copyright 2003. go navy! copyright 2003 asset accumulation, protection, preservation, and transfer,...
TRANSCRIPT
![Page 1: Copyright 2003. Go Navy! Copyright 2003 ASSET ACCUMULATION, PROTECTION, PRESERVATION, and TRANSFER, LLC Registered Investment Advisory Firm John A. Cory,](https://reader033.vdocuments.mx/reader033/viewer/2022052701/56649ca55503460f949668ae/html5/thumbnails/1.jpg)
Copyright 2003
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Copyright 2003
Go Navy!
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Copyright 2003
ASSET ACCUMULATION, PROTECTION, PRESERVATION,
and TRANSFER, LLC
• Registered Investment Advisory Firm
John A. Cory, Member
• Securities offered through Resources Horizons Group, LLC, broker-dealer, Member FINRA, SIPC
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Copyright 2003
ASSET ACCUMULATION, PROTECTION, PRESERVATION,
and TRANSFER, LLC
• 1981:
• 1987:
• 1992:
• 1999:
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Copyright 2003
ASSET ACCUMULATION, PROTECTION, PRESERVATION,
and TRANSFER, LLC
• 1981: Law/MBA
• 1987: CFP
• 1992: CPA
• 1999: AAPPT, LLC
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Copyright 2003
ResourceHorizons
Group, LLCcommission
FINRA, SIPC
APTfee
SECADV
COMPENSATION
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Copyright 2003
FEE versus COMMISSION
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Copyright 2003
Family Financial Philosophy
• Financial Independence: savings, income,
liquidity
• Family Legacy
• Community Legacy: Church/College
• Avoid Tax Legacy
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Copyright 2003
Life is like the game of Monopoly…
When it’s all over, it all goes back into the box.
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Copyright 2003
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Copyright 2003
Investment Process
1. Determine Goals and Risk Level
2. Set Asset Allocation Strategy
3. Diversify Asset Classes and Styles
4. Rebalance and Reallocate
5. Monitor and Re-evaluate
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Copyright 2003
Investment Process
1. Determine Goals and Risk
2. Set Asset Allocation Strategy
3. Diversify Asset Classes and Styles
4. Rebalance and Reallocate
5. Monitor and Re-evaluate
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Copyright 2003
Investment Policy Statement
• OBJECTIVES: Return & Risk Tolerance• Financial Independence• College• Charitable Giving• Start Own Business
CONSTRAINTS:Taxes, Debt, Liquidity, Time Horizon
INVESTMENT POLICYSTATEMENT
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Copyright 2003
Investment Process
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Copyright 2003
Investment Process
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Copyright 2003
Investment Process
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Copyright 2003
Investment Policy Statement
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Copyright 2003
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Copyright 2003
Asset Allocation
• Asset Category Selection
• Long range target percentage for each category
• Allowable percentage range increase
• Selection of actual securities
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Copyright 2003
Asset Allocation
• 91.5% Asset Allocation• 4.6% Security Selection• 1.7% Market Timing• 2.2% Other
Asset Allocation
Stock Selection
Market Timing
Other
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Copyright 2003
INVESTMENT PYRAMID
• Aggressive: Leveraged stock/real estate
• Moderate: Growth stocks, Real estate
• Conservative: GNMA’s, Utility stocks
• Defensive: Treasuries, Certificates of Deposit
Aggressive
Moderate
Conservative
Defensive
Increased Risk/R
eward
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Copyright 2003
Qualified Plans/401(k)
• Profit Sharing/ 401(K)• Defined Benefit 412(i)• Money Purchase• Simple IRA• SEP IRA• Uni K
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Copyright 2003
IRA’s and TSA’s
• Traditional IRA• Conversions• Roth IRA• Tax Sheltered
Annuities• 403(b)
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Copyright 2003
The Right Investments
Inside IRA• Growth Mutual Funds• Short-Hold Stocks• Taxable Bonds
Outside IRA• Index/Low Turnover
Mutual Funds• Long-Hold Stocks• Tax-Free Bonds
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Copyright 2003
Judge Learned Hand
“Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich and poor; and all do right, for nobody owes any public duty to pay more than the law demands; taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.”
