(Dinar Recaps Note: This post is for informational purposes only. It is not legal, tax or investment advice. Dinar Recaps advises that everyone should do their own due diligence and seek local Professional tax, legal and/or investment advisers.)
PRIVACY, ESTATE PLANNING, ASSET PROTECTION, LAWSUIT AVOIDANCE, ETC
Biblitarian: I am an attorney at law, and this is for educational purposes only. Consult your own attorney, your own financial planner, your own CPA, your own business consultant, etc.
1. INCOME TAXES. Wherever you are dominciled when you exchange your dinar or other currency, then pay your federal and state income taxes there. Afterwards, move to a state where there are no income taxes and live there, conduct business there, and make it your bona fide residence. Living in a state where there is high income tax is not worth it. If you earn 1 million a year, you will lose $130,000 for state income tax for example if you stay in California.
Thus, lets take a hypothetical that you live in California currently. California's top income tax is 13.3% (ouch), the highest state income tax in the nation. If the Federal income tax treaty, or special tax reduction rate for the dinar, is passed, then your total federal and state income tax, if you live in California, is 24.3%. If you receive 10 million from exchanging your dinar, then your income tax liability will be $2,430,000, which will leave you net after income taxes, to be $7,570,000 net.
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Still not bad. However, if you moved to Henderson, Nevada, buy a bigger house there than the one you had in California, get a new driver's license, register your car, register as a voter, sign up for your utilities, file your taxes as a Nevada dominciliary, then next year you will not have to pay the 13.3% to the state of California.
This is called tax planning and tax avoidance, but not tax evasion. Yet, make sure you pay your taxes. As Tony said, if Congress does not pass a special tax reduction for the Dinarians, then you will have to pay the full amount. That would hurt. Yet, for the IRS, you will pay approximately 45% and the State of California (following my hypothetical since I am a California attorney) you will pay 13.3%, which will total 58.3%.
Thus if you made 10 million in the dinar exchange, then your taxes would be $5,830,000, which would leave you a net of $4,170,000. This is still a win.
2. INCOME TAX SPECIALISTS. You should immediately hire a tax attorney, and let the attorney hire a CPA, as the CPA firm communication with you is protected by the umbrella atttorney/client privilege. You should continue using this advice and also use this method.
The tax attorney, with the help of the CPA firm he or she hires can prepare an audited accounting, so when you are audited, you can have your tax attorney give the audited return to the tax auditing IRS agent or State tax auditing agent. Your audit will be simple.
If you are audited, send your tax attorney to answer the inquiries by the taxing authorities. Never speak to the taxing authorities without your attorney present and follow his or her advice.
3. INCOME TAX REDUCTIONS. FIRST: You can set up a Charitable Remainder Unit Trust (CRUT) and get a tax reduction in 2013, but do not have to pay out the principal or corpus of the trust until your death, and perhaps your children's death. Your tax attorney can explain this, and he can hire Financial Planners to help set this up. [You should always have a corpus replacement by using a life insurance policy, so upon your death, and the corpus alloted is paid to the charity, you replace the corpus in your estate with the life insurance proceeds].
You can set up your "own" charity, have you or your children work there in that charity and have an income until your death. A CRUT can be a good tax reduction for you in 2013 and afterwards.
SECOND: There are several "self regulated retirement plans" you can set up and fund in 2013 and defer taxes until later. There are technicalities to these, and they have to be set up by professionals hired by your attorney.
4. GIFT TAXES: Assume you are a husband and wife who have two children that you want to leave a large amount of money to in 2013 or 2014, or let's assume you want to buy them each a house. This is where people get into trouble without proper estate tax planning. If you pay your income tax, then from the net amount, you give your childre $1,000,000, you then have a gift tax problem.
You and your spouse can give $14,000 a piece to each of your children, so that would be $28,000 per child, and if you want to give your child's spouse the same amount, you can. Thus, each of your two children, if married, can receive gift tax free $56,000 each year. If you want to give them a "house" then you have a right to tap into your "life time" gift tax exemption of $5,250,000 for each parent, so your tax attorney will have your tax preparer to file a IRS form notifying them that you are taking part of your life time exemption in the amount of the value of the houses given to your children.
Assuming the amount you receive by exchanging the dinar is say 50 million after income taxes are paid, your personal life time gift tax exemption of $5,250,000 ($10,500,000 for both spouses) still can be used to make gift tax free transfers to your children. Gift taxes are 40% of the non-exempt amount given. Again, you need your tax attorney and CPA firm to handle this and to file the appropriate IRS and State forms. Yet if you place the house in a corporate name, and your child lives there paying rent, but has an income from the corporation that owns the house, then this would not be a gift.
It is better to just have the "right of possession" instead of ownership. Yet, if you have your children living in the house rent free, the rental value of the house given rent free would be considered income for your child most likely by the IRS. Yet, if you deed the house to children, and take a gift tax exemption from your life time gift tax exemption [discussed more below], then if your child is "sued" in a court of law, a judgment lien can be recorded against the house and the equity taken away by a judgment creditor.
There are answers to these problems which you will have to speak confidentially with your attorney. Remember, only your attorney has the privilege of confidentiality, so hire everyone through him or her.
5. ESTATE TAXES: The gift tax discussion above will be discussed further under this heading.
Under the provisions of American Taxpayer Relief Act (hereinafter AATRA), the federal estate tax exemption (the amount that is not taxed) has been indexed for inflation and therefore increased from $5.12 million in 2012 to $5.25 million in 2013, but the estate tax rate for estates valued over this amount has increased from 35% in 2012 to 40% in 2013.
