estate planning mark ricklefs clu chfc cfp. caveat this presentation is for informational purposes...

Estate Planning

Mark Ricklefs CLU ChFC CFP

Caveat

• This presentation is for informational purposes only. The speaker appearing at this meeting is solely responsible for the content of the presentation and may not necessarily represent the opinion of the presenter. The presenter is not in the business of giving tax, legal or accounting advice. Attendees should consult with their own professional advisors to determine the appropriateness of any course of action. Mark Ricklefs is an Investment Advisor Representative offering securities and investment advisory services through Ameritas Investment Corp. (AIC). The opinions and concepts discussed in this presentation are for CE purposes only and are not necessarily those of AIC.

The presenter is not in the business of giving tax, legal, or accounting advice. Please consult your personal advisors.

Avoiding Probate

• The definition of probate is the legal process of validating a will before a judge.

• A revocable living trust is created during the grantor’s lifetime and can be altered, amended, or revoked by the grantor during the grantor’s life.

• A revocable living trust is created so that some estate tax issues may be addressed at the grantor’s death.

• When the grantor dies, the trust either becomes irrevocable or terminated, and the trust property is distributed, either immediately or in the future, according to the trust agreement.


Benefits of a Revocable Living Trust

• Probate on assets are avoided when transferred into the trust during the grantor’s life.

• The trust’s assets are managed if the grantor becomes incapacitated.

• Life insurance benefits are received on grantor’s life when grantor dies.

• The disposition of trusts assets are controlled.• The terms of the grantor’s disposition of property

or private are kept.


How is a Revocable Living Trust Funded?

• Transfer assets when the trust is established• Name the trust as a beneficiary of financial

instrument.• Arrange to transfer assets later


How Does it Work?

• An attorney prepares the trust agreement to meet the grantor’s desires.

• The agreement specifies who will receive payments, what amounts, and for how long.

• The trust will specify when the agreement will terminate.

• It may be amended.• The trust can be inactive during the lifetime of the

grantor and become active upon the grantor’s death.


What are Disadvantages?

• No federal income tax or estate tax benefits apply.

• A trust can be more expensive to establish than a will.

• Trust assets are subject to claims of the estate’s creditors when the grantor dies.


Summary

• A revocable living trust is an efficient way to obtain professional asset management, bypass probate process, and create efficient estate distribution– all in a single document.


Minimizing Transfer Taxes

• When an individual dies federal estate tax is a key factor to consider when transferring property.

• The exclusion amount for 2011 was $5M, 2012 is $5.12 M.

• If there is no strategy in place to minimize estate taxes, much of an individual’s assets can end up in the hands of the government.


Lifetime Gift Strategy

• Giving gifts during the taxpayer’s lifetime helps reduce the size of the estate remaining when the owner dies.

• In 2012, a taxpayer may give up to $13,000/person.

• Married couples are allowed to gift-split.


Unused Spousal exclusion

• A transfer between spouses is not subject to taxation, whether during the lifetime of the owner or after death.


The Trust Strategy

• Provide lifetime gifts through an irrevocable life insurance trust

• The taxpayer transfers up the maximum tax-free gift amount multiplied by the number of beneficiaries with present interests, each year to the trust.

• The trust holds and invests the proceeds for the benefit of trust beneficiaries.


Other Strategies

• A private annuity involves two generations. The older person exchanges an asset for an annuity of equal value to be paid by the younger person.

• An installment sale – an asset is sold in exchange for a promissory note from the younger person.

• Charitable giving – provides a way for the donor to meet philanthropic goals and purposefully reduce the size of his or her estate.

• A life income gift – a type of charitable gift that both creates a tax deduction for the donor and provides an annuity to one or more non-charitable beneficiaries.


Summary

• All plans to minimize transfer taxes require careful preparation and assistance of tax advisors to be certain desired results are achieved.


Bypass (Credit Shelter) Trust

• A bypass trust is used by married couples to minimize federal estate taxes, by fully utilizing the estate tax exemptions of both spouses.

• A bypass trust can also provide asset protection and preserve estate assets for children and grandchildren, and provide income for someone other than the spouse.


The Process

• When the first spouse dies, the estate is divided into two parts.

• The allowable estate tax exemption is placed in the bypass trust ($5.12 M in 2012).

