click below to set up your free consultation and find out how to make the most of your hard-earned work.

Information on Trusts

Tue, 18 Jun 2024 20:08:37 GMT

The Trust you will purchase is a very unique legal document that intertwines Scott on Trust Law, the Restatement of Trusts and the Internal Revenue Code to create a Non-Grantor, Irrevocable, Complex, Discretionary, Spendthrift Trust, which is Copyrighted, Liability is limited in that no litigation against the Trustee or Beneficiary is able to penetrate the corpus of the trust because of the Spendthrift provision.

Your personalized version of the Trust is structured to allow the Trust to take advantages of exclusions from the sale or exchange of capital asset gains under Title 26, Subtitle A, Chapter 1, Subchapter 1, Part 1, Subpart A, Section 643 of the IRC.

It further provides the exclusion of extraordinary dividends and taxable stock dividends from items of gross income because the structure allows the Trustee to allocate these dividends to the corpus of the Trust. The Trust is not subject to capital gains tax.

Since they are in compliance with the IRC and are legally acceptable legal documents, they receive an Employee Identification Number and file a Form 1041 as a Complex Trust each year. They must meet the compliance codes and filing requirements. Relevant code sections are Title 26, Subtitle A, Chapter 1, Subchapter 1, Part 1, Sections 59, 67, 543, 553, 927 Subpart A Section 641; Section 643, Subparts A, B, C, and D, and including Section 651, Sections 672, 673, 674, 675, 677, and 678.

Your Trust, being Spendthrift Irrevocable Trust is not subject to operation of law or turn over orders by any court. This limits the liability of Beneficiaries and Trustees of the Trust. It also makes the corpus of the Trust unreachable by creditors.

These Trusts are proven over time, established, and Copyrighted to assure you of the very best quality in privacy, reduction of taxes and legal protection.

The Importance of Asset Protection

Tue, 18 Jun 2024 19:53:42 GMT

Here are a few compelling reasons you should have an asset protection plan.

Ensure Business Continuity

Asset protection provides an excellent means of ensuring your business is not affected by lawsuits and creditors. Enforcing asset protection for your company prevents creditors from seizing crucial company assets, thereby protecting core business operations.

Creditors will only have access to a regulated portion of your business’s assets, thus ensuring business continuity and better settlement terms in case your business defaults on a loan or credit.

Opportunities to Diversify Your Assets

Using offshore accounts to protect your assets presents several new opportunities to diversify your wealth. Often, if you keep your assets within the U.S. market, you may experience some trouble investing in certain markets, restricting your wealth portfolio.

A robust offshore asset protection plan has fewer restrictions since it’s typically detached from the American legal system, with more freedoms and excellent tax incentives.

For instance, Caribbean nations incentivize investors to keep their assets within the country with a variety of tax incentives that can save investors a lot of money. A word of caution: it is important not to do business in a foreign country that reports to the USA or that will have you paying taxes on your Worldwide Income!

If you would like to have the best of both worlds, The Second Estate offers a program where you can have ALL the benefits of being offshore and NEVER have to actually go to another country! That is right….Your assets can stay in the great USA and still have the same protections, without any of the uncertainty. Ask us how…

Confidentiality

Asset protection plans keep your assets confidential and detached from the fiddling hands of creditors and American wealth management systems. Your assets are more protected and kept under wraps from prying eyes that might want to measure and seize them if you default on credit payments or get into a business dispute.

Safeguard Against Legal Threats

Anyone can sue a business, its owners, or an individual if they feel their rights have been violated. In these cases, you stand to suffer significant asset losses if the lawsuit is upheld and you’re forced to pay damages.

Asset protection ensures you don’t lose your assets from malicious lawsuits or the heavy financial burden of lawyers and other legal fees.

Learn About Ways You Can Protect Your Assets

Asset protection planning should be at the forefront of your wealth creation strategy. Learn more about asset protection and how a lawyer can ensure your financial security.

The Best Ways to Protect Your Assets

Tue, 18 Jun 2024 19:48:29 GMT

You can use several methods to ensure your most valuable assets are not at risk from creditors and lawsuits. These are some of the most effective:

Asset Protection Trusts

Limited Liability Business Entities

Examples of limited liability business entities you can set up for asset protection include:

Corporations
Limited Liability Companies
Limited Partnerships
Family Limited Partnerships
Limited Liability Limited Partnerships

Retirement Funds

The level of protection differs from state to state, but it’s generally higher than ordinary personal assets.

Learn More About Asset Protection

Asset protection is the best way to keep your wealth secured for you and future generations. Find out more about asset protection and how a lawyer can help you secure your possessions.

Nevada v. Other States

Tue, 18 Jun 2024 19:26:28 GMT

Nevada legislature has pushed for the creation of a business-friendly legislature in order to make it a more attractive state for businesses that are looking for tax advantages or laws that promote business rather than smother it. Fortune magazine stated that “Nevada’s attraction is that it has one of the lowest costs of doing business in the West” therefore making it one of the best states in America for business.

Trust Advisor polled its readers when they asked which state is best for trusts. Nevada won with 64% of the vote, Alaska in second place with 15%, South Dakota at 11% and Delaware with 10%. This poll included all forms of trusts.

Nevada legislature has pushed for the creation of a business-friendly legislature in order to make it a more attractive state for businesses that are looking for tax advantages or laws that promote business rather than smother it. Fortune magazine stated that “Nevada’s attraction is that it has one of the lowest costs of doing business in the West,” therefore making it one of the best states in America for business.

Companies such as Tesla, Hyperloop Technologies, and Aqua Metals have moved to Nevada to take advantage of huge savings.

The Following are some advantages that come with doing business in Nevada:

No tax corporate or LLC profits.
No tax corporate shares of LLC ownership. (Most states tax the individual shares)
There is no franchise tax.
There is no personal income tax.
Nevada doesn’t have an Information Sharing Agreement (ISA) with the U.S. Internal Revenue Service.
Shareholders of corporations/owners of Nevada LLC are not on the public records meaning all shareholders can remain anonymous.
Officers/Directors of the corporation can be protected from personal liability
The corporations may purchase, hold, sell or transfer shares of its own stock.
A Nevada corporation can issue stock for capital, services, personal property, or real estate (this includes leases and options for values that the Directors determine with a final decision)
They can issue stock for nearly anything of value while the valuation of shares will not be questioned.

Nevada is without a doubt a business-friendly state . Nevada has evolved as a friend to companies of all kinds, and is no longer recognized just for its gaming sector.

Which Business Entity Is Best

Tue, 18 Jun 2024 19:19:24 GMT

Businesses vary according to their goals, costs, investor interest, risk tolerance, and financial standing. There will never be a single, perfect choice for everyone when it comes to the best entities to use for your business. The options vary from sole proprietorship which provides no protection for personal liability to a complex choice that has multiple layers of business entities and provide maximum personal liabilities and anything in between.

