february 13, 2008 webinar estate planning do’s and don’ts – part ii jim park, ll.m, attorney...

February 13, 2008

WebinarESTATE PLANNING DO’S AND DON’TS – PART II

Jim Park, LL.M, Attorney at Law

TAX SCAMS TO WATCH OUT FOR AND WHAT THE HECK WAS WESLEY SNIPES THINKING?

Mat Sorensen, Attorney at Law, Former Attorney General Prosecutor

www.kkolawyers.comTelephone 435.586.9366 / Facsimile 435.586.9491

© Kyler Kohler & Ostermiller, LLP 2008

Disclaimer- Although the information contained in this Presentation may be extremely useful and helpful, please understand that the presentation of this information does not constitute an attorney-client relationship. Moreover, the information contained in this Presentation is for general guidance only. It is strongly recommended that each individual or entity obtain their own legal advice, particularly applied to their own set of circumstances, facts and specific situation. Kyler Kohler & Ostermiller, LLP is not responsible or liable for any advice that is taken and applied in a situation without direct consultation and representation specific to that individual’s or company’s needs.

Instructor Notes


INTRODUCTION TO ESTATE PLANNING

“Estate Planning” is NOT a one size fits all strategy. In fact, it can often times be very complex. Our purpose is to summarize certain principles of estate planning to help you gain the basic understanding necessary to make critical decisions affecting you and future generations for years to come.

This guide is intended to provide a broad overview and general guidance for clients with differing financial and personal situations.

IT IS OUR GOAL TO COORDINATE YOUR BUSINESS PLANNING, ASSET PROTECTION AND ESTATE PLANNING

GOALS INTO A SINGLE COMPREHENSIVE PLAN THAT ADDRESSES ALL ASPECTS OF YOUR LIFE.


What is an estate plan?

It is the arrangement by which you provide for your family after your death or disability. The goal of an estate plan is to allow you to choose not only Who gets What when you die, but also How and When. Also, in many circumstances, to help those beneficiaries receive your property in a way which maximizes the benefits to them after considering both tax and non-tax factors.

What happens if you die without a formal estate plan?

If you do not implement your own estate plan, your state will supply one for you through the laws of the intestacy. Rarely will the intestacy laws result in property passing in the manner which you would prefer. Without proper planning, a tax of approximately 50% may be assessed on your estate of it is over the exemption amount.


What documents are used to create an estate plan?

Trust. A trust is an arrangement where one or more persons (the grantor(s)) transfer property to one or more persons (the trustee(s)) to manage for the benefit of one or more persons (the beneficiary). The grantor and the trustee may be the same person who may also be one of the beneficiaries. The contents of the Trust are private and not subject to public inquiry. There are several kinds of trusts:

1. Revocable. Since you may change a revocable trust at any time, it is similar

to a Will. However, you may prefer to place the more significant provisions of your estate plan in a revocable trust because the terms of a revocable trust do not become public at your death, and assets then owned by the revocable trust do not pass through the probate process. A revocable trust is often referred to as a “living trust” or a “loving trust.” If most of your assets have been transferred to the revocable trust, it is called a funded revocable trust.

2. Irrevocable. An irrevocable trust is not subject to change. It is used to make a completed gift when you do not want the donee to have outright ownership. Usually irrevocable trusts are created to save taxes.

3. Testamentary. Unlike revocable and irrevocable trusts which involve a transfer of property during your lifetime, a testamentary trust is created in your Will and this becomes effective only when you die.


WHY DO WE USE A REVOCABLE LIVING TRUST?

There are THREE main reasons:

1. To avoid probate2. To make sure our assets end up where we want

them to end up; and in some cases3. To limit or avoid taxes.


TheFamily Trust

(Surviving SpouseRetains Control)

Testamentary Trust•Holds assets in Trust for children until they

are old enough to manage them on their

own.

