Myer Family Wealth Goal Achiever- InKnowVision Advanced Estate Planning
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The document is a case study presentation for James Myer's financial and estate planning, outlining his personal, family, and charity objectives, including maintaining a lifestyle with $500,000 annually and maximizing inheritance for his heirs. It compares his current and proposed plans, showing significant advantages in inheritance and tax reduction under the proposed strategy. Detailed financial analysis is provided, highlighting asset management, estate tax projections, and strategic recommendations to achieve his wealth transfer goals.
Myer Family Wealth Goal Achiever- InKnowVision Advanced Estate Planning
- 1. InKnowVision’s Monthly HNW Webinar Series Case Study Webinar ©2012. InKnowVision LLC. All rights reserved. www.inknowvision.com
- 2. FAMILY WEALTH GOAL ACHIEVER™ - INITIAL PREPARED FOR: JAMES MYER March 1, 2012 Draft for discussion purposes only PRESENTED BY Scott Hamilton InKnowVision, LLC 715 Enterprise Dr. Oak Brook, IL 60523 Phone: 630-596-5090 Copyright 2012 InKnowVision, LLC
- 3. YOUR GOALS AND OBJECTIVES JAMES MYER Your Objectives: Maintain my customary lifestyle. This should take about $500,000 annually. This does not include taxes, gifts and alimony payments. Reduce income taxes. Maintain adequate liquidity for emergencies and investment opportunities. I prefer to keep at least $1,000,000 in cash and readily marketable securities. Family Objectives: Maximize the inheritance that I leave to my children and grandchildren. Consider passing my business interests to my children involved in the industry while providing an equal inheritance of non-business interests to those that are uninterested. Assure I have sufficient liquid assets available at my death to eliminate the forced liquidation of my business assets. Charity Objectives: Consider providing a charitable gift at death if it helps reduce taxes. Tax Objectives: Eliminate or reduce estate taxes. Page 2
- 4. PERIODIC TABLE OF ESTATE PLANNING ELEMENTS - RECOMMENDED JAMES MYER The highlighted tools are those we have determined are most suited to achieving your goals and objectives. Charitable Family Limited Grantor Retained Charitable Lead Remainder Uni- 412(e) Private Annuity SCIN Liability Company Annuity Trust Annuity Trust Trust Qualified Personal Sale for Installment Series Limited GDOT Owned Life Family LLC TCLAT Flip CRT Residence Trust Note Liability Company Insurance Preferred Limited Long Term Care Corporate Premium Finance 529 Plans Gifting ILIT partnership Insurance Recapitalization Charitable Life Annuity Walton GRAT Private Foundations NIMCRUT Asset Protection SPIA/Life Arbitrage Estate Withdrawal Principal Protected Will, DPAs and International SPIA/Life in a CLAT Crummey Powers Dynasty Trust GDOT Notes POAs VUL Supporting Qualified Plans to Captive Insurance Gift Annuity Remainder Sales Life Estates LLC/CRTs Organizations Charity Company Charitable Defined Benefit Succession Qualified Plan Bargain Sales Buy/Sell Agreement Remainder Annuity ESOP Planning Plans - Cash Planning Limited Partnership Trust Balance Green equals a new Blue equals a social Yellow equals an planning tool for capital or existing planning family charitable tool tool Page 3
- 5. JAMES MYER LIFETIME SPENDING AND LIQUIDITY Page 4
- 6. PERSONAL LIVING EXPENSES vs. AVAILABLE CASH FLOW JAMES MYER $3,500,000 $3,000,000 $2,500,000 Note payments cease and built up $2,000,000 cash/securities/retirement funds support cash flow needs - $1,500,000 $1,000,000 $500,000 $- 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Proposed Living Expenses Proposed Annual Cash Flow This illustration compares your living expenses under the proposed plan as against your annual cash flow available. Page 5
- 7. PERSONAL LIQUID ASSETS AVAILABLE JAMES MYER $14,000,000 Note payments from Trust end $12,000,000 $10,000,000 Assumed retirement - Buy- out payments begin $8,000,000 - $6,000,000 $4,000,000 $2,000,000 $- 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Liquid Assets Available This illustration reflects the amount of liquid assets available to you during life under a fully implemented proposed plan. Liquid assets include cash, securities, bonds (corporate and municipal), annuities and retirement funds. Page 6
- 8. JAMES MYER INCREASE INHERITANCE AND REDUCE ESTATE TAX Page 7
- 9. COMPARISON OF PLAN RESULTS - PLAN YEAR 2012 JAMES MYER Existing Plan Proposed Plan Advantage Estate Value $ 19,746,606 $ 12,453,336 Heirs Receive Immediately $ 15,026,286 $ 25,609,437 $ 10,583,150 Total Benefits to Family $ 15,026,286 $ 25,609,437 $ 10,583,150 Estate and Income Tax $ 5,334,154 $ 4,557,036 $ 777,118 This chart assumes that you die this year and compares the results of the current plan with the proposed plan. Page 8