Listed below are a few options: limited liability limited partnerships (LLLPs), family limited partnerships (FLPs), C corporations, S corporations, and sole proprietorships. We have listed for you the advantages and disadvantages of each one:

Sole Proprietorship

Business and person are equal
There is 0 liability protection meaning that debts are liable to the owner
No filing requirements & no registration cost
Taxes are reported on personal tax returns
There is no requirement to pay unemployment tax
Owners can mix business and personal assets with no issues
Owners can take loans only and can’t raise money from selling interest
Rarely succeeds after the death of the owner(s) meaning they could lose value

Limited Partnership

Simple and inexpensive to form
General partners are liable for any dent and ultimately control the business
Partners do not have control over the business and are usually exempt from the debts incurred
No annual gatherings required
Very few formalities required
Personal tax returns reflect the Partners’ shares of profit & loss
Taxes tend to be lower versus an LLC or corporation

Limited Liability Company

Owners are shielded from personal liability for debts incurred by the company
LLC utilize partnership-style, pass through taxation (advantageous for small companies especially)
Simple operation and maintenance
Can offer better liability protection than corporations
Utilize charging order protection.
LLC’s are not ideal for businesses looking to become public or make money in the capital market
More expensive to set up than partnerships
LLC’s, more often than not, require periodic filings with the state along with annual fees
Some states don’t allow LLC’s

Corporations

Owners are shielded from personal liability for company debts or responsibilities
Corporations have legal precedent to guide their owners
Best choice for companies that plan to go public at some point
Corporations can raise money through the sale of securities
Corporations can utilize the transfer of securities by transferring ownership
Corporations can have an unlimited lifespan
Corporations are allowed to create tax benefits sometimes (except C-corporations could be subject to double taxation on profits)
Corporations require many annual meetings while the owners/directors must observe particular ones
Corporations are more expensive to start
Corporations require periodic filings with the state along with paying annual fees

Speak with a legal advisor familiar with these concepts to find out which entity is best for your business.

Trump Tax Plan

Tue, 18 Jun 2024 19:08:47 GMT

THE TRUMP TAX PLAN IS THE BIGGEST TAX CHANGE SINCE 1986

On December 20, 2017, the “Tax Cuts and Jobs Act of 2017,” also called the Trump Tax Plan, was passed by the House of Representatives and was the biggest piece of tax legislation since Ronald Reagan’s Tax Reform Act of 1986. This tax bill made a decrease in the tax rates for the majority of brackets for individuals but creates bigger savings for corporations by eliminating the corporate alternative minimum tax. Small businesses that implement a pass-through tax strategy can find significant savings as well. Businesses with incomes that come from outside the United States can benefit from these things as well.

Some reductions are temporary and are at the expense of some long-relied-on tax breaks. Most of the changes took effect in 2018. We have listed out the basics for you.

Tax Changes for Individuals and Couples

Changes in effect through 2025:

Tax rates are reduced by up to 4% depending on the bracket (some remain unchanged), with tax rates ranging from 10-37%.
The following are substantial increases in standard deductions:
Couples filing jointly—$24,000, up from $12,700 previously.
$12,000 if you’re single or married filing separately, up from $6,350 if you’re married filing jointly.

Heads of household—from $9,350 to $18,000

Personal exemptions are no longer available.
The child tax credit for dependent children has been increased to $2,000 per child.
State and local tax deductions for itemized taxpayers, which were previously limitless, are now limited to $10,000.
The mortgage debt ceiling has been lowered from $1 million to $750,000.
Interest on home equity loan is no longer deductible.
Individual deductions for casualties and theft losses are no longer available (unless it is for federally declared disasters)
Several miscellaneous itemized deductions that only apply if they total more than 2% of your adjusted gross income have been eliminated (such as certain investments, professional fees, and unreimbursed expenses incurred through employment)
Unless you are a member of the military, the moving expense deduction is no longer available.
The alternative minimum tax exemption was raised to include:
From $84,500 to $109,400 for married couples filing jointly
From $54,300 to $70,300 if you’re single or the head of a household
Married filing separately pay $54,700 instead of $42,250
The gift and estate tax exemptions have been increased from $5 million to $10 million

Other alterations include:

Taxpayers who would otherwise be penalized for not having health insurance under the Affordable Care Act will no longer be penalized (began in 2019)
The medical cost deduction level has been lowered from 10% to 7.5% of adjusted gross income (in effect only 2017 and 2018)
For 2017 and 2018, the AGI threshold for the medical cost deduction was reduced to 7.5% for both normal and AMT purposes.
The coverage of Section 529 plan payments has been expanded to include expenses for elementary and secondary school, up to $100,000 per student per year.

Tax Changes for Businesses

A new 20% eligible business income deduction is available to owners of partnerships, LLCs, S Corporations, and sole proprietorships (through 2025)
Instead of a progressive rate of 15% to 35%, the corporate tax rate is now a flat 21%
The alternative minimum tax on corporations is no longer in effect.
Even if purchased secondhand, assets acquired and placed in service between September 27, 2017 and January 1, 2023 receive a bonus depreciation of 100%.
The Section 179 cost ceiling has been increased to $1,000,000 (the phaseout level has been raised to $2,500,000).
There are no longer any deductions for net interest expense that exceeds 30% of a company’s adjusted taxable income (subject to exceptions)
Deductions for net operating losses are restricted to 80% of taxable income.
Over the coming year, the domestic production activities deduction/manufacturers’ deduction (199 deduction) will be phased away.
Employer-provided family and medical leave now has its own tax credit, which lasted until 2019.
The $1,000,000 deduction for corporations that pay certain CEOs more than $1,000,000 is removed, as are the performance-based remuneration and commission exceptions.
Employee fringe benefit deductions are now subject to new restrictions.

These are just a few of the most fundamental changes brought about by the Trump Tax Law. To take full benefit of the new bill, contact us.

How To Protect My Business Equity

Tue, 18 Jun 2024 19:01:15 GMT

Asset protection planning is essential in ensuring your personal assets are safe from creditors and lawsuits. Creating an LLC or corporation typically helps separate and protect your personal assets from business ones. However, your business assets remain exposed if you run an actual business.

Is there a way you can protect them too?

Short answer is yes. You can offer sufficient protection to your business equity by reevaluating how you structure your business. Here’s a short breakdown:

The Best Choice for Protecting Personal and Business Assets

Small business owners get sufficient personal asset protection from an LLC or corporation when business creditors come knocking. However, since the business assets in this instance are exposed, the business is at risk of losing everything, which could spell disaster.

Despite wanting to protect your personal and business assets seeming like opposing goals, organizational structure can make achieving these two goals simultaneously possible.

Typically, business assets are shielded from personal creditors to an extent. However, assets outside the business are fully insulated from the firm’s creditors. Therefore, the optimum business structure for safeguarding corporate and personal assets would be to have two entities:

Operational entity – This is the business entity that takes all operational risks. It possesses but doesn’t own the business assets.
Holding entity – This is the business entity that owns the business assets.

In order to optimize this multi-entity approach, careful thought and professional counsel are required. You must balance funding between both entities, using equity and debt such as loans, leases, and liens. The assets of the operational entity are protected to an extent by having a separate holding company owning them. Therefore, you get multi-layered asset security.

Why Using Two Limited Liability Companies is Better

The multi-layered asset security approach could work better with two LLCs than two corporations. Moreover, the two LLCs must be formed in a state that’s adopted the Revised Uniform Limited Partnership Act. This act prevents the foreclosure and liquidation of business assets for the satisfaction of a personal creditor.

You can open and fund the holding entity as the individual owner. The holding entity can then own and fund the operational entity. The operational business, therefore, runs as a subsidiary of the holding entity.

For the best protection, the holding entity should not participate in any business activity. Therefore, it becomes almost immune to liability. The operating company then takes all the operational risks, with limited liability, which only extends to the holding company.

Your business equity as the company’s owner remains protected since you do not own the operating business directly. As you scale to operate several businesses through the holding company, it is paramount that you maintain each operating company’s operations separate from each other.

Please also see under corporations when an LLC and a corporation can help with protecting your assets with additional ability to offset state income tax!

Save Tax Dollars Through Upstreaming

Upstreaming is a tried and true method of saving on taxes by skillfully moving income from one subsidiary to its parent. Things are rarely simple when it comes to taxes, but there are various scenarios where upstreaming can produce substantial tax savings. Of course, in a business situation, you will need to show there was a business reason for your actions beyond just saving on taxes, and you will need to document your actions in preparation for any future audit.

