Comprehensive Capabilities

  The foundation of AWP Life Brokerage is the belief that firms are strengthened by the ability to work in tandem as a unified consortium.  Our specializations include insurance concepts and...


Industry Leader

  AWP has proven continual leadership in delivery of benefits solutions for companies of any size as well as we continue to be a leading enterprise in life insurance planning and...


Institutional Relationships

Institutional accounts are integral to our overall distribution plan.  We define institutions as banks, wirehouses, regional broker dealers, and CPA networks. AWP has acquired recognition as a player in the institutional...


Pioneering Captive Insurance

Introduction Despite the fact that the concept of “captive” traces its origins to the beginnings of formalized trade, many people believe captive insurance companies to be a relatively new phenomenon.  Formed...


Premium Financing

Many affluent clients are aware of the benefits that life insurance can provide.  However, clients often harbor concerns that a substantial income tax liability will result from liquidating low basis...


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Tax Planning

Your AWP Advanced Sales team actively monitors changes that take place in the estate tax legislative realm.  On December 17, 2010, President Obama approved the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the Act).  Learn what remains unaltered versus what has changed, and grasp the potential impact the Act will have on future estate and wealth transfer planning.

 

Federal Transfer Taxes


Estate Tax Exemption Amount

$5 million, adjusted annually to account for inflation beginning January 1, 2012.

 

Estate Tax Maximum Rate

35 percent through December 31, 2012.  The Act allows a special election for estates of decedents dying after December 31, 2009 and before January 1, 2011.  Under these circumstances, it is elective which estate tax laws will apply: estate tax laws prior to the Act (i.e., 0 percent estate tax and carryover basis regime) or estate tax laws enacted under the Act.

 

Gift Tax Exemption Amount

$5 million, adjusted annually to account for inflation beginning January 1, 2012.  This serves to reunify the estate and gift tax exemptions.

 

Gift Tax Maximum Rate

35 percent through December 31, 2012.

 

GST Exemption Amount

$5 million, adjusted annually to account for inflation beginning January 1, 2012.  The generation-skipping transfer (GST) exemption is bound to the estate tax exemption.

 

GST Tax Rate

Flat rate of 0 percent in 2010 shifted to flat rate of 35 percent through December 31, 2012.  The Act gives a nine-month grace period from the time of enactment to file a GST tax return required for a GST occurring after December 31, 2009 or occurring on or before the Act’s date of enactment.

 

Exemption Portability

The executor of a decedent dying following December 31, 2010 can elect to provide the decedent’s surviving spouse the unused exclusion amount.  A stipulation is that the surviving spouse is only eligible for the unused exclusion amount of his or her “last such deceased spouse.”

 

Federal Income Taxes


Top Ordinary Income Tax Rate

35 percent through December 31, 2012.

 

Long-term Capital Gains

15 percent through December 31, 2012.

 

Dividends

15 percent through December 31, 2012.

 

Alternative Minimum Tax

The Act increases current exemptions for individuals and married couples under the alternative minimum tax (AMT) and allows nonrefundable personal credits against the AMT.

 

Payroll Tax

Social Security tax reduced from 6.2 percent to 4.2 percent for 201 only.

 

2011 and 2012 Planning Opportunities


Before the Economic Growth and Tax Relief and Reconciliation Act of 2001 (EGTRAA), estate and gift tax exemption amounts became amalgamated when they reached $1 million.  Under the unified system, a taxpayer could transfer $1 million during their lifetime or at death free of estate or gift tax.  EGTRAA changed that parameter by imposing different estate and gift tax exemption amounts.  For example, in 2009 the estate tax exemption amount was $3.5 million and the gift tax exemption amount was $1 million.  Effectively, a taxpayer in 2009 could only transfer $1 million during their lifetime free of gift tax, while they could transfer $3.5 million at death free of estate tax.  The Act reunifies the federal estate and gift tax exemption amounts at $5 million per person ($10 million per couple).


Reunification at these increased exemption amounts will provide significant lifetime wealth transfer planning prospects for your clients to reduce their taxable estate, shift wealth to future generations, and, where needed, acquire a life insurance death benefit outside of their estate with minimal or no transfer tax cost.  While full details of the Act stretch beyond the scope of this summary, it can be noted that the Act presents significant lifetime wealth transfer opportunities during 2011 and 2012, such as the following:


Increased Gifts.  With gift tax exemption at $5 million, your clients are able to make large gifts of cash or assets subject to valuation adjustments in trust.  This freezes the value of the asset gifted and all post transfer appreciation and income are removed from the estates of your clients, reducing their estate tax liability.  These gifts can be further leveraged by your clients through the use of other techniques such as installment sales to grantor trusts.


Life Insurance Funding. With gift tax exemption at $5 million, your clients are able to make large gifts to fund life insurance policies owned by ILITs while bypassing gift tax and complicated premium leveraging arrangements (e.g., private split dollar, private financing, commercial premium financing).  Moreover, you will be provided with additional flexibility in annual exclusion planning by decreasing your clients’ reliance on annual exclusion gifts to fund ILITs.


Multigenerational Wealth Transfer.  With both higher gift tax and GST exemption amounts, it is an ideal time to fund multigenerational or dynasty trusts and to maximize wealth transfer to future generations.  Your clients can further leverage this funding through use of other techniques such as installment sales to grantor trusts.


Split-Dollar Rescue.  With gift tax exemption at $5 million, your clients can terminate grandfathered equity collateral assignment split-dollar arrangements involving trusts with minimal or no gift tax cost associated with the potential deemed gift of equity to the trust on termination.


Qualified Plan Exit Strategy.  With gift tax exemption at $5 million, your clients can make large gifts in trust that have the potential to facilitate the trust’s purchase of a life insurance from a qualified plan.