AssessConsolidate

Simplify

Ten Tips to Lower Your Taxes and grow your wealth!

Today’s Objectives

Introduce you to Sucré‐Vail Wealth Advisors

Discuss 10 Tax Wise Tips

1. Advisor vs. Adviser 6.   Insurance Options2. Tax Managed Investing                             7.   Foundations, Charitable Planning3. Retirement Planning                                 8.   Efficient Will and Trust Planning 4. Available Deductions                                9.   Pros and Cons of Annuities5. Education planning 10. Gifting and Estate Planning

Conclusion

Sucré-Vail Wealth Advisors

Experts with over 50 years of combined experienceAn RIA since 1997 based in the State of TexasSVWA makes available to our clients• Premier wealth management services• Fiduciary retirement plan management

Tip #1: Advisor vs. Adviser

Fees on investments are deductible while commissions are not…….In the world of investment professionals, it’s often difficult for clients to pick out the advisors from the advisers, an advisor is a  fiduciary and can only act in the best interests of the client. Anyone not acting as a fiduciary, well, it’s less clear whose interests they’re acting in‐more importantly fees charged by advisors are deductible and commissions charged by advisers are not.

Broker & RIA Key DistinctionsRegistered Investment AdvisorAn RIA, subject to the Investment Advisors Act of 1940 and has a fiduciary duty to place a client’s interests ahead of his own.  Fees tend to be less with an RIA.. An RIA gets paid for advice rather than for trades, thus no incentive to do trading in client accountsAn RIA cannot sell commission products nor are they allowed proprietary products.An RIA provide a level of independence unavailable with traditional Brokers.Assets are typically held with qualified third‐party custody firm.

BrokerA Broker is not a fiduciary. A broker, or registered representative, is required only to recommend investments that are “suitable.”Lack of requirement to provide full disclosure – possibility of multiple layers of fees.A broker is essentially a sales agent of his/her firmBrokers are often tied to specific products because of negotiated deals between vendors and their parent company. An investor should consider the parent firm of the broker and the stability of the custodian among many other factors.

Tip # 2: Tax Managed Investing

Ways to mitigate:Portfolio Structure Tax aware  trading Transition of low  basis stockTax Lot AccountingLoss HarvestingWider Rebalancing RangesGain – Loss OffsetHighly efficient tax overlay for separate accountsAMT tax neutral Muni bonds

Taxes can reduce your portfolio return

Source: Parametric Portfolio Associates: 60% Russell 3000; 40% Barclays Capital Aggregate; No Liquidation. Interest income and dividends are taxed annually at historical top marginal tax rates; capital gains are realized at 50% per year and are taxed at the historical long-term capital gains tax rate at the time. Past performance is no guarantee of future results.

*A hypothetical tax-free $100,000 portfolio (invested 60% in stocks and 40% in bonds) held for 30 years would have grown to about $2.8million. If the portfolio was taxed like an average mutual fund, it would have lost 52% of its value, due to taxes paid and earnings lost on that money. Tax-managed investment strategies are designed to minimize capital gains distributions and maximize after-tax returns.

Tax loss Harvesting

Defined• Selling securities at a loss to 

offset realized capital gains. Harvesting losses helps to limit the recognition of short‐term capital gains, which are normally taxed at higher rates than long‐term gains.

The benefits• Loss harvesting is an 

important tool for reducing current and future income.

• It can save you taxes and help you diversify your portfolio. 

• Taxpayers can take up to $3,000 of excess losses against ordinary income.

