Join Nathan Krampe, CFP®, founder of Lion’s Wealth Management and Nathan Nelson, Attorney, co-founder of Virtus Law for a conversation on how to handle Joe Biden’s proposed new tax laws with your business. As owners, the world is going to change dramatically tax wise and preparing now will help to mitigate unnecessary tax burdens in the future. There will also be a Q&A time to answer your questions live. Space is limited, sign up today.
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Under a President Biden, some tax strategies will stay the same, however, many are going to change.
Now is the time to make the necessary tax changes before year end for you and your business.
- Disastrous Consequences of a Proposed Step-Up in Basis law change
- Coming Long-Term Capital Gains Changes
- Changes to Estate Taxes Could Affect Your Family
- New Ordinary Income Tax Brackets (Hint: They May Go Up)
- How to Handle Tax Laws with Your Business
- Qualified Business Income Deductions
Watch this targeted presentation on how to navigate the new tax regime and what to do about it with your wealth.
Want other ideas? Check out 2020 Wealth Planning To-Do Before Year-End and Now the Wait – Could Taxes Rise?
What do you guys think? Should we get started?
Yeah, let’s jump into it, Nathan.
Well, I think we definitely should.
First of all, welcome everyone.
This is going to be kind of a unique opportunity
that we have here to talk about new tax laws coming up for 2021
and some of the changes, especially with
the differences of now having a democrat president
maintaining a democrat-controlled house
and kind of still unknown with the Senate
but what we really want to talk about now is
year-end planning you can do today.
Especially with you as a business owner.
And how that relates to your business or even
how that relates to you personally and your family.
So that’s what we’re going to be getting to.
My name is Nathan Krampe I’m going to be one of the presenters today, but
realistically speaking, I want to turn it over right away to our first presenter,
Nathan Nelson.
Nathan
he is the managing partner and co-founder of Virtus Law.
He is fluent within estate planning and furthermore, he graduated
summa cum laude from the Master of Law in Taxation from the Thomas Jefferson School of Law.
Nathan represents businesses and high net worth individuals
while overseeing the estate planning and taxation department in the firm.
Whether he is arguing in front of the Supreme Court in Minnesota,
he is also on the radio and he’s also reading and publishing numerous articles.
Now he strives to not be as boring as what all of his credentials critique and say, so
with that, I’m going to turn it over to Nathan, he’s going to
have his presentation right now and then I will take over after him
and right after that we’re going to have plenty of time for questions and answers and go through
questions that you have, so be running down the ones as we go.
With that, Nathan.
Thank you, sir.
I am going to stop sharing your screen Nathan so pull up mine if that’s all right.
And so
Everybody welcome, this is going to be a little bit of a
splitting it up into two categories, it’s kind of the asset differential
because of the tax changes and the income side.
I’ll be covering the asset side,
Nathan will be covering the income side.
So on the asset side, we oftentimes use estate planning techniques to manage that.
So I’ll go quick
but in short,
current exemption amounts about 23 million dollars that was signed into law in 2017
under the Tax Cuts and Jobs Act
president-elect Biden has said
that he would go as low as 3.5 million in assets,
so what that means is
if you have any assets above 3.5 million at death, those would be taxed at a higher tax rate.
He has talked somewhere in the 45% to 65% range.
If he does nothing, the 23 million dollar estate tax exemption sunsets January 1st 2026
and it goes back to 5 million
but we do fully expect, based on his tax plan, that he’s going to strive to reduce that amount as soon as possible.
The Tax Cuts and Jobs Act says that there’s an anti-clawback rule,
so what that means is if you do some gifting now or some transferring now
before the end of the year, the IRS can’t come back and say when you pass
“Hey, you’ve got 15 million assets and the current exemption amount is 3 million”.
They take into account when you gifted it
and what the exemption amount was at that period of time.
So what does this mean uh for a business owner?
Well, you use it or you lose it.
If your state could be subject to an estate tax because of asset size
or we’re thinking that there’s going to be appreciation over your lifetime that might put you above that limit,
it might be a good time to think about using some of these strategies I’m going to talk about
to get these things out of your estate.
So, we’re going to cover five things, I’ll go pretty fast.
A Grantor Retained Annuity Trust
An Installment sale to Intentionally Defective Grantor Trust
a Spousal Lifetime Access Trust
a Charitable Lead Annuity Trust
and an Irrevocable Life Insurance Trust.