- 10. COMPARISON OF PLAN RESULTS - PLAN YEAR 2031 JAMES MYER Existing Plan Proposed Plan Advantage Estate Value $ 40,710,287 $ 10,166,402 Heirs Receive Immediately $ 18,847,318 $ 37,001,946 $ 18,154,628 Total Benefits to Family $ 18,847,318 $ 37,001,946 $ 18,154,628 Estate and Income Tax $ 22,267,166 $ 6,275,623 $ 15,991,544 Present Value of total to Heirs $10,748,362 $21,101,693 Discount rate for PV calculation 3.00% This chart assumes that you die at life expectancy and compares the results of the current plan with the proposed plan. The present value of the total passing to heirs is our attempt to put inheritance into today's dollars to provide perspective. We are using an inflation rate of 3% to calculate the present value numbers. Page 9
- 11. ASSETS PASSING TO YOUR FAMILY - CURRENT VS. PROPOSED JAMES MYER $40,000,000 $35,000,000 $30,000,000 $25,000,000 - $20,000,000 $15,000,000 $10,000,000 nt 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 re 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 ur C Current Plan Proposed Plan Proposed Plan - No Insurance This chart compares the amount of your assets that will pass to heirs after estate taxes and costs of implementation in the current plan as against the proposed plan. Page 10
- 12. PROJECTED ESTATE TAXES - CURRENT VS. PROPOSED JAMES MYER $24,000,000 $21,000,000 $18,000,000 $15,000,000 - $12,000,000 $9,000,000 $6,000,000 $3,000,000 nt 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 re 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 ur C Current Plan Proposed Plan This chart compares the projected estate taxes in the current plan as against the proposed plan. Page 11
- 13. INTRODUCTION TO THE PLAN STRATEGIES ROADMAP JAMES MYER The following section of the plan contains a step by step roadmap for each of the strategies that we are recommending. You will notice that the strategies are often interdependent; that is, in order for one strategy to be successful, you must complete another strategy as well. It is the integration of each of these strategies that allows you to most efficiently accomplish your goals. Also keep in mind that there is often more than one way to get from point A to point B. This is true in wealth transfer planning. If a particular strategy or combination of strategies is not acceptable to you, we may be able to reach the desired result in a less efficient but perhaps more acceptable way. The following pages are a conceptual road map only. There are numerous details contained in each strategy that are not detailed in the overall plan that follows. Page 12
- 14. CAPTIVE INSURANCE COMPANY JAMES MYER Captive Insurance Company insures various risks of loss. Pay annual premiums of $750,000 to cover risk of loss. Premiums for insurance that CONSULTING CORP covers real risks are CAPTIVE INSURANCE COMPANY deductible. James owns 59% personally Risk Coverage Net premium of up to $1.2M is excludable from captive company income if proper tax election is made. UNDERWRITING PROFITS Assuming an effective tax rate of 35% on Consulting Corp profits, annual premiums of $750,000 will defer income taxes in excess of $260,000/yr. Underwriting profits of the captive will ultimately be distributed out to the owner of the captive. Page 13
- 15. CREATE A GRANTOR DEEMED OWNER TRUST JAMES MYER James creates a grantor deemed owner trust (GDOT). The Trust can be drafted to provide asset protection and long term estate tax savings through the use of dynasty trust provisions. JAMES MYER GDOT HEIRS Page 14
- 16. GIFT TO GRANTOR DEEMED OWNER TRUST JAMES MYER James makes two gifts totaling $5,000,000 to his GDOT that are designed to give the trust economic substance and maximize his available lifetime gifting exemption. Gift interests in Consulting Corp worth $4,550,000 and JAMES MYER interests in Captive Insurance GDOT Company worth $450,000 Owns Consulting Corp interests worth $4,550,000 and Captive Company interests worth $450,000 HEIRS Note: After 2012, the exemption may be reduced back down to $1M. The gift today locks in the use of your $5M exemption. Page 15
- 17. SELL CONSULTING CORP INTERESTS TO GDOT JAMES MYER James sells his remaining interests in Consulting Corp to the GDOT for an installment note. Sell Consulting Corp interests worth $10,200,000 JAMES MYER GDOT James owns an installment note after the The GDOT owns Consulting Corp interests sale Installment note worth worth $10,200,000 after the sale $10,200,000 that provides annual payments of $828,674 *Note payments are amortized over 15 years using Februrary 2012 long term AFR of 2.6%. ** Note payments can be made using annual profit HEIRS distributions from Consulting Corp or in-kind payments of Consulting Corp interests. Receive assets in the future according to terms of the trust *** As part of the proposed plan, we have assumed an increase in salary/W-2 income to $2,000,000/yr. for all 6 years prior to retirement. Page 16
