CrailHuntly

CrailHuntly's Blog

Welcome and thank you for your interest in our blog.  We hope you find the information helpful. 

The purpose of this blog is to help us serve customers better by providing information, commentary and good old fashion advice on various financial planning issues.  We are not investment guys so you're not going to get the next hot stock tip from us.  What you will get are ideas on how to better protect and preserve your wealth.

Topics Include:
Estate Planning
Exit Planning
Insurance Planning
Retirement Planning
Tax Deferral Strategies

Visit our website to learn more of who we are and what we do.  We hope you enjoy the material posted and that you will visit frequently to see what's new.

www.crailhuntly.com

Information contained herein is not intended or cannot be used to avoid tax.  Individuals should consult an independent tax advisor.

CrailHunlty Talks Structured Sales on Tulsa Radio Show

Bruce Gordon, President of CrailHuntly appeared for the second time on a Tulsa and Oklahoma City radio show "The Future of Real Estate" sponsored by Darryl Baskin Commerical. During this call Bruce talked about some of the exit strategies sellers, buyers and commercial realtors can use in conjunction with the Structured Sale.  The strategy of primary interest during the call was that of combining the Structured Sale with a Like-Kind Exchange (I'll elaborate more on this in an upcoming post). 

Using the Structured Sale to Bridge the Price Gap

Individuals involved with the sale of appreciated assets are familiar with the occurrence of a common scenario- a price gap.  Very rarely do buyers and sellers come to the negotiating table with the same numbers (asking price vs. offering price).  Sometimes it may greatly impede the sale of the asset, creating frustrations for all parties involved.

There is a new tool being used with the sale of appreciated assets called the Structured Sale.  In some cases, it can help bridge the price gap between buyer and seller.

The reason is because the buyer's payment obligation is the present value of the on-going installment payments to the seller. The length of payment deferral and the payout duration will directly influence the spread.  I have put together an example of how this works, which you may download below.   

The Structured Sale is not only just a benefit to a Seller, but a tool that can be used to help facilitate the transaction for all parties- this is much more valuable than just an end product.

Download Bridging_The_Gap.pdf 

For specific questions please contact CrailHuntly.

Insure Two Needs with One Product

Individuals that are selling an appreciated asset and planning on using the sale proceeds to supplement their retirement need a sound exit plan that should encompass various financial and legal products.

We utilize a unique product that combines a long-term care benefit with that of a life insurance benefit.  For example, if one were to become nursing home bound, this product would provide a monthly benefit to pay the cost of care and whatever is not used at death will be returned to his or her heirs income tax free.  Efficient isn't it?

Many people realize the importance of long-term care insurance (do you?), but are hesitant to purchase it because it is expensive and may never be needed.  With this special product, the benefit will always be realized; either by the policy owner, if in a nursing home, or a beneficiary, upon the insured's death.  And, because it's a single premium product, it only requires a lump sum or asset transfer to fund; in other words, money from a CD, existing life insurance policy, or sale proceeds from the sale of an asset.  Contact CrailHuntly for information.

Business Owners: Grow Your Nest Egg Quickly!

We all understand time value of money, and that we should start funding our retirement when we're young.  But for many business owners, their investing has consisted of investing in their business not their IRA (this is true for me).  And, when one does have the disposable income to contribute to an IRA or 401(k) etc., contribution limits can undermine the benefits, especially if retirement is only a few years away.

Business Owners need to be aware of programs that can offer a solution by allowing significant contributions to be made each year.  Essentially, the IRS has made available "catch up" plans for older business owners who have done little to no retirement planning.

One in particular is called a 412(i) Defined Benefit Plan referring to Section 412(i) of the IRC.  For qualified businesses, this plan allows much higher maximum annual contributions than other plans and generally favors older, highly compensated individuals.  For example, an individual age 60 taking $205,000 or more per year in compensation could potentially contribute up to $450,112 annually, all of which is tax-deductable.

This plan does require that fixed contributions are made every year, so we recommend that it be considered only for a business with a strong predictable cash flow. Contact CrailHuntly for details.

Estate Taxes: ILIT as a Solution

This is a continuation of my previous posting titled "Estate Taxes: The Sometimes Forgotten Expense" where I tried to highlight the impact estate taxes can have on inherited assets.

An Irrevocable Life Insurance Trust (ILIT) is a great solution and a necessity for many estate plans.  In summary, the life insurance is used to cover the estimated estate taxes and costs, or essentially replace wealth, as it is an instant asset upon death that also receives a step up in basis exempting the proceeds from income tax.  However, life insurance proceeds, like any asset, can still be included in the taxable estate which is why the irrevocable trust is created and used to transfer/keep the asset (life insurance policy) out of the owner's estate, relieving it from any tax.

Once a trust is established, the trustee should obtain the needed life insurance, and then funds are given to the trust to pay the required insurance premiums.  The owner may also transfer an existing life insurance policy to the trust, but if this occurs, the insured must live 3 years or more to avoid inclusion of insurance proceeds in his or her estate.  Also, because it is an irrevocable trust, proper planning should occur to avoid or decrease any gift tax.