So first up we’ve, what we call a GRAT.
So a GRAT is a great way to transfer appreciation of assets
to beneficiaries without using any of your estate or gift tax exemption.
How it works is a grantor transfers assets to the GRAT with a specified term of years, might be five years,
at the end of each year annuity is paid back to the grantor
and you get some interest with that.
Any amount remaining after the payment of the annuities
goes to the beneficiaries, free of estate and gift taxing.
The annuity payments can be used to fund successive GRATs,
we call that a Rolling GRAT.
So how does that work in practicality?
Let’s say you’ve got a million dollars of assets with a with a 0.8% rate
with a three-year term,
you’re going to transfer that to an irrevocable trust.
You see, on the slide I’ve got the
return on investment there
that you’re taking in an annuity, so in total you get about a million dollars back
after an initial term the trust pays out to the beneficiary, so
might be planning for kids or grandkids
with 5% ROI they’d get $95,000 10% $221,000
15% $363,000
You may put that into a trust for beneficiaries.
The great thing about this strategy
is that it allows us to take this asset that might be growing in size
and essentially we’re freezing the value
while providing long term.
Great for an appreciable asset.
Next up, we’ll talk about what we call an Installment Sale to an Intentionally Defective Grantor Trust
an IDGT for short.
Now, it doesn’t mean that the trust is defective
but it means that you, as the grantor,
you retain it for federal income tax purposes.
This is also good for appreciating or income producing assets,
we often see it for real estate investors,
we’ve got a really nice portfolio in real estate, they’ll use this tool.
So a gift of 10% to 15% of the assets
being sold is added to the trust,
so the IRS does not treat this installment sale as a gift to the trust.
Any appreciation income produced by the assets sold by the trust will pass
a pass-through gift in a state tax-free,
the interest payments on the installment note are not taxable income to you
because you’re treated as the owner of the assets.
There’s no capital gains recognized when the assets are sold because, again,
you’re selling to yourself.
So let’s take a look at what that looks like.
So
you gift a seed of assets and then you sell other assets to the IDGT.
So let’s say you’ve got a million dollars in assets to be sold to the IDGT
and you use $100,000 in seed money that you set up the trust for.
There’s a nine-year installment note
where it’s being paid back with 1% interest
so in total comes out to about $1,046,000 in principal and interest.
Again, you’re taking back an installment note equal to the fair market value of the asset sold to the IDGT.
But all of that appreciation passes to the IDGT beneficiaries.
So again under a 5% rate of return
the appreciation to the beneficiary beneficiaries is going to be about $200,000
With a 10% $475,000
This is great for other of those really great income producing assets that you might have.
Next up is a Spousal Lifetime Access Trust,
we call it SLAT. I love SLATs, they’re just such a great technique.
So you gift assets to an irrevocable trust for your spouse, if you’re married
and other beneficiaries, such as children, grandchildren
you have to name an independent trustee
who makes these decisions to your spouse.
You then use your current gift and estate tax exemption when making these gifts.
Any and all appreciation of those assets passes to your spouse and your beneficiaries free of future gift and estate taxes.
So you get to use all of your available exemption amount
to lock into this historically high exemption amount
of over 23 million dollars, you’re going to lock in at the current value of it.
You and your spouse can both create a trust
naming each other’s beneficiary, there’s some restrictions on that uh called the Reciprocal Trust Doctrine
but that’s something for another day, we can talk for hours on all the minutia on this but
as a bonus, all the assets are protected against claims of creditors.
So if we’re worried about nursing homes or those kind of things,
this offers full protection for that.
So how does it work?
You fund the trust with money or property, it could be both, it could be either,
Your spouse is the beneficiary,
descendants can be additional beneficiaries.
Then, after your spouse dies, the assets get distributed to the benefit of the additional beneficiaries
again, either directly or it could be held in them for trust if you have minor children.
Essentially, what that does is it provides a great way to provide for your spouse,
offer nursing home protection, capture appreciation,
push it outside of your estate and offer full protection.
A Charitable Lead Annuity Trust
is similar to a Grantor Retained Annuity Trust
that GRAT, that first one we talked about,
but the annuity payments transfer over to charities rather than you.