Upstream to a Company in Another State

If a business is in a state with high state income tax such as California, it’s possible to reduce that high state tax by upstreaming to a company that is domiciled and has nexus in a state with lower income tax or to avoid state income tax completely by upstreaming to a company in a state with no income tax. You will not have to pay tax in the home state if you are dealing with C corporations. Here are states without income tax:

Alaska
Florida
Nevada
South Dakota
Texas
Washington
Wyoming

The requirements for showing a company has nexus varies across all 50 states. However, some factors that commonly are considered are:

Physical presence such as offices, warehouses, showrooms, etc.
Representatives operating within the state such as employees, salespeople or other agents
State-specified number of transactions or sales

Upstream to a Company with Another Tax Structure

“Upstreaming” may also refer to moving income to a company with a more beneficial tax structure. You may have multiple companies with different tax set-ups. One might be a corporation, and another might be a partnership, for example. You may want to upstream where one offers a tax advantage over the other.

Upstream C with a Drop: Moving Assets in Related Entities Through Reorganization

Using the method of “upstream C with a drop” you can move assets within related entities without being taxed on it. The parent company acquires the subsidiary’s assets through a reorganization of the subsidiary’s assets under 26 U.S. Code § 368(a)(1)(C). The parent company then contributes some of the subsidiary’s assets to the new corporation (this is the drop) and may keep part of the subsidiary’s assets under its own control. In this manner, some of the subsidiary’s assets are shifted to the parent corporation tax-free under 26 U.S. Code § 355.

The subsidiary need not be legally liquidated but can be “deemed” to have been liquidated for federal income tax purposes. This can be done by changing the type of entity, such as converting a corporation to an LLC or by making an election by checking the appropriate box on IRS Form 8832 to change the subsidiary’s tax classification under 26 CFR 301.7701-3.

Upstream Gifts to a Relative

There are tax advantages to upstreaming gifts to a parent, so the same property will be included in the estate you will inherit. The purpose of this is so you can get the fair market value of the property at the time of your parent’s death rather than the FMV at the time you first acquired the property. This new FMV passes to you even if your parents pay no estate tax.

Conclusion

There are a number of ways to reduce your clients’ taxes through upstreaming. Once you introduce the concept to them, you may be able to help your clients in multiple ways using various upstreaming methods.

Learn The Best Ways You Can Protect Your Assets

There are more techniques you can use for adequate asset protection. Contact The Second Estate and employ the best means for the assets you own.

How To Protect My Real Estate

Tue, 18 Jun 2024 18:45:47 GMT

Real estate is one of an individual or business’s most valuable assets. This makes it a prime target for most creditors when pursuing a claim or filing a lawsuit against an individual.

Therefore, protecting your real estate assets should be a top priority. But, how can you do so?

Here is all you need to know about real estate assets and how you can ensure creditors, lawsuits, and other risks don’t take them away from you.

Why Do I Need Real Estate Asset Protection?

Real estate asset protection is a strategy used by investors to protect their properties against creditors and lawsuits. Furthermore, if properly created it will also protect you from your tenants. For instance, if you’re using your real estate for business and a tenant gets injured on the property, they may decide to sue.

Typically, the settlement amount for damages is significant, putting a massive strain on you and your business.

A real estate asset protection plan limits the assets you’ll be forced to liquidate to pay for the judgment or settlement.

Strategies You Can Use to Protect Your Real Estate Assets

There are several strategies you can employ to protect your real estate assets. They include:

Set Up an LLC To Hold Your Real Estate

Instead of holding the title to your real estate individually, set up a legal entity to hold the real estate, detaching it from your personal assets.

The best legal entity to set up is a limited liability company (LLC). If a creditor sues you, they can’t access any of your properties since the LLC is the legal holder.

Get Insurance

Insurance is one of the most common asset protection measures in real estate. The kind of real estate you own determines the type of coverage you can have. A typical homeowner’s policy will protect your house, while a business policy will protect your commercial property from lawsuits and claims.

Use an Anonymous Land Trust

An anonymous land trust is an excellent tool for protecting your real estate assets with an extra layer of anonymity. When working with an anonymous land trust, you can avoid having your name on record, meaning lawyers will not be able to link you with any of your properties in the trust during litigation.

Using Debt Strategically

Strategically using debt, also known as equity stripping, is an excellent way of protecting your real estate assets. For instance, if you have a rental property worth $100,000, you have $100,000 in equity that can be a target for the plaintiff’s lawyer.

If you strip equity out of the property and maintain a loan-to-value ratio of 75%, the potential cash at risk is $25,000. This little equity may deter a creditor or attorney.

Learn Other Ways You Can Protect Your Real Estate

There are various approaches you can use for real estate asset protection. Learn how we can help you secure your property, such as by using our Copywritten Investment Trust or by buying property using an IGIC.

Family Limited Partnership

Tue, 18 Jun 2024 18:37:31 GMT

Estate planning and passing down generational wealth is a hot topic among families and family-run businesses. Most families with a non-business motive opt for family limited partnerships to protect family assets and ensure their vast wealth is protected from creditors, lawsuits, and other future risks.

But do all families need one?

Here’s all you need to know about family limited partnerships and how they can be resourceful in asset protection.

What Is a Family Limited Partnership?

A family limited partnership (FLP) is an organizational structure where family members pool money to run a business. Each family member buys shares or units of the business, taking profits in the proportion of their shares as outlined in the partnership’s operating agreement.

Two or more family members can own a family limited partnership. They’re often established to preserve generational wealth and facilitate tax-free real estate, assets, and other wealth transfers.

How Does a Family Limited Partnership Work?

There are two types of partners in a family limited partnership. They include general partners and limited partners.

General partners in an FLP typically own the largest share. They’re responsible for the day-to-day operations of the business, such as overseeing all investment transactions and cash deposits. If outlined in the partnership agreement, the general partners take a management fee from the profits.

Limited partners don’t have management responsibilities. Instead, they buy shares in the business in exchange for interest, dividends, and profits that the FLP might generate.

Most general partners are senior family members, while younger members such as grandchildren and children make up limited partners.

Advantages of a Family Limited Partnership

There are several advantages of setting up a family limited partnership. They include the following:

Asset Protection

Since an FLP is treated as a separate legal entity, all assets under its ownership are deemed its property. Therefore, creditors pursuing an individual’s credit cannot access these assets, even though the partner previously owned them before transferring them to the FLP.

Control and Flexibility

Since it is a form of a limited partnership, an FLP is managed according to the partnership agreement. Therefore, general partners retain control over the FLP’s assets, with the option to amend the agreement and introduce flexibility over management and control.

Wealth Distribution

An FLP allows individuals to distribute family wealth to their heirs using limited partnership shares.

Estate Tax Reduction

When general partners transfer their estate ownership to an FLP, they reduce their estate size, effectively reducing their estate tax burden.

Learn How Other Business Entities Can Protect Your Assets

Family limited partnerships are one of many business entities you can set up to protect your assets and pass wealth down to future generations. Learn more about asset protection and how you can use various means to keep your most prized possessions out of the creditor’s reach.

If you want to go one step above an FLP, contact The Second Estate about Implementing an LLLP which is another layer of the onion and preferred 10 to 1 over just an FLP for just a slightly higher cost.

Limited Liability Limited Partnership

Tue, 18 Jun 2024 18:13:22 GMT

Partnerships are a common business structure in America. According to statistics , there were about 3.8 million partnerships in America in 2019, representing 25.3 million partners. Limited liability partnerships represented 10.8% of these.

Albeit not very well-known, limited liability partnerships are arguably some of the best partnerships in terms of profitability and asset protection. Here’s a brief overview of what you should know about LLPs and their role in asset protection.

What is a Limited Liability Partnership (LLP)?

