what is estate planning?
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What is Estate Planning?. 4695 C HABOT D RIVE, S UITE 200 P LEASANTON, C A 94588 TEL: (925) 558-2710 FAX: (925) 558-2701 [email protected] WWW.LUNGULAW.COM. Goals for Today. Find out which documents are included in an estate plan Learn how all the documents work together - PowerPoint PPT PresentationTRANSCRIPT
What is What is Estate Estate
Planning?Planning?
4695 CHABOT DRIVE, SUITE 200PLEASANTON, CA 94588
TEL: (925) 558-2710 FAX: (925) 558-2701
Goals for TodayGoals for Today
Find out which documents are Find out which documents are included in an estate planincluded in an estate plan
Learn how all the documents work Learn how all the documents work togethertogether
Learn how to use trusts to avoid Learn how to use trusts to avoid probateprobate
Learn how to use trusts to keep the Learn how to use trusts to keep the court out of your familycourt out of your family
What is Estate Planning?What is Estate Planning?
Estate planning is the planning Estate planning is the planning process of determining the process of determining the distribution of your assets upon your distribution of your assets upon your death.death.
Planning also covers management of Planning also covers management of personal affairs in the event of personal affairs in the event of incapacityincapacity..
What Estate Planning What Estate Planning DoesDoes
Avoids Avoids Estate Estate TaxesTaxes
Incapacity Incapacity PlanningPlanning
Maintain Maintain Control Control
Over Your Over Your Person & Person &
AffairsAffairsAvoids Avoids ProbateProbate
Protects Protects Against Against
AdministratAdministrative ive
Expense & Expense & DelayDelay
Protects Protects Your Your
Children Children Protects Protects AssetsAssetsfrom from
Lawsuits, Lawsuits, Creditors, & Creditors, &
DivorcesDivorces
General DocumentsGeneral DocumentsIn Estate PlanIn Estate Plan
Pour Over WillPour Over Will Revocable (Living) Trust Revocable (Living) Trust Advance Health Care DirectiveAdvance Health Care Directive Durable Power of Attorney for Durable Power of Attorney for
PropertyProperty Guardianship Documents for Minor Guardianship Documents for Minor
ChildrenChildren
Pour Over WillPour Over Will
States you are over 18 – age of capacityStates you are over 18 – age of capacity States your understanding of what you States your understanding of what you
have and who you want to give it tohave and who you want to give it to Names beneficiaries and ExecutorNames beneficiaries and Executor Specifies giftsSpecifies gifts Has Pour Over Provision to TrustHas Pour Over Provision to Trust Must go through ProbateMust go through Probate
TrustTrust
Agreement between you as Trustee and Agreement between you as Trustee and Beneficiary during your lifetime, for Beneficiary during your lifetime, for your benefit now, and the benefit of your benefit now, and the benefit of beneficiaries laterbeneficiaries later
Provides for distribution of funded Provides for distribution of funded assetsassets
Avoids Probate CourtAvoids Probate Court Can be used to avoid or minimize Estate Can be used to avoid or minimize Estate
TaxesTaxes
Advance Health Care Advance Health Care DirectiveDirective
Gives an agent ability to make health Gives an agent ability to make health care decisions for you if you cannot care decisions for you if you cannot because of incapacity or illnessbecause of incapacity or illness
Can ensure burial and other end of Can ensure burial and other end of life decisions are carried outlife decisions are carried out
Gives an agent the ability to ensure Gives an agent the ability to ensure your financial concerns are taken your financial concerns are taken care of in the event of your care of in the event of your incapacityincapacity
Avoids conservatorshipAvoids conservatorship
Durable Power of Durable Power of AttorneyAttorney
Other Estate Planning Other Estate Planning Documents and Their Documents and Their
UseUse Guardianship Nominations – Guardianship Nominations –
document that names your document that names your designated guardian to care for designated guardian to care for minor childrenminor children
Affidavit of Intent to Return Home – Affidavit of Intent to Return Home – conforms to rules for Medi-Cal and conforms to rules for Medi-Cal and reimbursement requirementsreimbursement requirements
Your Planning OptionsYour Planning Options
WillWill
Revocable Living TrustRevocable Living Trust
Or Both?Or Both?
