Wills, Trusts, and Why

Estate Planning Matters

What You Should Know

Before You See An Attorney

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AGENDA

• The Purpose of Estate Planning

• Estate Planning Yesterday and Today

• What You Need to Know about Wills and Trusts

• How to Choose the Right Attorney

• Take Action

• Q&A

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THE PURPOSE AND GOALS

OF ESTATE PLANNING

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Dwight D. Eisenhower

“Plans are nothing; planning is everything.”

THE PURPOSE OF PLANNING

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WHAT IS YOUR ESTATE?

• Money (Savings, Investments, etc.)

• Life Insurance

• Home, Real Estate, Business

• Personal Property, Collections, Pets, etc.

FAMILY VALUES LEGACY

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• Give what I have to whom I want, the way I want, when I want

• Care for self during lifetime

(incapacity, healthcare decisions)

• Care for/protect others

(surviving spouse and children at death)

• Minimize or eliminate probate

• Fulfill your charitable intentions

• Pass on values & ideals to children and grandchildren

• Maximize assets distributed to your loved ones

• Protect assets from creditors for generations to come

GOALS OF ESTATE PLANNING

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A FEW QUESTIONS TO CONSIDER

• Do you have a will or a trust?

Has it been reviewed in the last

2 years?

• Do you have any jointly titled

assets?

• Does your current plan provide

your heirs/beneficiaries with

asset protection against

creditors, divorce and lawsuits?

• Are you concerned about any

delays and costs your estate

might incur if it goes through

probate when you die?

• Are all your heirs 21 or older and

financially responsible?

• Is this your first marriage? Do

you have step-children?

• Are you concerned with family

disputes arising from inheritance

issues?

• If you were to become disabled,

are you certain that your

healthcare and financial wishes

will be honored?

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• Probate = court proceedings that conclude

all the legal and financial matters of the

deceased,

• Also includes court proceedings during life that may be

needed to name a guardian/conservator, transfer a property,

or end with dignity the life of a loved one

• Taxes = estate, gift, income, and in some

states property and inheritance taxes

• Asset protection for your children from their

spouses and creditors

KEY DEFINITIONS

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ESTATE PLANNING

YESTERDAY AND TODAY

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• Thirty years ago, the will was the centerpiece of

the estate plan and the documents stood

separately

– Will-centered plans had to be probated.

• The unlimited marital deduction and the low

$600,000 estate tax exclusion started the use of

A/B trusts created by the will, but these trusts still

had to be probated

• Significant probate costs were the norm

HISTORY OF ESTATE PLANNING

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• 20 years ago, estate planning evolved towards

Lifetime Planning with the “Revocable Living

Trust” as the centerpiece and the avoidance of

probate as the primary objective

• Separate trusts for the spouses, A/B trusts for the

surviving spouse, and staged distributions (1/3 at

30, ½ at 40, and the rest at 50) to beneficiaries

became the norm

• Landmark cases, such as Nancy Cruzan and

Terri Schiavo, drew attention to the importance of

living wills and incapacity planning

A SHIFT IN PLANNING

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• A “permanent” $5.25 million (inflation-adjusted)

exemption for gift, estate, and generation-

skipping transfer (GST) tax

• A permanent 40% gift and estate tax rate

• A permanent portable exemption between

spouses, allowing the surviving spouse to make

a Form 706 election to take advantage of the

unused portion of the estate tax exemption of the

predeceased spouse

– This provision does not allow the GST tax exemption to

be transferred to a spouse.

RECENT CHANGES IN LAW - ATRA

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• Avoiding estate taxes is not the motivation!

• Best reasons for planning include…

PLANNING FOR THE 99.67%

FAMILY HARMONY

ASSET PROTECTION

LEGACY PLANNING

INCOME TAX PLANNING

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WHAT YOU NEED TO KNOW

ABOUT WILLS AND TRUSTS

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• Anticipated litigation

– If there is family discord or disgruntled or omitted heirs,

perhaps a judge-overseen process is the best approach

WHEN IS A WILL-BASED PLAN APPROPRIATE?

