For many individuals approaching estate planning, charitable giving is going to factor into the equation somehow. The most popular way of passing on assets currently is through a charitable remainder unitrust, but it’s not necessarily the best option for everyone, although last year nearly $90 billion was held in U.S. trusts of this type.
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Here are some of the most common reasons that you might want to use something other than this trust vehicle for your charitable giving:
- Tax Savings Today: You want maximize your current tax deduction. A charitable lead trust could be a better alternative for this situation, since you get an immediate federal income tax deduction when the gift is made. The tax deduction equals the present value of the future income stream.
- You want the gift to begin now: Under a charitable lead trust, the client will typically gift the assets directly to a charitable trust. That trust then makes regular payments for a specific number of years or for life. Under a remainder trust, though, the charity doesn’t get anything until the trust’s term is up.
- You want to see regular payouts: This is there’s a difference between a charitable remainder annuity trust and a unitrust. The annuity trust guarantees equal payouts throughout the length of the term (such as every year), which gives the person setting up the trust confidence that payments are being made at regular intervals.
When it comes to charitable giving, you have options. Contact us today to learn more via email firstname.lastname@example.org or 732-521-9455 to get started.
Like a lot of business planning strategies, it’s best that you meet with a legal professional to discuss the best tactics for your situation. One of those strategies might be a DING (Delaware Incomplete Non-Grantor Trust), a tool that is growing in popularity for managing and minimizing both federal and state income taxes. Especially for those individuals living in states with high income taxes, a DING trust is a powerful strategy for making the most of your assets without being so negatively impacted by taxes.
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In a DING trust, a person can transfer assets (including some business interests) that produce a high level of income into a trust without triggering a state or federal gift tax. The state income taxes are actually transferred from the resident’s home state to a state where trust income is not taxed. There are several jurisdictions that have been used in the past for this purpose include Nevada, Delaware, and Alaska.
This type of trust is a great choice for someone who has significant portfolios that generate income or those individuals that live in a high tax state concerned about the tax implications of their assets. This form of asset protection gives peace of mind and confidence to those who use it. As of right now, New Jersey does not tax trust income if there are no resident trustees. Therefore, assets held in a DING trust may be exempted from high state income taxes (8.975% in New Jersey). For special tax planning, contact us for more details at email@example.com or over the phone at 732-521-9455 to get started.
While not much has come out in the first half of 2014 with regard to tax legislation, there are still some important tax planning opportunities to tap into. Mid-year is a great time to schedule in your financial and estate planning review to double-check that nothing has changed and to verify that you don’t need any additional components in your plan.
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Income tax planning usually involves a mix of three separate strategies: earning income that is received with favorable tax rates, like that which comes from qualified dividends or long-term capital gains, delaying the payment of tax by deferring income receipt to another year, and avoiding income bubbles that bump you up to another tax rate.
One way to reduce your tax obligations and contribute to your future is to ensure that you’re putting money (and enough of it) into a tax-qualified retirement plan. Doing so means that you are deferring taxes on earnings until you actually take the distributions out.
Finally, a great mid-year step to take is to verify that you are keeping good records. While most people make this promise to themselves after a hectic tax season in April, they tend to forget about it until tax time rolls around again next year. Instead, make sure you’ve kept track of your charitable deductions to date, any extra income, and other tax-related details. It’s also a great time to set up a meeting with your planner to discuss more options, especially if you have other goals you’d like to meet. To schedule your mid-year review, call us at 732-521-9455 or send an email requesting an appointment to firstname.lastname@example.org.
Are you thinking about making a gift to a charity on your death? It might be a better option to instead consider gifting your retirement account, and there are a few different reasons for this. This can help to maximize the tax benefits for your estate, but also for the individual heirs benefitting from your estate.
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As of now, assets above the value of $5,340,000 that are outright transferred from a taxable estate are hit with a 40% tax, even though the individuals who receive those assets don’t have income taxes also taken out of that amount. There is, however, an exception to this, and it’s for IRAs, 401ks, and qualified retirement plans. They are categorized as ordinary income as distributions since the government has not yet taxed this money.
Gifts to charity are not subjected to the estate tax and are at the same time excluded from the taxable estate. The amount gifted to the charity can be deducted from your federal estate tax return to reduce your overall estate beneath the $5,340,000 referenced above. When done properly, this could mean that little or no federal estate tax is due upon your death, therefore meeting your goals of gifting charitably and maximizing the value of your assets for your beneficiaries.