So if you know…
Look, I’ve got assets, I’ve put them in certain techniques already and I’m getting income
but I don’t need these annuity payments, I’d rather fund a charity that I find really valuable to me.
a Charitable Lead Annuity Trust is great for that.
One of the cool things right now is the IRS has historically low interest rates
and we can easily pass appreciation to the beneficiaries free of the gift and estate tax,
we get to take advantage of those low interest rates.
The truck the trust can be structured to qualify you
or both income and gift tax charitable deductions,
so you’re actually taking a tax deduction for all of these.
If you’ve already established one or you have a family foundation,
the family foundation can receive these annuity payments.
So it’s a way to benefit the family and take the tax deduction as well.
So how does a Charitable Lead Trust work?
Well,
Well, first, the grantor establishes the revocable trust, we’ve fund it, right?
10 million dollars of assets with a 20-year term 0.8 interest rate,
the charity is going to receive either a set amount of money per year
or a fixed percentage for a specified period of time.
So in our example here, they’re going to get about 11 million dollars in annuity payments.
At the end of that term, the remainder goes to you or other non-charitable beneficiaries.
So with a 5% to 6% rate of return,
there’s about 16 million dollars remaining for distribution under a 20-year term.
And finally, let’s talk about an Irrevocable Life Insurance Trust,
this has been around for a long time, a lot of people use this.
In it, you have an insurance policy gets transferred into a trust
or the trustee can purchase a new policy.
Cash gifts are made by you to the trust each year to pay for the policy premiums.
Right now, the gift tax exemption is about $150,000 a person,
so if you’re married, $30,000 in premiums could be gifted to this irrevocable life insurance trust.
The premium payments and the full death benefit of the policy
are not included in your or your surviving spouse’s taxable states,
o the insurance proceeds at death will be exempt from all income taxes.
Let’s see how it works.
We’ve got a 5 million dollar insurance policy on the husband,
we’re going to value husbands assets at 11.5 million and wife’s assets at 11.5 million.
So under current law,
we’d be at about the 23 million threshold and that 5 million dollar insurance policy cash value
would be taxable.
So at husband’s death there’s no taxes due,
he gives 5 million dollars to his wife.
11.58 million dollars goes to the family trust
and wife’s assets are 11.58 million.
At wife’s death, her estate totals 28.16 million,
she’s going to end up paying about 2 million dollars in federal estate taxes due
and the beneficiaries will receive about 26 million dollar.
Using an irrevocable life insurance trust,
5 million dollar policy again,
husband’s assets and wife’s assets still at that estate tax threshold,
husband’s death, again, no taxes due.
The big difference here though is that at wife’s death
we’ve got 28.16 in total assets but 0 in taxes due
because the irrevocable life insurance policy was holding those funds,
so that’s an extra 2 million dollars at the federal level that’s going to go to the family.
If you also include estate taxes, that savings becomes even higher.
As I said, this is really the asset part of the presentation where we’re talking about what you can do with numerous assets.
Feel free to throw your email address into the chat box and I’ll shoot you this
this deck over to you so you can look at it because we’re going fast, happy to answer questions on it.
But what should you do next?
Well, first you’ve got the the asset size, right?
The next thing you do is really focus on the income part
and for the income part, I’m going to turn that over to my compatriot here, Nathan Krampe
and when it comes to area financial planning
many receive advice in two areas, investing and retirement.
Nathan started his financial advising career providing great advice in those two key areas.
Over the years, a shift happened in the type of questions that clients would come to him with,
ones that got at the root of the client’s needs and ideals,
understanding those needs, he formed his own firm, Lions Wealth Management
with the sole purpose to help others lead a life of significance.
Ultimately this focus led to the establishment of the Lions Index,
which focuses on wealth enhancement and cash flow planning, wealth protection,
charitable giving, wealth transfer and tax planning strategies.
In addition to investing in retirement planning, he helps
select families lead a life of significance through a well-designed wealth plan.
He’s a certified financial planner, he’s received the five-star Wealth Manager Award for the past eight years,
he’s been featured in Minneapolis-St Paul Magazine, Wall Street Journal, Forbes,
he’s my friend
-And he’s got a great name, so please welcome Nathan Krampe. -Exactly.
Well, thank you Nathan and you’re right, it is a great name.