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• They do not provide for incapacity issues

• Wills have to be probated, even if they create

a testamentary trust. They also may be

problematic if they cross state lines

• Wills do not control most property

• Wills provide direction and protection for a short

time, not for the lives of the surviving spouse,

children, and grandchildren

RISK OF WILL-BASED PLANS

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• Probate is a Public,

not Private process

• Probate is complex –

Usually need to hire

an attorney

• Probate can be a long

process – Often taking

several months to a

year.

• Probate can be

expensive!

FACTS ABOUT PROBATE

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• Debt-Free Family

• Gross Estate

$200,000

• Probate Cost (5%)

= $10,000

• Effective Rate: 5%

Family With Debt

•Gross Estate $200,000

Debt ($160,000)

•Net Estate $40,000

•Probate Cost (5%) =

$10,000

•Effective Rate: 25%

PROBATE FEES – WHAT THEY MEAN

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• Probate also includes court proceedings during

life that may be needed

– Disability/Mental Incapacity might require a court to

• Name a Guardian/Conservator

• Administer your assets

• Make Healthcare decisions for you

• This can be an expensive process!

ADDITIONAL PROBATE ISSUES

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• Rules of Joint Tenancy

Joint Tenants With Right of Survivorship

(JTWROS)

– Last Person Alive, Owns All the Property

– Jointly Held Property is Not a Part of Your Estate for

Probate Purposes, But is Part of Your Estate for Tax

Purposes

– Not Controlled by your Will or Trust

– Not Subject to Probate Proceedings

JOINT TENANCY

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• Creates Unintended Heirs (the “next spouse”)

• Does Not Totally Avoid Probate

– Still Have to Probate Property at Second Death

• Unintended Tax Consequences

JOINT TENANCY

LOSS OF CONTROL

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• 401(k) Plans

• Life Insurance

• P.O.D. Accounts / T.O.D. Accounts

• I.R.A.’s

BENEFICIARY DESIGNATIONS

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• Does Not Protect Your Spouse

• Does Not Protect and Care for Minor / Adult

Children

• Can Cause Unfortunate Results

• Can Create Unintended Beneficiaries

BENEFICIARY DESIGNATIONS RISKS

LOSS OF CONTROL

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• You want a plan that will take care of you during

your life.

• You want to keep control over the plan during

your lifetime.

• You want to outline what you want to happen in

the event of your disability:

– How you want to be taken care of

– Who will make decisions on your behalf.

CHOOSE A TRUST WHEN…

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• You Want to Control Distributions to Descendants

– Outright

– In Stages (for health, education, maintenance, and support):

• At age 25, receive one-third of trust principal

• At age 30, receive one-half of trust principal

• At age 35, receive remainder of trust principal

– Lifetime Beneficiary-Controlled Trusts

• Protects beneficiary from himself or herself, creditors,

predators, and divorce

CHOOSE A TRUST WHEN…

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• Create provisions for your spouse or

significant other upon your death

• Create provisions for your minor children

upon your death

• Create provisions for your adult children

upon your death

• Protect your assets from creditors and

predators of your spouse and children

WITH A TRUST, YOU CAN…

RETAIN CONTROL

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• Incorporate your personal values and desires:

– Charitable giving

– Planning for your Pets

– Gun Trusts

WITH A TRUST, YOU CAN…

RETAIN CONTROL

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• Save money in the long term:

– Minimize or avoid probate (and accompanying cost).

