Financial Focus Estate Planning for Uncertain Times

1
Financial Focus Estate Planning for Uncertain
Times
Not FDIC, NCUA/NCUSIF insured Not a deposit
No bank or credit union guarantee Not insured
by any federal government agency May lose value
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Important Note

• This presentation is for informational purposes
  only. It represents our understanding of
  generally applicable rules. Lincoln Benefit
  Life, an Allstate Company, its agents and
  employees may not give tax or legal advice. We
  recommend everyone seek and rely upon the advice
  of his or her own professional advisors for such
  advice.

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Introduction to Estate Planning

• What is estate planning?
• Why should you be interested in estate
  planning?
• How much money should you have before you
  consider estate planning?

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Estate Planning Goals While Living

• Provide for management of assets in the event of
  disability or incapacity
• Provide instructions for healthcare decisions
• Protect assets from long term care costs

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Estate Planning Goals Before Death

• Determine who gets what, how and when after
  death
• Maximize estate by reducing expenses and avoid
  delays
• Minimize estate taxes
• Provide liquidity

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Who Should Plan?

• EVERYBODY! Why?
• Children
• Assets (farm, business, etc.)
• Incapacity
• Healthcare
• Elder Care
• Expenses/Taxes

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Planning All of Us Should Consider

• Long term care planning
• Provides a greater level of independence
  and dignity when long term care is needed
• Affords assistance to maintain an
  accustomed standard of living
• Promotes estate preservation

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Planning All of Us Should Consider

• Financial Decisions
• Financial Durable Power of Attorney
• Health Care Decisions
• Power of Attorney for Healthcare
• Living Will

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Planning All of Us Should Consider

• Will
• Legal Document
• Takes effect at death
• State requirements vary
• Benefits
• Transfer of assets
• Names guardians
• Can establish trusts for beneficiaries

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Distributing Your Assets

• Probate
• Court-supervised distribution of assets
• Advantages
• Distributes assets according to will
• Limits time to challenge will
• Limits time creditors can make claims

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Distributing Your Assets

• Probate
• Disadvantages
• Time
• Cost
• Publicity

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Distributing Your Assets

• Assets That Pass Outside of Probate
• Joint tenancy with right of survivorship
• Assets subject to a beneficiary designation
• Assets owned by a Living Trust

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Distributing Your Assets

• Trusts
• Parties to a Trust
• Grantor Creates Trust
• Trustee Manages Trust
• Beneficiary Benefits from Trust
• Types of Trusts
• Living vs. Testamentary
• Revocable vs. Irrevocable

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Distributing Your Assets

• Living Trusts
• Preferred primary estate planning document
• Avoid probate
• Time
• Costs
• Publicity
• Financial guardianship
• Provide protection and management of trust
  assets if the grantor becomes incompetent.

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Estate Taxes and Your Estate

• All Tangible Assets
• All Intangible Assets
• At Fair Market Value!

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Your Estate at Death
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Estate Taxes

• Estate Tax Examples (2006 Credit)

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Economic Growth and Tax Relief Reconciliation Act
of 2001

• Estate tax repeal in 2010
• Increased exemptions
• 1 million in 2003
• 1.5 million in 2004-05
• 2 million in 2006-08
• 3.5 million in 2009

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Deductions/Credits

• Unified credit equivalent (2,000,000 in 2006
  increasing to 3.5 million in 2009)
• Unlimited Marital deduction
• Unlimited Charitable deduction
• Annual gift tax exclusion (12,000 in 2006)
• Lifetime gift tax exemption of 1,000,000

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A/B Trusts How Do They Work?
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Tax Payment Alternatives

• Cash
• Liquidity?
• Sell business/farm/property?
• Borrow
• Interest?
• Use life insurance proceeds

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Planning Some of Us Should Consider
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Charitable Remainder Trusts

• Charitable Remainder Trusts (CRTs) are
  irrevocable trusts that provide
• an income stream during the lifetime of
  named beneficiaries
• remaining property passes to charity at the
  death of beneficiaries
• Income stream can be a set annuity payment
  (charitable remainder annuity trust CRAT) or
  stated as a percentage of the value of the
  trust each year (charitable remainder unitrust
  CRUT)

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Charitable Remainder Trusts

• Minimum value of income stream is 5 of the
  value of property transferred to trust
• Trust can be set up for lifetime of beneficiary
  or beneficiaries or for a term of years
• Term of years is limited to 20 years
• Estate tax deduction limited to estimate of
  value of property passing to charity, not for
  value of property contributed to trust

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Charitable Remainder Trusts Example

• Johns estate is 2.5 million. John wants to
  provide an income stream for Mary during her
  lifetime. Johns trust sets up a CRUT for Mary
  with 1,000,000 and provides that Mary is
  receive 7 of the value of the trust each year.
  At the time of Johns death in May 2005, Mary
  is 75 years old.
• The charitable deduction is 510,200 based on
  IRS interest rate of 5.0 (November 2005)

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Charitable Remainder Trusts Example

• For federal estate tax purposes, Johns
  estate is now 1,988,000 (2,500,000
  510,200).
• He has provided for Mary and reduced his
  estate below the estate tax exemption so
  there are no federal estate taxes to pay.
• He has also provided for his favorite charity
  (or charities) at Marys death.

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What Next?

• Start with baby steps and review your assets
  and the titling of the assets.
• Use all available resources to help. Your
  financial advisor is invaluable in this
  process.
• Dont put off until tomorrow what you should do
  today.

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Conclusion

• Thank you for coming!