So what I want to do…
Nathan took a lot of very good deep dives into
some things that are going on with planning techniques, now
one of the questions I’m going to have for him and I want you to hold me to this at the end here
is what’s going to happen with a change of the estate planning laws
and how maybe a lower threshold may be to come?
So we’re going to be talking about that at the end here as part of our little more
call it a happy hour coffee time chat, but
I want to kind of get into a couple planning opportunities and answer some questions you have about
possible changes with the tax law to come
but before we get into that…
Holy cow! This has been an interesting year to say the least.
We’ve had the coronavirus, which has made this a very interesting year,
the elections, which depending on which side of the aisle you’re on, may or may not have been good but
that also makes it a very interesting year, we had a stock market crash that happened
followed by an epic rally in the stock market,
we had murder hornets in the US,
well,
we are unable to travel right now with lockdowns,
that’s different than anytime in in history that I can ever recall,
we’ve had wildfires, we’ve had prince harry quit the royal family,
we’re wearing face masks now, kobe bryant’s death,
summer olympics have been postponed, brexit, hurricanes,
protests in Michigan over haircuts and no spectators for sports
but one thing
that is not on this list that I thought was very interesting
what to do? Do you wear a suit or do you wear sweatpants?
And that is the most important question because
this question comes back to what the economy is going to do
and when we’re taking a look at everything here, never before in my wildest
kind of ideals did I ever think that we would
be at a point where companies would say
“get out of the office, go home. I don’t want to see you but I’m still going to pay you”.
So this is going to be a really interesting opportunity to come to see
how the economy keeps progressing and as people come back to the office
the progression that we’re going to see with the economy.
But with that, I want to kind of dive into, again, the tax laws that are changing because this
really kind of bookends a very very interesting year that we have had.
So first up
I really want to talk about the corporate tax changes but for many of you that’s not going to be as big of a deal.
Right now
under the president-elect Biden, he is trying to
make some plans and put them in place to raise the corporate tax.
Now under the Tax Cuts and Jobs Act, we have lowered it
to 21%
this is from 35% so this makes us a lot more competitive on the world scale compared to other nations.
What our president elect is trying to do now is raise it not back to where it was
but just a small amount from 21% to 28%
Now that’s on basically C corps
and most of you do not have a C corp
but the one area that is going to be most impactful to you is going over and looking at that qualified business income deduction.
Now that was part of
the Tax Cuts and Jobs Act and what that really was
intended to do is say you can as a kind of flow through entity
whether it is your
so kind of sole practitioner, LLC, S corp,
you can have a 20% deduction on your net income.
So that was really designed to take into account a lot of things that were going on
with the lowering of the corporate tax rate and how you could take advantage of it so you didn’t have to
switch over to a C corp and have all the
kind of the details that would be associated with managing a C corp versus just a flow-through entity.
So that was the ideal that is looking to be eliminated.
So what that means for you is right away you would have 20% more in taxes.
Now
we’re not quite sure where this stands and going back to one of my opening comments,
we have now a democrat president,
we have a democrat-led house but we’re still waiting to see on the senate and if
the republicans maintain control of the senate, most likely some of these tax law changes will not be enacted,
the however is we don’t know which ones
and this is one that is going to be interesting going forward
so I do think that this has a potential of
actually making it, so I want to be aware of that,
that’s when the law changes.
Another law change that is coming that I actually think is going to be implemented is
really coming back to social security.
Now, right now as it stands, you pay tax on your wages and earnings up to about $137,500
somewhere right around there is what you actually pay social security and FICA tax on.
So that would change though and under president-elect Joe Biden’s proposals,
that would still maintain but right now as it stands.
anything above that %137,500 range is not taxable for social security.
So you can make 1 million dollars of income and still be only having that $137,000 taxed
when it comes for social security.
Now for those of you that are self-employed, obviously that’s not only a 6.2% from your employee side
but you as an employer kick in the 6.2% to make the 12.4% for the total tax on that.
What the new proposal would be is that
that gap basically is going to be removed
but not right away on anything above the $137,000
there’s going to be a hole there and it’s going to go up to about
$400,000 that you’re not going to pay any additional tax
but when you pay have $400,001 dollar of income
that’s where that tax is going to start in again
and so this is a big deal because not only do you have the social security tax
but remember all the different taxes that come out from that, so
going back to that million dollars of income,
first $137,000 would be taxed, $137,500 or so would be taxed,
the next chunk would not be taxed at all for social security
but then anything over that $400,000 would be, again, subject to social security taxes.