A qualified estate planning attorney is needed to assist with the proper establishment of an ILIT, but it is also important to have a knowledgeable insurance professional to fund the ILIT with the proper insurance policy to fit the specific need.  CrailHuntly can help and if you do not already have an estate planning attorney, find someone you trust (ask a friend or associate who they use).

Estate Taxes: The Sometimes Forgotten Expense

There is a lot of focus on alleviating the tax burden for individuals that are selling appreciated assets, but what about the tax burden for those individuals that don't sell?

There is a step up in basis of the property for the heirs upon the owner's death, resulting in no capital gain or depreciation recapture, but that's not the whole story.  Estate taxes and settlement costs, especially for wealthy individuals, can significantly dilute the inheritance value and in many cases create a financial burden for the heirs, especially if assets need to be liquidated to cover the tax liability.  And, if an asset is not easily marketable for sale, individuals could be left searching for other means to cover the costs.

Currently, the estate tax tops out around 50% not including additional settlement costs, all of which increase with larger estates. There is a current estate tax exemption of $2 million, increasing to $3.5 million in 2009 and unlimited in 2010.  The exemption then reverts back to $1 million in 2011.  For many this exemption will not be sufficient.  So what can people do?  First, it's important to consult a qualified estate planning attorney to assess your needs and depending on your situation he/she may recommend a trust funded with life insurance, otherwise known as an Irrevocable Life Insurance Trust (ILIT), as a solution. 

So to not make this section too long, I've written a sequel titled "Estate Taxes: ILIT as a Solution" and briefly describe the use and benefits of this great planning tool.    www.crailhuntly.com

Protect Your Most Valuable Asset with Disability Insurance

Disability insurance is vital in protecting one of our most valuable assets, our ability to earn an income.  Individuals usually get their coverage through group plans, but in most cases this is not sufficient.  For many independent contractors, an individual plan is needed in order to have any type of coverage.  And, for professionals who rely on fees or commissions for income, being "out of the game" for any length of time due to illness or injury can be financially detrimental.

When choosing a disability policy, it's important to get an "own occupation" plan.  In other words, you want disability insurance that will pay a monthly benefit if you can't perform the material and substantial duties of your current occupation.  Many plans are limited to only cover "any occupation" that is within reason of your education and experience. 

Also, there are some plans that will offer a reduction in the total benefit if you return to work, but your gross income has been reduced from your prior adjusted gross income before the disability occurred.  This is great for those of us whose income relies on being "out selling" and if we're gone for an extended length of time, it may take awhile to get back on pace.  This feature can help cover the gap.  For more information contact us.

What is the Structured Sale?

A Structured Sale is a new tax management program that allows sellers of appreciated assets to invest on a before tax basis and control the receipt of such proceeds, thus the payment of taxes. 

The Structured Sale provides the flexibility to structure any amount of the sale that qualifies as an Installment Sale under Section 453 IRC.  Therefore, it can be used as the foundation of an exit strategy and work extremely well for those individuals looking to cash out from their asset on a tax favored basis and receive a guaranteed income stream for a period of years.

It works by enabling sellers to construct the transaction, or a portion of, as an installment sale, but still keep it a cash transaction from the buyer to protect against future buyer default.  Rather than relying on the buyer to make future payments, the buyer transfers payment obligation and the cash to make those payments to a third party assignment company, owned by a major insurance company, who then invests those proceeds in a secure tax deferred annuity designed to mirror the payment stream established in the installment sale agreement. The Seller, as beneficiary, receives the guaranteed payments from the insurance company and only pays a pro-rata share of tax on each payment.

The Structured Sale is in full compliance with the tax law.  This program is based on Section 453 of the Internal Revenue Code; and the ability for a buyer to transfer his/her payment obligation to a third party is supported by two Revenue Rulings 75-457 & 82-122 .

You may click here for more information on the program.

Private Annuity Trusts Are Out, What's In?

The Private Annuity Trust (PAT) was an effective tool that enabled sellers of appreciated assets to defer taxes due for a number of years.  Last Fall, actually on October 18th 2006 to be specific, the IRS proposed regulations ending the use of PAT's as a tax deferral vehicle.  Download the proposed Regs. (it's good bedtime reading).

So what options are left? Charitable Remainder Trusts, 1031 Exchanges, Tenents-in-Common (TIC's), traditional installment sales (which the IRS specifically "OK's" in the proposed regs), and the Structured Sale are all viable options, each having respective advantages.

For those individuals that were planning on using a PAT, the Structured Sale provides many of the same tax deferral benefits and is proving to be an effective solution worth reviewing.  It is by no means the only tax deferral strategy one should consider.  Other strategies are available and may fit a particular situation better.  That said, the Structured Sale may become the preferred method used with exit planning strategies.  The reason you ask?  Well if you didn't then I'm still going to answer.  Because it creates a flexible means to defer taxes and guarantee a rate of return on the proceeds (important for retirees) and can also provide a level of asset protection; a combination of attributes that is hard to find.  Contact CrailHuntly for information.