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Wealth Planning Suite. Discussion. Calculations. Example: 12% entered would be 1% per month compounding to 12.6825 in one year. Calculations. * Monthly compound rate (R) to produce effective annual rate (EAR) entered EAR = (1+R) 1/12 – 1. - PowerPoint PPT Presentation
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Wealth Planning Suite
Discussion
CalculationsAsset or Item Interest/Income Comments
Checking 1/12th compounded monthly Reinvested
Cash, Savings 1/12th compounded monthly Reinvested
Money Markets 1/12th compounded monthly Reinvested
Treasury Notes 1/12th compounded monthly Reinvested
Example: 12% entered would be 1% per month compounding to 12.6825 in one year
CalculationsAsset or Item Interest/Income
401k, 403b Compounded monthly to produce effective annual rate entered*
IRAs Compounded monthly to produce effective annual rate entered
Profit Sharing Compounded monthly to produce effective annual rate entered
Roth IRA Compounded monthly to produce effective annual rate entered
529 Plan Compounded monthly to produce effective annual rate entered
Coverdell Compounded monthly to produce effective annual rate entered
Example: 12% entered it is compounded monthly at 0.948879%
* Monthly compound rate (R) to produce effective annual rate (EAR) entered
EAR = (1+R)1/12 – 1
* Monthly compound rate (R) to produce effective annual rate (EAR) entered
EAR = (1+R)1/12 – 1
CalculationsAsset or Item Growth
Speculative Assets Compounded monthly to produce effective annual rate entered *
Personal Property Compounded monthly to produce effective annual rate entered
Collectibles Compounded monthly to produce effective annual rate entered
Bonds ½ coupon interest rate times face amount; not reinvested;paid January and July
Annuity deferred growth rate is 1/12th compounded monthly
* Monthly compound rate (R) to produce effective annual rate (EAR) entered
EAR = (1+R)1/12 – 1
* Monthly compound rate (R) to produce effective annual rate (EAR) entered
EAR = (1+R)1/12 – 1 Example: 12% entered it is compounded monthly at 0.948879%
CalculationsAsset or Item Appreciation
Mutual Funds
Growth Compounded monthly to produce effective annual rate entered
Income 1/12th paid monthly
Reinvested Income 1/12th compounded monthly
Capital Gains 1/12th paid monthly
Reinvested Capital Gains 1/12th compounded monthly
Income and capital gains percentage calculated on same end of month value
CalculationsAsset or Item Appreciation
Stocks
Growth Compounded monthly to produce effective annual rate entered
Dividends 1/12th paid monthly
Reinvested Dividends 1/12th compounded monthly *
* Monthly compound rate (R) to produce effective annual rate (EAR) entered
EAR = (1+R)1/12 – 1 Calculated each month on beginning of year value
Effectively – Reinvested Dividends work exactly the same as Growth
* Monthly compound rate (R) to produce effective annual rate (EAR) entered
EAR = (1+R)1/12 – 1 Calculated each month on beginning of year value
Effectively – Reinvested Dividends work exactly the same as Growth
CalculationsAsset or Item Appreciation
FLPs
Growth Compounded monthly to produce effective annual rate entered*
Income (not distributed) 1/12th compounded monthly
Income (distributed) 1/12th monthly
* Monthly compound rate (R) to produce effective annual rate (EAR) entered
EAR = (1+R)1/12 – 1
* Monthly compound rate (R) to produce effective annual rate (EAR) entered
EAR = (1+R)1/12 – 1
CalculationsAsset or Item Appreciation
Businesses & Farms
Growth Compounded monthly to produce effective annual rate entered
Dividends (always distributed)
Paid monthly at monthly compound rate to produce the effective annual rate entered*
Income Dollar amount entered, in addition to dividends, and paid net of business expenses
* Monthly compound rate (R) to produce effective annual rate (EAR) entered
EAR = (1+R)1/12 – 1 Calculated each month on beginning of year value
Effectively –Dividends work exactly the same as Growth
* Monthly compound rate (R) to produce effective annual rate (EAR) entered
EAR = (1+R)1/12 – 1 Calculated each month on beginning of year value
Effectively –Dividends work exactly the same as Growth
CalculationsAsset or Item Appreciation
Real Estate Assets
Growth Compounded monthly to produce effective annual rate entered*
Income Dollar amount entered, in addition to dividends, and paid net of business expenses