Distribution Trust

Pour OverWill

Exemption Amount(s):

2006 $2MM

2007 $2MM

2008 $2MM

2009 $3.5MM

2010 $Unlimited

2011 $1MM

Your childrenor their issue

1/3 upon reaching 25 years old1/3 upon reaching 30 years old1/3 upon reaching 35 years old

SINGLE PERSON TRUST or

MARRIED Under the Exemption


This structure, generally referred to as a “No-Split Trust,” consists of a Pour Over Will and an original trust (or “Family Trust”), which houses the trust estate during your life and disposes them according to your wishes upon your death.

This structure does not help to avoid estates taxes, and it is generally not used if you are married and have a gross estate over $4M.

The assets you own are valued at your death, and this value is included in your estate for estate-tax purposes. The Internal Revenue Code provides for an “applicable exclusion,” which is the cumulative amount that can pass free of gift and/or estate tax upon death. ($2M in 2006-2008; $3.5M in 2009; Unlimited in 2010; and $1M in 2011). In addition to the applicable exclusion amount for estate taxes, there is also an lifetime exclusion amount for all gifts made during your life which is currently $1m. These exclusion amounts, in addition to the Marital Deduction are generally at the heart of most estate planning.

Unfortunately, this supports the notion that sometimes marriage is the best tax planning strategy of all.


TheFamily Trust

Survivor’s Trust$ Funded with Sep and Community Property.

(Included in Survivor’s Estate)

(OPTIONAL)Marital Income Trust

(QTIP) – income payableat least annually to

Survivor.

Bypass (Exemption)TrustDecedent’s Separate and

Community Property(Not included in the

Survivor’s Estate)

Distribution Trust

Pour OverWill

Exemption Amount(s):

2006 $2MM

2007 $2MM

2008 $2MM

2009 $3.5MM

2010 $Unlimited

2011 $1MM

Your Childrenor their issue

All assets not specifically disposed ofby a written instrument, or not titled in the name of the trust will go into the Trust.

(Income to Survivor and Principal not to exceed the greater of 5%or $5,000)

Both included in Survivor’s Estate. Taxable to the extent it exceeds Survivor’s Exemption Amount

Typically distributed after the deathof the Surviving Spouse.

1/3 upon reaching 25 years old1/3 upon reaching 30 years old1/3 upon reaching 35 years old

MARRIED TRUST with Estate over the

Exemption


This structure, based on the estimated size of the estate, consists of an original trust (or “Family Trust”), which is split into three separate trusts upon the death of either Grantor-Spouse. These are the Survivor’s Trust, the Bypass Trust, and a Marital Income Trust. This structure was chosen to save transfer taxes by allocating assets into the special irrevocable sub-trusts upon the death of either of you or your spouse.

The assets you own are valued at your death, and this value is included in your estate for estate-tax purposes. The Internal Revenue Code provides for an “applicable exclusion,” which is the cumulative amount that can pass free of gift and/or estate tax upon death. ($2M in 2006-2008; $3.5M in 2009; Unlimited in 2010; and $1M in 2011). In addition to the applicable exclusion amount for estate taxes, there is also an lifetime exclusion amount for all gifts made during your life which is currently $1m. These exclusion amounts, in addition to the Marital Deduction are generally at the heart of most estate planning.

The Survivor’s Trust: All assets belonging to the surviving spouse are properly allocated to his/her trust. These include all separately held property and also that spouse’s share of the community property held. This generally comprises the survivor’s estate upon which will be taxable upon his or her eventual passing.

Marital Deduction: Certain transfers between spouses are entitled to an estate tax deduction. By leaving assets to a surviving spouse, estate taxes can be deferred until the survivor’s death. This type of deduction is used for the Marital Income Trust or QTIP Trust discussed below.


The Exemption Trust: A "bypass trust" is used to give benefits to one or more beneficiaries without giving them enough rights of ownership to require taxation of the trust assets in the beneficiaries' estates. For married couples, the use of a bypass trust is generally used to preserve the “applicable exclusion” amount for federal gift and estate taxes. This bypass trust is also utilized to allocate the generation-skipping transfer tax exemption (“GST exemption”). If any amount of these exclusions are not fully utilized in the bypass trust, they can be utilized in a Marital Income or QTIP trust.

