Wealth Management: Helping Small Business Clients Save in 2019 | March 2019 Archived Webinar

Wealth Management: Helping Small Business Clients Save in 2019 | March 2019 Archived Webinar

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Okay. I think we're live welcome. Everyone my name, is Libby and I'd like to thank you for joining us today for the, webinar, helping. Small business, clients save in 2019. And Beyond leveraging. Section, 199. A 20%. Deduction, this. Webinar is going to be presented, by Robert blink and William, burns. Professor. William burns is the associate, dean at the Texas A&M Law School, William. And Robert are both professors, of the online, wealth, management, master's, program, there, are also co-authors. Of three annual tax books that, have sold to the wealth management industry in excess of a hundred and fifty thousand, copies. Roberts. Insurance practice, incorporates, sophisticated. Wealth transfer, techniques, as well. As counseling. Institutions. In, the context, of their insurance portfolios. And other. Mortality. Based exposures. So. Before, we begin there are a few things that I want to go over if, you have any concerns. Or questions there's, a chat box in the bottom of your screen, there's. A ask a question tool that you can use we're. Going to do Q&A, at the end of the webinar period. So any. Questions, that you have throughout the webinar submit. Your questions. There and I'll read them aloud. Concluding. The webinar. This. Is all going to be recorded, so if you, have to jump off or you would like to share with a colleague, you'll. Receive a email. In the coming days with, a webinar link with the archived webinar, so. At this time I'm going to turn over the presentation to. Professor. William burns of the Texas A&M University Law. School. William. Take it away, howdy. So. As, we begin every class. Here at Texas, A&M on campus, with. Our Texas. Warm, welcome I, I am William burns I am the. I. Like to say the AHS behind, the curtain for our wealth and our risk program today. We're going to share with you. Information. About, the new section. 199. A, so. In colloquial, terms of, the 20%, business. Income deduction, that, the. Tax cuts and Jobs Act has, bestowed upon us, for. The tax, years of 2018. Being, last, year that we're filing by. April 15th, up, through, the tax year of. 2025. That. Will file in a in April of. 2026. So. The. First question I get with. The, 20%. Deduction. Is. Always. Where. Where, do I actually find. It on my. 1040. Or other. Schedule. So. On the screen before you. You. See the 2018. Form. 1040. That. Your. Clients. Are submitting. This year on, page. To the back page. You. See circled, in red. The. Ninth line. Clearly. Identifying. Qualified. Business. Income. Deductions. So. I have a nice big, red. Arrow pointing, to it and. Anyway. So there there we find in our back back, page, so. Technically. It's. A below-the-line. Deduction. Albeit. The description, doesn't really fit anymore because. Page. 1 of the 1040 I'm not going to show you that one but if you're looking at page 1 all, page 1 has on it today is. Is. Collecting. Information on, the taxpayer name Social Security and address, so, whereas before of, course below. The line meant, everything. Below the the, first page, so. Our. Terminology. Is in the tax world's a little bit turned upside down for the, at least until back, till 2026.

Now. Robert, and I'll host a future webinar. Understanding, the 1040, and the new seven schedules, and all that. No. Worries that'll, be that'll be next time let's, focus now just, on. The. Terminology. About certain. Qualifying. Pass-through. Entities. Which. Service, businesses. Qualify. The. Threshold, amounts and so forth so these are the issues we're going to be looking at. Now. All. The financial, advisors listening. In today, are. Aware that we have the same, seven. Brackets. As, previously. Before. The tax cuts and job act however. The. Rates have slightly changed as you, can see on the slide before you and. And. Also. The. Income. Amounts, have slightly, changed, there. Are some doughnut, holes. Where. Individuals. Who. Are single. And, generally. Have live in states, with, with. Either high property, tax high income tax or combination. Of both such, as California, New York New, Jersey. Who. Actually, end. Up. Paying more, tax as a, result, of the tax cuts a job act not less tax just. Based on having. Lost the personal, exemption that's. That's, been eliminated until. 2026. Based. On. Falling. Into, the. 35%, rate where. Previously. They. May have been in the thirty three percent rate as. You can see on the screen before you so, by example. Their. Income, was, two. Hundred and thirty. Thousand, dollars. Under. The former. Brackets. You'd see there's the thirty three percent rate. But, under the new brackets, there, in the thirty five percent rate. The. Point of that is that it's probably, more important. For. Those doughnut hole individuals. In particular, to. Want. To make sure that they get advantage, of the 20% business, income, deduction, -, to. Moderate, to. Mitigate against this increase, in their taxes, as a result of the tax. Cuts and Jobs Act. Now. Another. Question that we've received often. In our classes, in The Wealth Management and, that we've been working through the analysis, on is. Well. The. Corporate, tax rate has. Permanently. Been made twenty-one, percent and the. Individual. Rate is, temporarily. 37. Percent but it's going to go back up to thirty nine point six percent. Probably. In 2026. So. Shouldn't. I incorporate. Now. With. The, qualified. Income. Deduction. Of twenty percent. The. Effective. Rate on business. Income, will. Be twenty, nine point, six percent. So. Instead, of paying a full. Seventh. Bracket, thirty-seven. Percent income, tax by example, on. Five. Hundred thousand, dollars of business. Income. I. Subtract. Twenty. Percent, if, the AGI. And the business income was five hundred thousand, so, I've reduced the five hundred, to four. Hundred thousand. Dollars twenty. Percent times five. Hundred thousand, hundred. Thousand, deduction, on that line nine of the. Second, page of the 1040, my. Effective, rate is just under 30 percent. You'll. Say well still. 30. Percent, is higher than twenty one percent.

