Episode Transcript
Speaker 1 00:00:05 This is annuity straight talk since 2008. Your host Brian Edison has helped clients nationwide navigate the complex market for a meeting with Brian's assistance. Hundreds of clients have achieved a profitable and secure retirement. I would know because Brian has answered many of my questions concerning annuities and retirement planning So that you can benefit as well. Let's get started. Here's Brian
Speaker 2 00:00:49 Hello and welcome everyone to the annuity straight talk podcast, episode number 36. My name is Brian Anderson coming to you from Northwest Montana, kind of a gray spring day. Spring is coming. Summer's coming. We're excited about it. I've got a special guest for us today and a different topic that we haven't touched on, which is kind of it's loosely related to retirement planning. It's a lot of things that people might be interested in knowing some strategies around it, but from the legacy tree foundation, uh, I've got John Frazier welcome John.
Speaker 3 00:01:17 Okay. Thank you, Brian. Good morning. It looks like there's some snow on the ground out there.
Speaker 2 00:01:21 There's some snow in the Hills. Yes.
Speaker 3 00:01:23 Okay. Well you can keep it
Speaker 2 00:01:26 And you are in Florida, so good for you.
Speaker 3 00:01:29 I am in Florida. It's a beautiful 75 degree day here in Palm beach county and no complaints.
Speaker 2 00:01:34 Yes. Well that's what everybody, when people call from Florida, they brag about the weather in the wintertime. And so I just make sure I call them in July and tell them how pleasant it is here.
Speaker 3 00:01:42 Yeah. Or during hurricane season down here, whichever works for you. Right. So
Speaker 2 00:01:47 When they're boarding up the windows.
Speaker 3 00:01:48 Exactly. Right.
Speaker 2 00:01:49 So why don't you tell us a little bit about the legacy tree foundation? John,
Speaker 3 00:01:53 Uh, legacy tree foundation is a first and foremost, a 5 0 1 C3 charitable foundation founded in 1999 based outside Nashville, Tennessee in Brentwood. And again, first and foremost, we are a charity. Our mission is to provide physical, spiritual, humanitarian aid to those need. Basically, we write checks to other charities by to do that though, we don't do pancake breakfast. We don't do golf tournaments because those can be a kind of a pain sometimes. But we work with financial professionals around the country to allow their clients to reposition assets, with legacy tree, to get what I call the three pronged, milking stool. One is a charitable tax deduction to offset their texts, their adjusted, gross income. They get income structured back to them over a term, certain number of years, to help with legacy planning, beneficiaries, income for themselves, whatever they need it for. And thirdly, to, uh, put a small grant towards the charity or charities of their choice. So their church, local animal shelter or habitat for humanity, whatever local or national charity they choose to use. So everybody benefits with this type of planning. And that's how I, I like to share with people what it's about.
Speaker 2 00:03:07 You explaining that to us. And I think it's really interesting several points in my career. I've run into, you know, charitable, remainder trust and some of the planning that goes around, things like that. You know, when we were introduced to each other, I thought, Hey, that's a great topic. You know, I said this right before we started, as a lot of people think about charity as in just giving money away. But there are certain tax advantages, tax benefits, and even some retirement planning that could go along with it. And why it's important for my audiences. I've consistently talked about the five keys to retirement. We don't need to go over every single one of those right now, but the final one is legacy. And for people that want to leave a legacy, and a lot of times it leave it to their kids, someone family, but I do have a lot of people, especially on annuity contracts and whatnot that leave a significant portion to a charity. And if that's the end result and that's the ultimate goal, then maybe along the way, you can receive some benefits and some additional retirement boost out of that. Does that sound about right?
Speaker 3 00:04:01 Yeah, that's absolutely right. And there's a lot of people who have annuities out there, especially, let's talk about that as an asset. If you want to, to start with that are not going to use it. They bought the annuity few years ago, several years ago, many years ago. And they were going to use that income for retirement, but now things have changed and they don't need it anymore. So they're going to leave that annuity to the kid. Offspring, I want to say child, but they're growing people at this point to a beneficiary. They're
Speaker 2 00:04:27 Always children.