A limited liability partnership is a form of partnership that extends a limited personal liability to all partners in the business, including general partners. To understand an LLP well, you must understand how a general partnership works.

A general partnership operates as a for-profit business entity created through a mutual understanding between two or more parties. Typically, it constitutes two or more people working together to make money.

General partnerships are rather informal, requiring only a shared interest, an optional contract, and a handshake to do business. This structure gives it its biggest downside, legal liability. Typically, if anyone sues the business, all partners are personally liable.

A limited liability partnership is a formal legal entity that limits the liability of each partner, protecting their personal assets from a suit targeting the business.

Therefore, you may lose your assets within the business, but your personal assets are protected.

How is a Limited Liability Partnership Different from a Limited Liability Company?

An LLP and LLC protect their owners’ personal assets. However, they possess a few differences.

For instance, an LLP requires a written partnership agreement with annual reporting requirements depending on the jurisdiction.

LLPs and LLCs also have different liability protections and management requirements. LLCs have more flexible management, allowing anyone to lead the business. On the other hand, LLPs require management duties to be equally divided.

An LLP may be superior to an LLC or any other corporate entity, depending on an individual’s profession. Tax-wise, it is regarded as a flow-through entity, meaning partners receive untaxed profits and must pay the taxes themselves.

The Benefits of an LLP

Here are some excellent benefits of trading through an LLP.

Protection of personal assets from another partner’s liability or business liability.
Better flexibility in business management than general partnerships since it’s based on the written agreement between partners.
An LLP is deemed a legal person who can rent, buy, lease, own property, enter into contracts, employ staff, and be held legally accountable if necessary.
Protection for your unique business name since no other business can register and legally use it.

Learn Other Ways You Can Protect Your Assets

A limited liability partnership is just one of many business entities you can use to protect your assets.

Here are a couple others:

Family Liability Partnerships

A family limited partnership (FLP) is a limited partnership that only contains members from the same family.

One of the biggest and most favored advantages of our FLPs is the tax benefits. If a family member chooses to purchase both a general partnership interest and a limited partnership interest and they transfer these limited partnership interests to other members of their family, the transferring party gets to reduce the taxable value of their estate. This ensures complete control over the management and investment decisions of both your company, and of the transferees, who are not granted authority to make decisions regarding these matters. This could enable others to take advantage of valuation discounts when the transfer is complete.

Limited Liability Limited Partnerships

A newer kind of entity called an LLP protects the general partner from personal liability for the debts incurred by the partnership. This entity has a protective barrier, comprised of the setting up of multiple layers of entities in a simpler, more refined approach.

When your business enterprise becomes a limited liability limited partnership, you can always rest assured knowing that the only assets you are risking are the assets that you invest in your business.

Schedule Your Free Appointment Now

Find out how The Second Estate can make an LLP work to protect your assets.

Series LLCs

Tue, 18 Jun 2024 17:44:32 GMT

Series LLCs are a type of LLC that allows a single company to create separate series or cells within the company that have their own liability protection. This means that each series can have its own assets, income, and debts separate from the others, and the liability of each series is limited to its assets. planning.

Series LLCs are often used in real estate investment, where each property can be managed as its own separate series. In terms of taxes, each series of a Series LLC can be taxed as a separate entity, or the entire Series LLC can be taxed as a single entity, providing flexibility in tax.

Partnerships

Tue, 18 Jun 2024 17:43:42 GMT

Partnerships are a type of business structure where two or more people own and operate a business together. In a general partnership, each partner is personally liable for the business debts and obligations. In a limited partnership, there are both general and limited partners, with the latter having limited liability.

Partnerships are often preferred by small businesses because they are relatively simple to set up and have fewer formalities compared to corporations. In terms of taxes, partnerships are pass-through entities, meaning that the business income is passed through to the individual partners and taxed at their individual tax rates.

S Corporations

Tue, 18 Jun 2024 17:42:46 GMT

S-Corps, or S Corporations, are a type of corporation that has elected to pass corporate income, deductions, and credits through to their shareholders for federal tax purposes. This allows the company to avoid double taxation on the corporate income.

S-Corps have the same limited liability protection as C-Corps, but they are subject to more restrictions, such as having no more than 100 shareholders and only allowing certain types of shareholders. In terms of taxes, S-Corps are only taxed once on their income at the shareholder level, which can provide a tax savings compared to C-Corps.

C Corporation

Tue, 18 Jun 2024 17:41:47 GMT

C-Corps, or C Corporations, are the most common type of corporation. They are separate legal entities from their owners, meaning shareholders have limited liability and are not personally responsible for the company’s debts or obligations.

C-Corps are taxed as separate entities and any profits are taxed at the corporate level before being distributed to shareholders as dividends. This double taxation can make C-Corps less attractive for small businesses, but they are often preferred by larger, publicly traded companies because they offer a wider range of options for raising capital.

Limited Liability Company

Tue, 18 Jun 2024 17:40:47 GMT

LLCs (Limited Liability Companies) are a type of business structure that combines the liability protection of a corporation with the simplicity and flexibility of a partnership. Members of an LLC are not personally responsible for business debts or obligations, meaning their personal assets are protected.

LLCs are often preferred by small business owners and startups as they are easier to manage and have fewer formalities compared to corporations. In terms of taxes, LLCs have the option to be taxed as a sole proprietorship, partnership, or corporation. This flexibility in taxation makes LLCs a popular choice for small businesses.

Misconceptions Surrounding Life Insurance

Mon, 02 Dec 2019 17:37:21 GMT

Want to know all about the misconceptions surrounding life insurance? If you’re curious, view the video below and don’t forget to subscribe.

Is it better to invest inside your IRA or outside your IRA?

Wed, 20 Nov 2019 17:40:47 GMT

Is it better to invest inside your IRA or outside your IRA? Find out in this episode of Rich & the Bull! If you have any questions, feel free to contact us:

What your broker DEFINITELY doesn’t want you to know about mutual funds!

Mon, 18 Nov 2019 17:43:06 GMT

Find out what your #broker doesn’t want you finding out about #mutualfunds in this episode of Rich & The Bull! Don’t forget to like and subscribe to our channel:

Bitcoin is ‘ALL THE RAGE’ | Here’s the facts…

Thu, 24 Oct 2019 16:44:38 GMT

Here is an episode you won’t want to miss! Rich & The Bull discuss Bitcoin and gives you important facts about it. Don’t forget to subscribe & share!

Why Wall Street is like a Casino!

Sat, 19 Oct 2019 16:46:36 GMT

Would you believe us if we told you that wall street is like a casino? Watch this to see if we can change your mind! Don’t forget to like & subscribe to our Youtube channel!

The Matrix Retirement Solution

Wed, 02 Oct 2019 16:48:24 GMT

Learn more about the matrix retirement solution with Fortune DNA. If you have any questions, feel free to comment below or give us a call. Don’t forget to like and subscribe to our Youtube channel!

The Financial Concepts We Learn through the Game of Monopoly

Thu, 26 Sep 2019 16:50:10 GMT

We all love the game of Monopoly… but did you know there are REAL financial concepts we can learn from playing it? Find out more by watching our video. Don’t forget to subscribe to our channel!

Warren Buffet’s Secret Tax Free Retirement Planning Strategy

Thu, 19 Sep 2019 16:51:44 GMT

Want to learn Warren Buffet’s secret tax free retirement planning strategy? Watch this right now!

A tax that NOBODY KNOWS ABOUT | “The Phantom Income Tax”

Thu, 12 Sep 2019 16:54:28 GMT

Have you heard of this phantom income tax?? I bet you haven’t! Tune in to this episode of Rich & The Bull to find out what tax we are talking about. Don’t forget to subscribe to our channel!