We’re going to talk about some planning techniques here in just a moment when it comes to this
but I wanted to lay out some of the details as what the proposed laws are.
Next one that we have is the potential for raising long-term capital gains.
This one is very interesting.
I
again, I don’t know if this one is going to pass
if we have a senate that is controlled by the republicans
but it’s really interesting to know that this is what the potential is to come.
Now what this is showing here is that
when we take a look at long-term capital gains,
right now we have a couple different brackets, we have the 0% bracket,
we have the 15% bracket and at the top end we have the 20% bracket.
Now split on top of that, we have the Net Investment Income tax
which is 3.8% on top of it, so your highest amount that you would pay for
your long-term capital gains there would be 23.8%
Under what president-elect Joe Biden is proposing
is that he would make another bracket on top of that,
so we would have what would be the 0%, the 15%, the 20%
and then we would have ordinary income
and he is already looking to make a new tax bracket itself the 39.6% bracket
that would replace the 37% so we’re going to increase taxes on the high earners
and then layer on top of that if they have capital assets like this long-term capital gains,
then what that would also look like is we would be
settling instead of the capital gains of 20%
the 39.6% percent, on top of that would be the Net Investment Income tax
so we could pay over 43% tax on the federal level
plus what you would owe on the estate level.
So this is a huge deal and this is what we’re going to be focusing more time on today
and what Nathan has been doing a good job talking about with
some of the different proposals that we can do to mitigate some of these taxes.
Last one that we’re going to get to and talk a little bit about here is a step up in basis,
so legacy assets
and again this is some of the things that Nathan’s been talking about a little bit earlier
is going to flow through to this particular point as well.
There’s a proposal and again if the republicans main control of the senate this
may or may not happen but it’s good to know so we can have a plan in place
if and when this is enacted
but what this looks like is any asset that you want to pass on,
so legacy planning.
Well, many of you have some very highly appreciated stock and investments, maybe some real estate,
a lot of different areas there but this in particular is talking about how
when you pass on assets currently it comes to the point that you would
basically have it in your estate,
you would pass it on and let’s take a look at a stock here
just with a highly appreciated stock, we’d pass it on to your beneficiaries, say maybe your kids
and they would get that with what’s called Step Up In Basis,
what that means is, the day they receive that asset from the date of your death,
there’s going to be no tax that’s owed.
The day of your death, the asset,
the cost basis what you purchased it for it’s going to come up to what is equal in the day of your death.
Now they’re not going to owe any tax.
Going forward, however, there may be some tax that’s owed but it comes back to your estate.
That’s who pays the tax initially
and that’s where some of the islet planning some of the things that Nathan was talking about
actually is a very good thing to do if you have a lot of these highly appreciated stocks.
However, is that under a new kind of law going forward, if this passes,
they’re planning on doing away with this
and we don’t quite know what that looks like but the first glance
what it may be is that they may decide
we’re going to have it as a deemed sale
and what that means is that they’re going to take a look at it and say
“well, all that gain? We’re going to have you pay income on”.
So on your debt, you’re going to pay income on that gain.
Well, then you’re also going to have that be still in your estate, so it could be
subject to estate taxes.
So possibly double taxation before it passes to your heirs.
That’s a really bad piece here that
could really potentially be hurtful and harmful, so that’s another planning piece.
There are some other ideas surrounding this
but that’s going to be the major one that’s going to cause the most headaches that we need to be aware of.
So those are kind of the four pieces.
Now I want to break this down planning wise into three different areas.
You can pay tax now,
you can pay tax later
or you can potentially pay tax never.
So let’s take a look at this and some planning strategies for to do now for this year
or even some subsequent years of how you can keep
and continue to minimize your taxes.
Alright.
So judging by kind of all the things I’ve just talked about with the capital gains with
whether it’s a step up in basis, anything of that matter,
one of the main things that we can work with here,
first off is we can pull forward some sales and revenue.
Now for those of you who are business owners,
this may be a very good piece to pull through for this year 2020
because what that would do is say the qualified business income deduction
you would still qualify for, no matter what, for this year.