Definition of a Will or Definition of a Will or TrustTrust
Set of instructions Set of instructions that take effect that take effect upon your death - upon your death - amendableamendable
Set of Set of instructions to instructions to care for you and care for you and your family your family during your during your lifetime, in the lifetime, in the event of event of incapacity, and at incapacity, and at death - death - amendableamendable
WillWillRevocableRevocable
Living TrustLiving Trust
Similarities of Wills and Similarities of Wills and TrustsTrusts
Provides for distributing property at your death
Has no adverse lifetime income tax consequences
WillWill
Provides for distributing property at your death
Has no adverse lifetime income tax consequences
RevocableRevocableLiving TrustLiving Trust
Differences of Wills and Differences of Wills and TrustsTrusts
Are effective immediately
Avoids probate
Trusts are private Are good in every
state - portable
WillWill Are only effective at
death Must go through
probate• Expensive• Long process for
heirs Probates are public Are good only in state
of residence
RevocableRevocableLiving TrustLiving Trust
NoNoProbateProbate
WillWillRevocableRevocable
Living TrustLiving Trust
My PropertyMy Property
ProbateProbate
HeirsHeirs
Property in Property in My Living My Living
TrustTrust
HeirsHeirs
Trust Trust EstateEstate
Why Use Both?Why Use Both?
Will EstateWill Estate
Funding of Funding of AssetsAssets
Trust Trust EstateEstate
Why Use Both?Why Use Both?
Will EstateWill Estate
What if…What if…
RefinancRefinance your e your househouse
And you And you diedie
And you And you forget to forget to put the put the house house
back in back in trusttrust
Trust Trust EstateEstate
Why Use Both?Why Use Both?
Will EstateWill Estate
What if…What if…
Transferred toTransferred toWill EstateWill Estate
Judge grants an Judge grants an order to return order to return back to trustback to trust
Trust Trust EstateEstate
Why Use Both?Why Use Both?
Will EstateWill Estate
What if…What if…
Judge grants an Judge grants an order to return order to return back to trustback to trust
What is Probate?What is Probate?
Probate is the first step in the legal Probate is the first step in the legal process of administering the estate of a process of administering the estate of a deceased person, resolving all claims and deceased person, resolving all claims and distributing the deceased person's distributing the deceased person's property under a will. property under a will.
Court decides the legal validity of a Court decides the legal validity of a deceased person’s will and appoints the deceased person’s will and appoints the executor.executor.
Probate Court then distributes assets.Probate Court then distributes assets. If there is no will, it is called an intestacy If there is no will, it is called an intestacy
probate.probate.
What is the Cost of What is the Cost of Probate?Probate?
Gross Asset Value Gross Asset Value of Entire Estateof Entire Estate
$400,000$400,000 $500,000$500,000 $750,000$750,000 $1,000,000$1,000,000 $2,000,000$2,000,000 $3,000,000$3,000,000 $4,000,000$4,000,000
Minimum Statutory Minimum Statutory Probate FeesProbate Fees
$22,000*$22,000* $26,000*$26,000* $36,000*$36,000* $46,000*$46,000* $66,000*$66,000* $86,000*$86,000* $106,000*$106,000* *Fee is 0 if asset is in *Fee is 0 if asset is in
trusttrust
Why People Avoid Getting Why People Avoid Getting an Estate Plan?an Estate Plan?
CostCost
Think their estate is too small to Think their estate is too small to support the expense of planningsupport the expense of planning
Want to initiate probate proceedings at Want to initiate probate proceedings at deathdeath
Superstitious Superstitious
What if You Do Nothing?What if You Do Nothing? At Incapacity: At Incapacity:
• Guardianship/ConservatorshipGuardianship/Conservatorship• Court controls assetsCourt controls assets• Brain dead on life support Brain dead on life support
At Death:At Death:• Court proceeding to determine who will be Court proceeding to determine who will be
guardian for minor childrenguardian for minor children• Assets distributed according to state law Assets distributed according to state law
through probate - intestacythrough probate - intestacy Failure to do advanced planning for larger estates:Failure to do advanced planning for larger estates:
• Family money goes to taxes instead of heirs – Family money goes to taxes instead of heirs – estate tax riskestate tax risk
• Kids blow inheritanceKids blow inheritance• Control issues and fighting among family Control issues and fighting among family
members left behindmembers left behind
Who Needs a Trust?Who Needs a Trust?
“Everybody!” Any individual with real property
(home, land)– regardless of state Any individual with assets valued at
over $150,000 - gross Those individuals that wish to spare
their beneficiaries the burden and cost of probate
Those individuals who have specific distribution desires post death
Individuals with large estate tax risk
What is Estate Tax?What is Estate Tax?Two Fundamental RulesTwo Fundamental Rules
Unlimited Marital DeductionUnlimited Marital Deduction• ANY amounts passing to a spouse (or a ANY amounts passing to a spouse (or a
qualifying trust for spouse) avoid estate taxes qualifying trust for spouse) avoid estate taxes on the first death.on the first death.