Speaker 3 00:04:28 Yeah, exactly. Right. But what a lot of people don't understand is that when you leave an annuity, non-qualified annuity to a beneficiary, the gain on that annuity is taxable to that beneficiary. If they lump sum it out. So what we do is we allow the owner of the annuity while they're still alive to transfer ownership of that annuity to legacy tree in return, they get the tax deduction, which they're going to get 10 99 on that gain when they transferred her surrender at anyway. But nine times out of 10, that tax deduction that we generate is going to cancel out and then some that gain. So they don't leave that tax bomb to their beneficiaries upon their passing. And then the income can be structured, more tax advantage to whoever they want, you know, that can be deferred down the road, paid out for a long period of time. So rather than lump summing that inheritance to their children, we do a strong, what we call a structured inheritance where that payout is paid out over 15, 20, 25 years. So the, the beneficiary is not getting that large sum of money right up front. Cause they're probably already getting that from a life insurance policy or something like that. So they don't need more.
Speaker 2 00:05:38 Okay. That does make sense. And that's one of your points. You have a series of videos out on YouTube, and I guess if it's okay, I'll probably just link those in the podcast description. If anybody wants more information, they can go look at each of those they're quick videos. There's a four or five of them, Just three minutes, a piece to describe the different strategies for doing this. So one of my questions was just for everybody to understand that what types of assets can be used with these strategies.
Speaker 3 00:06:03 Right? Great question. The aforementioned non-qualified annuity, of course, real estate, not necessarily primary home, but second homes rentals, things of that land, commercial buildings, real estate is a big popular use our asset, I should say securities. So people looking to get out of the market and reduce their capital gain hit, they can transfer some stock to legacy tree, and that can make it the capital gain, a reduction or elimination in some cases, cash of course is in there. And now as of like late last year, we're able to accept crypto. Oh wow. As an asset. Yeah. So people who trade crypto that wanted, you know, give to charity or want to get some tax help and all that can, uh, reposition their cryptocurrency Bitcoin, Ethereum at about 60 others through, uh, an online portal that we have for that, the world
Speaker 2 00:06:54 Is changing. A lot of people ask me about crypto.
Speaker 3 00:06:57 Yes, it is.
Speaker 2 00:06:59 We haven't done the crypto podcast yet, but I do have an expert. I do have an expert, but he's hard to get online for a few
Speaker 3 00:07:05 Minutes. May have too soon.
Speaker 2 00:07:08 Yeah. Right. Uh, he thinks he's not an expert, but I thought, Hey,
Speaker 3 00:07:11 He's too busy making money probably. Right. So
Speaker 2 00:07:14 Anyway, Beside the point, so again, this is going to be kind of like a refresh as something that you already touched on, but someone gives one of these assets to the legacy tree foundation. What do they, what are they getting returned? You kind of covered it with the annuity. Again, this is know, talking about it goes above and beyond just giving something away. There are benefits to doing it as well,
Speaker 3 00:07:33 Right? Yeah. Well, we call it as a split interest transaction. Okay. You're giving a charitable plan giving contract from a charity in his case legacy tree. Okay. Where we don't give you an annuity, we don't give you any kind of an insurance product where we a charity doing a charitable plan giving contract with that said, we utilize IRS codes that are called a charitable bargain sale, which I know we're going to touch on shortly and an installment contract. So what that is is that we do a split interest, which we ended up portion of that asset is going back to you and income back to the client income and a Porsche is going to be the tax deduction. Okay. So those two numbers will always equal the amount of the asset, whatever the asset is. Okay. So percentage goes to back in income tax-free income and a portion goes as a tax deduction.
Speaker 2 00:08:25 Okay. Does that make sense? So
Speaker 3 00:08:28 It's just math one and one equals two. Right? So
Speaker 2 00:08:31 Yeah, exactly. So you brought up the charitable bargain sale. That's kind of a next on my list and this is one of the videos that you guys have out there. But explain that in a little bit more detail.