Marital Income Trust (QTIP): A “qualified terminable income property” (“QTIP”) trust is a Marital Trust that requires the income from the trust to distributed at least annually ONLY to the surviving spouse during his/her lifetime. This trust may or may not limit the survivor’s power to change the beneficiaries of the trust depending on the intentions of the Grantors. A QTIP trust is the only type of trust that can qualify for the marital deduction and still fully utilize any remaining GST exemption amount of the predeceased spouse, assuming the appropriate election is made.

A QTIP trust does not save or defer any more estate taxes than any other trust that would otherwise qualify for the marital deduction, however as previously discussed, it is useful to fully utilize the remainder of the GST exemption; to reduce the survivor’s power to dissipate the trust and change its distribution; or to shield assets from claims against the surviving spouse. It is most commonly used to ensure that approximately ½ of the estate moves to the primary beneficiaries without it being depleted by the surviving spouse.


What other documents are included in a proper estate plan? • Affidavit of Trust• Pour-Over Will

* Name guardians of minor children* Public information

• Living Will• Durable Power of Attorney for Healthcare• Durable Power of Attorney for Finances • Memorandum of Personal Property• Location of Important Documents• Funeral and Burial Instructions• Final Instructions


TAX SCAMS TO WATCH OUT FOR AND WHAT THE HECK WAS WESLEY SNIPES

THINKING?

Mat Sorensen, Attorney at Law, Former Attorney General Prosecutor


Wesley Snipes Case• Refused to file returns from 1999-2004.

• Sought $11million in refunds in 96’& 97’. Drew fake checks to pay the IRS.

• Accused of tax fraud, conspiracy, and failure to file a return on $38 million of income.

• Was sold ideas from tax protestor groups including a CPA who lost his license.

• Snipes idea was that no citizen in the U.S. was required to pay taxes on income earned in the U.S. and that the IRS was not a proper government authority. This is an old tax protestor argument based on Section 861 of the Internal Revenue Code which says that foreign-source wages of U.S. citizens are taxable. Protestors have taken this to mean the wages in the U.S. are not taxable.

• Snipes was tried by the same jury as his de-licensed CPA and his tax protestor promoter who were both convicted of Fraud.

• The jury found Snipes not guilty of tax fraud or conspiracy charges but he was convicted on three misdemeanors for failure to file a return. He can go to jail for one year on each. He still owes taxes on about $38 million of income.


What to Watch Out For

1) Constitutional or Pure Trusts (also known as Massachusetts Trust, Common Law Trust, - basic idea, put your money in a trust that is outside the jurisdiction of the IRA and is therefore not subject to taxes.

2) Are you being asked to underreport or omit income?

3) Are you being asked to overstate deductions?

4) Keep two sets of books?

5) Hide assets from the government?

6) Patriots for Profit Community- prey on immigrants, elderly and religious.

7) If you hear one of the following had a pure trust and so should you…run.

-Kennedys -Henry Ford

-Rockefellers -Benjamin Franklin

-John Adams -Clintons


Cont’d

8) I’m not a lawyer or a CPA. The vast majority of the tax scams out there are promoted by non-professionals who don’t have a license to practice law or accounting.

9) If someone promises you a refund without knowing your tax situation you should promise them you wont use their services.

10) If it sounds to good to be true, consult with a professional you trust. They may not know of the concept but they can research it.


Conclusion

There are so many ways to save on taxes and you don’t have to cheat or violate the law to do it.

Don’t be scared from doing tax planning, just be honest in your reporting and take advantage of all of the numerous ways congress has allowed us to save legitimately on our taxes.


For more information, please contact us at:

KYLER KOHLER & OSTERMILLER, LLPTel: 435.586.9366 Fax: 435.586.9491

www.kkolawyers.com


february 13, 2008 webinar estate planning do’s and don’ts – part ii jim park, ll.m, attorney...

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