Thank you for giving me some time to speak with you today and I want to thank each of
you for coming to hear our excellent panel of speakers yesterday and today.
As Mark mentioned, my name is James Fogle and I'm Director of Development at the Mises
Institute.
In my position, I assist individuals in making gifts that fulfill their financial, estate
and tax planning objectives.
Now, in this presentation today, I'm going to give some practical solutions to avoiding
or minimizing the devastating impact that taxation can have on your family while providing
for yourself, your family, and to help perpetuate the values that you believe in.
Now lifetime transfers have a number of important purposes, many times very beneficial for both
tax planning and education purposes. Each person in this country can give away $11,000
per year to any other individual without filing a gift tax return or paying any gift tax.
Now please note this is applicable only to gift taxes and not to income taxes. And once
Once in your lifetime, there's a $1 million gift tax exemption equivalent per person.
And this is in addition to your annual $11,000 exclusion that you can give to any person.
For example, if a person gives away $11,000 using the annual exclusion and then gives
another $200,000 this year, only part of the exemption equivalent remains available for
transfers of debt.
Now there's good news for transfers to both spouses and to non-profits.
There's an unlimited exemption for giving gifts to your spouse or to a non-profit organization
that's qualified.
And this applies to transfers both during lifetime and at your passing.
Now those of us gathered here today are going to experience a number of events during our
of Lifetimes that result in taxation.
For example, if we earn income during this year and decide we're not going to be a tax
protester and go to jail, then we'll surely have to pay some income tax.
Perhaps some of you here have invested in an asset that has increased in value over
the years.
If you sell that property, you're going to pay capital gains tax on that asset.
Some of you this year might give property to a family member.
As I mentioned previously, gift taxes are very frequently non-understood and you'll
have to pay gift tax upon that transfer.
A person once commented to me, you mean I pay income tax when I earn something, invest
it and pay capital gains tax when I sell, and then if I want to give it away to my children
or grandchildren, pay an additional tax upon that transfer?
Unfortunately, yes, all these multiple layers of taxation are assessed upon us.
If property is gifted in excess of that $11,000 per year to another person,
and that $11,000 is really designed to be intended for birthday gifts and other small gifts.
But, yeah, that could be another tax.
And fourthly, when we pass away, there could be a tax that are passing.
Estates over a certain exemption equivalent, currently I believe this year it's at 1.5 million, could pay a tax up to 47% this year.
And in some states, in some cases, approximately one half of your state could be eroded due to estate taxes or gift taxes.
Now, most, if not all of us here today feel it's absolutely wrong to be assessed, for
the government to assess these multiple layers of taxation on the same property.
If a person has a highly appreciated property and sells that asset, as I mentioned, they'll
pay the gift tax rate is around 15% plus states will often assess the tax rate upon it.
So this right here could erode one-fifth of the asset value upon sale.
If the owner later gifts that property to children, as I mentioned, the state tax is
at 47%.
And then if you were to make a large transfer to your grandchildren, the generation skipping
transfer tax is at a flat 47%.
As you can tell, it's very possible to lose a substantial amount of your, without proper
planning you can lose a substantial amount of your estate due to taxation.
Now I'm going to now point out several strategies that are legal means of accomplishing your
objectives, keeping your hard-earned earnings while reducing your tax bill.
Now assume that you're a child and you have a choice of $300,000 either in an IRA or $300,000
in cash.
Now which would you take?
Virtually everyone's gonna take the cash.
While the government will let the IRA account grow tax-deferred,
the distributions will eventually be made under mandatory government schedule of payments
and will be added to your other ordinary income.
In many cases, this can push the recipient into a higher income tax bracket.
Alternatively, the cash, on the right side, may be invested in a tax-efficient manner,
utilizing tax-free investments or those that maximize long-term capital gains. With wise
investing strategies, your loved ones could legally minimize what goes to Uncle Sam.
Bequeathing an IRA or other retirement account to a non-profit organization can be an excellent
concept. If a person plans to give any property through their will or estate plan to a charity
or other nonprofit organization, then it makes sense to give those assets such as an IRA,
annuity or pension plan to a nonprofit and then transfer stocks, bonds, real estate to
the family. The primary advantage of transferring an IRA to charity is that it bypasses both
Both the income tax and the estate tax. This can be done with all or part of your IRA.