Speaker 3 00:08:41 Sure. All the bargain sale is, is the ability for us to quote unquote, purchase the asset from the client at a discount. So let's say you have a $200,000 asset. It doesn't matter what it is. We may purchase that asset back from you for say $110,000. Okay. I'm going to put you on the spot here. Math wise, what is the tax deduction then if they have a $200,000 asset and $110,000 bargain sale, right?
Speaker 2 00:09:08 Well, because I took a lots of notes and the videos, and I feel like I'm a pretty sharp guy. I believe that's a $90,000 tax deduction,
Speaker 3 00:09:16 90,000. Exactly. So those numbers will vary. So again, it's just simple math. So $110,000 bargain sale value means that that a hundred, $10,000 is going back to the client, the donor, as we call them as tax-free income. Now, what we do at that with the installment contract is add interest onto that, to get it back up over that $200,000, original asset amount. So over the long-term, it's going to be payback more than they originally put in. Plus the tax benefit and the money they saved from the tax deduction makes the value of the legacy plan more than the original asset was. Okay. So those numbers vary the bargain sale value, and therefore the tax deduction will vary based on the terms of the income. So there's a deferral period if they want where we can pay it immediate. But let's say we do an immediate payout for 20 years. That tax deduction will be lower. Therefore, the bargain sale value higher than if we deferred it 10 years and paid it out over 20 years. Okay. So it just depends. And we, of course we do illustrations to show all that, but those are the variables involved in determining the percentage of assets that's the bargain sale and the tax deduction. Right. Does that make sense?
Speaker 2 00:10:29 It does make sense. And I think, I always try to think of specific uses for something like this and I kind of hit, and you can tell me, cause you've been doing it for a while, but it seems as though it's possible that someone might be motivated to do this because of another life event. For instance, if there's a large capital gain or something similar, they could do this to offset that capital gain. Is that, is that fair? So, oh, I'm going to have, yes, I just sold this property or whatever I need to, I need something to offset that, the gain anyway,
Speaker 3 00:10:59 That's right. And even on top of that, Brian, that anybody there with real estate or stock that has capital gain, also business owners who sell their businesses will also have capital gain as part of that, that windfall and the taxes they will owe from that. That's another audience that we work with quite often. So it's considered a cash plan because they'll have the cash, but they do have the tax issue of capital gain along with ordinary income from that sale of the business.
Speaker 2 00:11:27 So there's also another one called, and we actually, I did a podcast on this one, which is the installment sale and that's another tax deferral of capital gains. But how has it installment sale different in case someone sees both of those podcasts?
Speaker 3 00:11:40 Are you meaning Saltman contract or installment sale?
Speaker 2 00:11:43 Yes. But there's specific differences between the charitable bargain sale and the installment sale.
Speaker 3 00:11:48 Yeah. The installment sale is basically the income paid out the schedule to pay the income. Anybody who's got a mortgage knows that that's an installment contract where you have a principal and interest on either side and principal goes up and interest goes down as, as you continue to pay it, that's an IRS installment contract or installment sale, same thing. So when we do income, a portion of that income is tax-free as we discussed with the bargain sale value. But also the interest we add onto that is still taxable interest. So we call the income overall tax advantaged or tax favored income cause a portion is tax-free portion is taxable interest. So we will, the taxable interest amount will be a little higher in the front end of the contract. And then we'll go lower with the tax-free going up as the, the installment contract is paid out over the term number a year.
Speaker 2 00:12:40 Right. And it's the charitable element that changes it, correct?
Speaker 3 00:12:44 That's correct. Yes, that's correct. Yeah.
Speaker 2 00:12:46 Very, very simple and easy to understand. I think so we already talked about the annuity transfer. We'll use that for the installment sale and then real estate. Is there anything different that goes with real estate?
Speaker 3 00:12:59 Real? Estate's always fun. Uh it's uh, there's a couple of options for clients to, to utilize in this aspect and I'm going to bring the cash part of it in as well. So if the client wants to sell the property on their own, or they already have a contract on it, when they learn about us or whatever, they could still take the cash they get from the sale of the property and do that with us. The tax deduction they will get from legacy tree will help offset their adjusted gross income, which all of their capital gain from that sale will still be a part of, right? So they will have some reduction in capital gain. I kind of indirectly using the cash option. If they want legacy tree to sell the property on their behalf. Our vice president has been doing charitable real estate sale for close to 20 years now. So we take ownership and we take ownership. That's the wrong word we take. We will sell the property on behalf of the owner of the property. Okay. We hired the realtor
Speaker 2 00:13:57 Constructive receipt. Is that correct?