- 18. PURCHASE LIFE INSURANCE IN THE GDOT JAMES MYER The GDOT Trustee purchases life insurance with the GDOT assets. Premium in the amount of $250,000 is scheduled to be paid for all years with the earnings GDOT LIFE INSURANCE and capital of the GDOT. Owns Life Insurance $10,000,000 Policy Benefits: - Used as wealth replacement, it can allow increased charitable giving that reduces or eliminates estate taxes but ensures a significant inheritance for your heirs - Increased inheritance in trust for heirs - Provides instant liquidity to pay estate taxes - Over time, annual premiums paid into this vehicle (which is income and estate tax free) will reduce the taxes from other investment assets subject to income taxes - Helps provide inheritance equalization for the children not involved in the business The premium is based on certain assumptions. This is for illustration purposes only. Actual insurance numbers can only be determined by applying for insurance. Page 17
- 19. DETAILED FINANCIAL ANALYSIS JAMES MYER INTRODUCTION The following section of the plan contains all of the financial analysis used to show you where you stand with your current plan and what is possible with the proposed plan. All of the numbers are based on information provided by you or gleaned from statements and tax returns. If numbers do not look correct, please let us know so that we can make the appropriate changes. Assumed growth and yield numbers are all listed on the Net Worth contained in these sections. Page 18
- 20. DETAILED FINANCIAL ANALYSIS JAMES MYER CURRENT PLAN FINANCIALS In the Current Plan Section you will find a current balance sheet and detailed cash flow and asset projection analysis. Page 19
- 21. GENERAL PLANNING ASSUMPTIONS JAMES MYER Planning Assumptions: - Annual Wages/Salary from Consulting Corp of $1,200,000 through 2017 in the current plan. Annual Wages/Salary from Consulting Corp is increased to $2,000,000 through 2017 in the proposed plan - Annual net profit (59%) from Consulting Corp of $2,950,000 in the current plan. Net profits for Consulting Corp are decreased to $2,124,000 with increased W-2 income for James and Dave in the proposed plan - Value for Consulting Corp (59%) of $14,750,000 - Annual Captive Premiums (100%) paid to Captive Insurance Company of $750,000 through 2017 - Assumed retirement in 2018 - Consulting Corp value carried on balance sheet with 2% annual interest buy-out payments received ($295,000) for 10 years - Salary and flow through profits cease - Annual Living Expenses after taxes of $500,000 and alimony payments of $100,000 Page 20
- 22. CURRENT NET WORTH STATEMENT JAMES MYER JAMES YIELD GROWTH CASH AND EQUIVALENTS Savings Account 90,000 0.0% 0.0% Total of Cash and Equivalents 90,000 0.0% 0.0% MARKETABLE SECURITIES - EQUITIES Securities Account 10,000 1.0% 4.0% Securities Account 25,000 1.0% 4.0% Total of Equities 35,000 1.0% 4.0% Page 21
- 23. CURRENT NET WORTH STATEMENT (Page 2) JAMES MYER YIELD GROWTH OTHER INVESTMENTS Captive Insurance (59%) 442,500 0.0% 0.0% Total of Other Investments 442,500 0.0% 0.0% CLOSELY HELD BUSINESS Consulting Corp (S Corp - 59%) 14,750,000 20.0% 0.0% Total Closely Held Business 14,750,000 20.0% 0.0% RETIREMENT PLANS/IRAs Consulting Corp 401(k) 143,790 0.0% 6.0% Consulting Corp Cash Balance 518,473 0.0% 6.0% Total Retirement Plans 662,263 0.0% 6.0% Page 22
- 24. CURRENT NET WORTH STATEMENT (Page 3) JAMES MYER JAMES YIELD GROWTH INVESTMENT REAL ESTATE Land - 200 acres 240,000 0.0% 2.0% Total of Real Estate Holdings 240,000 0.0% 2.0% RESIDENTIAL REAL ESTATE 123 Main St. 400,000 0.0% 2.0% Total of Personal Residences 400,000 0.0% 2.0% PERSONAL PROPERTY Tractors 26,000 0.0% 0.0% Autos 98,000 0.0% 0.0% Personal Property 250,000 0.0% 0.0% Total of Personal Property 374,000 0.0% 0.0% TOTAL ASSETS 16,993,763 LIABILITIES Land - 200 acres 80,000 Total Liabilities 80,000 TOTAL LIABILITIES 80,000 NET WORTH 16,913,763 Page 23
- 25. SCHEDULE OF LIFE INSURANCE BENEFITS - CURRENT PLAN JAMES MYER COMPANY INSURED POLICY # BENEFICIARY PREMIUM CASH VALUE DEATH BENEFIT Policies owned by James 15 yr. term James # Amanda Jones 5,000 - 700,000 Group James # - - - 100,000 Whole James # Debra Myer - - 70,000 Totals 5,000 - 870,000 Other Policies 15 yr. term James # Consulting Corp 31,000 - 4,000,000 Group Term Age 70 James # Debra Myer - - 350,000 Policy James # Debra Myer - - 70,000 Whole Jessica # James - - 30,000 Whole Matthew # James - - 15,000 Whole Thomas # James - - 15,000 Whole Mike # James - - 30,000 Whole Sam # James - - 15,000 Whole Michelle # James - - 15,000 Totals 31,000 - 4,540,000 Page 24