How to Spot an Investment Scam

Mon, 09 Sep 2019 18:02:17 GMT

Want to learn how to spot an investment scam? Watch our episode of Rich & The Bull to find out! If you haven’t done so already, make sure you subscribe to our Youtube channel!

How Losses Vastly Affect & Kill your Retirement!

Thu, 22 Aug 2019 18:04:15 GMT

Fortune DNA has the most advanced affordable asset protection and tax strategies available to YOU anywhere in the country. To get a little insight on how we can help advise you, watch our video on how losses vastly affect and kill your retirement. How can you fix this issue?

The Best Way to Hold Title to Real Estate

Sun, 11 Aug 2019 18:05:48 GMT

Are you keeping up with our video series? This episode features the best way to hold title to real estate.

The #1 Killer of Your Retirement

Sat, 27 Jul 2019 18:07:54 GMT

Do you think you know what the #1 killer of retirement is? Click the video below to find out! Don’t forget to subscribe to our YouTube channel if you want to think like the #rich and sort out the #BULL : https://www.youtube.com/channel/UC3tJ0S_Wl-C_uMSruN0jygA

Why Most Structure Groups are no more than being a ‘chop shop’!

Wed, 10 Jul 2019 18:09:28 GMT

Have you been keeping up with our Rich & The Bull episodes? Watch our video on why most structure groups are no more than being a “chop shop.” Don’t forget to subscribe to our channel to get notifications on our video series!

Do I need a living Trust- What You Need to Know!

Wed, 26 Jun 2019 18:13:57 GMT

Millions of Americans die each year without any type of estate plan in place, and this forces their families into the court system, where they experience huge expenses with probate and significant time delays when they would rather be mourning.

Nobody wants to think about dying, but being prepared for a disaster is important in every instance, and dying with your assets disorganized could be just that: a disaster.

In fact, more than 50 percent of Americans don’t even have a will or any type of estate plan whatsoever. So is a ‘Will’ the simple answer for everyone, certainly not. Many need to take a little extra time and money to implement a revocable living trust (RLT) as part of a coordinated estate plan. It could your family thousands of dollars later and tons of time.

Truth be told, there are a number of reasons for an RLT, and far too many to explain in one article of this length. Yet, I will do my best to endeavor and explain 5 of the main reasons to implement an estate plan with a living trust:

You have provisions you may want to implement for minor children or children that act like minors;
You have children with special needs and worry about their care when you’re gone;
You wish for your family avoids probate because you own a personal residence, businesses, or rental properties; or
You have pets and want to plan for their care;
You want a structure to handle your finances if you aren’t able to.

Creative Provisions for Children

Many parents and grandparents don’t realize how creative they can be in distributing their assets upon their passing. Once they discover this flexibility, they generally take a 2 pronged approach. One, they want to provide a ‘carrot’ for those children or grandchildren who are willing to work for OR earn their inheritance. Second, they also want provisions or ‘stick’ that doesn’t allow them to abuse their trust and inheritance and make reckless or lazy decisions.

Here are just a few options to consider provisions in a well-drafted estate plan:

Require your trustee to hold children’s inheritance in trust until they reach the age of 25, 30, or 35. Give it to them in stages, e.g., a third at age 25, a third at age 30, and the final third at age 35.
Use a joint trust for minor children until the oldest reaches age 18, then split up the trust into individual trusts for each child. This makes it easier for the trustee to manage the trust while the children are minors. Then when different children pursue business, education, marriage, or even world travel, their trust is accounted for separately from the others.
Consider having the trustee give the guardian of your children a specific amount each month to take care of the living costs of your minor children (room, board, clothing, school supplies, etc.). It could be something like $1,000 a month, adjusted for inflation as of the date of your trust.
Place restrictions on inheritance if there’s drug or alcohol abuse. An attorney can insert a provision that prevents a distribution to any child with an abuse problem and allow for the trustee to hold their funds in the trust until they have their life under control.
Give the inheritance in matching funds, distributing $1 for every $1 the child earns.
Give them a bonus for graduating from certain levels of college or don’t allow full distribution until they obtain a certain level of higher education. However, still distribute funds for school or any secondary education program, skills training course, etc.
Distribute funds for education. Or use their GPA as a “carrot”: Distribute funds only if children maintain a minimum GPA that you set. You could also tie funds for tuition or books to GPA to help keep the children focused on finishing school, rather than becoming career students.
Distribute a certain amount of funds for a wedding.
Distribute funds to start a business upon the presentation of an acceptable business plan to the trustee. Name a board of advisors to approve any small business or investments by the children.

Children with Special Needs

I’ve learned from those dedicated and amazing parents with children who have special needs, that their greatest waking concern is “what will happen to my child if I’m not there to take care of them?”. I can’t imagine this constant fear and stress.

However, a well drafted Living Trust can help dramatically reduce this pressure and concern. Provisions can be drafted for a specific guardianship, trustee for money and a structure and procedure to still access Federal and State aid if needed. There can be back up plans created and implemented so parents can rest assured there will be some safety net for their handicap child if they predecease them.

Avoiding the Dreaded Probate

One of the key reasons for using an RLT is to avoid probate, which means avoiding attorneys, judges, courts, and the state sticking their noses into the family affairs. Probate is essentially the court’s process of determining if the will is valid, then executing its provisions. If there isn’t a will, then the court distributes the assets according to state law.

In order to make sure the trust does its job, it needs to be funded by holding title to AT LEAST four main assets in order to stay out of Probate Court. Even the best and well drafted trust in the world is worthless if it isn’t “funded”. It’s critical that the following assets be titled or owned by the trust, not simply listed in the Trust document somewhere:

Real estate (typically your personal residence),
Entities (such as corporations and LLCs for rentals),
Investment accounts (including retirement accounts with see-through provisions), and
Life insurance (so that minor children receive it constructively).

A ‘Plan’ for the pets

A revocable living trust is a perfect place to have a plan for your pet: the one that loves you unconditionally and doesn’t ask for money. What will happen to this ‘best friend’ if you pass away?

Believe it or not, every year thousands of pets are euthanized when the pet owner dies themselves and no one wants to take the pet. The reality is, however, if someone was designated in advance AND given a financial incentive to take care of the pet, this disaster could be avoided.

At our law firm, we now ask every client during the drafting process if they own a pet and have a section to deal with such matters. Who would be the guardian of the pet, how much would the receive for the service? Who would be the ‘back up’ in case the primary caregiver wasn’t able to continue? Where do you want your animal buried? These are all important and sensitive topics for a loving pet or animal owner and should address these issues in their revocable living trust.

How is your own health?

A revocable living trust can be an excellent structure for managing your finances if you can’t seem to handle the pressure as you get older. It’s very common for a family to rely on the trust and maybe a trusted advisor or children to manage the trust while mom or dad is still alive.

In fact, you could be perfectly sound mentally or physically, but some scenario occurs where resigning as the trustee makes it a powerful tool to help you manage your affairs.

Don’t think a trust is just for rich or old people either. If you have children, life insurance, or might just get in a car accident and need someone to manage your finances and pay your bills, your back up trustee steps right in to manage what you do have through the trust instrument.

In summary, a quality estate plan with a revocable living trust is becoming more and more common for single AND married individuals, children or no children. Moreover, remember that a quality estate plan includes a number of ancillary documents such as a will, powers of attorney for finances and health care, an advance medical directive or living will, burial instructions, a directive for organ donation, final instructions, etc.

How to Avoid a Nasty April Tax Surprise

Fri, 14 Jun 2019 18:17:37 GMT

Nick Fortune is one of the leading tax strategists in this country, and in this video, he explains what you know need to know about the new Trump Tax Plan. Bottom line, most tax planners do not understand the new tax code changes or have the time to educate themselves in these changes.

