Creative Wealth Preservation Techniques

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Estate Planning Seminar May 22, 2013
By John P. Dedon Odin, Feldman Pittleman,
P.C. 1775 Wiehle Avenue, Suite 400 Reston,
Virginia 21090 [phone] John.Dedon_at_ofplaw.co
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Personal Asset Accumulation
Wages
Qualified Plans
Investment Income
Inheritance
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Proper Planning Will Allow You to . . .
Give what you have, To whom you want, When you
want, and In the way you want And Pay Less
for Court Costs Attorneys fees Estate
Taxes
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We want to give our children enough . . .
but we dont want them to blow it!
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Other Fundamental Planning Issues

• Children from a previous marriage and second
  spouse
• Children with special needs
• Children with creditor, financial, or marital
  problems
• Property in multi-states
• Competency issues in future (parents)
• Spouse who would need help managing and investing
  funds

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Assets At Risk (4 Areas of Risk)
Potential Creditors
40 Income Tax
IRS
Estate Tax (40 gt 5 Million)
3-6 Probate Legal Expenses
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State Estate Tax Exemptions

• Exemption Tax Rate
• DC 1,000,000 16
• Maryland 1,000,000 16
• Also has inheritance tax 10
• Virginia Repealed

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Current Lifetime Gifting Rates
14,000 Annual Exclusion
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Probate

• Cost
• Time Delays
• Publicity
• Property In Multiple States

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• Assets Passing Without a Will Go Through Probate
• Assets Passing With a Will Go Through Probate

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Benefits of Revocable Living Trusts
Revocable Trust

• Avoids Probate
• Cost
• Time Delays
• Publicity
• Problems with property in multiple states
• Incapacity Planning
• Estate Tax Planning
• Bypass and Marital Trusts
• GST Planning

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BASIC PLANNINGSHOULD INCLUDE

• Wills
• Revocable Living Trusts
• Advanced Medical Directives (Living Wills)
• Powers of Attorney

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Assets Passing at Death
1) Probate 2) Revocable Living Trusts 3)
Beneficiary Designations 4) Titling of Assets
- Tenants In Common - Tenants By The
Entirety (Assets Pass to Surviving Spouse)
- Joint Tenants with Right of Survivorship
(Assets Pass to Surviving Owner)
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Beneficiary Designations
1) Retirement Accounts (IRAs, 401(k)s) 2) Life
Insurance 3) P.O.D. Accounts
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Individual Retirement Accounts

• Participant Dies Before Distributions Begin
• 5-year default rule, unless
• Designated Beneficiary
• 2) Distributions Begin During Participants
  Lifetime
• - Longer of participants life expectancy
• or Designated Beneficiarys Lifetime

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Estate Taxes for U.S. Citizens and Residents
Taxed on Worldwide Assets, including probate and
non-probate assets, i.e., personal property,
joint property, real estate, stocks, bonds,
mutual funds, life insurance, present value of
surviving spouses pension, bank accounts,
business interests, etc.
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Estate Taxes for Non-Residents

• Taxed only on U.S.-Situs Assets, except
• U.S. Bank accounts
• Life insurance proceeds
• Pension from International Organizations

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Estate Tax Residency Test

• Estate and Gift Tax Test
• Domicile Test physical presence with intent to
  remain in the U.S.

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Marital Deduction for U.S. Citizen Spouse
If a decedent is survived by a U.S. Citizen
spouse, the unlimited marital deduction delays
estate tax until the death of the surviving
spouse. Need Qualified Domestic Trust if spouse
is not a U.S. Citizen.
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Case Study
Dad
Mom
Grandma
2 Children
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Profile

• Married
• 2 Million
• Equity in real estate, retirement plans, other
  liquid assets, life insurance

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• Assets

800,000
300,000
450,000
100,000
Retirement
Liquid
900,000
Insurance
2,000,000
250,000
Total
2,450,000
350,000
2,000,000
Grand Total 4.8 million
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Objectives

• Provide for surviving spouse
• Eliminate or avoid estate tax
• Eliminate probate
• Provide for children at second death
• Provide for Mom
• Charity

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Solutions

• Wills, Revocable Trusts with credit trust and
  marital trust for surviving spouse, Powers of
  Attorney and Medical Directives.
• At second death, trusts for children, with
  distributions at ages 25, 30, and 35.
• Special Needs Trust for Grandma.
• Charitable Distribution

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Using Revocable Trust to Reduce Estate Tax and
Probate
Upon Husbands Death
2,450,000
350,000
2 Million Joint Property
Marital Trust

Husbands Trust
lt 5 Million
Tax Free Marital Share Assets gt 5 Million
Inheritance (Tax-Free)
Bypass/Credit Trust (Husbands Exemption
5,000,000) Spouse Beneficiary But Future/DC,
MD 1 Million
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Second Death
Special Needs Trust



25 (1/3) 30 (1/2) 35 Balance Need Executor,
Trustee, Guardian