Estate Planning

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Estate Planning
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Estate planning

• Goals and objectives
• Reviewing current plan
• Passing property at death
• Probate
• Estate taxes (federal, state)
• Unification of estate and gift taxes
• Other transfer issues
• Life planning

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What are some common estate planning goals?
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Is your current plan effective?

• Asset inventory
• Comprehensive/up to date
• Accurate on ownership and title
• Reasons for review
• Change in financial position/goals
• Deaths of beneficiaries, executors, guardians
• Relocation
• Additions to family
• Changes in the law
• Need to ensure tax-effective transfers
• Need for estate liquidity

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Passing property at death
By will By contract or trust By operation of law
By will By contract or trust By operation of law
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Passing property at death

• By will
• Attorney assistance
• Witnesses
• Safeguarding
• Changing
• Letter of instructions

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Passing property at death

• Advantages of a will (vs. dying without one)
• Assets are distributed as desired
• Personal representative can be named
  (executor/executrix/co-executors)
• Potential guardians for children can be named
• Cost and time of probate can be minimized
• Trust can be established to protect and manage
  assets (testamentary trust)

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Passing property at death

• Disadvantages of a will
• (vs. other property transfer methods)
• Wills do not provide for lifetime planning for
• Disability
• Your own guardianship
• Management of your assets while alive
• Assets are subject to probate
• Wills become public documents at death
• Review is needed if you move to another state or
  laws change

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Passing property at death
By will By contract or trust By operation of law
By will By contract or trust By operation of law
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Passing property at death

• By contract
• Life insurance policies
• Annuities
• Individual retirement accounts (IRAs)
• Employee benefit plans

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Passing property at death

• By trust
• A legal device to transfer assets or property to
  a trustee to manage for beneficiaries of the
  trust
• Involves
• Grantor
• Trustee
• Beneficiary
• Trust agreement (contract)
• Corpus (trust property)

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Passing property at death

• By trust
• A trust can
• Provide for professional management
• Make distributions to beneficiaries during the
  lifetime of the grantor or at death
• A trust can be
• Testamentary (bypass, QTIP)
• Living (revocable, irrevocable)

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Passing property at death
By will By contract or trust By operation of law
By will By contract or trust By operation of law
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Passing property at death

• By operation of law
• Passing property by title The built-in estate
  plan
• Joint tenancy with right of survivorship
• Community property
• Intestate death
• Dower/curtesy provisions

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Passing property at death

• Joint tenancy with right of survivorship
• Property is owned equally with others
• You can
• Give your interest in the property
• Sell your interest
• You cannot
• Pass your interest at death to others ? surviving
  co-owners acquire your entire interest

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Passing property at death

• Community property
• Applies only in certain states and only to
  married persons
• Assets acquired during marriage are considered
  equally owned (50/50)
• Assets acquired prior to marriage or by
  gift/inheritance during marriage remain separate
  property
• You can
• Give your interest in the property
• Sell your interest
• Pass your interest at death

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Passing property at death

• Intestate death (death without a will)
• Assets that would have passed under your will
  pass by state law instead
• Dower/curtesy provisions
• Surviving spouse may be entitled to a certain
  percentage of the deceased spouses estate
• To protect a spouse from being disinherited by
  the other spouse

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Passing property at death
By will By contract or trust By operation of law
By will By contract or trust By operation of law
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Probate

• Functions of the probate process
• Appoint an administrator if no will
• Interpret the will
• Inventory and assess value of all property
• Locate and identify heirs
• Identify and settle outstanding loans and
  liabilities
• Complete and file tax returns
• Distribute all property

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Probate

• Disadvantages of probate
• Probate proceedings are public
• Probate can be costly
• Probate can prolong the settlement of an estate
• Heirs may be prevented from receiving their
  inheritance in a timely fashion

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Federal estate tax

• Adjustments to gross estate
• Debts
• Probate/administrative expenses
• Funeral expenses
• Deductions from gross estate
• Unlimited marital deduction
• Unlimited charitable deduction

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Federal estate tax

• Life insurance and certain trusts
• Life insurance proceeds are included in your
  taxable estate, but
• Are excluded if you do not have an ownership
  interest within three years before death
• Are deducted if spouse is beneficiary (under the
  unlimited marital deduction)
• Assets must be transferred to an irrevocable
  living trust at least three years before death

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Unification of estate and gift taxes

• The unified transfer credit
• First 2,000,000 (2006) is exempt from estate tax
• Future years

Year Exemption
2007 and 2008 2,000,000
2009 3,500,000
2010 No limit
2011 1,000,000
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State taxes at death

• The state gets its share
• Your state of residence, or domicile,
  determines which state will tax
• Three state approaches
• Gap-tax or state death tax credit
• Direct estate tax
• Inheritance tax

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Unification of estate and gift taxes

• Annual gift tax exclusion
• 12,000 (indexed) per year to as many individuals
  as you wish
• Gifts can be split both spouses exclusions are
  used for a gift of property belonging to one of
  them
• Any gift tax is liability of donor
• Lifetime taxable gifts are added to estate at
  death (unless you elect to pay it at time of gift)

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Other transfer issues

• Rules of cost basis ? death
• Property basis is stepped up to fair market
  value on the date of death
• At later sale, capital gain is measured from this
  stepped-up basis
• Rules of cost basis ? gifts
• Property basis for donee is basis held by donor
  (assuming appreciated property)
• At later sale, capital gain is measured from this
  basis

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Life planning

• Powers of attorney
• General
• Specific
• Durable
• Springing
• Health care proxy
• Living will

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• LAFP8 LIFADJST2006 2006 0817.ppt