Nick dishes out the advice you need to know when filing this year’s taxes. He makes a few great points: “You’re in charge of your money, your finances, your family – you are the boss, and you should tell your CPA what to do. Your CPA shouldn’t be telling you what to do – and you do that through education.”

Together, Rich & The Bull discuss about a half a dozen other important points:

“Do not – no matter what – take a room as a tax deduction if you work from home.”
“Also, you need to be able to tell story through documentation.”

For more details, watch the video! More video topics are coming your way.

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In the next episode, we discuss how to what your CPA isn’t telling you and why!

About Rich & The Bull, Nick Fortune – Who are these guys?!

Wed, 12 Jun 2019 18:22:08 GMT

Find out what motivated us [Rich & Nick] to create the Rich & The Bull Show… we are going to tell you WHO we are, WHERE we came from & WHY you should watch the show.

More video topics are coming your way. SUBSCRIBE NOW . In the next episode, we discuss how to avoid the nasty April Tax Surprise! We will keep you in know of this year’s tax law changes.

Who is Rich and The Bull? WATCH ME FIRST!

Fri, 24 May 2019 18:38:07 GMT

Welcome to the first episode of the Rich & The Bull Show! Please subscribe now so you don’t miss our next episode! We are excited to announce that FortuneDNA is providing an educational video series available to EVERYONE discussing strategies & plans “to help you THINK LIKE THE RICH and sort out THE BULL – so you can make smart & sound financial decisions.”

More video topics are coming your way. SUBSCRIBE NOW! In the next episode, you’ll get to know us a little better. We’ll be discussing our business & why we are in business. You’ll find we love what we do! Follow our show!

Spendthrift Trust

Thu, 16 May 2019 18:40:29 GMT

A spendthrift trust is a trust where the trust property is protected from its beneficiary’s creditors. Generally, the requirements of such a trust is that the trust is irrevocable, the beneficiary has no control over distributions of property from the trust, and in most states, the beneficiary of the trust cannot be the same person as the grantor. These concepts can be combined with dynastic trusts so that it protects a family’s assets (or an individual family member’s assets) from potential losses from law suits, divorce, and estate taxation.

How to Create the Perfect Accounting System for YOUR Business!

Tue, 14 May 2019 18:43:06 GMT

Your bookkeeping system is the financial heart and lifeblood of your business. When set up and operating properly, your books help you make smart decisions and seamlessly turn your financial data into useful information. Here are four key characteristics to build and maintain a healthy bookkeeping system:

1. Select the proper accounting method

There are two different methods for recording transactions: cash-basis and accrual-basis. In general, cash-basis records a transaction when payment is made where accrual-basis books the transaction upon delivery of the good or service. Cash-basis is easier to track and a useful option for smaller businesses and sole-proprietors. Whereas larger businesses who buy from vendors on account (accounts payable) generally use accrual-basis accounting.

Selecting the proper method affects any related financial transactions and how your financial statements are displayed. A correct approach will also include consideration of outside factors, including: IRS rules (businesses with more than $25 million in gross receipts must use accrual-basis), bank covenants, and industry standards. Once a choice is made, it can be changed but it must be properly reported to the IRS.

2. Create an account structure that fits the company

Every business has a chart of accounts included in their bookkeeping system. These accounts sort the business’s transaction data into six meaningful groups. They are assets, liabilities, equity, income, cost of goods sold and other expenses. Each group will often have numerous accounts and sub-accounts associated with them.

Having the right mix of accounts created and grouped in an organized fashion will help you properly classify transactions and prepare usable financial statements. The proper account structure for your company will mesh with your specific information needs.

3. Enter accurate and timely transactions

The value your data provides is dependent on each transaction being recorded correctly and on time. Entering transactions in the wrong account can cause major issues down the road. Financial reporting that is delayed can hide problems that need immediate attention. Some transactions are relatively straightforward, and some are more complex (like payroll, accruals and deferrals).

It’s important to have someone who understands both your business and the accounting rules enter your transactions in a timely fashion. In addition, a good month-end close process that involves reviewing each account, will find mistakes from the initial entries.

4. Establish financial statements for decision-making

The main financial statements are the income statement (income – expenses = gross profit), the balance sheet (assets = liabilities + equity) and statement of cash flow. Each statement has a specific purpose:

Income statement. The income statement shows company performance for a select period of time; typically monthly with a full year summary. At the end of each year the income statement restarts.
Balance sheet. The balance sheet displays a company’s overall health as of a certain date. It is perpetual. This means it doesn’t end until the business is closed or sold. It includes one line that summarizes the current year and prior year results from the income statement.
Statement of cash flow. This statement summarizes the inflow and outflow of cash. It ensures you know whether you have enough cash and the pattern of your cash position over time.
If properly executed, your bookkeeping system will turn out accurate financial statements that can be used for several tasks – financial reporting, budgeting, forecasting, raising capital, applying for a loan, tax reporting and decision making. Feel free to call with any questions or to discuss bookkeeping solutions for your business.

How You Can Learn From High-Profile Tax Scandals

Mon, 13 May 2019 18:48:10 GMT

The recent college admission scandal involving Lori Loughlin (who played Aunt Becky in the Full House TV series) and others is shedding light on just one way people allegedly cheat on their taxes. Here are examples of some famous people in tax trouble with the IRS and helpful hints to make sure it doesn’t happen to you:

Lori Loughlin and questionable charitable donations. In this case, the IRS would investigate whether payments deducted as charitable contributions on her tax return were really charitable contributions. Regardless of how the legal charges shake out, Loughlin is looking at a potentially large tax bill if the charity she contributed to is stripped of their non-profit status. Helpful hint: Charitable giving must be to legitimate charitable organizations, for legitimate purposes, and must be reduced by any value received in return.
Al Capone and his illegal earnings. After years of bribing and wriggling his way out of violent crime charges, Capone was charged with 22 counts of tax evasion for not reporting income on illegal activities. He was sentenced to 11 years in prison — some of which were served at Alcatraz Federal Penitentiary in San Francisco. Helpful hint: ALL income — even if obtained illegally — is taxable.
Wesley Snipes decided not to file his taxes. In 2008, actor Snipes was convicted for not filing tax returns from 1999 to 2001. Among his many arguments, Snipes used the tax protester theory claiming domestic income is not taxable. After jail time, Snipes’ offer in compromise to lower his $23 million tax bill request was shot down by the IRS. Helpful hint: Exotic tax schemes are actively monitored by the IRS. If it seems to good to be true, it probably is too good to be true and requires a second opinion.
Leona Helmsley faked her business expenses. Helmsley, A famous real estate mogul in the 1980s, had more than $8 million of renovations to her private home billed to one of her hotels so she could deduct the expense on her taxes. After being convicted, Helmsey had to pay back the $8 million and served 18 months in prison. Helpful hint: Separate business expenses from personal expenses. Open separate bank accounts and never intermingle expenses. The IRS is quick to disallow deductions when personal expenses and business expenses are mixed together.
Pete Rose hid his “likeness” income. Many famous athletes go on to sell autographs, memorabilia and get paid for appearances after they retire from their sport. Rose was no different, but he opted not to report the $354,968 he earned over a four-year period. The result was five months in prison and a $50,000 fine in addition to having to pay back the taxes he tried to avoid. Helpful hint: Don’t attempt to hide income. With fewer businesses using cash payments, the IRS now can use matching programs to quickly find underreporting problems.

While seeing well-known celebrities in the press for tax trouble makes for interesting reading, there are useful tax lessons for all of us. It provides an opportunity to see how IRS employees think and what they are reviewing.

