Have you ever faced a situation in your business where you are not able to break through to the next level? Have you ever hit the ceiling of complexity where you are not able to increase your gross revenue or your bottom line?

During the PEAK annual conference last month in Arizona, I heard about how the founder, Ron Carson, went from $150,000 of annual production in 1984 to $15 million of gross revenue in 2012. How did he do it?

Ron’s organization is with LPL, and he generates most of his revenue through his RIA and broker/dealer revenue. He has an on-staff attorney and CPA, and he creates wealth plans for his prospective clients. During his wealth plan presentations to prospective clients with a net worth of $5 million to $1 billion, he shows them how the IRS may be the client’s biggest beneficiary. Through shifting assets into tax-free irrevocable trusts and the use of second-to-die life insurance, clients are excited to learn they may leverage assets on a tax-free basis within an irrevocable life insurance trust (ILIT).

The strongest benefit for choosing a tax-free trust is to move assets between the tax lines. What does that mean? Well, when your clients give up incidence of ownership, they are no longer the technical owners of that property. However, when a gift is made, it is no longer theirs. Clients wouldn’t even consider giving away their money unless that was the strategy that could derive the largest rate of return. There comes a time in a client’s life when their assets may grow so large they can make more money by saving taxes than they can by making money.

Keep in mind that the unified credit amount of $5.25 million is portable and can be shared between spouses. That means clients can use their unified credit amount during their lifetime or after they die. It’s totally portable and can be used when they want to use it.

A married couple can exempt $10.5 million from federal estate taxes without having a credit shelter trust. Above that level, the estate tax rate is 40 percent and may be higher if the state where they are domiciled has an estate tax as well. Keep in mind, this is the estate tax rate, and there are also a few other taxes your clients may be subject to. There are income taxes, IRD taxes and capital gains taxes. Your job as an advisor is to forecast clients’ estate value into the future, determine how each asset may be affected by taxes and design strategies that help to keep those taxes as low as possible.

Moving assets from a tax-deferred to a tax-free environment may involve giving those assets to charities at the clients’ death and replacing that wealth with an ILIT. Another avenue to explore is to turn on the income stream of a single-premium annuity and move the proceeds to an ILIT. By using proper planning, you can advise clients to coordinate their assets with a strategy that moves assets from a taxable environment to a tax-deferred or tax-free environment.

Next month, I’ll continue telling you the story of how Ron Carson, the No. 1 LPL advisor in the United States, moved from $150,000 of gross revenue to 100 times more gross revenue — $15 million — last year.

 

For more from Brent Welch, see:

5 ways to charge fees

The 4 percent myth

Is workshop marketing right for you?