So if you have sales or you have customers that are looking to possibly purchase,
try to get them to purchase this year because then you can not only get the deductions but the lower potential cost
on taxes as well.
Now, speaking of taxes,
this could be a retroactive tax law,
so it could very well be that it’s enacted middle through 2021
but the retroactive to January 1st 2021
so that’s why it would be good thing to get this done this year if you have the potential to do that.
Another area that we can work with here,
you can just sell your capital gains assets as well.
So if you have long-term capital gains on some highly appreciated stock or other capital assets,
maybe you just want to sell them outright.
Pay the tax this year on the known capital gains with the 20% for investments that with
only the 3.8% net investment income tax on top of that
that may be half of what would be in the future,
so that may be a good planning technique.
Well there’s another technique here, we can sell and repurchase as well.
So if it’s something that maybe is not necessarily highly appreciated for an asset
but something you want to be holding on to, you can purchase it
right after you have sold it and you can do that immediately
and then what that could do is say
raise your cost basis up
so you have the ability to pay less tax going forward.
Now something Nathan didn’t
talk about a little bit is the Charitable Remainder Trust.
He talked about something else, he talked about the Charitable Lead Trust and that’s a question I have for him,
after this time here,
maybe there are some different planning techniques between the two but I like both,
I think in this instance the charitable remainder trust may be a really good way to go about it as well
and this is where I need Nathan to kind of chime in here in a moment
but what is a good opportunity here is that maybe we do sell some
stock this year
and we realize those gains.
Now, if you’re very terribly minded, maybe we can actually take that
and put it into a charitable remainder trust
and get some of those offsetting charitable deductions and, this year in particular,
makes it an incredibly good year to do that because with the Cares Act,
we can get the Secure Act and the Cares Act, for this year only, we can get the 100% deduction
and that’s not going to be that way going forward, so this may be a great year to
do some of the planning techniques to try to mitigate a lot of these taxes
as you’re terribly minded.
So that’s a great way to maybe possibly pay some tax now to save yourself some in the future.
Alright.
Paying tax later.
Well, a couple different options here.
One of the options goes back to you as the business owner,
knowing that we potentially may have higher social security taxes coming with your income
and amounts I should say, and knowing that you may have qualified business income deductions going away,
let’s take a look again back at your retirement plans.
Now you can contribute to your 401k
and for those of you who are over the age of 50 that is up to $26,000 that you can contribute as the employee
and then they can actually go higher than that as well so you can actually get up to $57,000
this year, for 2020, that you can contribute to your plans part of the employee and the employer.
So that may be enough
but I’m thinking for many of you that may not be enough to
kind of make up the difference of some of the QBI deductions that you’re going to be losing.
Another good opportunity that many of you may already have in place or are considering would be a cash balance plan
because what that does is
not only says I can put money into my 401k,
which you know,
but now I potentially could put hundreds of thousands of dollars more and for some of you
with your age and how much you’re earning, you have a potential to put up to
this year for a single year $343,000 in addition into this plan.
Now
this is a tax me later type of a plan because it’s just a retirement plan,
we can put money away and then you can withdraw from it as you have the desire to in the future
or we can do planning surrounding this.
So these are great opportunities for your business to save on income so we don’t have to pay as much
QBI or income in general because of the fact we’re losing a QBI deduction potentially.
Another one, if you’re looking to sell your business at any point in time
do maybe possibly using an installment sale in the future versus getting cash right away
because that would allow you to defer over many years
or even a couple years
the income versus just getting it all at once that may lower how much you pay in taxes going forward.
Prvate placement annuities.
This is a great thing to look into and annuities have their place
but one of the areas that I really like about this especially for
some planning surroundings and investments that you may have.
We’d have to sell some of the investments to put into the annuity
but the thing is you may not want to.
So what makes a private placement annuity different than some of the other annuities you may know,
is first of all they’re pretty low cost
but secondly, they have that tax deferred status.
That’s huge because when we put the investment or the cash in there
and purchase the investments and with these types of annuities
you can pretty much purchase anything you want with them.
So the stocks that you have, anything that you want, you can be purchased in there.
Well, if it’s going to be appreciating quickly in the future,
this is a great opportunity because we don’t have to pay tax on the gains that we have
so we can be buying and selling along the way,
moving into different assets without paying any gains.