[In addition, the lifetime gift tax exemption as discussed above has also been indexed for inflation and therefore increased from $5.12 million in 2012 to $5.25 million in 2013, and the maximum gift tax rate has increased from 35% in 2012 to 40% in 2013.] Finally, the generation skipping transfer tax exemption has also been indexed for inflation and therefore increased from $5.12 million in 2012 to $5.25 million in 2013, and the maximum generation skipping transfer tax rate has increased from 35% in 2012 to 40% in 2013.
These unified exemptions will continue to be indexed for inflation in 2014 and later years.
"Portability" of the federal estate tax exemption between married couples has become permanent. In 2009 and prior years, married couples could pass on up which means that in 2013 a married couple can pass on $10.5 million to their heirs free from federal estate taxes.
Note, however, that even if the deceased spouse's estate will not be taxable (in other words, is valued less than $5.25 million), the two times the federal estate tax exemption by including "AB Trusts" in their estate plan is still better. The Tax Reforem Act of 2010 eliminated the need for AB Trust planning for federal estate taxes in 2011 and 2012 by allowing married couples to add any unused portion of the estate tax exemption of the first spouse to die to the surviving spouse's estate tax exemption, which is commonly referred to as "portability of the estate tax exemption."
[However, the states can require a different law, so AB Trust planning may still be used.] ATRA makes portability of the estate tax exemption between married couples permanent for 2013 and beyond, surviving spouse will nonetheless be required to file IRS Form 706, United States Estate (and Generation‑Skipping Transfer) Tax Return, in order to take advantage of the deceased spouse's unused estate tax exemption; otherwise, the deceased spouse's exemption will be lost.
Special planning will be required for state estate taxes in some states. To date, none of the states that have enacted a freestanding state estate tax have made the state estate tax exemption portable between married couples.
This means that in states where there is a difference between the state estate tax exemption and federal estate tax exemption (such as in Maine, where the 2013 estate tax exemption is only $2 million, which leaves a $3.25 million gap between the state and federal exemptions), married couples will need to include special planning in their estate planning documents in order to take advantage of both spouses' state estate tax exemptions.
Also, as states have financial problems, the state government legislatures may pass laws that require special estate tax planning. In any event, the AB Trust is still a cautionary type of trust to have.
Also, if the decedent's estate is close to the current estate tax exemption in value, then a Federal Tax Return, Form 706, must be filed. In many cases an estate tax need not be paid, as most all of the decedent's assets are community property and are held for the benefit of the surviving spouse, or the estate tax is deferred to the death of the second spouse based upon the unlimited marital deduction (Internal Revenue Code, section 2056).
Although in 2013, the amount of $5.25 million is currently exempt from estate taxes, should you die in 2013, the concern is with the estate tax rate increase to the maximum amount of 40%. This means that without any further planning on your part, the difference between the value of your actual estate and the estate tax exemption at the time of your death will be taxable and the tax rate is potentially high based on the final amount being taxed.
Let's assume that you have wisely invested your money from your dinar exchange, and you have ample income to take care of your living expenses, and to otherwise enjoy the fruits of your and your spouse's financial blessing. Rather than wait until you die to share the wealth with your family, you should decide to begin an annual gifting program to your two adult children. You can also set up education and long term retirement funds for your children and grandchildren through IRA's for example. The compounding effect over 40 years while the money sits there and gains dividends is awesome.
This means if you have two children, and each have three children of their own, then in 2013, you can gift to each of them up to the amount of $14,000. This allows you and your spouse to gift to each of your two children, and their spouse, $56,000, and then you and your spouse can give $28,000 for each of their 3 children ($84,000), for a total gift to each of your children's family gift tax free, $140,000 for each year thereafter.
Since the grandchildren are minors, you will have to place the amounts to the grandchildren in a trust and if you want you can contribute $5,500 each year to a Roth IRA account, which would be only part of the money. [With compounding, the amount when a 10 year old now retires at 65 with contributions would be in the millions]. With a Roth IRA, there is no taxes at time of retirement for the grandchild. With the balance of the money, you can purchase stock in a corporation for them, and have the corporation own rental property.
The corporation will pay the income tax each year, and the children would be charged income tax on the amount they receive in their special account being held for them. There are a lot of things you can do, but you have to do it right to avoid gift tax, and lessen the income tax. If you continue to practice annual gifting at this same rate, you will effectively lower the value of your estate with this method alone. There are several other ways you can lower your estate taxes, which would have to be discussed confidentially with your lawyer to maintain confidentiality.
In the future, as changes are made by the federal and state governments, you have to be remain cognizant of any changes that affect you. Also, as the real estate market changes, understand that it is the fair market value, not the net equity you have in your real property that is used to calculate the size of your estate.
Thus, these are cautionary areas to be concerned. This is why I advise all dinarians to stay out of debt. Buy your real estate for cash. If you used your 50 million as a down payment to "leverage" real property, where you obtain 300 million worth of property that has mortgages equal to 200 million, and you die, then your estate tax exemption for you and your spouse would be $10.5 million, and 285 million would be included in your estate for estate tax purposes at the high rate of 40%. Without proper estate and death tax planning, 40% or 285 million would be "potentially" the sum of $114 million on the example given.
You would have lost your entire estate and your children get nothing.
6. Other topics that will be discussed in future legal blogs will be what to do to "protect" your estate.
How to set up cash flow security and cash flow management.
How to "communicate" to avoid "misrepresentation" charges and disclosure of your wealth.
How to use libility insurance and life insurance to protect your estate corpus from diminishing
How to hold title to your real property and businesses
How to avoid lawsuits.