Speaker 3 00:13:59 Exactly. There you go. We will do all the work for the owner of the property. The owner doesn't deal with the realtor. They deal with us. They have right of refusal or acceptance of any offers. And once it's all done, we'll go to closing the owner of the property, signs it over to legacy tree. We sign it over to the buyer and everything's done and the IRS is all happy. Okay. But we have to come in from the very beginning of the process. There can't be any contracts involved or anything like that, or we can't be involved. Okay. So that they go to the, uh, the cash plan I mentioned earlier. So, but nothing happens with us until the property is sold. And again, that can be second homes, rentals, land, commercial property, anything like that. We don't really always mess with primary residences because the government gives an exemption of 250,000 or 500,000. Whether it, depending on their single married and most people's capital game is not more than that. Anyway. So with their primary. So
Speaker 2 00:14:56 That makes, makes great sense.
Speaker 3 00:14:59 That was a nutshell explanation, by the way,
Speaker 2 00:15:01 Nutshell explanation. So again, we'll link the videos and you go watch them and you got a nice animation on there. It's pretty good. So
Speaker 3 00:15:08 There you go. Yeah, I did. I did. That was that's my voice too, by the way, is
Speaker 2 00:15:11 It really?
Speaker 3 00:15:12 Yeah, I did all
Speaker 2 00:15:13 The writing and everything.
Speaker 3 00:15:15 The ride. Well, yeah, we, we, we all wrote it from the company, but I did the recording of the
Speaker 2 00:15:21 Yeah. I used to always like that. Yeah. The handwriting is, are talking it's written out in. Perfect. Yeah, no, you did a good job on those. What is your other one? Your leaf program? Can you explain that as well?
Speaker 3 00:15:34 Yeah. Let's talk about that. Yeah. The leaf is our legacy endowment advised funds. So if you've ever heard of a donor advised fund, this is our version of that is a fixed version of the donor advised fund. Most donor advised funds are actually all other donor advised funds are, are, you need to be a registered rep and securities licensed to do it because they're in the market. Okay. Ours is not, ours is fixed. So anybody with an insurance license can sell it and bring it to their clients. Basically what it is. It's actually a flat out donation at this point. Okay. So you have the, the example I used earlier of the $200,000, whatever the asset is, they put that to legacy tree, transfer that to legacy tree, and we put it into the leaf. What that means now is that the client can name the fund, the client names, the charities that the money will go to in the fund and the percentages that it needs to be a minimum of two charities.
Speaker 3 00:16:28 So let's say the red cross and salvation army, they can say 55% to one 45% together. The client has the ability to change the donor, the charities and the percentages. Every year. What we do is we then do an annual grant in that donors name to those charities annually, of course, like I said every year for the next 20 years. So whether the donors alive or not, that charity will still benefit from the leaf, paying them for the next 20 years or longer. If they want in return, the donor gets a full 100% of the asset amount tax deduction. So the $200,000, they will get a $200,000 tax deduction to use on their 10 40 for this year, if they need, if they can carry it over the camp. Now asset wise, if they utilize real estate or stock or crypto, anything with capital gain and they do a leaf, their capital gain is all wiped out because this is a full considered a full donation to a charity at that point. So it is fully eliminated any capital gain. And that's a big deal for a lot of people, especially now in the crypto market where more, more of those folks want to do something for charity. They can do that and then put it into a leaf.
Speaker 2 00:17:42 Well, and a lot of people hold onto a capital appreciated asset just because they don't want to pay the taxes.