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Copyright 2003
Tax Act of 2003
• Reduced income tax(10,15,25,28,33,35%)
• Reduced dividend taxation(max 15%)
• Reduced capital gains rates(5% - 15%)
• Marriage penalty relief
• Sunset provisions
• Winner: stocks
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Copyright 2003
Tax Acts of 2004
• Jobs Creation Act: Enron
• Favors manufacturing and farmers
• Subchapter S Corps: 100 shareholders
• Extends small business expensing: S 179
• Tightens vehicle donation rules
• Reduces SUV loophole
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Copyright 2003
Health Savings Accounts
• High Deductible($1,000 ind; $2,000 family)
• Contribution($2,600 ind; $5,150 family)
• Contributions less than deductible
• Tax deferred savings
• Penalty: 10% - non qualified distribution
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Copyright 2003
Year End Planning
• Bunch deductions• Prepay state income tax• Prepay January mortgage• Utilize home equity loans• Utilize Section 179 business expensing
($102,000 for 2004; $25,000 in 2006)• Donate used car before 2005• Beware of AMT
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Copyright 2003
President Bush’s Agenda
• Permanent tax cuts(revenue neutral)• Simplify/fair tax system(AMT:preference items) • Partial privatization of Social Security• Private oil exploration(Alaska)• Care Act/IRA Rollover Act• Ronald Reagan Alzheimer’s Act: $3K credit• Tort reform(frivolous lawsuits)
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Copyright 2003
Annuities
• Income tax deferral• Fixed or Variable• Equity Indexed• Guarantees• Fees• Surrender Charges• 10% penalty before
age 59 1/2
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Copyright 2003
Equity Indexed Annuities
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Copyright 2003
Equity Indexed Annuities
2 – 3 %
SAFETY
EQUITY INDEXED ANNUITY
Upside
Market
Potential
STOCK
100%
LOSS
C D
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Copyright 2003
Stock Options
• Section 83 of IRC
• Nonqualified stock options
• Incentive stock options
• Alternative minimum tax
• Analyze all alternatives
StockOptions
StockOptions
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Copyright 2003
Income Tax Credits
• Low Income Housing Credit:over 10 years
• Offset $25,000 income/year(more passive)
• Historic Rehab(credit upfront, inc restrict)
• No reduction in tax basis
• AMT neutral(can’t reduce)
• Limited partnership
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Copyright 2003
Why Invest In Natural Gas?
Demand ContinuesDemand Continuesto Growto Grow
Domestic Supply Domestic Supply ChallengesChallenges
Positive Price Positive Price OutlookOutlook
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Copyright 2003
Natural Gas Demand
20
22
24
26
28
30
32
2002 2010 2015 2020 2025
DemandSource: Department of Energy
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Copyright 2003
Oil and Gas Tax Benefits
Write-off 70 - 80% in current year(“at risk”)
General Partner:Liability Insurance; six months
Remaining 20% Depreciated
Depreciation & Depletion of 25%:5 yrs Depletion Allowances: 15% for life Intangible drilling costs
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Copyright 2003
Mutual Funds Scandal
• Consider Selling– Alger, Nations, Heartland, Raymond James, Fleet
Boston Financial, AIM, Bank of America• Don’t Send Money Now
– Columbia, Excelsior, Federated, Scudder, Seligman, Freemont
• Proceed With Caution– Alliance Bernstein, Franklin Resources, One Group,
MFS, PIMCO, Putnam International, Loomis, Alliance Capital, Acorn, PBHG, RS Investments, Janus, Evergreen, Invesco (Amvescap), ING
• Note: Also Banks, Broker-Dealers, and Hedge Funds
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Copyright 2003
Insurance Companies Scandals