Well. That's correct except. That. The. Money in the corporation. Still. Needs to be distributed, to me as the, shareholder, now. That. Distribution, is, going. To attract, if, I'm in that thirty seven percent bracket, the. Highest rate of the. Capital, gains tax, so. Recall. That dividends. Receive. The preferential, capital. Gains rate. Thus. It's. A 20%. High. Capital, gains rate and, you'll. Say but I see the figure. 23.8%. On. The. Slide, what. Gives. Via. The. ACA, the, affordable care act which. Is commonly, known as the Obama. Obama. Meadow Obamacare. Carried. With it an. Additional. Tax. That. Is paid on. Investment. Type income. That. Additional, tax of 3.8%. So. Consequentially. The. 20%, preferential. Rate plus the 3.8, percent gives, us the 23.8%. That. The dividends, will incur. So. The cumulative, tax. Burden, on, corporate. Income in the hands, of the shareholder. Is, just. Under 40 percent that's on the left column, of the slide. Where. For. The individual. Who's. Earning the business income whether, it's through a pass-through, LLC. LLP. An. S. Corporation. In. Their own name as a proprietor. With. That 20 percent business. Income deduction. Pursuant. To section 199. A the. Effective rate is just under, 30. Percent so. As you. Can determine. On the slide there's, approximately a, 10 percent tax. Savings. By. Holding, the money in your own name. However. Many. Clients, are going to ask you, well. That's. Fine, for now but. The. Tax cuts in job act is going to, sunset. Expire. The, 20 percent business income deduction, and without. It. I'm going to be paying the old. Bracket, again, of. 39.6%. So. The difference between my. Pass-through, business income in the year 2026. If Congress, doesn't, act and. Receiving. The money through corporate. The. Difference is, negligible. So. Shouldn't. I be thinking, about. Incorporating. In, the future the. Answer for that is yes, they should be thinking about incorporating in, the future because. The. Money that is earned through the corporation, at the 21, percent permanent, rate. Isn't, required to, be distributed. It. Can't sit tax. Deferred. Until. Distribution. And thus. The, earnings, on it. Can. Earn. Outside. Of attracting, the personal, income tax rates again. Until distribution. So. There would be a slight. Overtime. Tax. Savings, through. The corporate route. Having. Said that most. People think, that. Congress. Will act to. Maintain. At. Least if not the same but. Some advantage. Of pass-through. And any business income, as. Opposed to corporate. Income yet. It's. A good reason for your clients, to continue, to consult you over. The coming years, as. The, scenario. Changes and, as. The tax cuts and Job Act gets, closer to sunsetting. Both, the both. The slight, reduction in the personal, income tax rates and this. 20% deduction. So. Now let's turn to the actual new, section, 199, a. That. That. Takes effect for last, year's taxable. Income. Now. For. Those who are. Earning. Business income. We're. Listening in on this. On. This. Webinar, many, of you are financial, advisors and, underwriters. By. Example selling life. Insurance. So. Robert, and I have, great, news, for you, like. The, best, planning. Alternative. Just. To cut to the chase and then I'll and then we'll work through, the slides to get there is. That. First. Of all, life. Insurance, underwriters. The. New regulations. That were released to explain, section, 199, a. Specifically. Exempt. You from that. Application of, a special, service business, that, applies to lawyers, and accountants, and management. Consultants, and so forth. But. It doesn't apply the. Life insurance underwriters. So. You. Know very powerful, lobby there. Secondly. As. We. Work through the. 199, a on the next few slides, you're. Going to see, that. It is better, when. Possible. To. Plan for, the AGI, the adjusted. Gross income. Element. Of. Having. The 199, applied to your business income, than. It is to. Exceed, that threshold and. Be. Forced to confront, the. Formula. Based. On, w-2. Wages. Or. W-2.