After‐Tax Return  Client Name  Account#

YTD 2009Annualized Since 

InceptionCumulative Since 

Inception

Portfolio Pre Tax Return 28.98% 3.29% 19.29%

Benchmark Pre Tax Returns 29.44% 3.05% 17.81%

Difference ‐0.46% 0.24% 1.47%

Portfolio Post Tax Return 37.74% 5.41% 33.22%

Benchmark Post Tax Return 34.77% 3.22% 18.87%

Difference 2.97% 2.18% 14.35%

Parametric's Alpha 3.43% 1.94% 12.88%

Tax Savings $128,632 $73,125 $483,708

Inception DateTax Savings Based on Account Value of $3,757,236 Value as of 12/31/2009 7/20/2004

Tax Managed Investing -Results Quantified:

Consider the year‐to‐date realized gains & losses. If in a gain position, consider harvesting unrealized losses to zero out the gains.

A taxpayer can take $3,000 of losses in excess of gains against ordinary income. 

If you want to stay in the market, pick a suitable surrogate to avoid the wash sale rules

Be careful to not let the tax tail wag the dog.  Risk still needs to be managed.  

Year End Tax Planning

Contributions to a retirement plan reduces your taxable income

Withdrawals from retirement plans will be taxed …RMDs

Take home pay Retirement contributions

$1.00 of salary deferral– $0.00 Federal Tax

= $1.00 of retirement savings

Tax Tip #3: Retirement Planning

$1.00 of taxable income– $0.35 Federal Tax

= $0.65 of net income

Tax Management Tools

Limitation 2010 (and 2011)

Maximum annual contribution to qualified plan $49,000

401(k), 403(b), 457 maximum elective deferral limit $16,500

SIMPLE plan elective deferral limit $11,500

Traditional IRA / Roth IRA contribution limit $5,000

Catch-up contribution limit – (401(k), 403(b), 457 (over age 50)

$5,500

Catch-up contribution limit – SIMPLE (over age 50) $2,500

Catch-up contribution limit – traditional/Roth IRA (over age 50)

$1,000

Maximize contributions to your DC qualified plans

As a Plan Sponsor – Be aware you are a Fiduciary

It is critical for tax efficiency to create a plan that is effective given your goals…. Maximizing your retirement savings or creating a golden hand cuff for employees.Get an analysis to determine which type of plan best accomplishes your goals – DC or DBUnderstand your fiduciary responsibility Mitigate risks associated with being a plan sponsor

Tax Tip #4: Exclusions, Exemptions, Deductions and Credits

• Two Types of Tax Payers– Informed– Uninformed

• Your goal should be to maximize the use of exclusions, exemptions, deductions and credits as it relates to your unique situation 

Let’s ensure that you are informed, here is an example of some exemptions not commonly used  

The following lifetime transfers are exemptfrom both gift and estate tax

Political contributionsPayments made directly and exclusively to the provider of medical care for another personPayments made directly and exclusively to the provider of educational services for another person for tuition expenses only

Tax Tip #5: Education Planning

2503 Trust  for minors‐ Parent can lose control529 Education Plans – 5 year forward giftingCoverdell ESA ‐ can be used for high school cost‐220K phases out, limit $2K annual contributionCustodian Account – can be converted to a 529 since they do not grow tax free, limit for use to owner/beneficiaryRoth IRAs –Grandparents being creative

Beware the 529/ESAs can reduce a students financial aid

Tax Tip #6: Insurance Options

Insurance companies never pay income taxes therefore these benefits can be yours– Use life insurance to replace wealth in an ILIT often used to pay taxes due 9 months after death 

– Purchasing life insurance in a qualified plan can be tricky, the death benefit becomes taxable if left in the plan and not administered correctly

Deductibility of LTC and DI insurance premiums at the corporate level 

Tax Tip #7: Foundations & Charitable Planning

Charitable incentives ‐ including tax‐free distribution from IRAs

Donor Advised FundCharitable gift AnnuitiesChartable Remainder Trust

Donor Advised Fund

Advantages of Donor Advised FundOne key element of a donor advised fund is the ability of the donor and/or his designees to name family members and friends as “account advisors”, thereby promoting family philanthropy.The names of individual donors/advisers can be kept confidential, if desired, and grants can be made anonymously.A donor advised fund also offers flexibility in the amount, frequency and timing of donations to programs and charities of special interest.Donor advised funds can be an excellent alternative to private foundations because of the ease of administration.