• Marsch & McLennan:broker corruption,conflict of interest• American International Group, Inc: corruption, conflicts of interest,
bid-rigging• ACE Ltd: corruption, conflicts of interest, bid-rigging• Hartford Financial Services Group, Inc: corruption, conflicts of
interest, bid-rigging• Munich-American Risk Partners: corruption, conflicts of interest, bid-
rigging• Spitzer has subpoenaed Prudential Financial, Cigna, Met Life; Aon
& Willis Group(brokers);Universal Life Resources• Zurich Financial: bid rigging, contingent fees, kickbacks• GA Investigation: Travelers,Ace,Principal,Cigna,BXBS,United,Fortis
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Copyright 2003
GA Broker/Dealer Investment Scandals
• Lehman Brothers• Bear Stearns• Credit Suisse 1st Boston• Goldman Sachs• J.P. Morgan• Morgan Stanley• Citicorp:Sol Smith Barney• USB Securities:Warburg• USB Financial:Paine Web
• Spitzer: NY & national • Merrill Lynch:2002• RESEARCH & INVEST
(Conflict of Interest)
• $5M Invest Protect Trust
Pending• Wachovia Capital • Deutsche Bank• Thomas Weisel Partners
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Copyright 2003
Winners and Losers
• Energy
• Defense
• Domestic Drugs
• Health Care
• Small Business
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Copyright 2003
Q: Are you a TARGET?
Professional
Malpractice
Divorce
Partner
Officer, Director, Advisory Board (actual or implied)
Accident at home
Real estate (environmental)
Car accident
Employee action
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Copyright 2003
Asset Protection:Entity Selection
• C Corp: Medical Reimbursement Plan• S Corp: Pass-through Entity• LLC: % Owner/Profit – varies; real estate• LLP: No Agreement; State-default• LLLP: Limited General Partner Liability• FLP: Estate tax, income tax, asset protect• FLLP: All of the above
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Copyright 2003
Asset Protection
• Relinquish control
• LLC, LLP, LLLP, FLP
• Spendthrift provisions
• Delaware, Nevada, Alaska, South Dakota
• Consider off-shore trusts
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Copyright 2003
Prenuptial Agreements
• Protect children
• Avoid assumption of Debts of new spouse
• Dual attorneys
• Recording
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Copyright 2003
Disability Insurance
• Definitions: “own occupation”• Guaranteed renewable• Waiting period• Trigger,exclusions, term• Inflation protection• Portability
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Copyright 2003
Long Term Health Care Insurance
• Tax qualified (or not)• Noncancellable• Guaranteed renewable• Level of Care: skilled,
intermediate, custodial• Waiting period• Trigger, exclusions, term• Inflation protection
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Copyright 2003
Activities of Daily Living
• Bathing
• Dressing
• Eating
• Toileting
• Transferring
• Continence
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Copyright 2003
Who Pays for Nursing Home Care?
Source: Centers for Medicare & Medicaid Services, Office of the Actuary, 2003 Projected Expenditures Data Released, January 2002
http://cms.hhs.gov/statistics/nhe/projections-2001/proj2001.pdf
Out-of-Pocket
25.1%25.1%
50.3%50.3%
10.8%10.8%
4.0%4.0%7.5%7.5%
OtherPublic Funds
Medicaid
Medicare
Other Private Funds
Private Health Insurance
2.3%
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Copyright 2003
Who Pays for Home Care?
Source: Centers for Medicare & Medicaid Services, Office of the Actuary, 2003 Projected Expenditures Data Released, January 2002
http://cms.hhs.gov/statistics/nhe/projections-2001/proj2001.pdf
Out-of-Pocket
18.6%18.6%
19.9%19.9%
32.1%32.1%
4.7%4.7%
19.7%19.7%
OtherPublic Funds
Medicaid
Medicare
Other Private Funds
Private Health Insurance
5%
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Copyright 2003
Who Pays for Care?
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Copyright 2003
Who Pays for Care?
SELF FAMILY
Which CHILD?