Wages Plus, a. Percentage. A basis. In, your, investment, assets of, the of the business, so. Sorry. Your operating assets of the business, so. We're going to be talking about the, AGI, reducing. Our AGI, and to. Reduce AGI. The. Best way is. Retirement. Planning, that. Involves. Our life. Insurance financial advisors. So. The basic mechanics, of. The. 199. Is. That. If. You can fall beneath, the, thresholds. You read on the slide before you. Married. Couple. 321. Thousand, dollars four, hundred. Individuals. Half. The amount. 167. Hundred if, you could fall beneath those, thresholds. The. Rest of the, complicated. Mechanics. Of, section. 199, a don't. Apply to you you. Simply. Get. For. That line 9 the, 20%, deduction. But. Most of you on the call, let's. Take. Married. Couples you're. Going to say but my. Financial. Advisory, life insurance, underwriting, income, is half. A million, so. I clearly, exceed. These. Thresholds. And. If. You exceed these thresholds. There's. An opportunity. Under. The center. Column the phase-in rule. To. Lose. Part, of the 20%, deduction but, not the full amount. But. As you read only up to. 100,000. In excess, of threshold. So. If your business income is half. A million dollars, from your life insurance underwriting, and, the. Threshold is, just. Over, three hundred and twenty thousand. That's. Your, you're gonna blow through the phase-in amount. The. Phase-in amount having. Maxed out just over four hundred and twenty thousand, dollars. Consequentially. You're. Going to have to either. Focus. On planning. Your adjusted. Gross income, to fall beneath that threshold amount or. Looking. At the, left-hand. Side of the slide you're. Gonna have to go into the mechanics. $1.99, a, so. The mechanics, of $1.99, a, are. You. Have the option, of. The. $1.99. A 20%. Deduction is, calculated, on your business income, but. Then it is. Reduced, to. The. Greater of. 50%. Of the, w-2, wages that your business is paid so. If. You're an underwriter, and you, have a secretary that, works for you as a w-2, employee not. As a 1099, that won't count as a. W-2, employee and. Their. Wages. Are, $50,000. On, their. Ww2. Then. At. The end of the year you'd, have had a 20%, deduction against. Five hundred thousand dollars a hundred. However. Because. The w-2, wages, are. Only fifty thousand dollars and you're. Limited, to 50%, of, those wages, 25. Thousand, the. Maximum, deduction you can take is, 25 thousand dollars. Or. You. Have the choice of 25. Percent, of those wages, so. You're paying your secretary, $50,000. 25 percent is twelve thousand five hundred dollars of wages, plus. Two. And a half percent of, the. Unadjusted. Basis. Of all, your. Business. Operations. Property, but. What, business operations, property, do you have a computer. Your. Cell phone, oh you've, deducted that out as a 179. Your. Computer, you deducted, that out is a 179. You didn't depreciate. It over time your. Chances. Are you really don't have a lot of qualified, property now if you're a restaurant, owner your clients a restaurant, owner they're. Gonna have some qualified property. But. Again. I'm. You're. Gonna have to start to work into the mechanics, of. Calculating. Using. This formula, what, the maximum, 20%, deduction is if. You're that financial, advisor I just mentioned, better to bring my AGI, down. To the threshold amount now. Let's look at the right-hand column of the slide service, businesses. The. $1.99. A for. People who exceed. The, threshold. Does. Not apply to. Certain, service. Businesses. Attorneys. Doctors. Financial. Professionals. But not your life insurance underwriters. Management. Consultants. You're. Accepted. From. The 20%. Deduction. So if I'm an attorney I. Need. To, fall beneath that threshold through, AGI, planning, if. The. 20%, deduction is, going. To be useful for me once. I exceed the threshold I don't. Get to use the, mechanics, of qualified, property or w-2 wages, service. Businesses, eliminates. The possibility for me. Now. For. Those of you who are listening who are in the oil and gas industry, because we're in Texas. Engineers. And in particular, petroleum. Engineers. Several. Hundred thousand, petroleum, engineers employed, by the industry. Unemployed. On the. Rigs. And so forth. You're. Not included. As a service, business, so. Petroleum, engineers, who. Are together, in partnerships. Or individually. Who, have their, business, income. Even. If you exceed, the, threshold you can still take advantage of, the 20%. Deduction. However. Because, you exceeded the threshold. You're. Have, to follow these formula, mechanics, of the w-2, wage and, in. Qualify property, so again still better for you, to. Play with your AGI. Now. Let's just talk about some. Some. Of the anti-avoidance. So. By, example. You. Know clever. Attorneys, are. Going to say well can. I, divide. Up my, law firm business. And. Segregate. Part, of it into a service, business that, would qualify. For. The 20%, now I know that my law income, can't qualify but.

