Howard E. Sharfman

Estate Planning – Even if There is No Estate Tax

Focus Session Thursday, October 19, 2017, 1:15 pm

“If the rate of change on the outside is greater than the rate of change

on the inside the end is near” - Chuck Hollander and Jack Welch

Your Market – Has it Changed in the Last 5 Years?

Estate Tax: The times it has been repealed and the rates

A History of Exemption and Tax Rates

Estate Taxation – Historical (1795 – 1924)

Thomas Paine

proposes an

inheritance tax for

England in The Rights of Man and in Agrarian

Justice

1795 1797

Stamp Act of 1797

Enacts small

graduated transfer tax in America in order to develop a

strong navy

Transfer tax

repealed

A series of Acts

Creates federal

inheritance tax in

order to help

finance the Civil War ($1,000

exemption)

Inheritance tax

repealed

Andrew Carnegie

recommends a heavy

estate tax in The Gospel of Wealth

War Revenue Act

of 1898

Establishes estate tax to defray costs of Spanish-American

War ($10,000

exemption)

Estate Tax Repealed

Revenue Act of 1916

Estate taxes become

permanent source of federal revenue ($50,000

exemption)

Federal gift tax

Enacted to prevent

avoidance of estate

tax

1802 1862-66 1870 1889 1898 1902 1916 1924

Estate Taxation – Historical (1926 – 2016)

Repeal of gift tax

and lowering of estate

tax

1926 1932

Gift tax reinstated & estate

tax raised to fund federal

programs dealing with the Great

Depression

Tax Reform Act

of 1976

Unification of estate

and gift tax systems

($120,667 exemption)

Taxpayer Relief Act of

1997

Raises exemption

to $1,000,000 (phased in between 1998 & 2006)

2010 Estate

Tax repealed for one

year

Estate tax reinstated

1948 1976 1981 1986 1997 2001 2010 2011

1st Marital Deduction

(50% of the

adjusted gross

estate)

Economic Recovery

Act of 1981

Raises exemption

to $225,000

and creates

unlimited marital

deduction

Tax Reform Act of 1986

Raises exemption

to $600,000

Economic Growth and Tax Relief and

Reconciliation Act of 2001

Separates estate and gift tax systems, raises

exemption to $3,500,000 (phased in between 2002 & 2009)

repeals estate tax in 2010, and reinstates

estate tax in 2011

What Happens if the Estate Tax is Repealed

ESTATE TAX

The Power of Negative NumbersYear 1 Return Year 2 Return Required to Get

Back to EvenNumber of Years at 10% Return to

Get Back to Even

-10% 11.1% 1.11-20% 25.0% 2.34-30% 42.9% 3.74-40% 66.7% 5.36-50% 100.0% 7.28-60% 150.0% 9.62-70% 233.3% 12.64-80% 400.0% 16.89-90% 900.0% 24.16

Provided for informational purposes only. Not indicative of the performance of any specific investments.

Estate Tax is About – Leverage, Timing and Discounts

Bringing in the left hander from the bull pen

Substituting Assets and the Power of Substitution

Riedel, Charlie. Photograph of The Cleveland Indians. The News Herald, 19 Oct. 2016, http://www.news-herald.com/article/HR/20161019/SPORTS/161019330

Planning Opportunities with the Power of Substitution

Basis Step-up(Current Law) Carryover Basis

Pre-Death Substitution of Assets No gift No gift

Assets in Estate at Death Low basis High basis

Life Insurance Owned by IDGT Owned by IDGT

Prior Installment Sale Prior to death swap high basis assets in estate for low basis assets in IDGT No swap necessary prior to death

Cash to Provide Liquidity Purchase assets from estate for estate taxes Purchase assets from estate for capital gain tax

Preserving Capital Loss Near Death Swap loss asset in estate with low basis asset in IDGT. Preserves capital loss in trust. N/A

Escaping Three-Year Rule Swap life insurance policy for assets in IDGT Swap life insurance policy for assets in IDGT

Premium Finance the Good, the Bad

and the Ugly

What’s Wrong with the Insurance Business

A Sad Story, but what would have happened without planning?

My Friend Woody the Jeweler

Thank You!

Howard SharfmanSenior Managing DirectorNFP Insurance Solutions