* Monthly compound rate (R) to produce effective annual rate (EAR) entered
EAR = (1+R)1/12 – 1
* Monthly compound rate (R) to produce effective annual rate (EAR) entered
EAR = (1+R)1/12 – 1
CalculationsAsset or Item Appreciation
Trusts
Growth Compounded monthly to produce effective annual rate entered
Income (reinvested) 1/12th compounded monthly
Income and capital gains percentage calculated on same end of month value
CalculationsItem Assumptions
Education Goals
Compounded monthly to produce effective annual rate entered
Education costs paid monthly
1/12th of estimated cost
Timing of payments Assumed August – July (5 payments one tax year, 7 payments the following tax year)
Education Inflation Its own rate applied at the start of each school year
Trust Accounting
• Current– New trust assumed to start and have anniversary date
the same as the date of the proposal– All ledgers show end-of-year values– Unitrusts percentage payouts based on end-of-year
trust value– Ledger values show portions of two trust years
• Solution:– Change calculations– Improve footnotes and messaging
Changes if no calculations changes
------------ 1 2 3 4
FLP Distributions
• Current– “FLPs and Defective Trust”
• All income distributed• Trust needs distributions for premiums and loan payments• Trust does not distribute its remaining income
– All other FLPs• Assumes FLP does not distribute any income
• Additional Problem– FLP only allows income as a percentage– Hard to match when rental or business put in FLP
Pension Protection Act (PPA) and IRC 101
• Employee’s prior notification and consent required PRIOR to issuance of BOLI
• Company “policing”?• How broadly interpreted?
– Stephan Leimberg’s – very• Suggested wording in Assumptions or Important Notice to
save some customization:Insurance death proceeds are generally received income tax free [IRC § 101 (a)]. For employer-owned life insurance policies issued after August 17, 2006, IRC § 101 (j) provides that death proceeds will be subject to income tax; however, where specific employee notice and consent requirements are met, and certain safe harbor exceptions apply, death proceeds can be received income tax free under IRC § 101 (a).
References to NASD• Now that NASD and NYSE have merged to form FINRA• Regulations still refer to “NASD Rules and Regulations”
and NYSE Regulations• New members are referred to as FINRA and are subject to
NASD Rules and Regulations if not also a member of NYSE• FINRA rules refer to
– “prior NASD only members” – “both NASD and NYSE members” – “NYSE only members”
• Consensus Needed– Should references be changed throughout products– Continue referring to NASD
State Inheritance and Estate Taxes• Many states have and are changing due to the elimination
of the federal credit for state inheritance and estate taxes• Calculations are updated as we receive notices – each
new release has the most up-to-date at time of beta• ***Uses state on Estate Tax tab in Assumptions***• Calculations are identified where possible for state rates
– State rates applied to “federal” amounts– No split states (additional expenses or taxes can be used)
• Some states require additional beneficiary information– Percentage to each class & # in class
• State Death Taxes page conditional by state for proposed scenario
Recent Changes:Kansas Repeal effective 1-1-2010 (graduated step down 2007—09 Implemented in 2006R2Substantial Changes or Repeal:Arizona 2006Arkansas 1-1-2006Louisiana 1-1-2008Nebraska 1-1-2007Virginia 7-1-2007
State Death Taxes by Scenario
Conditional State Death Tax Page
ETA’s Relationships within Initial Graphics
The Calculus of PlanLab and ETA
Multiple Changes – Changes behind the Scenes
• Desire to make one change and have it applied to all similar items
• Impact tries to not make changes – to actual entries – behind the scenes
• Must be considered on very specific items
Living Trusts – Specifying Assets
• Now – assumes all probate-able assets included
• Additional reporting required if individually selected
• Would specifying specific assets to be placed in the trust constitute practicing law?
SuperLedger – Multiple Scenarios
• Each scenario available• Each separately calculated module available
Page Numbering Option
• Renewed requests from banks, RIAs, non-insurance related firms to make page numbering an option
• Is this still a compliance concern?