Only when we take out of the account
or we can plan for it for legacy planning as well.
The last aspect we can do is
nothing.
We don’t have to do anything with the new tax laws
but as you’re considering that that may be a good road to take,
I want you to just take a look at this chart.
This chart is the federal deficit compared to our GDP.
Now what you notice is that over all the way over on the right
it really is getting scary that we’re running a 15% deficit this year
comparatively to our GDP
and as you can see here, there’s only been a few years going back to the late 1960s
that we have not run a deficit.
Now why I’m pointing this out is
well, if we do nothing, we’re hoping taxes don’t really go up much
and I would submit that they may have to
regardless of who’s in power in the future because it may be needed just to keep our
economy and our nation safe and secure.
So last one.
Possibly paying 0 tax or no tax.
There’s a number of different options and planning techniques we can go down here.
First one, we can just gift assets outright to family
and they have
right now, this year, Nathan can come back and talk about this a little bit more but gifting outright is
a great strategy and can be a very very good strategy to gift,
especially to family members.
Use up some of your gift tax exemptions
so that you can remove that out of your own personal estate going forward.
That’s obviously going to not cause you to pay tax on that amount.
Another one is we can give to charities and get the deduction
and you can give assets, you don’t have to just give cash.
You can give assets as well, so you can give without selling
and that’s going to be some other great planning techniques.
Roth 401k
for those of you who are still have your company
and looking for retirement plans,
this is not one that is going to provide maybe say
a lesser amount today in tax
but what this is going to do is actually really help in the future
and with the new tax laws as taxes are going up,
what this is actually going to do is give you a much greater benefit.
Going forward is going into the roth where we pay no tax
on all of the money that’s in there so it’s tax deferred and it’s tax free
when we take it out later on in retirement
or if we leave it as a legacy.
So great avenues to be considered as well.
We have roth conversions for those of you who are retired, have some retirement plans,
this year would be a great year to do it because we have low taxes
that may be sun setting out earlier than what we had anticipated.
So doing a roth conversion would pay a little tax today
to basically forgo paying a lot more tax in the future on
especially assets that are going to be very highly appreciated going forward
and then Nathan talked about this a little bit but, Life Insurance Trusts.
You know, we can be structuring some of these life insurance trusts
to pay the tax
so that we have not only your estate the assets you want to pass on
but we have the life insurance that’s going to pay for the tax that would be owed on that.
So these are some great planning techniques and you can start seeing some similarities here as to
with the tax law changes that are potentially coming, how that can relate to the planning techniques.
So that’s a little bit of a very broad overview, pay taxes now, pay taxes later
or potentially, pay taxes never or pay zero taxes in the future, so
I want to end kind of the presentation part of our time today and I want to open up
I’m going to stop sharing my screen.
Nathan and I will be here and what we would like to do is start answering questions, so
call us more of a coffee or a happy hour time where
we’re just going to be here to answer questions you have,
we may be able to answer specific situations and scenarios but
mostly we can talk about some generalities as well, so
thank you for taking your time to listen and we’re here to open up for questions.
Nathan, while we’re waiting for questions I’m gonna circle back on
the charitable remainder trust versus a charitable lead trust and
that’s what the difference is what the difference and why I put mine in
one end versus yours.
When I talked originally at the beginning about asset versus income, and you’d be talking income,
the charitable remainder trust is really a great income strategy
where a charitable lead trust is a great asset strategy
and so what I mean by that is with the CRT, we call it,
you’re getting income every year
with the remainder going to charity.
With the lead trust,
the charity is getting the income every year
and you’re getting the asset at the end.
So that’s the big thing if we want to make sure we’re deferring income,
we want assets low and income low now,
then we push that
into a CLT, if we want to be making sure that we’re getting income now
but also taking a tax deduction for the charitable,
then the CRT becomes a fantastic technique for us.
Yeah. Yeah.
No, that’s a very good distinction because
as part of your planning,
you may have some different strategies that you want to do
and one’s going to be better than the other, so if you want to retain the asset,
obviously the the lead trust is going to be a better avenue and we can get some
general deductions along the way.
If you need a big charitable deduction this year or today,
the remainder trust would be a great opportunity,
you would receive income but would give up the asset.
Now both are great planning techniques, it just comes back to which one is going to be
most appropriate for you.
