American Society of Plastic Surgeons October 28, 2012 New Orleans Presented by Moskowitz, LLP www.moskowitzllp.com Seminar Presenter: Stephen M. Moskowitz, Esq.; Tax Attorney; CPA; LL.M. [Tax] Senior Partner at Moskowitz LLP [email protected] www.moskowitzllp.com 180 Montgomery Street San Francisco, CA 94104 (415) 394-7200 LEARN HOW TO PROTECT YOURSELF! Doctors are targets. Everybody wants your money. Protect your assets and income from: Creditors Spouse Tax – Federal and State Presented by Moskowitz, LLP www.moskowitzllp.com Asset Protection Captive Insurance Companies Foreign/Domestic – Migration Provisions Domestic Asset Protection Trusts [DAPT] Grantor can be beneficiary Third Party Irrevocable Trust Grantor cannot be beneficiary Grantor hires/fires trustee – including best friend “Floating Spouse” Provision Presented by Moskowitz, LLP www.moskowitzllp.com Asset Protection-Con’t Hybrid Domestic Asset Protection Trust Grantor not beneficiary but can be added Survives bankruptcy Not part of martial estate Grantor can indirectly access with “floating spouse” Trustee can split into separate trusts/LLCs Third Party Discretionary Trusts “Sole & Absolute Discretion” Presented by Moskowitz, LLP www.moskowitzllp.com Nevada Advantages Fraudulent Transfer – 2 Year Statute of Limitations Not available to spouse/creditor [divorce] Not available to pre-existing creditors – after Statute of Limitations Grantor retains veto power “Charging Order” – exclusive remedy IRS Rev. Rul. 77-137 Who Pays Taxes? Presented by Moskowitz, LLP www.moskowitzllp.com Captive Insurance Companies Lower Insurance Costs: Enter reinsurance market – increase deductibles Costs at wholesale not retail Cash flow – investment income/loans Writing unrelated risks for profit Competitive advantage Asset Protection – protected premium/different name Domestic or Foreign Location – IRC 953[d] “Rent a Captive” Presented by Moskowitz, LLP www.moskowitzllp.com Advance IRS APPROVAL IRS Letter Rulings Safe Harbor Rulings IRS Rev. Rul. 2002-89: Captive Insurance Company IRS Rev. Rul. 2002-90: Related Captives + Insurance IRS Rev. Rul. 2002-91: Unrelated Captives = Insurance Presented by Moskowitz, LLP www.moskowitzllp.com Insured Risks Examples Loss of revenue – business/investment Crime/terrorism Computer system failure/data breach Litigation risks – professional/employer/business Auto/general umbrella Disability Loss of significant supplier/client type Tax – change in law/audit defense Presented by Moskowitz, LLP www.moskowitzllp.com TAX - Income & Estate Income tax deduction – IRC 162 – unlike self insurance Income – tax free $1.2m or more IRTC 831[b] Deferral – as long as desired Investment income – 70% tax free – IRC 243[a] Ordinary income to capital gains – IRC 1[h][B] State taxes – 100% deduct – but can avoid pay Retirement – capital not ordinary & no employer match Presented by Moskowitz, LLP www.moskowitzllp.com Income Tax Rates–Married 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 25% 15% 28% 28% 31% 33% 36% 39.60% 35% 15% 15% 10% Presented by Moskowitz, LLP 2012 2013 www.moskowitzllp.com Income Tax Rates-Con’t 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 43.40% 39.60% 23.80% 20% 15% Long Term Cap Gains 15% 15% Qual 5 Yr Cap Gains Qual Div Income 2012 Presented by Moskowitz, LLP 21.80% 18% 2013 43.40% 39.60% 35% Ordinary Div Income 2013 including medicare tax www.moskowitzllp.com Gift & Estate Taxes Asset Protect – removing asset from grantor Captive Insurance Company – transfer without gift/estate tax Provisions expiring 12/31/2012 Transfer $5.12m per donor without tax Presented by Moskowitz, LLP www.moskowitzllp.com Estate Tax Rates - 2013 60% 50% 41% 40% 43% 45% 49% 50% 55% 60% 55% 30% 20% 10% 0% 2013 *in millions Presented by Moskowitz, LLP www.moskowitzllp.com Life Insurance Irrevocable Life Insurance Trust [ILIT] Remove value of life insurance from estate Survive 3 years after transfer ILIT purchase additional insurance no 3 year rule ILIT is beneficiary of insurance policy Retain control of payments to beneficiaries Asset protection Creditors/spouses Presented by Moskowitz, LLP www.moskowitzllp.com Qualified Personal Residence Trust Removes home from estate Continued residence 10-15 years When trust term expires, real estate transfers to benefactor Exception – continue residence & pay rent Die before trust term expires – real estate in estate Splits title for value – appreciating asset Asset protection Presented by Moskowitz, LLP www.moskowitzllp.com Grantor Retained Annuity Trust Transfer Income Producing Property Stock, rental real estate, business Receive income, but asset to benefit at trust term Split title Asset in estate if death before trust term Assets cannot be transferred without grantor Presented by Moskowitz, LLP www.moskowitzllp.com Revocable Living Trust [Will] Living trust offers many benefits a will does not Avoids probate Expensive Time consuming [9 months – 2 years average] No privacy Beneficiaries have no control No protection if you become incapacitated – court can take control of assets Joint ownership only postpones probate Asset protection – special needs/creditors Presented by Moskowitz, LLP www.moskowitzllp.com LLCs Give beneficiaries ownership interests Can keep desired interest Captive Insurance Company Split title Management control Asset protection Presented by Moskowitz, LLP www.moskowitzllp.com Use Both Exemptions Husband & Wife- Two Trusts Portability Expires 12/31/2012 Presented by Moskowitz, LLP www.moskowitzllp.com Charitable Remainder Trust Converts appreciated asset into: Lifetime income Income tax deduction Avoids gift/estate tax Presented by Moskowitz, LLP www.moskowitzllp.com Charitable Lead Trust Removes asset[s] from estate Income goes to charity for trust term Trust assets go to beneficiary after trust term Splits title Asset protection Presented by Moskowitz, LLP www.moskowitzllp.com Qualified Domestic Trust [QDOT] Defers estate tax owed by non-citizen surviving spouse Qualifies for full estate tax marital deduction & will not be taxed at death of citizen Presented by Moskowitz, LLP www.moskowitzllp.com Conclusion Asset protection, including captive insurance companies and income & estate tax planning, can create a safe haven for your assets; while legally saving incredible amounts of income, gift, and estate taxes. Take advantage of the expiring tax provisions before they disappear forever on 12/31/2012. Benefit from the same laws that wealthy individuals and large corporations have for years. Presented by Moskowitz, LLP www.moskowitzllp.com Thank You!