• The tax, if any, is assessed upon the death of The tax, if any, is assessed upon the death of the surviving spouse.the surviving spouse.
Applicable Exclusion (Coupon) AmountApplicable Exclusion (Coupon) Amount• The dollar value of assets that one can leave to The dollar value of assets that one can leave to
non spouse beneficiaries without incurring any non spouse beneficiaries without incurring any estate taxes.estate taxes.
PRESENTED BY: UNCLE SAM
For
$5,340,0$5,340,00000
This coupon allows you to leave assets and wealth, up to the face amount of the coupon, to someone besides your spouse, free of estate taxes. This coupon is non-transferable and must be redeemed at the time of your death.
Estate Tax CouponEstate Tax Coupon
Use a Family Trust!Use a Family Trust!
Let’s use our IRS “Coupon” - Let’s use our IRS “Coupon” -
The Applicable Exclusion AmountThe Applicable Exclusion Amount
How to Preserve over a $10,000,000 How to Preserve over a $10,000,000 Estate Tax Free for your Heirs?Estate Tax Free for your Heirs?
How to Waste Your Estate How to Waste Your Estate Tax “Coupon”? No TrustTax “Coupon”? No Trust
Husband Wife Total
Assets: $5,340,000 $5,340,000 = $10,680,000
Husband dies, leaves all to wife.
Husband Wife Total
Assets: $5,340,000 $5,340,000 = $10,680,000
Husband dies, leaves all to wife.HUSBANDHUSBAND WIFEWIFE
$5,340,000 +
$5,340,000
$10,680,000
$5,340,000 +
$5,340,000
$10,680,000
Less One Coupon $5,340,000
$5,340,000$5,340,000
Tax Cost: Tax Cost: $2,136,000 (40% tax $2,136,000 (40% tax rate)rate)
How NOT to Waste YourHow NOT to Waste YourEstate Tax “Coupon” Using Estate Tax “Coupon” Using
a Trusta TrustHUSBANDHUSBAND WIFEWIFE
Income and other Income and other benefits to wife benefits to wife for her lifetimefor her lifetime
WIFEWIFE
Assets in estate $5,340,000
Less Wife’s coupon - 5,340,000
Tax = Tax = 00
Assets in estate $5,340,000
Less Wife’s coupon - 5,340,000
Tax = Tax = 00
Husband dies & Husband dies & $5,340,000 of $5,340,000 of
AssetsAssetsgo to Family go to Family
TrustTrust
To Children atTo Children atWife’s DeathWife’s Death
What is the ESTATE TAX What is the ESTATE TAX “Coupon” Rate NOW?“Coupon” Rate NOW?
2010 - $5,000,000 Coupon Amount2010 - $5,000,000 Coupon Amount 2012 - $5,125,000 Coupon Amount2012 - $5,125,000 Coupon Amount 2013 - $5,250,000 Coupon Amount2013 - $5,250,000 Coupon Amount 2014 - $5,340,000 Coupon Amount2014 - $5,340,000 Coupon Amount Remember that the top tax rate is 40% Remember that the top tax rate is 40%
so your heirs potentially can lose so your heirs potentially can lose almost half of every dollar that you do almost half of every dollar that you do not specifically protect through trust not specifically protect through trust planningplanning
Does this Apply to Me?Does this Apply to Me?
Assets Included in Definition of “Estate”• Real Property in any state• Life Insurance Policies• Checking, Savings, Annuity or
other Liquid Accounts• Business Interests – Sole
Proprietor/Corp/LLC/Partnership• Retirement and Pension Plans• All Personal Property
Real Life ExamplesReal Life Examples Amy Winehouse – 27 year old singer with $5mm
estate with no will – everything went to her parents – left out siblings (which was her expressed desire)
Terry Schiavo – no planning led to her being on life support for over 13 years
Leona Helmsley – put only $12 mm in trust for dog “Trouble,” rest of her billions had to be probated
J.S. – died in the middle of divorce with kids, estate left to husband
K.P. – no will so estate left to wife and two kids, although kids were already provided for before death
Busses can be dangerous
Questions?Questions?
4695 CHABOT DRIVE, SUITE 200PLEASANTON, CA 94588
TEL: (925) 558-2710 FAX: (925) 558-2701