I Have other businesses. That are part of my law business can isolate that, out I'm a, doctor, can I segregate. Out my physician. Services. From. By example. Maybe, MRI, services. Or. Whatever. So I divide, out the business I have rental, income can I divide, out. Part. Of that now the answer, is no. The. IRS. Released. Regulations. That. Require. Specifically. For people who try, to split, off so. You'll see that term. In the left side of the slide split, off their, service related business, to qualify for the deduction, it. Brings. That back in and it, eliminates, that possibility. Also. In, the center of the slide. There's. Aggregation. On both. Opportunities. To aggregate, w2. Income. Across. Your. Different business, lines. But. Also, it. Requires, aggregation. Of that. Accepted. Service. Business, income it, doesn't qualify for the 20%, so. So. That would. The. Regulations. Have to be studied closely, by a financial, adviser if. Your, opportunities. Are to try and segregate, off aspects. Of the business or if. Your client, has five. Or six different types of business in comes in. Different business lines through, let's say five or six different LLC's. You. Have to look at whether aggregation. Is the, best for your client. Or, not and then of course there's a complex. Netting. Formula. To aggregate, if. You go down that path again. The. Message here is try. To fall beneath a threshold. So. Moving. On. To. Fall beneath the threshold, and to. Focus in on reducing. Our adjusted, gross income or AGI. The. Optimum, way to do that is through, retirement, planning. So. Financial, advisors are, very familiar with. Especially. In, your for, your own business, your own financial, advisory. Life. Insurance underwriting business, to. Apply you know you're self-employed. IRAs, your SEP IRAs. Traditional. 401ks. For. Employees. Or. For. The individual. Who, owns. Who. Operates, the restaurants. And, I, have five or six restaurants, that. With business income coming in so they're, really looking forward to take advantage, of the, twenty. Percent. Deduction. But. Then it gets complicated when we start talking about the, basis. And the w-2, wages can. I reduce their AGI through, 401, K. So. Looking. At the difference, between our SEP IRA our. 401. K and then, cash balance, plans I said cash.

Balance, Plans is where financial. Advisor is really going to get your ears, your. Eyebrows, are going to raise your ears are gonna peak, up. And. And, this is where the real opportunity, is, so. Let's start with the traditional I'm. Self-employed, so. I have an IRA my. Contributions. Are limited to fifty six thousand, dollars a year so. If we go back to my financial. Advisor life underwriter, who's, selling life insurance and. And. Who has five, hundred thousand, dollars of business and, and. They're. Married I can. Just get to the phase an amount so. What's that mean I take my. 320,000. I'm just rounding the number I take. My hundred thousand the phase an amount and. And. That's gonna get me two, to. Four, hundred and twenty thousand, dollars so. I can contribute up, to. Fifty, six thousand, dollars into my SEP IRA this year, that's. Four, hundred and seventy thousand, dollars, well. But I made five hundred thousand. So I still. Exceed the threshold is. There anything else I can do and, now we have our traditional 401k for, the, four. Employees and the employer, portion to be paid in again fifty six thousand dollar limitation. So. Let's move into our cash balance plans, what's. The difference, there, well. Our cash balance, plan allows, us up. To, 200, actually it's higher than two hundred fifty thousand, dollars because it's based on, your. Age. So. Depending, on the client's age you, can go as high as two, hundred and sixty. Something thousand, dollars. That. That. Is a game changer that. Takes my five hundred thousand. Dollar financial, advisor, and. Brings. Me well, beneath, the threshold, amount on, using. Using. Plain-vanilla retirement. Planning. However. Obviously. There. Has to be a catch, or. Everybody. We'd be doing it, so. What's the catch. Well. Cash, balance, plans. Cash. Balance, plans. Have. A, lot of requirements, attaching. To them that. Aren't. Typical, of your IRAs, and your 401ks. So. Specifically. Cash. Balance, plans aren't. Actually. Defined. Contribution. Plans that, we think about with IRAs, or 401k. They are defined benefit, plans and defined. Benefit, plans require. Every. Year an actuarial. Statement. That. The assets, in, the plan are enough, to fund the. Benefit, for. The retirement portion. That. Doesn't have to be a very expensive exercise. Because. And that was. The good news for our financial, advisor. The. Good news you, can, use life, insurance, life. Insurance and.