Also if the beneficiary designation form is kept up to date, the transfer will avoid the
expensive and delay-ridden probate process that's court-supervised. This can help ensure
your privacy.
A concept that has been gaining popularity lately for those with moderate-sized estates
and with a good-sized retirement account has been to look for a method that benefits your
children or other loved ones without having to pay the ordinary income tax.
If your estate is large enough, this could even avoid estate tax.
This method works as follows.
When the owner passes away, the IRA is transferred to a charitable trust.
This illustration shows an estate in which the family receives half of the estate outright
and the balance is transferred to a charitable trust.
The assets transferred outright to family are the family residence, land, stocks, bonds,
CDs.
These may be received by the family without payment of any capital gains or income tax.
The balance of the estate is an IRA valued at $400,000.
This is transferred to a charitable trust, and in this case, we're going to say it's
invested for 15 years. During this 15 years, it's going to produce income to your loved
ones. After those 15 years are up, this trust will terminate, and whatever's left in the
trust's corpus will then be distributed to one or more non-profits that will help perpetuate
Your Values. By using this plan, it's possible to keep Uncle Sam from hitting your loved
ones twice with tax, both income and estate tax. And since the charitable trust is tax
exempt, the IRA can be distributed to a testamentary trust and the full amount can be generating
income for your loved ones. Uncle Sam gets nothing at that point. With the extra income
can be produced by investing the full amount instead of being robbed by Uncle Sam with
one or two layers of taxation. Your loved ones can receive a much larger income stream.
Now many individuals desire to benefit several members of your family and maybe several charities
or non-profits. It's possible to have a transfer outright to children at your passing. You
You can also have a transfer outright to qualified exempt nonprofits, and you could even have another transfer into a charitable trust that will provide an income stream, as I mentioned, to your loved ones, and eventually the remainder would go to a non-profit.
An excellent method for controlling the level of distribution is to set up several different IRA accounts, and then transfer each IRA to the appropriate entity.
In this manner, the donor may control his or her dispositive plan and ensure that the appropriate parties are benefited as he or she desires.
Now for those with large estates where loved ones don't need income immediately if your children or other loved ones are doing fine, they don't need income until retirement, there's another option you can consider.
Now this is also often referred to as the mirror image of the trust that I referred to previously.
Instead of producing income to family, this is going to be a wealth transfer vehicle.
Now some people have property that produces income and has very good growth potential.
They desire to pass it on to their children, but they don't want Uncle Sam to confiscate up to one half the property's value in a state tax.
Tax. These friends also have, over the past few years, benefited nonprofits and have a
sufficient income flow to live comfortably. Is it possible for them to move these assets
through to children with no gift or state tax? Now this wealth transfer concept is referred
to as a charitable lead trust. Some of you may have heard of this before. In this illustration,
When a person owns a property valued at $500,000 that they believe will increase substantially
in value, they transfer that property into a lead trust and decided that the income will
be distributed for a term of 12 years to a non-profit.
When the property is transferred to the trust, there's a gift tax deduction of over $290,000
in this case, and John and Mary Jones report only the taxable gift of $209,000 roughly.
Now this is less than half of what they would have reported otherwise. The effect of this
is it discounts what you have to pay tax on. If the term of the trust was longer or the
annual payout to the nonprofit was more, the gift tax could actually be reduced to zero.
Through this method, they're able to leverage their state tax exemption equivalent and actually
The trust then pays the specified percentage of income to one or more non-profits for the
term of the trust.
After this time period, the trust principal then is distributed to loved ones or family
members.
This works well for individuals who want to assist children or other loved ones with a
retirement supplement while reducing or eliminating what goes to Uncle Sam and supporting a non-profit
like the Mises Institute.
To summarize, by combining the multiple layers of taxation in society, taxes have become an onerous burden for most Americans.
But with proper planning, there are legal methods to say no to Uncle Sam's demanding gimme, while providing for yourself, your loved ones, and
perpetuating the values that are most important to you.
I'll be here for the rest of the day today, and if anyone would like to talk further about any of these concepts, I know I went over some difficult concepts rather quickly, but I'd be happy to speak with anyone if you have any questions about these.
Once again, I'm glad you were able to come this weekend and participate in this conference, and I hope that after either tonight or tomorrow, you'll have a safe trip home. Thank you very much.