1 TRUSTS – WEALTH CREATION AND RETENTION William A. Conway Law Office of William A. Conway 6718 Whittier Avenue Suite 250 McLean, Virginia E. Ronald Lara, CFP Lara, Shull & May, Ltd Leesburg Pike Suite 120 East Falls Church, Virginia 22043

2 William A. Conway, Esq. Professional career includes tax attorney, investment banker, and legal educator. Is included in both Who's Who in Finance and Industry and Who's Who in American Law. Is dedicated to building wealth enhancement strategies for his clients using advanced planning. Radio program, “Family Fortunes,” is on WTNT 570 AM in the Washington Metro area Saturday mornings.

3 E. Ronald Lara, CFP Founded Lara, Shull & May, Ltd. in Specializes in tax efficient strategies to maximize wealth. Has co-created two powerful investment strategy tools: The Lifetime Success Solution® and The Retirement Success Solution®. Manages the U.S. Treasury Bond Management Program.

4 Outline Reality of Client Desires from Wealth Planning Reality of Existing Wealth Planning Power of Trusts Taxation Marketing Benefits to Advisor Team Members

5 Reality of Client Desires from Wealth Planning 1.Reduce or eliminate current and future income taxes 2.Provide future estate and generation- skipping tax inoculation 3.Asset Protection for spouse and descendants Old ingredients, new recipes

6 Reality of Existing Wealth Planning Only 5-10% of clients who have “completed” plans have continuing trusts for non-spousal beneficiaries. More than 50% of married clients who have completed plans will fail to achieve desired protections for the surviving spouse. It’s NOT “all taken care of”

7 Main Ingredients Revocable “Living” Trusts Stand-Alone Revocable Trusts, e.g., Retirement Trusts, Educational “529” Trusts Irrevocable Trusts “IRTs” –ILITs –Stand Alone “Dry” IRTs –Intentionally Defective Trusts “IDGTs” –Inter Vivos QTIPs

8 Main Ingredients (Continued) FLPs & LLCs Retirement Plans (IRAs, 401(k)s) Managed Accounts Mutual Funds

9 Main Ingredients (Continued) Life Insurance –Insured Single Life Survivorship –Design –Types Cash Value Policies –-UL, guaranteed or non –Variable UL – non- guaranteed only –Equity indexed, guaranteed or non Term Policies Annuities –Deferred Variable and Fixed Annuities –Immediate Annuities Life only Longer of Term of Years or Life

10 Magical Mystical Power of Trusts “Everything is possible”

11 Basic Trust Terms Grantor = Maker of Trust = Trustmaker

12 Basic Trust Terms Beneficiary - One who is benefited by the Trust.

13 Basic Trust Terms Trustee – One who controls the assets in a trust.

14 Basic Trust Terms Continuing Trusts – Multigenerational Trusts – Dynasty Trusts

15 Types of Trusts Revocable Trust Irrevocable Trust Grantor Trusts Non Grantor Trusts Accessible Irrevocable Trust

16 Basic Trust Terms Intentionally-Defective Grantor Trust “IDGTs” Shifts asset value from estate of Trustmaker Trustmaker retains income tax obligation

17 Grantor Trust Taxation A revocable trust’s income and expenses flow through to its trustmaker—the grantor. Grantor trusts income taxes are the same as the grantors for income tax purposes; sale by grantor to grantor does not trigger income tax. Income tax paid by the grantor is not subject to gift tax.

18 Trusts are Separate Taxpayers Applies to Non-Grantor Trusts –Have their own tax return and tax accounting –Receive income and pay expenses –Income is subject to tax either to the trust or the beneficiaries

19 Non Grantor Trust Taxation If a trust accumulates income, the trust pays the tax. If a trust distributes the income, the beneficiaries pay the tax.

20 Taxation of Retained Income Capital Gains taxed at 15% maximum Dividends taxed at 15% maximum Interest taxed at 35% after $10,000 net income

21 “The” Tax Problem Myth The “HIGHER” Levels of Income Tax only apply to interest income + rents Trusts pay federal income tax for capital gain and dividends at 15% rate Tax issue solved by investment and income tax management

22 “The” Tax Problem Myth Even for interest income the rate is relative NOT absolute Comparison is between beneficiaries’ “AFTER DISTRIBUTION” Tax Rate and Trust Rate MarriedSingleTrust 28%$128,000$77,000$5,000 33%$195,000$160,000$7,500 35%$350,000 $10,000

23 The Planning Myth Its “all taken care of” Most tax practitioners estimate that only 5%-10% of “planned” estates of taxable estates have continuing trusts

24 Working together can minimize the overall tax impact and ensure the plan meets the client’s unique planning objectives. Asset Protection Income Taxation Reduction Future Transfer Tax Inoculation

25 Marketing Concepts

26 Magical Mystical Power of Trusts The odds of keeping money under management is 5x more likely with a Trust.

27 Marketing Concepts How would you feel if…?

28 Reality of Life Divorce from survivor’s future spouse Divorce of children Lawsuits against spouse or children –Accidents –Malpractice –Business Failure –Cosignatory on spouse’s or children’s debts Future wealth transfer taxation

29 Toothpaste Tube Planning Are the assets protected or exposed?

30 Marketing Concepts What will be the estate tax rate in –Chelsea Clinton’s first term? –Jenna Bush’s second term?

31 Magical Mystical Power of Trusts If you could protect it all, why would you not?

32 Planning to Achieve “Planning is not hoping, not expecting, but achieving.”

33 Planning to Achieve Lead. Do not take line of least resistance.

34 Magical Mystical Power of Trusts Best for client and for advisor team “Everything is possible”