Other Insurance products. Too, to. Guarantee. The. Funding. Of the. Retirement. Required. Amount, for. The cash balance plan, and in. That sense, the. Financial, advisor life. Insurance, underwriter, you just scored, a double win, you. Yourself. This. Works for and, you. Now get to sell. Your. Traditional, plain-vanilla, life. Insurance, where you make your bang for the buck with your clients, in a. Way, that's. Gonna bring your clients, beneath the threshold, that brings them into the 20%. Deduction. For, $1.99, a that they can't, have but, for. Your. Life insurance sale. So. Under, traditional estate. Planning, with. The new tax, cuts a job Act amount of. An exemption of a eleven, point two billion. Dollars a person. You've. Had a hard time. Explaining. To, clients. That don't have really. High ultra, high-net-worth clients in, the in, the fifty seventy million dollar asset, range when, you're talking the ten million dollar asset, range. They're. Not going to suffer, any. Estate. Tax in the future and so you've had some challenges. With life insurance as a tax. Vehicle, now there, are plenty of other good reasons for life insurance, from. Asset protection to, just life, planning, for spouses and so forth however. Because. Of the twenty percent deduction, at, least, to the year 2026. Congress. Has written you a, new. Lease on life through. Your life insurance planning, in, the context, of retirement, planning that. Benefits, all, business. Owners, so. With that. With. That like. Christmas, gift from Congress, under the tax cuts and job Act I'm. Gonna turn it over to my colleague, robert, blonk who's. Going to go into, some. Other planning. Elements, for 199, a and. That, I think you're gonna find interesting, so. I'll. I'll do the slides for you and, and. Why. Don't you start talking about, non-grantor. Trusts. Sure. Thank, you well you and welcome everyone okay. I think we. Can't talk about $1.99. A without, talking, about the, seemingly. Endless, multiple. Trusts non-grantor. Trusts strategies, that came into play in the marketplace, almost. Immediately, as $1.99. A was enacted. Secondly. We need to now discuss the new IRS, regulations. And how those impact these, multiple. Non-grantor, trusts planning, strategies, but. Before we get there let's just talk about the commonalities. Of all these strategies so. From. Williams discussion. The. Key planning, point when we talk about section. 199, a is. Avoiding. That income, threshold, amount, so. Fundamental. To all of, the non-grantor, trusts planning, strategies, that bandied, about the marketplace, in the last year or two was. To avoid. That, income, threshold, amount by. Fragile. Izing, ownership. Of the. Enemy, so. If we had one owner who. Would otherwise be subject to the income threshold limitations. Of 199 a. The. Simplified. Theory of all of these non-grantor, trusts strategies was to fractionalize. The ownership, such. That we had multiple. Owners and each of those owners would apply the $1.99. A income, threshold, when, separately. So. In its simplest form if we had one, owner we, then assigned ownership, to that same. Entity to, two non-grantor. Trusts, and. The. Theory would be that we've effectively. Doubled. The. Income, threshold, limitation. Under, which we can obtain. A $1.99, day deduction, and, by. This logic. We. Can not only double it but. Multiply. Up. The income threshold limitation. By as many non-grantor. Trusts owners as we, create for that entity. So. By fractionalize, the ownership we're going to increase. The income threshold limitation. By a factor of two four five, as many, as needed was the base theory, of all these non-grantor. Trusts strategies, and. Thereby. Avoid. Any, of the complicated, mechanics, that Wayne was talking about earlier of the phase-out, provisions, of the $1.99 a versions, so. There's, multiple variations. Of the strategy but they all rely on that commonality, we're, going to multiply, through. Fractionalize, the ownership the, income, threshold limit limitation. That applies to $1.99. A now. Way if we can jump to the next slide we'll talk to how the new IRS, regulations. Limit. This type of planning. Specifically. The, the. New drags introduced a three prong test. Essentially. If we've got the. Same grantor granters of the, non-grantor, trusts. Substantially. The same beneficiaries. Of the nine grantor, Trust some of which we fraction eyes the ownership and, then. Thirdly if the, principal, purpose of creating the Trust, was. Tax avoidance. The.

Aggregation, Rules are going to apply and. Therefore. Eliminate. The, benefit, of the. Ninth grantor, trust strategies, because the, regulations, are going to aggregate, all those owners into one and apply one, income, threshold, limitation, as to all those aggregated. Owners. So immediately. I get the question when we talk about the new regulation, is well what, about the third prong couldn't. We set forth a fact pattern in which the principal, purpose is not, tax. Avoidance. So. It's important, to note to start with is that on this third prong the. Presumption, of the regulation, is that tax, avoidance is the principal, purpose, if you bifurcate, if you fractionalized. Ownership amongst non-grantor. Trusts it's presumed, tax. Avoidance was the purpose its rebuttable, by the tax. So, how, can we were but that, certainly. There are business. Reasons. To. Franchise. The ownership whether it be, centralizing. The asset management. Aggregating. Of ownership. Of an any among a family group. In. The context, of estate planning avoiding, repetitive. Asset. Transfers, in. In that succession, typical succession, planning or simple, asset protection you're just trying to protect the equity. Interest in the entity from. Creditors, or. It can be akin, to a Spencer a truck where you're trying to relieve a given, family member, of the, obligations. Of managing, their portion, of the ongoing, family business, but. Still allow them an equity interest a management. Tool if you will all. Of those could be reasons, to rebut, that. Presumption, that tax, points is the purpose. But. On that. Note I have to make the point that. No. Credible. Planners. When. They're discussing the. $1.99, a deduction. Are going, to. Rest. Their hat on rebutting. That presumption. The. The. Fact that you would be fighting an uphill battle it's, not the starting point when want to go with so. With. That said there. Are, non-grantor. Multiple non-grantor, trusts strategies that will work. To. Multiply. The. Limitation. The income limitation, that would otherwise limit, the.