What You Need to Know About Trump Tax Law

Mon, 13 May 2019 18:45:02 GMT

Watch The Video Here

You Know You Need Tax Planning If…

Sat, 11 May 2019 18:50:11 GMT

Effective tax planning helps you make smart decisions now to get the future outcome you desire — but you need to make sure you don’t miss anything. Forget to account for one of these situations and your tax plans will go off the rails in a hurry:

Getting married or divorced. One plus one does not always equal two in the tax world. Marriage means a new tax status, new deduction amounts and income limits, and a potential marriage penalty. The same is true for divorce, but with added complexity. Untangling assets, alimony, child support and dependents are all considerations worthy of discussion.
Growing your family. While bringing home a new child adds expenses to your budget, it also comes with some tax breaks. With a properly executed plan, you can take home the savings now to help offset some of those new costs. If you are adopting, you get an additional tax credit to help with the adoption expenses.
Changing jobs or getting a raise. Earning more money is great, but if you’re not careful, you might be surprised by the tax hit. Each additional dollar you earn gets taxed at your highest tax rate, and might even bump you to the next tax bracket. If you are switching jobs, the change also includes things like new benefit packages to consider.
Buying or selling a house. Whether you’re a first-time homebuyer, you’re moving to your next house, or you’re selling a house, there will be tax implications resulting from the move. Knowing how your taxes will be affected ahead of time will help you make solid financial decisions and avoid surprises. If you’re looking to buy or sell investment property, even more tax issues come into play.
Saving or paying for college. There are so many different college tax breaks, it can be tricky to determine which ones might make the most sense for your situation. These include the American Opportunity Tax Credit, the Lifetime Learning Credit, the Coverdell Education Savings Account, 529 plans and student loan interest deductibility.
Planning for retirement. Everyone needs to plan for retirement, but each situation is different. Some of the factors to keep in mind include employment status, current income, available cash, future earnings and tax rates, retirement age and Social Security. Putting all of these variables into one analysis will paint a clearer picture of your retirement strategy and provide a way forward.

Don’t make the mistake of omitting key details from your tax plan. Call now to schedule a tax-planning meeting.

Business Succession

Tue, 09 Apr 2019 18:51:48 GMT

When one business partner dies, that deceased partner’s portion of the business transfers to their heirs, usually the spouse. In small businesses, this means that death of one partner means that the surviving partner is now in business with the spouse. Many times, the spouse of the deceased partner can wreak havoc on the business, interfering with its management. One way to address this is through the use of a Buy-Sell Agreement which provides the surviving partner an opportunity to protect the business by buying out the deceased partner’s share. This solution keeps a business intact, while also providing the deceased spouse’s family with the economic benefit of the sale.

Asset Protection Tips

Fri, 05 Apr 2019 18:53:59 GMT

Start early, keep it simple, and don’t try to hide stuff from your creditors.

There’s a gambling saying that goes something like, “If you want to be a winner, you have to walk away from the table a winner.” One time-honored method of reaching this result is to systematically take your chips off the table as you win them, so that your potential for losses stays small.

Asset protection planning is all about taking chips off the table in good times, so that you still can walk away from the table a winner no matter what happens in bad times.

Best Way To Invest Money To Make Money

Wed, 03 Apr 2019 18:55:46 GMT

What is the best way to invest money to make money? This video covers some ideas that you can use to invest your dollars for a better return. With over 25 years of investing experience, Nick Fortune of Fortune DNA is a sought after expert for investing strategies.

199A Deduction for Rental Real Estate Investors

Thu, 28 Mar 2019 18:59:21 GMT

Unless you’ve been hiking through the Amazon jungle for the past year, you have most certainly heard about the Tax Cuts and Jobs Act (effective January 1, 2018). Furthermore, if you own a small business or own real estate, the topic of the 199A or 20% pass-through deduction has crossed your mind, or at least your email.

This little gem called the 199A Pass Through is a 20% deduction off the bottom line profit of your business, but also comes with a lot of twists and turns and complexity. In fact, many don’t realize it also applies to rental property. That’s right! If you’re a landlord and have net rental income, you may qualify for one of the best tax benefits from the TCJA tax reform.

Rental Real Estate under the New Law

When the 199A was first passed, tax professionals didn’t think it would apply to passive income from holding rental property. The Section 199A only applied to “Qualified Business Income” (QBI), which was generally defined as income from a qualified trade or business other than a specified service trade or business or the performance of services as an employee. Sounds simple and straightforward on the face of it, right?

Well as we know, the devil is in the details and so it was up to tax professionals and lawyers to interpret the law, while at the same time the lobbyists went to work on Washington and the IRS started to propose Regulations. Was rental real estate a “Qualified Business”?

Even though prior court decisions had already confirmed that rental properties qualified as a trade or business, there was some uncertainty as to whether the IRS would extend the definition of QBI to include income from rental properties.

In response, the IRS recently released Notice 2019-7 (“Notice”) in January of 2019, which provides guidance with respect to how the IRS will apply the 199A deduction to rental activities. Essentially, the IRS proposed certain rules establishing a “Safe Harbor” by which rental activities will qualify for the 199A deduction.

The “Safe Harbor” Test

In order for a rental property, or one might say a “rental business’ to qualify as Qualified Business Income, and thus qualify for the Safe Harbor provision allowing the 199A deduction, the taxpayer must meet the following requirements:

1. Separate Enterprise Rule. Taxpayers must either treat each rental property as a separate enterprise or treat similar rental properties as a single enterprise. The Notice is clear that commercial and residential real estate cannot be in a single enterprise, but it appears that similar residential properties can be in a single enterprise. Once the enterprises have been established, they cannot be varied unless there has been a significant change in circumstances.

2. Separate Books. For each ‘Separate Enterprise’ (meaning group of rental properties), there must be separate books and records maintained to reflect income and expenses for each enterprise. Frankly, this is a no-brainer and simple for any rental property owner because they should be maintaining their books with QuickBooks and each group of rentals could very well be in a Limited Liability Company (LLC).

3. 250 or more hours of “Rental Services”

For each Separate Enterprise, there must be 250 hours of rental services performed. Again, think of 3-4 residential rentals in one LLC qualifying as an ‘enterprise’ (approximately 5 hours/week). Rental Services includes:

advertising to rent or lease the real estate,
negotiating and executing leases,
verifying information contained in prospective tenant applications,
collection of rent,
daily operation, maintenance, and repair of the property,
management of the real estate,
purchase of materials,
supervising employees and independent contractors.

The Notice confirms that “Rental Services” may be performed by owners, or by employees, agents, and/or independent contractors of the owners. However, specifically excluded from the Safe Harbor are real estate rented under a triple net lease (generally leases where tenants accept responsibility to pay taxes, fees, insurance or Common Area Maintenance (CAM)).

The Notice provides that the following do NOT constitute “Rental Services” for this section which include:

Financial or investment management activities (arranging financing),
Procuring Property,
Studying and reviewing financial statements or report on operations,
Planning, managing or constructing long term capital improvements, or
Hours spent traveling to and from the real estate.

4. Additional Record Keeping. In addition to financial records or ‘books’, Taxpayer must maintain “contemporaneous” records, including time reports, logs, or similar documents regarding: (i) dates, hours and description of services performed and (ii) who performed the services. This contemporaneous records requirement applies beginning in 2019. That means if you want to comply with the safe harbor provisions, you need to keep these records at the time it is happening.

5. Signed Statement. The Notice also requires that a taxpayer claiming the deduction must sign a statement under penalty of perjury that the requirements set forth in the Notice have been satisfied.

Those Who Fail to Learn from History are Condemned to Repeat It

Mon, 25 Mar 2019 19:02:50 GMT

Sir Winston Churchill said, “Those who fail to learn from history are condemned to repeat it.”