Speaker 3 00:17:47 That's correct. And as we all know, if we read the read any kind of financial publication, the tax laws are going to be changing sometime this year. And we're, uh, we're, you know, the administration has already said, they're going to do it. And capital gains is one of the primary things that's going to increase now, whether it increases to a 40% number or a 25% number for anybody making more than $400,000 a year that still remains to be seen, but it is going to happen. And it is going to go up because somebody has got to pay for all the stimulus money that's been going out for the last few years. Right. So,
Speaker 2 00:18:21 And there's more coming as we all have that to look forward to
Speaker 3 00:18:24 More common where you and I are not going to get into a political discussion. It wasn't will just, there's no win in that kind of thing. Even if we agree, there's somebody out there that won't, so we're not going to, but
Speaker 2 00:18:37 Yes, well that was the podcast a couple of weeks ago was basically it's as close as I ever get to politics and whatnot, but I just said, Hey, stop arguing about it. Because I mean, honestly, when's the last time you convince someone that you were right.
Speaker 3 00:18:50 Exactly. Thank you. Thank you. It's like your opinion. It doesn't matter as much as you think it does. You know, so including mine and yours, you know, but, uh, you know, th the thing of the tax laws is we know what's happening. We don't know when it's going to pass. What's going to be a part of it. A lot is bantered around. And none of it's good for the citizens of this country, and then whether or not they retro it back to January 1st this year, or they start January 1st of next year, there's a lot of unknown. And so a lot of people are kind of waiting to see what happens with that, but with our program, no matter what it is, you're going to get some tax benefits from it, you know, tax brackets go up every year as well. And if that happens, that they changed the tax brackets to 39.6, for anybody at 400 K or above, that's going to hurt a lot of folks tax wise. So charitable planning is a great way to offset that, using a high, uh, getting a high level tax deduction to put towards that. So, because of,
Speaker 2 00:19:47 Yeah, and one thing I've learned in the past, and I believe this, you can correct me if I'm wrong, but charities are much more efficient at providing aid to those in need than is, uh, any government agency.
Speaker 3 00:20:01 Yeah. Oh yeah. Well, the only government agency that I know about that's a charity is the IRS and they get all the money. So I always tell people, you know, do you want your primary beneficiary to be your family or the IRS take your pick. And that's really how we have to look at it these days.
Speaker 2 00:20:18 Yep. That's uh, I've had that conversation with several people. It's like, well, you know, some people, oh, I already gave my kids enough. It's like, well, do you want the government to get it? Yeah, well, no.
Speaker 3 00:20:28 Well, and that's the thing, a lot of people, and we'd love you to touch on that real quick. Cause we haven't really discussed that. But what we're doing here with the income from legacy tree foundation is not considered a gift to your kids. It does not apply to the gift tax. None of that is involved with this. This is a charitable plan. So if you leave to your kids is not considered part of the gift tax that you would, you know, the 15,000 a year, 1.1 million lifetime or whatever the number is now, it's not considered a gift. So that's important for a lot of people to know, because that does come up.
Speaker 2 00:21:00 Yeah, no, that's a really good distinction to make a lot of people think that way. So I've had some clients say, boy, it's such a shame. I'm seven years old and I've got all this money. Yeah. That's exactly. I, I needed it when I was 20. I needed it when I was 30.
Speaker 3 00:21:14 Welcome to the distribution phase of life. You did good in the accumulation phase. Now you got to, you know, the LRS.
Speaker 2 00:21:19 Yes, you did well. Be grateful. Give it to your kids. That's what some do that. So, well, no, I appreciate, again, the opportunity. I think it's an interesting subject. There are a lot of benefits people can get from some charitable planning and, uh, I don't know. Do you have anything else that you want to finish with before we, uh, call it good today?
Speaker 3 00:21:36 Well, I'm going to talk about charities for a minute. See this does this. Okay. That's okay. So again, we are a charity. We support six local charities in and around the middle Tennessee area that work worldwide, everything from human trafficking prevention to young women being abused and being in weak, but we are also a Christian charity. So we are faith-based. We enjoy that part of it. We want to work with people here that are kind of in that space as well. Uh, I think the last statistic I saw, 83% of Americans were charitable, even if it's just giving to their church or giving it to the salvation army bucket at Christmas time or whatever, but that counts right. There are codes in the IRS laws that have been in the books for many, many, many, many years, decades, decades, decades, even some going as far back as 1843 for charitable planning.