Amount Of $1.99, a deduction. But they need to be part, and parcel of a greater whether it be estate planning or simple succession, planning strategy, and. That. Ties. Into the first. Two prongs of the test that we have the same grantor, grantor, and then substantially. The same beneficiaries. Of all the non-grantor, trusts, in. Every instance were unlikely, going, to have likely going to have the same grantor, grantors. Transferring. Ownership of, the entity to the non-grantor, trusts but, if we now have, distinct. Beneficiaries. For each, the non-grantor, trusts. Then. The. Principles, of a multiple non-grantor, trusts strategy, would. Work. But. That entails, your business owner. Giving. Up, beneficial. Interest in some, portion, of the business, which. Is going to be a pushback for a considerable, number. Of. Clients, but. It would work in the context, of succession, planning or estate planning where, the. Closely. Held entrepreneur, is trying to transfer, some, portion. Of, that. Ending to the next generation. The. Grandchildren's, case might be if we, can set up a scenario where each of those non-grantor, trusts have a unique, beneficiary, think a sibling. As a distinct, beneficiary, for each of the non-grantor, trusts. Then. We're in a situation whereby the new. 1099, a regs aren't going to. Stop. The. Benefit. Of the, non multiple, non-grantor, trusts strategy, but, it's only in the context, of that succession, planning where your client is comfortable with, unique. Distinct, beneficiaries. Of each of the non-grantor, trusts that this is going to work. So. In, the context, of succession, plan estate planning, then. Multiple, non-grantor, trusts strategy. Can work and, effectively. Eliminate. The. Problems with the income threshold limitations. Of $1.99. A and expand. By a factor, of as many number. Of non-grantor, trusts owners as you have the. Amount of the, ninety-nine a deduction, available but.

Only Is in the context of those unique beneficiaries, and part. And parcel of succession, or estate planning so. With that I'm going to turn it back to William and let them summarize, some. Of the key takeaways of our discussion, today at 199 a before, we open it up for questions, William. William. You're gonna need to unmute your mic, there. We go am. I muted i, muted. You're, like no you're good you're good laughing right, okay. So the key takeaways. Today. We like to give three or four takeaways for every. Lecture. We do in our program. The. Section 199. Is. Designed to give that tax break for, our pass throughs that is similar to the reduced rate given, to C corporations. To. Bring a. 21. Percent rate, C corporation. To, try and bring our. Earned. Income as, an individual. After. Distribution. Of, dividends. From a c-corporation, bring, them into alignment. With. A ten percent difference right now as I mentioned number, two, calculating. The $1.99, a deduction, is extremely, complicated, once. You exceed, the, annual threshold, limitations. So. Number. Three you want to focus on, minimization. Of that AGI, techniques. It's more important than ever and. You. Get to number, four kill two birds with one stone. By. Minimizing. The AGI through. Retirement. Planning. So, the. Life, insurance underwriters. Who. Are, who, are the typical, student, in our wealth, management program. Again. This has been a huge. Christmas gift. That was given to you on December 22nd. Of 2017. With, the enactment, of the tax cuts and job Act with. That. We. Are. Interested. For those who are who. Think that this topic is, fascinating. And would. You know for us and in, our class we spend a week, going. You, know very deeply, into the topic of 199, a not. Just an hour and and. So if you're interested in this and you thought. These. Kind of strategies, are interesting, to learn about then. I encourage, you to find out more, information about, our, wealth, management, program, that, is open for both lawyers and, non-lawyers. So for your typical financial. Advisors, wealth, managers. Compliance. Officers, who are looking at the risk management, side of the business and. Directors. Of financial planning and, so on, there's. A link on this slide and, we encourage you to again. To discover. What. We're doing here at Texas A&M it's. Completely, online with. Plenty, of opportunities to. Participate. In on-campus. Seminars. And so forth so. With that. There. Was a question was feature, for, the webinar, and. And. Are. There any questions from, the, from. The attendees. Libby. Are you moderating. Okay. William we've got them on the right here. Okay. I can't, see them because I'm doing okay look I can I can read them out loud sorry I was talking on mute so we. Have a first question from Scott, so as Scott says I found, it interesting that some clients have qbi, when. They are not active, business operators, for example their, k1 has passive, income categorized. As been. A beneficiary. Share, of section, 199, a hmm, so, the, passive, investor, gets their share of the qbi on their 1040. Without. Ever having to actually run a business, the. Question is I guess the policy, goal was to encourage passive. Investment. In a small business. Well. So. The answer is let, me guess, are, they invested, in a REIT or a, PTP. A publicly, traded partnership. In the oil and gas industry, of Texas so. I mean, this. Is kind of a if you know Machiavelli, and if, you know a tax policy lecture, but was, the qbi. Written, for the small business owner or, was it actually written for the oil and gas industry, of texas because, the greatest beneficiaries. Of the, of the 20% deduction apparently.