MEDICAID
=
WELFARE
TRANSFER
LTC Insurance
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Copyright 2003
Life Insurance
• Cash value, investment control
• Term
• Whole Life
• Universal
• Variable: separate accounts
• Variable Universal
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Copyright 2003
Variable Universal Life
• Potential income tax forgiveness
• Investment alternatives
• Investment Risks
• Fees
• Surrender Charges FEES!
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Copyright 2003
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Copyright 2003
Last Will and Testament
• If properly drafted and executed, avoids bond, returns and inventory
• Creditor claims resolved
• Simple Georgia probate
• Testamentary Trust
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Copyright 2003
Revocable Living Trusts
• Avoid Probate and “red tape”
• Successor Trustee if not competent
• Privacy
• Pour-over Will needed
• Avoid ancillary
jurisdiction
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Copyright 2003
Powers of Attorney, Living Wills
• Financial
• Health
• Choice of Agent
• Successors
• Durable: Competency
• Powerful: Springing
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Copyright 2003
Types of Joint Tenancy
• Joint Tenants with Rights of Survivorship
• Tenants in Common
• Passage/Estate includable
• Payable upon Death accounts
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Copyright 2003
History of Estate Tax
• 1797: Stamp Act• 1802: Repealed• 1862: Civil War• 1870: Repealed• 1898: Spanish American War• 1902: Repealed• 1916: WW I• 1924,1930’s,1976 – 1993 (9 Acts)• 2001: EGTRRA
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Copyright 2003
Tax Relief Act of 2001: Estate and Gift Tax
• Increased Unified Credit
• Reduced estate tax rates
• Segregate estate and gift tax
• Basis issues
• Increased qualified plan /IRA contribution and benefit limits
• Sunset provision: 1/1/2011
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Copyright 2003
2009$3.5M
2002$1M
2004$1.5M
2006$2M
Unified Credit
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Copyright 2003
Unlimited Marital Deduction
• Zero estate tax upon first spouse’s death
• Waste first spouse to die‘s unified credit
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Copyright 2003
Marital Trust or Outright Spousal Distributions
• Same marital deduction and estate tax result
• Control income/principal
• Control ultimate disposition
• Trustee selection
• Consider QTIP
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Copyright 2003
Unified Credit Trust
Estate
Children’s Trust
Surviving Spouse Outright • Personal property to spouse• Residence to spouse• Balance to spouse outright
Unified Credit Trust• All income to spouse or sprinkle with children• Principal to spouse for health, support, and maintenance(and children)• Spousal $5,000 or 5% power
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Copyright 2003
Estate Tax Returns
• Detailed Balance Sheet: CUSIP #s
• Due nine months after death
• Payment in Cash
• Appraisals
• Form 706
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Copyright 2003
Unified Credit Trusts
• Two spouses: two unified credits
• Principal: health, education, support, and maintenance
• Trustee selection
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Copyright 2003
Qualified Terminable Interest Property Trusts
• Control distribution of assets after second spouse’s death
• Protect children of prior marriage
• Doesn’t pass to second spouse
QTIP
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Copyright 2003
QTIP Trusts
Estate
Children’s Trust
Surviving Spouse QTIP • All income to spouse• Principal to only spouse for health, support, and maintenance• First to die spouse controls ultimate beneficiaries
Unified Credit Trust• All income to spouse or sprinkle with children• Principal to spouse for health, support, and maintenance (and children)• Spousal $5,000 or 5% power
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Copyright 2003
Disclaimer Trusts
Estate
Disclaimer
Surviving Spouse• All to spouse outright
Unified Credit Trust• All income to spouse or sprinkle with children• Principal to spouse for health, support, and maintenance (and children)• Spousal $5,000 or 5% power
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Copyright 2003
Disclaimers
• Decline ownership
• Passes to next beneficiaries
• No interest
• Nine months after death
• Flexibility
… but I don’t want it …
… but I don’t want it …
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Copyright 2003