- 26. FINANCIAL ANALYSIS - EXISTING PLAN ASSET VALUE PROJECTIONS - EXISTING PLAN YEAR Current 2012 2013 2014 2015 2016 2017 2018 2031 Asset Values Cash and cash equivalents 90,000 90,000 90,000 90,000 90,000 90,000 90,000 90,000 90,000 Marketable securities - Equities 35,000 2,177,091 4,221,511 6,349,490 8,564,664 10,870,832 13,271,963 13,447,539 15,922,358 Captive Insurance 1 442,500 865,530 1,305,481 1,763,030 2,238,882 2,733,767 3,248,448 3,378,386 5,625,260 Consulting Corp 14,750,000 14,750,000 14,750,000 14,750,000 14,750,000 14,750,000 14,750,000 14,750,000 14,750,000 Retirement plans/IRAs 662,263 919,307 1,198,465 1,494,373 1,808,036 2,140,518 2,492,949 2,642,526 3,080,753 Investment real estate 240,000 244,004 248,885 253,862 258,939 264,118 269,401 274,789 355,468 Personal residences 400,000 406,674 414,808 423,104 431,566 440,197 449,001 457,981 592,447 Personal property 374,000 374,000 374,000 374,000 374,000 374,000 374,000 374,000 374,000 Total assets in estate 16,993,763 19,826,606 22,603,150 25,497,860 28,516,087 31,663,432 34,945,761 35,415,220 40,790,287 Less estimated liabilities (80,000) (80,000) (80,000) (80,000) (80,000) (80,000) (80,000) (80,000) (80,000) Net worth 16,913,763 19,746,606 22,523,150 25,417,860 28,436,087 31,583,432 34,865,761 35,335,220 40,710,287 1 Supporting cash flow financials for Captive Insurance can be found in the Proposed Plan financials. In the event that there is a cash flow surplus, the surplus is added to the marketable securities row by default. If there is a cash flow shortage (because of spending or gifting capital) then the shortage is treated as a reduction in marketable securities. Page 25
- 27. TAXABLE INCOME PROJECTIONS - EXISTING PLAN YEAR Current 2012 2013 2014 2015 2016 2017 2018 2031 Sources of taxable income Marketable securities - Equities 350 21,771 42,215 63,495 85,647 108,708 132,720 158,624 Consulting Corp 2,950,000 2,950,000 2,950,000 2,950,000 2,950,000 2,950,000 - - Buyout Payments 1 - - - - - - 295,000 - Alimony Payments (98,000) (98,000) (98,000) (98,000) (98,000) (98,000) (98,000) (98,000) Retirement plans/IRAs - - - - - - - 189,259 Client earned income 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 - - Gross income 4,052,350 4,073,771 4,094,215 4,115,495 4,137,647 4,160,708 329,720 249,883 1 Assumes that James retires in year 7. Dave begins making 2% interest payments for 10 year buyout in 2018. Page 26
- 28. INCOME TAX PROJECTIONS - EXISTING PLAN YEAR Current 2012 2013 2014 2015 2016 2017 2018 2031 Income tax Estimation Adjusted gross income: Dividend income (marketable sec.) 350 21,771 42,215 63,495 85,647 108,708 132,720 158,624 Earned and other income 4,052,000 4,052,000 4,052,000 4,052,000 4,052,000 4,052,000 197,000 91,259 Adjusted gross income 4,052,350 4,073,771 4,094,215 4,115,495 4,137,647 4,160,708 329,720 249,883 Deductions Real estate tax 1,614 1,614 1,646 1,679 1,713 1,747 1,782 1,818 2,351 Interest 2,646 2,646 2,699 2,753 2,808 2,864 2,921 2,980 3,855 Charitable gifts 19,850 19,850 20,247 20,652 21,065 21,486 21,916 22,354 28,918 Charitable Deduction available 19,850 20,247 20,652 21,065 21,486 21,916 22,354 28,918 Charitable Deduction allowed 19,850 20,247 20,652 21,065 21,486 21,916 22,354 28,918 Deduction carried over - - - - - - - - Total deductions 24,110 24,592 25,084 25,586 26,097 26,619 27,152 35,124 Reductions - (19,674) (20,067) (20,469) (20,878) (21,296) (4,888) (2,492) Deductions allowed 24,110 4,918 5,017 5,117 5,219 5,324 22,264 32,631 Taxable income 4,028,240 4,068,852 4,089,198 4,110,378 4,132,427 4,155,384 307,455 217,252 Federal income tax 1,386,575 1,581,187 1,589,244 1,597,631 1,606,363 1,615,454 94,586 62,113 Page 27
- 29. CASH FLOW PROJECTIONS - EXISTING PLAN YEAR Current 2012 2013 2014 2015 2016 2017 2018 2031 Sources of income for Lifestyle Distribution from Marketable Securities - - - - - - 355,302 574,554 Consumable income (taxable) 4,052,350 4,073,771 4,094,215 4,115,495 4,137,647 4,160,708 329,720 249,883 Total income available for lifestyle 4,052,350 4,073,771 4,094,215 4,115,495 4,137,647 4,160,708 685,022 824,436 Uses of Cash Living expenses 500,000 510,000 520,200 530,604 541,216 552,040 563,081 728,406 Income tax 1,386,575 1,581,187 1,589,244 1,597,631 1,606,363 1,615,454 94,586 62,113 Personally held insurance premiums 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 Cash gifts to charity 19,850 20,247 20,652 21,065 21,486 21,916 22,354 28,918 Total uses of cash 1,911,425 2,116,434 2,135,096 2,154,300 2,174,065 2,194,411 685,022 824,436 Surplus 2,140,925 1,957,336 1,959,119 1,961,194 1,963,581 1,966,298 - - In the event that there is a cash flow surplus, the surplus is added to the marketable securities row on the "Asset Value Projections" 3 pages earlier. If there is a cash flow shortage (spending or gifting capital) then the shortage is treated as a reduction in marketable securities row on the "Asset Value Projections" 3 pages earlier. Page 28