• The amount placed in the bypass trust avoids estate tax up to the exemption allowed in the year of the first spouse’s death.

• The other part of the estate may pass directly to the surviving spouse or be placed in a marital trust and held for the spouse’s benefit.

• The surviving spouse may receive income for life from the bypass trust.


The Process

• In addition to receiving income, the surviving spouse may have certain rights to the principal including the right to withdraw principal for health, education, support and maintenance needs, to exercise a limited power of appointment.

• Despite these rights to income and principal, the assets of the bypass trust are not included in the surviving spouse’s gross estate at his or her death.

• When the second spouse dies, the bypass trust may either terminate or continue.

• Any assets owned by the surviving spouse outside the bypass trust will be included in the spouse’s estate at his or her death and subject to the federal estate tax.


Spousal Portability

• The estate of the first spouse to die can transfer the unused exclusion amount to the surviving spouse.

• A new aspect of the estate tax law provides a way to use both spouses’ estate tax exemption without a trust. There are additional benefits for a bypass trust besides utilizing estate tax exemptions for both spouses.


Additional Uses

• Bypass trusts can also be set up to provide income for others. A trust may be payable to a children or grandchildren.

• Regardless of who is the primary beneficiary or beneficiaries of the bypass trust, the same rules apply. The remaining trust assets at the primary beneficiary’s death won’t be included in his or her gross estate.

• Bypass trusts may be set up with terms that suit a particular individual’s needs.

• Bypass trusts can offer asset protection in certain cases.


Summary

• It is vital to consider carefully the tax consequences of any customization of a bypass trust.

- A portion of the decedent’s estate up to the applicable estate tax exclusion for the year of death can be placed in the bypass trust.

- The remainder of the estate is given to the surviving spouse or placed in a martial trust.

- Income and/or principal from the bypass trust can be paid to the spouse during his or her lifetime.

- At the surviving spouse’s death, the beneficiaries receive the property from both trusts, but the property in the bypass trust is not included in the surviving spouse’s gross estate.


Marital Deduction/QTIP

• The marital deduction allows property to be transferred either during life or at death between spouses, without triggering either the federal estate tax or federal gift tax.

• Spouses must be legally married, the spouse receiving the transfer must be a U.S. citizen, and the property transferred to the spouse can’t be an interest in property that can expire after the passage of time, or the occurrence or non-occurrence of an event.

• Qualified terminable interest property (QTIP) is allowed as a certain type of “terminable interest”.


QTIP Exception

• QTIP is property in a decedent’s estate that, even though it’s a terminable interest, can still qualify for the estate tax marital deduction.

• The term also includes property given to a spouse during life that qualifies for the gift tax marital deduction, even though it’s subject to similar restrictions.

• The executor must make an election to treat the trust as a QTIP trust.


The Process

• The will of the first spouse to die directs that certain property be placed in a QTIP trust.

• The executor elects whether to qualify the property for the marital deductions in the deceased spouse’s estate.

• No one can have a power to appoint any part of the property to anyone other than the surviving spouse.


The Process

• All of the trust income must be paid to the surviving spouse no less frequently than annually for the spouse’s life.

• The surviving spouse has the right to force conversion of nonproductive property into productive property.

• When the surviving spouse dies, the trust principal passes to beneficiaries designated by the first spouse.


The Tax Picture

• At the first spouse’s death, the marital deduction may be claimed even though the transfer is a terminable interest.

• At the second spouse’s subsequent death, the transfer will be included in the gross estate, even though the spouse had no ownership or interest over the property.


Benefits

• Flexibility in estate arrangements • Lifetime income for surviving spouse• Placing restrictions while still claiming the

marital deduction• The chance to decide whether to leave property

outright to a surviving spouse• Children of prior marriage will be assured that

property will eventually be passed• Remarriage questions


Summary

• A QTIP trust provides a way to take full advantage of the federal gift and estate tax marital deduction at the same time it helps an estate owner assure that his or her objectives—reducing taxes, assuring income to survivors, securing professional property management and other objectives will become a reality.


estate planning mark ricklefs clu chfc cfp. caveat this presentation is for informational purposes...

Documents

trust assets

trust agreement

trust property

accounting advice

revocable living trust

personal advisors

estate tax benefits

grantors lifetime