Are The. Are. The you know investors. In, two. Publicly. Traded partnerships. Pgps. Which includes, of course the master limited partnerships. The mo piece of our midstream. Oil. And gas industry. So. Scott. You are correct, is, that your, clients. There but then again in. You. Have that Christmas gift because, they're, probably also, going to exceed the threshold as. It stands right now and looking. For, solutions. For. Their. You. Know to bring them down and again that cash balance, plan may be, may, be you, know really appropriate for them it may be as. Robert, talked, about the the. Grantor, trust strategy, with different. Beneficiaries. And so, forth. Okay, Rob Robert you have anything to add I think I think that's it no. No I think you've covered it yeah. Next. Question yep. The next question is when. Does a business, owner need to fund contributions. Employees. Employers, same. Or different due dates to. A se P IRA, 401k. Etc. Is, that December 31st, or April 15th, of next fiscal, year or, even, extension. If filed. You, know same tax year so. What. The question really is is oh my. God I'm listening to the webinar today in, 2019. What. About my 2018. Qbi, can, I reduce. My AGI, backwards. Well. If the plans not already set up so yes, there, are some catch ups if, you already have the plan in place there. Are some catch ups that, lasts until the first you know through the first quarter of the. Following, tax year but. What. You can't do is now set up the plan for. 2018. Also. Each plan I mean we don't have time to cover today we covered in our retirement and benefits, course but. When you go through each plan the, SEP IRA, the. 401. Kay the. Other masa Nations of 401 K is the cash balance each, of them have different regulatory. Schemes so you, know how many employees what, percentage, my employees, do I have to cover do, I have to have equal, amounts going in or can it be discriminatory. Amounts and so, on. So. By example with the cash balance plan you don't have to cover all your employees you, have to cover a substantial. Amount so what's that mean is it forty forty, percent is it, you know at least the general rule you have to cover at least forty percent is, it sixty percent 70, percent and, that's where the financial advisors, value-added. You. Know in the advisory, capacity. You're, not just a life insurance underwriter. Salesman, you're, actually, advising the client on their retirement benefit planning, that. Of course obviously, saves for their retirement. Days, but. On how to. Enhance. Their. Employees, experience. Which, enhances, their business itself through the retirement, system but, at an affordable in, an, affordable way so. They may not be able or want to cover a hundred percent of their employees what, is the maximum threshold. For that and so on so. The, answer is yes, there are catch ups, written. Into the retirement, systems, however those, catch ups do. Require, the retirement, systems, the regime that you've chosen to go with is, already, in place for, 2018. It, can't be an afterthought, this year for last year but the good news is you're. In 2019. There is a qbi deduction, for this year and it's, not too late for 2019. To set that up and start. Funding it a. Robert. You want to add anything, no, is, there. More. Questions, yep. If we have a couple more so the next question is where. Would a 160. To executive, bonus, plan see fit in addition to the qualified, plan and cash balance, plan. So. With. The retirement planning. Again. If. If. So. Let's say it's a 457. Which. I'm more, familiar with deferred, comp as, long. As. The. Pre-tax. Dollars going, in. Are. Reducing. The AGI. You're. In the. 199. A category. Reducing. That threshold you're. In good stead, but. If you, fall outside. Of that pool. Then. You're not reducing your AGI for 199, a and. And. So of course you, know still there's lots of other comp. Plans out there, but.

They Don't necessarily work. As pre tax dollar comp plans and, and. Thus, for. Purposes, of 199, a they're. Not the most appropriate vehicle, it doesn't mean they're not appropriate for other situations. And. You'd want to keep them but but, just not for this, particular. Deduction. Which of course again. Will, sunset. In. 2026. Absent, Congress doing something. Thanks. Okay, this next question, is about the LLM, program, how, many hours a week would, have to be dedicated to, be successful, in the degree program, I'm. An in-house counsel, for a large agency, with a very demanding caseload. Okay. So the good news is all of our students, have a minimum, of five years experience in industry but our average, years of experience, is about. Is, over, I don't know the exact figure, but it's over 11 years it's. Underneath 15, years it's like twelve twelve point eight years they're. All like yourself, they all have demanding, jobs they're, all higher. Level, management in their. In. Their companies, that are paying, for the program I say, not all because obviously we have a lot of underwriters, also. But. The. 15. Hours a week per. Course now. The good news is we do one course at a time so. Our courses are seven week courses our. Semesters, are two, courses over the semester but they're back-to-back, so. You do one course for your seven weeks and, then do the final project exam, paper has to be submitted, that's, in your week eight and then you start your your, next course and so. The semester, is two courses but. It's divided, one course at a time so. For, the one course at a time approach, you. Need to spend 15, hours a week but, you need to spend it focused on one. Course. Area, so, if. For. Some programs you're, doing two maybe, even three courses, at once and I, understand, that, however. For. The really busy busy, professional, because we polled industry, it's, not like I'm I built something and it's like they will come we, went and you know hired a very expensive, consultancy. To go out and ask industry. What, would be best for industry, an industry told, us the, program has. A really useful fit, for. For lots of lack of skill, sets or lack of knowledge areas. For. What they need to better do their jobs however. What. They did not want is to. Have fragmented. Learning, where. They, would be having. To be trying to read, two or three different books areas, of information, and do their jobs at work which, are all multitasked. So, nobody, has the one. Little. Job, area at work they're multitask, on different, functions, many, different clients, so, they didn't want the program. To overburden. An overburdened. Workforce already so, we've structured, it I think, very well with the one, course at a time each, course seven weeks spend. 15 hours a week you could spend as little as 10 hours but, generally.