- 30. ESTATE TAX ESTIMATION AND DISTRIBUTION - EXISTING PLAN YEAR Current 2012 2013 2014 2015 2016 2017 2018 2031 Tax Calculation on James's death James's assets 16,913,763 19,746,606 22,523,150 25,417,860 28,436,087 31,583,432 34,865,761 35,335,220 40,710,287 Death benefit exceeding CV 870,000 870,000 870,000 870,000 870,000 870,000 870,000 870,000 870,000 James's estimated estate 17,783,763 20,616,606 23,393,150 26,287,860 29,306,087 32,453,432 35,735,761 36,205,220 41,580,287 Settlement expenses (227,838) (256,166) (283,931) (312,879) (343,061) (374,534) (407,358) (412,052) (465,803) James's taxable estate 17,555,925 20,360,440 23,109,218 25,974,981 28,963,026 32,078,898 35,328,404 35,793,168 41,114,484 Tax base 17,555,925 20,360,440 23,109,218 25,974,981 28,963,026 32,078,898 35,328,404 35,793,168 41,114,484 Federal Estate Tax 4,352,574 5,334,154 12,364,270 13,940,440 15,583,864 17,297,594 19,084,822 19,340,442 22,267,166 Total Estate Tax Due 4,352,574 5,334,154 12,364,270 13,940,440 15,583,864 17,297,594 19,084,822 19,340,442 22,267,166 Distribution of James's estate Settlement expenses 227,838 256,166 283,931 312,879 343,061 374,534 407,358 412,052 465,803 Taxes 4,352,574 5,334,154 12,364,270 13,940,440 15,583,864 17,297,594 19,084,822 19,340,442 22,267,166 Qualified plan to heirs 662,263 919,307 1,198,465 1,494,373 1,808,036 2,140,518 2,492,949 2,642,526 3,080,753 Insurance passing to heirs 870,000 870,000 870,000 870,000 870,000 870,000 870,000 870,000 870,000 Residual estate to heirs 11,671,088 13,236,979 8,676,483 9,670,168 10,701,126 11,770,786 12,880,633 12,940,200 14,896,564 Total 17,783,763 20,616,606 23,393,150 26,287,860 29,306,087 32,453,432 35,735,761 36,205,220 41,580,287 Page 29
- 31. SUMMARY OF BENEFITS TO FAMILY - EXISTING PLAN YEAR Current 2012 2013 2014 2015 2016 2017 2018 2031 Benefits to Family Residual estate 12,541,088 14,106,979 9,546,483 10,540,168 11,571,126 12,640,786 13,750,633 13,810,200 15,766,564 Qualified plan assets 662,263 919,307 1,198,465 1,494,373 1,808,036 2,140,518 2,492,949 2,642,526 3,080,753 Total assets to heirs 13,203,351 15,026,286 10,744,948 12,034,542 13,379,162 14,781,304 16,243,582 16,452,726 18,847,318 Page 30
- 32. DETAILS OF JAMES'S QUALIFIED PLAN - EXISTING PLAN YEAR Current 2012 2013 2014 2015 2016 2017 2018 2031 James's Qualified Plans James's Age 64 65 66 67 68 69 70 83 Minimum distribution factor 33.0 32.0 31.1 30.2 29.2 28.3 27.4 16.3 Plan contributions 224,000 224,000 224,000 224,000 224,000 224,000 - - Plan balance 662,263 919,307 1,198,465 1,494,373 1,808,036 2,140,518 2,492,949 2,642,526 3,080,753 Minimum distribution - - - - - - - 189,259 Preferred distribution - - - - - - - - Actual distribution - - - - - - - 189,259 Page 31
- 33. DETAILED FINANCIAL ANALYSIS JAMES MYER PROPOSED PLAN FINANCIALS In the Proposed Plan Section you will find a balance sheet which reflects the repositioning of assets as set out in the step by step roadmap in the proceeding section. You will also find detailed cash flow and asset projection information on each of the proposed planning strategies. Page 32
- 34. NET WORTH STATEMENT AFTER PLAN IMPLEMENTATION JAMES MYER JAMES YIELD GROWTH CASH AND EQUIVALENTS Savings Account 90,000 0.0% 0.0% Total of Cash and Equivalents 90,000 0.0% 0.0% MARKETABLE SECURITIES - EQUITIES Securities Account 10,000 1.0% 4.0% Securities Account 25,000 1.0% 4.0% Total of Equities 35,000 1.0% 4.0% RETIREMENT PLANS/IRAs Consulting Corp 401(k) 143,790 0.0% 6.0% Consulting Corp Cash Balance 518,473 0.0% 6.0% Total Retirement Plans 662,263 0.0% 6.0% Page 33
- 35. REVISED NET WORTH STATEMENT (Page 2) JAMES MYER JAMES YIELD GROWTH INVESTMENT REAL ESTATE Land - 200 acres 240,000 0.0% 2.0% Total of Real Estate Holdings 240,000 0.0% 2.0% RESIDENTIAL REAL ESTATE 123 Main St. 400,000 0.0% 2.0% Total of Personal Residences 400,000 0.0% 2.0% PERSONAL PROPERTY Tractors 26,000 0.0% 0.0% Autos 98,000 0.0% 0.0% Personal Property 250,000 0.0% 0.0% Total of Personal Property 374,000 0.0% 0.0% OTHER STRATEGY ASSETS GDOT Note 10,200,000 2.6% Total of Other Strategy Assets 10,200,000 2.6% TOTAL ASSETS 12,001,263 LIABILITIES Land - 200 acres 80,000 Total Liabilities 80,000 TOTAL LIABILITIES 80,000 NET WORTH 11,921,263 Page 34
- 36. FINANCIAL ANALYSIS - PROPOSED PLAN ASSET VALUE PROJECTIONS - PROPOSED PLAN YEAR Current 2012 2013 2014 2015 2016 2017 2018 2031 Asset Values Cash and cash equivalents 90,000 90,000 90,000 90,000 90,000 90,000 90,000 90,000 90,000 Marketable securities - Equities 35,000 864,865 1,533,700 2,218,416 2,919,316 3,636,700 4,370,868 4,641,703 5,753,733 Retirement plans/IRAs 662,263 919,307 1,198,465 1,494,373 1,808,036 2,140,518 2,492,949 2,642,526 3,080,753 Investment real estate 240,000 244,004 248,885 253,862 258,939 264,118 269,401 274,789 355,468 Personal residences 400,000 406,674 414,808 423,104 431,566 440,197 449,001 457,981 592,447 Personal property 374,000 374,000 374,000 374,000 374,000 374,000 374,000 374,000 374,000 Note from children's GDOT 10,200,000 9,634,486 9,054,382 8,459,311 7,848,888 7,222,716 6,580,388 5,921,488 - Total assets in estate 12,001,263 12,533,336 12,914,239 13,313,066 13,730,744 14,168,249 14,626,606 14,402,487 10,246,402 Less estimated liabilities (80,000) (80,000) (80,000) (80,000) (80,000) (80,000) (80,000) (80,000) (80,000) Net worth 11,921,263 12,453,336 12,834,239 13,233,066 13,650,744 14,088,249 14,546,606 14,322,487 10,166,402 In the event that there is a cash flow surplus, the surplus is added to the marketable securities row by default. If there is a cash flow shortage (because of spending or gifting capital) then the shortage is treated as a reduction in marketable securities. Page 35