To learn more about charitable giving and other strategies to accomplish estate planning goals, send us a message at email@example.com or contact us via phone at 732-521-9455 to get started.
In a recent article by the Wall Street Journal, a potential possibility for limiting tax liability is being considered on the heels of the two North Carolina business owners who are attempting it. Right now, the issue is being explored in U.S. Tax Court, too, where a previous decision in December issued a ruling in favor of business owners.
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In an S Corp, which is typically how closely held firms organize themselves, earnings go directly from the company to the owners, who then have to pay taxes on their individual returns. This only works for companies with less than 100 shareholders, but it does provide a shield of corporation-like protection while avoiding an income tax at the corporate level.
Depending on how the court decides, there are major ramifications ahead for S corps. If the decision is handed down in favor of the corporations, these organizations may be able to reap significant tax savings by limiting their liability. In the North Carolina case, it’s all about how the owners structured their agreements. They reorganized the company into an S Corp in 1998 with a divided ownership strategy that gave 5 percent ownership to an ESOP. These assets can increase in value tax-free and allow for penalty-free withdrawals by individuals at age 59 ½ .
For tax purposes, nearly all of the profits from the corporation could have been shifted to the ESOP, putting off tax liability until individual withdrawal down the road. Many corporations are interested in mitigating risk and exploring tax reduction strategies, we can help with both. Email us at firstname.lastname@example.org or contact us via phone at 732-521-9455 to get started.
A captive insurance company is a company created by a business owner to help insure risks of affiliated businesses. When set up appropriately, a captive allows a business to manage risks while allowing the affiliated company to reap benefits, too.
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A Captive will receive premiums that are then invested as opposed to premiums sent to a traditional unrelated insurer, which are essentially “lost”. Over time, those premiums accumulate. In the event of a risk loss, the premiums are available to be paid for those self-insured losses, thus protecting the business’s bottom line. This crucial benefit is the biggest advantage for business owners.
A Captive can issue casualty or property insurance to protect against a broad array of risks. Where the business owner has the most potential to capitalize on this opportunity is through risk protection for those risks that are typically too expensive to coverage or uninsurable, period. With possible major tax increases coming in the future, the Captive Insurance company remains situated as one of the most effective solutions for business owners. Captive Insurance benefits go beyond tax advantages by providing business owners with opportunities in wealth transfer, estate planning, and asset protection, too.
At Shah and Associates, we work with you individually to determine how a Captive can best suit your business needs. With vast experience in the field, we have helped our clients use Captives to minimize taxes, protect assets, manage risks, and improve cash flow. We understand the peace of mind and confidence that comes from a comprehensive approach to risk management, and that’s why we remain committed to the business community.
While “now” is always the time you should start getting your exit plan ready for your business, there are some guidelines about specific year marks that you should use to think about what will happen next. Here is the best advice for exit plans.
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Starting ten years in advance is the best way to maximize opportunities. This is because at this marker, you can start really considering whether the business is intended as a family legacy. If a family member will be taking over the business, the ten year period is a great planning point for incorporating those family members into training and education. Ultimately, this will make the transition period much smoother. Saving taxes is another primary concern at this stage. If a business owner has recently converted the company from C Corp to S Corp filing status, you should wait a minimum of ten years before selling the company.
Five years out is a good place to review because you are a little closer to the finish line here. Cash flow, tax deduction, and tax leverage should all be explored with your planning specialist at this time. Changes regarding cash flow can allow for a strategy in which cash flow to the owner is a focus rather than company growth.
Finally, even one year out provides planning opportunities. For example, we have implemented strategies which could save the Seller the entire [9% – 13%] tax some states collect upon the sale of a business. If the company will be sold, the owner should identify a business broker or investment banker to actually put the business on the market. This gives enough time for a due diligence review, drafting the sales agreement, and delays related to regulatory issues. No matter what stage you’re at, you need to put some planning tactics in place for your exit plan. Contact us today at 732-521-9455 or email email@example.com to get started with your personalized plan.
Today’s high net worth individuals are deeply sensitive to the risks they face with state income taxes. Since state income taxes can be such a burden for a wealthy person, more individuals are transferring billions of dollars’ worth of assets to trusts in states without tax, like Alaska, Nevada, and Delaware.