Mechanics of Donor Advised funds

A lifetime transfer to a donor advised fund is treated, for both property law    and tax purposes, as a direct transfer to the sponsoring public charityTypically, donations to a donor advised fund are tax deductible up to 50% of adjusted gross income for cash and up to 30% of AGI for appreciated securities held more than one year with a five‐year carryover. Gifts of appreciated publicly traded stock are generally deductible at fair market value, but gifts of non‐marketable property are limited to tax costThe sponsoring charity may be a community foundation, another type of large public charity, such as a hospital or educational institution, or a public charity created by and associated with a major financial institution. Because the sponsoring organization owns the donor advised fund account, all earnings of the account appear on the tax return of the sponsoring organization. So there’s no need to file a separate tax return for the new entity. Upon the death of the donor, successor advisors may continue to make grants to charities

Benefits of a Charitable Gift Annuity

Simple to implementNo trust is needed, just a simple contractDonor receives a partial income tax deductionSteady payments are paid to donor for life Donor can never outlive the payments steamThe asset is removed from the donor’s taxable estate*The charitable organization receives the asset immediately

Charitable Remainder Trusts (CRT)

DefinedThe CRT is a tax‐efficient vehicle that  provides the donor with a steady income stream, a tax deduction, deferral of capital gains, and a gift to one or more charities.

The BenefitsFunding the trust with appreciated assets allows the donor to sell the assets without incurring a capital gain. Efficient way to transfer appreciated property, benefit from charitable income tax deduction and reduce estate taxes.Donor retains the benefits of underlying assets for income purposes

Tax Tip #8: Estate Planning

Efficient Will and Trust planning = Efficient estate planningWho gets your wealth?– IRS– Heirs– Charities

Proper legal planning may take advantage of unified credit/ bypass trust  and maritial trust (Qtip)– be aware of special limitations for non‐citizens.

Methods of Estate Transfer

During Life (inter‐vivos)Gifto Outrighto Custodialo Trust

Saleo installment saleo Private annuity

At Death(testamentary)Probateo Willso Laws of interstate succession

Will substituteso Property ownership forms 

with right of survivorshipo Beneficiary designations

Tax Tip #9: Annuities

ProsGrows taxed deferredDownside protectionNo probate Risk transferred to Insurance Company 

ConsGrowth taxed FILOSurrender chargesNo step‐up in bases Withdrawals taxed as ordinary income

Many of these restrictions are the same with retirement dollars These items vary based on if fixed or variable annuities

Tax Tip #10: Gifting & Leveraging FLP Shares to reduce Estate Taxes

The annual exclusion ‐ $13K (Gift Splitting X2) Gifts to noncitizen spouse‐ $136KGST tax exemption – 1.36 MLSince valuation of FLP & LP shares are typically discounted you may leverage your gifting by using sharesAnnual exclusion gifts are typically used for funding ILIT Transfers/gifts to a spouse and qualified Charities are generally wholly deductible

Estate and gift taxesEstate Taxes Gift taxes

Maximum estate tax rate of 35%Tax free amount of $5 million and $10 million for married couples.

Top tax rate on gifts 35%Maximum applicable exclusion of $5 million

Source: “Tax Cut Extension Bill Wends Its Way to White House,” Accounting Today, Dec. 17, 2010

Tax Clarity

In Closing

Times have changed, we hope we have challenged you to evolve your thinking about  your wealth and legacy….. Wealth is measured by dollars… Legacies, by generations….Give us the opportunity to show you how to grow yourwealth by controlling taxes, since it is impossible to controlor predict the markets

It’s not the money you earn …it is what you keep that matters!

16862 Royal Crest DriveHouston TX, 77058Phone: 888.286.9991

www.sucrevailwa.com

We are all things to some people – our clients!