- 37. TAXABLE INCOME PROJECTIONS - PROPOSED PLAN 2,124,000 YEAR Current 2012 2013 2014 2015 2016 2017 2018 2031 Marketable securities - Equities 350 8,649 15,337 22,184 29,193 36,367 43,709 61,532 Marketable securities- GDOT - 10,453 21,429 32,954 45,055 57,761 71,102 21,679 Alimony Payments (98,000) (98,000) (98,000) (98,000) (98,000) (98,000) (98,000) (98,000) Retirement plans/IRAs - - - - - - - 189,259 Other taxable earnings-GDOT 2,124,000 2,124,000 2,124,000 2,124,000 2,124,000 2,124,000 295,000 - 1 Client earned income 1,200,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 - - Gross income 4,026,350 4,045,102 4,062,766 4,081,138 4,100,248 4,120,128 311,811 174,470 1 Increased W-2 income for all years prior to retirement. This will decrease the available profit distributions from Consulting Corp. Page 36
- 38. INCOME TAX PROJECTIONS - PROPOSED PLAN YEAR Current 2012 2013 2014 2015 2016 2017 2018 2031 Income Tax Estimation Adjusted gross income: Dividend income (Marketable Sec.) 350 19,102 36,766 55,138 74,248 94,128 114,811 83,211 Earned and other income 4,026,000 4,026,000 4,026,000 4,026,000 4,026,000 4,026,000 197,000 91,259 Adjusted gross income 4,026,350 4,045,102 4,062,766 4,081,138 4,100,248 4,120,128 311,811 174,470 Deductions Real Estate Tax 1,614 1,646 1,679 1,713 1,747 1,782 1,818 2,351 Interest 2,646 2,699 2,753 2,808 2,864 2,921 2,980 3,855 Cash charitable gifts 19,850 20,247 20,652 21,065 21,486 21,916 22,354 28,918 Deduction available 19,850 20,247 20,652 21,065 21,486 21,916 22,354 28,918 Deduction allowed 19,850 20,247 20,652 21,065 21,486 21,916 22,354 28,918 Deduction carried over - - - - - - - - Total deductions 24,110 24,592 25,084 25,586 26,097 26,619 27,152 35,124 Reductions - (19,674) (20,067) (20,469) (20,878) (21,296) (4,350) (230) Deductions allowed 24,110 4,918 5,017 5,117 5,219 5,324 22,801 34,894 Taxable income 4,002,240 4,040,183 4,057,749 4,076,021 4,095,029 4,114,804 289,009 139,576 Federal income tax 1,377,475 1,569,835 1,576,791 1,584,026 1,591,553 1,599,384 87,946 36,104 Page 37
- 39. CASH FLOW PROJECTIONS - PROPOSED PLAN YEAR Current 2012 2013 2014 2015 2016 2017 2018 2031 Sources of Income for Lifestyle Consumable income (taxable) 1,902,350 1,910,649 1,917,337 1,924,184 1,931,193 1,938,367 (54,291) 152,791 Distribution from Marketable Securities - - - - - - - 645,636 Payment from GDOT 828,674 828,674 828,674 828,674 828,674 828,674 828,674 - Total income available for lifestyle 2,731,024 2,739,322 2,746,011 2,752,858 2,759,867 2,767,041 774,382 798,427 Uses of Cash Living expenses 500,000 510,000 520,200 530,604 541,216 552,040 563,081 728,406 Income tax 1,377,475 1,569,835 1,576,791 1,584,026 1,591,553 1,599,384 87,946 36,104 Personally held insurance premiums 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 Cash gifts to charity 19,850 20,247 20,652 21,065 21,486 21,916 22,354 28,918 Total uses of cash 1,902,325 2,105,082 2,122,643 2,140,695 2,159,256 2,178,341 678,381 798,427 Surplus 828,699 634,241 623,368 612,163 600,611 588,700 96,001 - In the event that there is a cash flow surplus, the surplus is added to the marketable securities row on the "Asset Value Projections" 3 pages earlier. If there is a cash flow shortage (spending or gifting capital) then the shortage is treated as a reduction in marketable securities row on the "Asset Value Projections" 3 pages earlier. Page 38
- 40. ESTATE TAX ESTIMATION AND DISTRIBUTION - PROPOSED PLAN YEAR Current 2012 2013 2014 2015 2016 2017 2018 2031 Tax Calculation on James's death James's assets 11,921,263 12,453,336 12,834,239 13,233,066 13,650,744 14,088,249 14,546,606 14,322,487 10,166,402 Death benefit exceeding CV 870,000 870,000 870,000 870,000 870,000 870,000 870,000 870,000 870,000 James's estimated estate 12,791,263 13,323,336 13,704,239 14,103,066 14,520,744 14,958,249 15,416,606 15,192,487 11,036,402 Settlement expenses (177,913) (183,233) (187,042) (191,031) (195,207) (199,582) (204,166) (201,925) (160,364) Taxable estate 12,613,350 13,140,103 13,517,197 13,912,036 14,325,537 14,758,666 15,212,440 14,990,562 10,876,038 Plus James's lifetime taxable gifts 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 Tax base 17,613,350 18,140,103 18,517,197 18,912,036 19,325,537 19,758,666 20,212,440 19,990,562 15,876,038 Federal Estate Tax 4,372,673 4,557,036 9,220,658 8,010,820 8,238,245 8,476,466 8,726,042 8,604,009 6,275,623 Distribution of Estate Settlement expenses 177,913 183,233 187,042 191,031 195,207 199,582 204,166 201,925 160,364 Taxes 4,372,673 4,557,036 9,220,658 8,010,820 8,238,245 8,476,466 8,726,042 8,604,009 6,275,623 Qualified plan to heirs 662,263 919,307 1,198,465 1,494,373 1,808,036 2,140,518 2,492,949 2,642,526 3,080,753 Residual estate to heirs 7,578,415 7,663,760 3,098,073 4,406,843 4,279,256 4,141,682 3,993,449 3,744,027 1,519,662 Total 12,791,263 13,323,336 13,704,239 14,103,066 14,520,744 14,958,249 15,416,606 15,192,487 11,036,402 Page 39