While these moves are currently quite legal, they are getting attention from officials in places like New York. New York officials have recognized a $150 million a year loss from avoiding taxes using out of state trusts. Wise wealth planners are clued in to these kinds of strategies, recognizing that many clients are concerned about the negative hit their assets will take when subject to such taxes. Wealth planners report that more clients are asking for assistance in protecting their money wherever possible, and out of state trusts are proving to be a vibrant market with many opportunities.
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Although these transfers are happening at the individual level, they seem to mirror corporation behavior, too. Companies like Google have moved across national borders in order to cut down on the high taxes they are forced to pay if they stay in the U.S. Likewise, some people who want to sell their companies move shares out of home states and into out-of-state trusts to protect gains from state income taxes.
Estate attorneys that are in the know look at every aspect of a client’s portfolio to find the best ways to promote growth and protect from risk. Any client with a substantial portfolio might want to consider this strategy to cut down on the high state taxes that would otherwise be paid. Clients have been successful and satisfied with moving assets across the spectrum from several hundred thousand all the way up to hundreds of millions.
Nevada and Delaware have been engaged in a decades-long battle to get business from wealthy Americans through trusts. Part of the strategy for getting this business is by writing laws that make it simpler to transfer property across several generations and reduce the risk that assets will be attacked by creditors. As a result, Nevada has no state income tax and Delaware doesn’t place a tax on any out-of-state beneficiaries.
One of the most popular strategies is to use a Non-Grantor Trust, known as NING (Nevada Non-Grantor Trust) and DING (Delaware Non-Grantor Trust). Wealthy individuals who live in high-tax states can make the best of friendly policies in other states without the fear of violating any state or federal laws. In fact, a growing number of individuals are moving the assets just far enough outside their control so that they aren’t responsible for state income tax while also protecting them from being hit with a 40 percent gift tax. Most of these trusts are private, so there’s no clear data yet about just how many people are taking advantage of these incredible trust opportunities, but planners and attorneys are both reporting higher numbers of clients getting on board.
Captive insurance companies are private insurers that are owned by a parent company. Although a captive insurance company has some of the same benefits of a regular insurance company, captives collect the premiums that a company would have paid over to a regular insurer while taking the responsibility for any claims against the parent company. Captive insurance companies are uniquely situated for certain situations.
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Manage Risk and Protect Assets
Many businesses have particular needs for risk management because the risk it outside the typical market. In that case, insurance either can’t be purchased or the price is so high that the company is forced to self-insure. In still other cases, the business might have insurance for some risks, but that comes at a cost of premiums and deductibles. This is just the type of risk that sits well with a captive insurance company. Typical general liability insurance seems like a “coverall”, but in reality there are so many exclusions that a business still stands exposed to high risk. That’s where insurance from a captive company can help by filling in the gaps from those exclusions.
Every dollar spent by the company and sent to the captive serves as a $1 reduction in operating business assets. In the event that the business collapses, the company is not at risk of losing those dollars that have been transferred out of company property and over to the captive insurance company. Captive insurance companies are known for accumulating high amounts of assets through reserves and surplus. In certain disaster situations, some of those funds may be available for a business owner. Although a business owner might face some tax consequences of doing so, you can think of those funds as an emergency fund that could be there if you need it. It’s an extra layer of protection that can give a business owner peace of mind.
Exert More Control
Captive insurance companies typically create customized policies for the needs of each specific business. Unlike many commercial policies, policies through captives have the added benefit of drafting the policy in a manner that makes it virtually impossible for third-party claims against the business from being approved. The individualized nature of policies means that protection is aligned directly with business needs rather than generally accepted amounts and terms.
Going through a commercial carrier has another downside: you give up the option to select your own attorney. Defense counsel connected with insurance companies often handle large volumes of cases, taking away that personalized attention for your case. The fact that these counsel handle upwards of 200 cases each year from referrals also calls into question whether that attorney is looking out for your best interests- or the hand that feeds them. Since insurance companies that hire counsel are budget-minded, you also don’t know the quality of attorney you’ll be receiving through the appointment process. With captive insurance carriers, business owners control the captive and therefore maintain control over selection of an attorney.
From a business owner perspective, these few advantages represent big benefits. Guard yourself against risks, protect existing and growing assets, and exercise more control over how things are handle by working with a captive.