– Save estate and income taxes by maximizing use of

available deductions and exemptions

WITH A TRUST, YOU CAN…

RETAIN CONTROL

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• Basic Protection

– insurance (long-term care, liability, medical)

• Business protection

– entities such as corporations, family limited

partnerships, and LLCs

• Bypass Trusts

– (despite the portable exemption) – second marriage

and creditor protection

ASSET PROTECTION & INCOME TAX PLANNING

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• Stand-Alone Retirement Trusts

– Name a Stand-Alone Trust as the Beneficiary of your

IRA or 401(K)

• Irrevocable Trusts

– Life Insurance Trusts (ILITs), Domestic Asset

Protection Trusts (DAPTs), Beneficiary Defective

Inheritor’s Trusts (BDITs)

ASSET PROTECTION & INCOME TAX PLANNING

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FIND THE RIGHT ATTORNEY

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• Is the attorney’s primary focus on estate planning?

• Does the attorney practice “Collaborative Based Planning”

• (works with your CPA, FA, Insurance Broker)

• Does the attorney charge a flat fee or an hourly rate for

providing estate planning and other services?

• Does the attorney have a process in place to keep your plan

up to date (Continuum of Care Program)

• Ask yourself: “Can I see myself working closely with this

attorney?”

FINDING THE RIGHT ATTORNEY

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• Trust (Fully Funded)

– Instructions for “Alive and Well”, “Incapacity and Death”

• Pour Over Will

– Guardianship provisions for Minor Children

– Directs That Anything Not in Trust Goes To Trust

• Health Care Power of Attorney

• Durable Power of Attorney

• Living Will

• HIPPA Releases

• Personal Property Memorandum

• Memorial Instructions & Legacy Statement

• Certificate of Trust & Trust ID Card

A COMPREHENSIVE PLAN INCLUDES…

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• May not comply with state law

• No personalized planning

– Someone else decides important matters for you!

– Cookie cutter design

• Often not funded or improperly funded

– Non Trust assets will require probate

– Retirement & Insurance Plans not included

– Improper property ownerships may prevent

implementation of the trust plan

BEWARE OF “BARE BONES” TRUSTS!

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• Initial Client Meeting

– Establish our relationship

– Identify your objectives

– Learn about family and assets

– Engage other professionals (Advisor, CPA and/or Insurance Broker)

• Design Meeting

– Define problem areas

– Establish priorities

• Delivery Meeting

• Implement the plan, including funding

• Monitor and update the plan through Continuum of Care program

OUR ESTATE PLANNING PROCESS

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TAKE ACTION

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• Cost/Time

• “Estate planning is a luxury, not a necessity”

• “I do not want to think about it”

• “It won’t happen to me”

• “I do not have enough property”

• “I don’t like attorneys”

• “I am going to do it myself”

• (Leads to store bought, Internet, Legal Zoom,

etc.)

EXCUSES

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• Your Risks with “Intestacy”

• Surviving spouse with no children may share with in-

laws

• Surviving spouse with children may get the same share

as a child or maybe none

• Children are usually treated equally, even though the

children’s needs may not be the same

• Court-appointed administrator

• A surety bond may be required

• Fees are likely higher

• The court appoints a guardian for the children

NO PLANNING IN PLACE?

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• First child is born

• Children reach age of majority and can serve as

decision makers

• Grandchildren are born

• Parents are aging and have more definite plans

regarding when and how they want their property

to pass

WHEN SHOULD YOU PLAN?

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• A child turning the age of majority should have a

durable power of attorney and health-care

documents in place

• A financial windfall, such as winning the lottery or

inheriting wealth, has occurred

• Death of a spouse or child

• A change in the relationship to a decision maker

WHEN SHOULD YOU PLAN?

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• If you don’t remember creating instructions for

your disability

• If your plan lacks the comprehensive planning

options for your spouse, children and

grandchildren

• If the persons named as power of attorney,

trustee or executor are no longer the best choice

• If you are not sure that your assets are properly

aligned with your current plan

SHOULD I REVIEW MY EXISTING PLAN?

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• Estate planning has come a long way in the past

30 years

• Much more effective and efficient at meeting your

legacy goals

• Estate planning is a critical part of any

comprehensive financial plan

• Selecting the right attorney makes a difference

SUMMARY

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SUMMARY

George Bernard Shaw

“The possibilities are numerous once we decide to act and not react.”

QUESTION AND ANSWER