- 41. SUMMARY OF BENEFITS TO FAMILY - PROPOSED PLAN YEAR Current 2012 2013 2014 2015 2016 2017 2018 2031 Benefits to Family Residual estate 7,578,415 7,663,760 3,098,073 4,406,843 4,279,256 4,141,682 3,993,449 3,744,027 1,519,662 Qualified plan assets 662,263 919,307 1,198,465 1,494,373 1,808,036 2,140,518 2,492,949 2,642,526 3,080,753 Value of GDOT 4,550,000 6,160,840 7,838,537 9,586,080 11,406,598 13,303,371 15,279,829 15,510,567 16,776,270 Life insurance proceeds GDOT 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 Captive Insurance Accumulation 442,500 865,530 1,305,481 1,763,030 2,238,882 2,733,767 3,248,448 3,378,386 5,625,260 Total assets to heirs 23,233,178 25,609,437 23,440,557 27,250,326 29,732,772 32,319,338 35,014,675 35,275,505 37,001,946 Page 40
- 42. TOTAL CAPTIVE INSURANCE COMPANY DETAILS - PROPOSED PLAN YEAR Current 2012 2013 2014 2015 2016 2017 2018 2031 Captive Balance Sheet (100%) Assets Initial Capitalization (non-deductible) 100,000 104,000 108,160 112,486 116,986 121,665 126,532 131,593 219,112 Captive Insurance Company 650,000 1,363,000 2,104,520 2,875,701 3,677,729 4,511,838 5,379,312 5,594,484 9,315,227 Total (Marketable Securities )* 750,000 1,467,000 2,212,680 2,988,187 3,794,715 4,633,503 5,505,843 5,726,077 9,534,339 These are gross numbers subject to potential claims against the captive insurance company. * Assumes 4.0% annual growth on profits and reserves. Assets in Captive $ 750,000 $ 1,467,000 $ 2,212,680 $ 2,988,187 $ 3,794,715 $ 4,633,503 $ 5,505,843 $ 5,726,077 $ 9,534,339 YEAR Current 2012 2013 2014 2015 2016 2017 2018 2031 James's Captive Trust Balance Sheet (59%) Assets Initial Capitalization (non-deductible) 59,000 61,360 63,814 66,367 69,022 71,783 74,654 77,640 129,276 Captive Value 383,500 804,170 1,241,667 1,696,663 2,169,860 2,661,984 3,173,794 3,300,746 5,495,984 Total (Marketable Securities )* 442,500 865,530 1,305,481 1,763,030 2,238,882 2,733,767 3,248,448 3,378,386 5,625,260 These are gross numbers subject to potential claims against the captive insurance company. * Assumes 4.0% annual growth on profits and reserves. Cash Flow Captive Premium Income 405,330 405,330 405,330 405,330 405,330 405,330 - - Net Income 405,330 405,330 405,330 405,330 405,330 405,330 - - James's Assets in Captive $ 442,500 $ 865,530 $ 1,305,481 $ 1,763,030 $ 2,238,882 $ 2,733,767 $ 3,248,448 $ 3,378,386 $ 5,625,260 Page 41
- 43. TOTAL CAPTIVE INSURANCE COMPANY DETAILS - PROPOSED PLAN (Continued) CIC Cash Flow Current 2012 2013 2014 2015 2016 2017 2018 2031 Income Premium Income (6 yrs) 750,000 750,000 750,000 750,000 750,000 750,000 - - Total Income 750,000 750,000 750,000 750,000 750,000 750,000 - - Initial Captive Capitalization 100,000 - - - - - - - Expenses Captive Management Fees (63,000) (63,000) (63,000) (63,000) (63,000) (63,000) - - Net Income (Cash Flow) 687,000 687,000 687,000 687,000 687,000 687,000 - - Taxable Income Current 2012 2013 2014 2015 2016 2017 2018 2031 Initial Captive Set up Fee (Amortized deduction) (15,000) (15,000) (15,000) (15,000) (15,000) - - - 831(b) Premium Exclusion (750,000) (750,000) (750,000) (750,000) (750,000) (750,000) - - Taxable Income (765,000) (765,000) (765,000) (765,000) (765,000) (750,000) - - Page 42
- 44. GRANTOR DEEMED OWNER TRUST DETAILS - PROPOSED PLAN YEAR Current 2012 2013 2014 2015 2016 2017 2018 2031 GDOT Balance Sheet Seed Gift - Consulting Corp Interests 4,550,000 4,550,000 4,550,000 4,550,000 4,550,000 4,550,000 4,550,000 4,550,000 4,550,000 Consulting Corp Interests - Sold 10,200,000 10,200,000 10,200,000 10,200,000 10,200,000 10,200,000 10,200,000 10,200,000 10,200,000 Reinvested excess cash flow - 1,045,326 2,142,919 3,295,391 4,505,486 5,776,087 7,110,217 6,682,055 2,026,270 Note payable to James (10,200,000) (9,634,486) (9,054,382) (8,459,311) (7,848,888) (7,222,716) (6,580,388) (5,921,488) - Net equity 4,550,000 6,160,840 7,838,537 9,586,080 11,406,598 13,303,371 15,279,829 15,510,567 16,776,270 GDOT Income Tax Estimation Consulting Corp 1 2,124,000 2,124,000 2,124,000 2,124,000 2,124,000 2,124,000 295,000 - Earnings from reinvestment acct./Seed Gift - 10,453 21,429 32,954 45,055 57,761 71,102 21,679 Total earnings 2,124,000 2,134,453 2,145,429 2,156,954 2,169,055 2,181,761 366,102 21,679 GDOT Cash Flow Capital Distribution from excess cash - - - - - - 712,572 228,321 Consulting Corp 1 2,124,000 2,124,000 2,124,000 2,124,000 2,124,000 2,124,000 295,000 - Cash flow from reinvestment acct./SeedGift - 10,453 21,429 32,954 45,055 57,761 71,102 21,679 Installment Note payments to James (828,674) (828,674) (828,674) (828,674) (828,674) (828,674) (828,674) - Insurance Premium (250,000) (250,000) (250,000) (250,000) (250,000) (250,000) (250,000) (250,000) Cash flow to reinvest 1,045,326 1,055,780 1,066,755 1,078,280 1,090,381 1,103,087 - - GDOT Insurance Net death benefit 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 All Pay Premium 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 Amortization - Installment Note** Balance Due 10,200,000 9,634,486 9,054,382 8,459,311 7,848,888 7,222,716 6,580,388 5,921,488 - Principal 565,514 580,104 595,071 610,423 626,172 642,328 658,900 - Interest 263,160 248,570 233,603 218,250 202,501 186,346 169,774 - Total payment 828,674 828,674 828,674 828,674 828,674 828,674 828,674 - ** Note is amortized over 15 years 1 Increased W-2 income for all years prior to retirement. This will decrease the available profit distributions from Consulting Corp. Page 43
- 45. DETAILS OF JAMES'S QUALIFIED PLAN - PROPOSED PLAN YEAR Current 2012 2013 2014 2015 2016 2017 2018 2031 James's Qualified Plans James's age 64 65 66 67 68 69 70 83 Minimum distribution factor 33.0 32.0 31.1 30.2 29.2 28.3 27.4 16.3 Securities in plans 662,263 695,307 974,465 1,270,373 1,584,036 1,916,518 2,268,949 2,642,526 3,080,753 Plan contributions 224,000 224,000 224,000 224,000 224,000 224,000 - Plan balance during life 662,263 919,307 1,198,465 1,494,373 1,808,036 2,140,518 2,492,949 2,642,526 3,080,753 Plan balance at death of survivor 662,263 919,307 1,198,465 1,494,373 1,808,036 2,140,518 2,492,949 2,642,526 3,080,753 Minimum distribution - - - - - - - 189,259 Actual distribution - - - - - - - 189,259 Page 44
- 46. PLAN ASSUMPTIONS JAMES MYER The plan is based on numerous assumptions. Important among these are the yield and growth assumptions contained on the balance sheet in the Financial Analysis section. Other important assumptions are contained on this Plan Assumptions page. Tax Rate Assumptions State Income Tax Rate No state income tax State Inheritance - Estate Tax No state estate tax Tax on IRD Unless a qualified plan is given to charity, we assume the beneficiary designations are changed to provide for a stretch out distribution. 7520 Rates Highest rate 1.5% December, 2011 Current rate 1.3% February, 2012 Lowest rate 1.3% February, 2012 Long Term AFR Rate 2.6% February, 2012 Salary and Other Earned Income Assumptions Annual increase in James's earned income 0% Number of years James's income is expected to continue 6 Lifestyle Need Assumptions Net annual outlay for James's lifestyle needs, not including gifts or taxes $500,000 Annual cost of living increase used in the plan 2% Settlement and Administrative Expenses Fixed estate settlement costs $50,000 Variable estate settlement costs 1.00% (of assets) Page 45
- 47. FAMILY INFORMATION JAMES MYER CLIENT James Myer Date of Birth February 2, 1948 123 Main St. CHILDREN CHILD'S NAME SPOUSE'S NAME Jessica Myer Matthew Myer Thomas Myer GRANDCHILDREN NAME Mike Myer Sam Myer Michelle Myer Jenny Myer Page 46
- 48. DISCLAIMER AND DISCLOSURE JAMES MYER InKnowVision, LLC does not give accounting or investment advice to its clients. The effectiveness of any of the strategies described will depend on your individual situation and on a number of complex factors. You should consult with your other advisors on the accounting and investment implications of the proposed strategies before any strategy is implemented. Any discussion in this presentation relating to tax, accounting, investments, regulatory, or legal matters is based on our understanding as of the date of this presentation. Rules in these areas are constantly changing and are open to varying interpretations. Assumption Issues The plan involves numerous assumptions. While we believe that these assumptions are reasonable, it is important to understand that it is a virtual certainty that the actual results will differ from those illustrated. Returns on investment and performance of financial products such as insurance can cause the results to vary. Changes in tax, trust or property laws can cause plan results to vary. Plan implementation that differs from that described in the plan will cause the results to vary. Provision of state law may cause the plan results to vary. Tax Opinions The IRS has recently issued new rules for tax practitioners regarding covered opinions, reliance opinions and marketed opinions. While this is an arcane area, suffice it to say that these opinions are often obtained by taxpayers for purposes of avoiding penalties. These opinions are obtained at substantial cost and after substantial legal analysis. If you believe that such an opinion would be helpful to you prior to entering into any of the transactions outlined in this plan, you should feel free do so. Be advised that nothing in this analysis should be construed by you, your advisors or any one else as a covered opinion, reliance opinion, marketed opinion or any other type of opinion regarding any of the transactions or outcomes outlined in this plan. Page 47