Incentive Trusts
• Flexibility versus ruling from the grave
• Education, ministry, teaching,
matching income, Eagle Scout
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Copyright 2003
Life Insurance Trusts
• Not includable in estate• Effectively increases unified
credit• Crummey provisions (30 day
beneficiary notice and rights)
• Trustee/separate bank account
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Copyright 2003
Generation Skipping Trusts/Dynasty Trusts
• Rule Against Perpetuities
• Dynasty Trusts
• $1 Million Grandchildren’s Exemption
• Georgia: vest within 90 years
• Delaware, Nevada, Alaska, South Dakota
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Copyright 2003
Charitable Remainder Trusts
• Win-Win situation • Charitable Deduction: FMV of
future interest• Avoid capital gains tax• Retain income• Variable annuity: defer income• Remainder to charity• Irrevocable: not beneficiary
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Copyright 2003
Donor Advised Funds/Community Foundations/Private Foundations
• Control versus administrative costs
• Prohibited transactions: Self-dealing, excise tax
• Sponsoring institutions
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Copyright 2003
Grantor Retained Annuity/Income Trusts
• Leverage Unified Credit
• Future appreciation to children
• Remainder to children
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Copyright 2003
Personal Residence Trusts
• Residence and vacation home
• Leverage unified credit
• Future appreciation to children
• Remainder to children
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Copyright 2003
Gifts to Minors
• $11,000 per year
• Avoid guardianships
• Section 2503 C Trusts
• Uniform Gifts to Minors
• Form 709
AGE 18?
AGE 21?
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Copyright 2003
Section 529 Plans
• Income tax deferral/forgiveness• No income limit• Student not legal owner• Five year / $55,000• Transfer to another relative• State specific• Alternative to Educational
Accounts/IRA’s529
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Copyright 2003
Family Limited Partnerships
• Estate tax reduction: valuation discounts
• Maintain Control
• Asset protection
• Income tax spreading
• Business purpose
• Charging order
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Copyright 2003
Lump Sum Distributions
• Entire account paid within single calendar year
• Unrealized appreciation of Company Stock is excluded (upon death get step-up)
• Study your options and seek tax advice
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Copyright 2003
Rollovers versus Ten Year Averaging
• Ten year averaging available if age 50 before 1/1/86
• Five year averaging no longer
• Lump sums within single year
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Copyright 2003
Qualified Plan/IRA Distributions
• Taxed as ordinary income
• Before age 59 ½: 10% penalty
• Age 55: substantial equal pay
• Age 70 ½: minimum distributions
• “Stretch” beneficiaries (i.e. grandchildren) utilizing Trusts
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Copyright 2003
Qualified Plan/IRA TRUSTS
• Irrevocable upon death
• Identifiable beneficiaries
• Documentation to plan administrator
• Avoid payment of debts,
admin expenses, estate tax
1. Terms 2. Beneficiaries3. Trustee 4. Termination
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Copyright 2003
Qualified Plan/IRA Trust
Statistics say that when children are the sole beneficiaries, 80% of all IRA’s are depleted within two years, resulting in immediate income taxation.
Question: Should you consider a trust as the beneficiary of your qualified plan/IRA?
Answer: Stretch IRA (Primary Beneficiary: Spouse; Contingent Beneficiary: IRA or Disclaimer Trust)
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Copyright 2003
Final Minimum Distribution Rule
Regulations• 2002
• Simple distribution calculation
• Reduced required distributions
• Facilitates beneficiary changes
• Facilitates disclaimers
• Still age 70 ½1. Age 59 ½2. Age 70 ½3. PENALTIES
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Copyright 2003
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Copyright 2003
Life is like the game of Monopoly…
When it’s all over, it all goes back into the box.
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Copyright 2003
He was a great man, but…
The one scenario he forgot to consider in his forecast, was the certainty of Death.
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Copyright 2003
Death is the last big move of your Life.