I Say 15 hours to get the maximum, benefit, from the program that includes your class time on the, webinars, on, the on the interaction, with your faculty your study, time and, interacting. With the other students, in your team-based learning experiences. And. Well you might get I can note. Right now my tax class I've got a general, counsel the family office very similar, position. And they. Seem to be doing. Well with the asynchronous, nature of. The, program, not only the one course at a time but the asynchronous, that you're, a local material, is. Not. Necessarily. On the planned schedule of a typical residential. Setting. That that combination of one course at a time Plus, that it being asynchronous, where you can pull it on. Demand, when, you're available. Seems, to make it work for our executive, students, and. All the students get to come together and meet each other different, networking events we have on campus both, at the law school and, on main campus at College Station so. Every October, we, host the college. Station hosts for us but we piggyback, our. Big financial planning conference, and literally hundreds, of people come who are Aggies, of course in the programs and. It's. Not open to outsiders but. Hundreds. Of people come the big institutions and. We, spend two, days learning. Sharing networking. Team-based, group projects, and so forth and then. Because it's always a Thursday Friday and then on Saturday we go see a football game. Great. Thank you, we. Probably have, time for one, more question. If, anybody has any questions to submit. Just, a reminder the. Webinar, was recorded and. You'll get it via email or. We. Invite you to visit the, Texas, A&M law school website to learn more about the wealth management. Master's. Programs. Will. There be more webinars in the future. Yes. So I mean in the context, so our classes, our live classes aren't exactly like this because they're interactive, with the students, so they're you, know with the videos showing the students, talking to each other and with the professor, however. You. Know we're, used to doing this. Video. Or. Webinar, based videos, every. Single week in our programs with our with our students, and thus. It's what. We're thinking about the future to to. Expose, the program to, more people, in the financial, industry both. Who sit on the front office that's. You the wealth planners, or in the back office that's the compliance, of risk, officers. Is to, bring, some of the cool strategies. That. We explore, you, know during an entire week of class to, spend an hour exploring. Them on a webinar to expose. You to some of what we do and then. You. Know if you find it in just interesting. Please you know talk to our admissions people about whether, the program, meets you. Know what you do at work meets meet your requirements, reimbursement, wise will. It add value, to your career and so on so. I really. Think everybody, who came to our webinar today time, is valuable and everybody's, multitasking. We recognize that so. And, if you're watching the video later on. You. Know feel free to reach out to Robert or I Roberts, a real practitioner. He I say, Roberts a real lawyer I'm, an academic full-time. 100 percent so, while we're both authors of. I'll. Show you the tax facts series and we, encourage, you to to, use our our books, we write you know over 4,000. Pages of content that, sell twenty to thirty thousand, print copies a year I think to the financial. Planning. Industry of.

Underwriters And so forth. You. Know so we have a lot of answers. To questions. It's you it's literally written in a QA approach, so, we have a lot of answers to questions, that. You. Can ask that we can find in that, but. Advisory. Work well, that's your job you are the financial advisor the. Clients, are coming to so, so, our our, objective. Is to empower. You, to be. Able to, analyze. These, issues, on your own in the future to, research. And find the information on your own in the future that, you start, you, know maximizing. Your client, billables, or your, assets, under management in, the future that's, our objective so. You can reach out to us in that context. But, in terms of you know employing, myself. I'm a I'm a full professor, I can't, do that Robert on the other hand real lawyer feel. Free reach out. Anytime. So. That's that plug light is there more questions or, do we need to wrap this up let me that's. All the questions we have so good timing I know we're at. The top of the hour. Thank. You again for, everyone that. Joined. Us thank you to Professor burns and Blanc for sharing their expertise, and their insight. You'll. Get an email shortly that. Will include the link and also more information on the online wealth, management, master's. Programs, so, we. Hope you have a great rest of the day and thank you for joining us thank. You thank you everyone.

2019-03-29 03:45

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