Speaker 3 00:22:26 Many people don't know they're out there. And so it's a part of my, I feel my responsibility as a professional is to educate as many people on what we do as possible. It may not be a fit for everybody. We get that, but it is important to know that there are laws out there that can benefit people in this country to lower their taxes and to give them the ability to gift money to charity without as part of the plan. So if you've ever heard of a charitable remainder trust, which we talked about earlier, we work very similar to a CRT. Many people would call the CRT light. The main difference is that we don't charge any fees whatsoever and ever like a trust us. There's no attorneys to set it up. There's no annual maintenance fees or tax filing fees or any things like that that have to happen because all of our stuff is fixed. Everything we do is in a fixed environment. So it's under, it's important to understand that. And we're happy to, you know, have discussions with advisors or their clients, your clients that might have an interest in, in this strategy.
Speaker 2 00:23:32 I was supposed to ask that question and I forgot what fee are there? No fees, no
Speaker 3 00:23:38 Fees.
Speaker 2 00:23:40 No, that's very good. You lots of different ways that could be used, I guess, right?
Speaker 3 00:23:43 Yes, absolutely. Absolutely. There's a lot of one-offs to,
Speaker 2 00:23:47 I heard actually yesterday, I just was watching something and heard someone say the U S is the most charitable country in the world. There's a, some small country that per capita or something like that is more charitable. But as far as big countries go said, it was something like 600 billion annually from the U S to charities.
Speaker 3 00:24:06 Yeah. Yeah. And that's gone down over the last few years too. I mean, with, uh, with COVID and everything that's gone down, but yeah, we're, we're doing our best to bring it back up again. I think I agree with that statement. You made Brian, because I think that, uh, but we are that way because of the larger countries, we're probably the largest democratic country that does that. You know, China, Russia, those folks, they're all not non-democratic. So population wise, we're the largest and we're there for the most have the most money probably and all that. So that's in a democratic state and we can do what we want to do with our money, you know, and gifting to charities, one of our things. So it'd be interested to know who that smaller country is. I'm at to move there someday. I dunno. So
Speaker 2 00:24:50 Might have to look it up. Well, you know, it's, if it's a small country, it could be total of a million bucks. Might not be a lot of giving. It's just true per capita or average.
Speaker 3 00:25:00 That's right.
Speaker 2 00:25:01 Anyhow. So, well, thank you for joining us today. I appreciate it.
Speaker 3 00:25:04 Yeah. Thanks for having us.
Speaker 2 00:25:05 If anybody's interested in legacy tree foundation from this podcast, get ahold of me. That's correct. We're not going to have a bunch of random people calling you, but if the opportunity's there, it seems like a really good fit case, then we'll get ahold of you, John. Is that how it works?
Speaker 3 00:25:22 Yes, sir. Absolutely. If they want to do some initial checking us out, our website is a legacy tree foundation.org, and you can see the charities we support, but as a charity, you know, there's, you know, we have there's laws about solicitation, stuff like that. We have to abide by. We want to do that. So yeah, definitely call, talk to Brian and we'll all get together and chat and we'll see if it's a fit for you.
Speaker 2 00:25:45 Okay. That sounds great. And we'll have a, your website as well as your videos linked below the podcast. So if anybody wants to go check those out, that's a direct way to get to it. It's right down below on the page. If you want to get in touch with me, you can give me a call at (800) 438-5121, or go to your Nudie straight talk.com. Any page on the site top right corner, schedule, a call. We can do it would chat about whether this works for you. And if it seems like a really good fit, we'll get ahold of John. So, John, thank you. I appreciate it.
Speaker 3 00:26:14 Thank you, Brian. Appreciate it back.
Speaker 2 00:26:16 Okay. You have a wonderful day and we'll see you next time guys. Thanks. Bye.
Speaker 1 00:26:32 You've been listening to a nerdy straight <inaudible> The views expressed by guests and do not necessarily reflect the <inaudible> <inaudible> pay the bills insurance company.