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Copyright 2003
Probate
• Prove Validity of Will
• Notice
• Public filing
• Instant Acknowledgment and Assent
• Creditor Conclusion
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Copyright 2003
Retitling Assets
• Deeds of Assent
• Letters of Instruction
• New account forms
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Copyright 2003
Funding Testamentary Trusts
• Flexibility
• Basis step-up
• Growth or Income
• Trustee discretion
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Copyright 2003
What Happens to Your IRA When You Die
• Spousal rollover• Inherited IRA: only spouse recalculates
(others: minus one)• Rules depends if death
occurs before age 70 ½• Avoid 5 year rule (pre 70 ½)• Avoid ESTATE as beneficiary
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Copyright 2003
IRA Distribution RulesDeath Occurs Before 70 1/2
Individual Beneficiary
Spouse Beneficiary
Multiple Beneficiary
• Rollover
• Recalculate as
Inherited IRA
• Beneficiary’s life expectancy
• Begin Dec 31st of year following
• Avoid penalties
•Oldest age dictates
• Begin Dec 31st of
year following
• Avoid penalties
NO BENEFICIARY: Dec 31st of Fifth calendar yearfollowing death
• Beneficiary’s life expectancy
• Begin Dec 31st of year following
• Avoid penalties
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Copyright 2003
IRA Distribution RulesDeath Occurs After 70 1/2
Individual Beneficiary
Spouse Beneficiary
Multiple Beneficiary
• Rollover
• Recalculate as Inherited IRA
• Rollover
• Continue
• Oldest age dictates
• Begin Dec 31st of year following
• Avoid penalties
• Beneficiary’s life expectancy
• Begin Dec 31st of year following
• Avoid penalties
NO BENEFICIARY: Continue annually over the deceased’s lifetime
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Copyright 2003
Stretch IRA
No Stretch IRA
• Loses Tax Deferral• Taxes Due on Full Amount• No Legacy Left for Children
®
IRAACCOUNTS
OWNER SON GRANDCHILDIRA
ACCOUNTSIRA
ACCOUNTS
IRAACCOUNTS
OWNER
SON
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Copyright 2003
American Family Philanthropic Blue Plot
Plat
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Copyright 2003
DON’TPROCRASTINATE
Because,…WHY?
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Copyright 2003
YOU CAN’T TAKE IT
WITH YOU!
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Copyright 2003
MANKIND’S DILEMMA
“This is mankind’s age-old dilemma in the face of death: What man really fears is not so much extinction, but extinction with insignificance. Man wants to know that his life has somehow counted, that he has left a trace, a trace that has meaning. And in order for anything once alive to have meaning, its effects must remain alive in eternity some way.”
Ernest Becker
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Copyright 2003
QUESTION
What are you doing with your Life’s resources, gifts, talents, opportunities,
and abilities?
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Copyright 2003
COMPLIMENT
The highest compliment we can be paid is the trust you exhibit when providing us the names of friends and associates who might also benefit from the services we provide.
John A. Cory, J.D.,CPA,MBA
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Copyright 2003
ASSET ACCUMULATION, PROTECTION,
PRESERVATION, AND TRANSFER, LLC.(A registered Investment Advisory firm)
• Other than spiritual and humanitarian issues, (which are by far, more important) that’s what life is all about. Do YOU have your act together? Call and make an appointment for a free consultation (or we’ll mail you our 45 point questionnaire). Don’t procrastinate. Remember You Can’t Take It With You. Visit our website at www.APTjac.com.
• Is your financial/investment/retirement/estate/business act together?
Securities offered through Resources Horizons Group, LLC, broker-dealer, Member FINRA , SIPC.
John A. Cory, Sole MemberAttorney, CPA,and Financial ConsultantU of GA Law/MBA, US Naval Academy
Captain, US Naval ReserveCertified Financial Planner in 1986
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Copyright 2003
ASSET ACCUMULATION, PROTECTION , PRESERVATION, AND TRANSFER, LLC
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Copyright 2003
Go Dawgs!!!