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The Myths and Realities of Estate Planning

The Myths and Realities of Estate Planning. Presented by: INSERT AGENT NAME/DESIGNATION(S). The Ohio National Life Insurance Company Ohio National Life Assurance Corporation.

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The Myths and Realities of Estate Planning

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  1. The Myths and Realities of Estate Planning Presented by: INSERT AGENT NAME/DESIGNATION(S) The Ohio National Life Insurance Company Ohio National Life Assurance Corporation

  2. The Ohio National Life Insurance Company and Ohio National Life Assurance Corporation issue a variety of life insurance and annuity products. Product availability varies by state. Guarantees are based upon the claims-paying ability of the issuer.

  3. This presentation is intended to discuss estate planning concepts in general under current tax laws. Tax laws are subject to change. • This presentation is neither intended to serve as legal advice nor as an opinion of legal or tax consequences of any planning techniques. • You should always consult with legal and tax advisers to determine how laws and tax rules may impact your particular circumstances.

  4. “The current estate tax law puts estate tax planners in an impossible situation” – Wall Street Journal, 11 May 2005

  5. Myth #1 The Federal Estate Tax Was Repealed

  6. Reality: Repeal is only scheduled for 2010 * *Under current tax laws. Tax laws are subject to change.

  7. Permanent Repeal:Not an easy task 60

  8. $290,000,000,000* Permanent Repeal: Loss of revenue *Cost of H.R. 8 through 2015. Source: Joint Tax Committee

  9. Permanent Repeal:A political issue • Repeal efforts on “life support” • Senate • 2005: 58 Senators in support of repeal • 2007: 48 Senators in support of repeal • 2008: no straw poll taken It is unlikely that the federal estate tax will be repealed

  10. Permanent Repeal or Reform • Resolution of the estate tax issue would assist planners • Many in Congress agree that something needs to be done • 2009 could be the right time for reform • Possible reform: freeze 2009 exemption & rates Until the estate tax laws are stabilized, flexibility in planning will remain a priority

  11. Permanent Repeal: Past is Prologue 1797: Enacted – U.S. Navy 1802: Repealed 1862: Enacted – Civil War 1870: Repealed 1898: Enacted – Spanish American War 1902: Repealed 1916: Enacted – WWI 2010: Repealed – EGTRRA 2011: Enacted – Sunset provision

  12. Myth #2 State Death Taxes Were Repealed

  13. Reality: It Depends OnThe State • State death tax credit repealed • Deduction as of 2005 • Loss of revenue • Up to $1 billion in California (New York Times 6-21-01) • Typical state loss of revenue 2-5% (New York Times 6-21-01)

  14. The States Respond: Decoupling • Decoupling • 14 states decoupled as of January, 2009 • Free-standing • 7 states have estate taxes that were never tied to the federal system • Multiple taxes • 2 states impose multiple estate and inheritance taxes.

  15. No State Death Taxes As Of January 2009 Most states have estate and inheritance taxes that are levied in addition to the federal estate tax. State death tax rates generally range from 5-20%.

  16. California/Florida/Texas State estate tax tied to federal credit No state estate tax in 2009 Pennsylvania State estate tax not tied to the federal tax $2.0 million to family trust = $94,076 state death tax at 1st death $3.0 million to family trust = $134,843 state death tax at 1st death $4.0 million to family trust = $179,843 state death tax at 1st death State Death Tax:Examples • Life insurance death benefits are exempt from state estate and inheritance taxes in some states.

  17. Myth #3 Life Insurance for Tax Liquidity is Unnecessary if Federal Estate Tax is Repealed

  18. Reality: Capital Gains and State Death Taxes Remain • Modified carryover basis • Stepped up basis ends in 2010 • $3 million spousal property basis increase • $1.3 million aggregate basis increase • Capital gains taxes due when property is sold • Premium on record keeping

  19. $6 million business Business is sold pursuant to a buy-sell $6 million less $4.3 million basis = $1.7 million of taxable gain $1.7 million x 26% state and fed tax rate = $442,000 capital gains tax Capital Gains Regime:Example If the taxpayer is married ... • “Some heirs . . . could wind up owing more in capital gains taxes when they sell than they would save from the elimination of the estate tax”Ernst & Young – Wall Street Journal, 11 May 2005.

  20. $6 million business $1 million basis Business is sold by pursuant to a buy-sell $6 million less $1.3 million basis = $4.7 million of taxable gain $4.7 million x 26% state and fed tax rate = $1.2 million capital gains tax Capital Gains Regime:Example If the taxpayer is single ... • These examples do not include state estate taxes ranging from 5-20%

  21. Myth #4 In 2009, the Unified Credit Shields Lifetime Gifts of up to $2 Million

  22. Reality: Gift Tax Exclusion Remains at $1 Million The annual gift tax exclusion for 2009 is $13,000 per recipient

  23. Myth #5 You Should Review Your Wills and Trusts Every 3 to 5 Years

  24. Reality: Annual ReviewsMay Be Necessary In this example, death in 2009 could force the surviving spouse to elect against the decedent’s will causing additional delays and expenses

  25. Annual Reviews: Topics • Amend pre-2001 documents • Specific bypass amount • Marital share floor • Decoupled death taxes • Amend documents • Additional liquidity • Reposition assets

  26. Myth #6 Because of Tax Law Uncertainty, YouShould Avoid Using Life Insurance Trusts

  27. Reality: Trusts Can Be Drafted with Flexibility “…the trustee, in such trustee’s sole discretion, may terminate this trust by distributing the trust principal to any of the grantor’s then living descendants who are beneficiaries of this trust or to the grantor’s spouse in whatever proportion the trustee then deems appropriate…” Escape Clause (excerpt)

  28. Myth #7 Estate Tax Reform, or Repeal, Would Signal the End of Charitable Giving

  29. Reality: Charitable Giving is Growing Annual Contributions to Charities 2000-2007 ($billions) Federal Estate Tax Exclusion Amount 2000-2007 Source: Giving USA Foundation 2008

  30. Charitable Giving: A Grass Roots Effort Source: American Association of Fundraising Council 2006

  31. Myth #8 Revocable Living Trusts Reduce Taxes

  32. Reality: Revocable Living Trusts Do Not Reduce Taxes • Transfers to revocable trusts do not reduce estate taxes. They are considered “incomplete transfers” • Income taxes • Gift taxes • Estate taxes Revocable living trusts may achieve other goals such as planning for incapacity, reducing probate and providing privacy, among other things

  33. Myth #9 Estate Planning is Dead

  34. Reality: Estate Planning Lives! Life Insurance may help you achieve many of these goals • Asset protection • Family business planning • Multi-generational planning • Privacy • Income replacement • Equalization of inheritance • Special needs dependents • Charitable giving

  35. Take one step with your estate plan in the next three days Your 72-Hour Plan

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