Today, March 25th, 2019 showed us the writing is on the wall one way or another. Either investors will make a recession a self-fulfilling prophecy or the market will drop under its own weight; and it should. Companies are laying off workers and stating that they will not hit their “numbers” or projections for the year and are being blessed with bad behavior by oddly having their stock prices go up. “You mean to tell me you are going to sell LESS of your goods and services and you want me to believe your company is worth MORE?” YES that is exactly what they want you to believe and Americans are buying it hook, line and sinker all the way to the bottom like the Titanic.

In the last five decades, EVERY time the 3 month Treasury Bond has dropped below the 10 year, RECESSION IS IMMINENT!

It is time to get out of the market NOW. And I don’t mean staying with your broker in bonds or cash. I mean getting ALL the way out of the market….LEAVE. If you were in Lehman brothers or Bear Stern in ‘08 and you had decided home prices do not double every six months or stocks were overpriced, and you took your money and moved it into stocks or cash, you received 17 cents on the dollar 19 months later because the companies went insolvent. Today the brokerage companies are 30x more over leveraged than 2008! This time there will be no bail out.

DO NOT BE THE ONE WITHOUT A CHAIR WHEN THE MUSIC STOPS!

We can put you in a program that is liquid the next day and have a guaranteed protection of your principle.

Why Haven’t I Heard of an Investment Grade Insurance Contract?

Sat, 09 Mar 2019 20:04:20 GMT

Recently, many financial advisors have started to recommend using investment grade insurance contracts to supplement retirement savings. This unique savings vehicle has changed the way advisors around the country view insurance contracts. Insurance contracts in general are some of the most often misunderstood financial vehicles on the planet and yet they offer some opportunities that cannot be found in any other financial products. Why should you care? Because not knowing about the unique advantages of an investment grade insurance contract could cost you tens of thousands of dollars in missed opportunities.

If You Think Probate Costs are Insignificant… Think Again

Wed, 06 Mar 2019 20:06:34 GMT

If you think probate costs are insignificant… think again. For example, Elvis Presley left a $10.2 million estate. But probate costs were $7.2 million, leaving only 28 percent of his estate for his heirs. A worse example is Marilyn Monroe who left an estate worth more than $1 million that took 18 years to probate, leaving just $101,000 for her heirs after the lawyers and others took their fees.

Don’t believe me? I’ll prove it and tell you why you need our program to help earn you MORE MONEY. Contact us today at contact@the2ndestate.com

Seven Keys to Successful Retirement Plans

Tue, 05 Mar 2019 20:07:54 GMT

Given still-low yields and the ebbing away of pensions, retirement planning today is much more challenging than it was even 20 years ago. Christine Benz discussed the keys to crafting a retirement portfolio that’s well-balanced, tax-efficient, and low-maintenance at this past year’s money show. Listen to her share some model portfolios populated with Morningstar’s high-conviction mutual fund and exchange-traded fund picks in this recorded podcast .

Intestate Facts

Tue, 26 Feb 2019 20:09:06 GMT

Did you know? If a person dies without any effective estate plan, we say the person died “intestate.” Essentially, it is the default estate plan for someone who doesn’t have an estate plan. Each state has its own laws for distribution of an estate of a person who dies intestate. Under laws of intestacy, an intestate decedent’s assets are distributed to family members based on their closeness to the decedent by blood relation. For example, if an unmarried individual with children dies, under intestacy laws, the children inherit the decedent’s property in equal proportions. If you want to leave your family members with a better inheritance, use our program to increase your returns… TAX FREE.

What Is An Investment Grade Insurance Contract?

Fri, 22 Feb 2019 20:10:25 GMT

An investment-grade insurance contract is an insurance contract that allows you to not only invest your money without having to pay taxes on its growth, but can withdraw it when you need it, also without having to pay taxes on the withdrawal. That means you can put your money away, make interest, earn interest on your interest, and not share any of it with the government as it grows.

It’s Recession Time Again: How to Profit When the Dow Drops

Mon, 14 Jan 2019 20:12:38 GMT

After an expansion that lasted nearly a decade, the expansion that began in 2009 looks like it’s finally hitting the wall. The stock market has run out of gas, interest rates are up, the bond curve has inverted, trade policy is anybody’s guess, the left is ascendant politically, and the public and private debt is rising faster than it ever has. These problems almost sunk our economy during the financial crisis of 2008, but remarkably we were able to survive by blowing up bubbles in the stock, bond, and real-estate markets. But now all those problems are back, and they are even larger than they were before. We are running $1 trillion annual deficits, even when the economy is supposedly strong. The coming crisis will blow a hole in the federal budget and cause the Fed to unleash unprecedented quantities of monetary stimulus. The new round of stimulus will make a huge impact on investment performance. After a decade of a charmed existence, the US dollar will pay for a multitude of sins. Famed author and investor Peter Schiff will explain in detail how investors can profit from the trends that may sink those who ignore the clear signs of change.

Parents’ Estate Planning

Wed, 09 Jan 2019 20:14:04 GMT

Parents’ estate planning concerns change greatly once their children become adults. To a large extent, parents have survived their children’s challenging adolescent years and begun watching them live their own lives. Parents may want to help their adult children start new businesses or help provide for grandchildren. The focus changes from the nightmare of a young child losing a parent, to the inevitability of an adult child surviving an elderly parent as the cycle of life progress to its natural conclusion. This change in focus is less traumatic, and yet, the planning is still equally important. Proper estate planning at this age can prevent financial disputes from breaking apart a family. Talk to me today about estate planning and what The Second Estate can do for you and your family.

5 Annual Tax Essentials

Wed, 21 Nov 2018 20:16:46 GMT

The more things change the more they stay the same. This is especially true when it comes to reviewing your tax situation. Mark your calendar to review these essential items each year to ensure you are not missing something that could cause tax trouble when you file your tax return:

1. Required minimum distributions
If you are 70½ or older, you may need to take required minimum distributions (RMDs) from your retirement accounts. RMDs need to be completed by Dec. 31 every year after you turn the required age. Don’t forget to make all RMDs because the fines are extremely hefty if you don’t – 50 percent of the amount you should have withdrawn.

2. Your IRS PIN
If you are a victim of IRS identity theft you will be mailed a one-time use personal identification number (PIN) as added security. You can expect to receive your PIN in the mail sometime in December. Save the PIN as it is required to file your Form 1040. If you would like to sign up for the PIN program, you can do so on the IRS website . Note that once you are enrolled in the program, there is no opt out. A PIN will be required for all future filings with the IRS.

3. Retirement Contributions
You may wish to make some last-minute contributions to qualified retirement accounts like an IRA. This can be $5,500 for traditional or Roth IRAs plus an additional $1,000 if you are 50 or older. Contributions to traditional IRAs need to happen by April 15, 2019 to be deducted on your 2018 tax return.

4. Harvest Gains and Losses
Profits and losses on investments have their own tax rates from 0 percent to as high as 37 percent. Knowing this, make plans to conduct an annual tax review of investment moves you wish to make. This includes:

Understanding investments held longer than one year have lower tax rates as long-term capital gains.
Trying to net ordinary income tax investment sales with long-term investment losses.
Making full use of the annual $3,000 loss limit on investment sales

Timing matters with investment sales and income taxes, so having a year-end strategy can help lower your tax bill.

5. Last-Minute Tax Moves
While your last-minute tax move opportunities may be limited, here are a few ideas worth considering:

Make donations to your favorite charities to maximize your itemized deductions.
Consider contributions of up to $100,000 from retirement accounts to qualified charities if you are older than 70½.
Make tax efficient withdrawals from retirement accounts if you are over 59½.
Delay receipt of income or accelerate expenses if you are a small business.
Take advantage of the annual $15,000 gift-giving limit.

Understanding your current situation and having a plan will make for a smooth tax filing process and maximize your tax savings.