Estate Planning
Mr. Jonathan Kinney Bean, Kinney & Korman September 18, 2008
Estate Planning
What is Estate Planning?
• Asset protection • Distribution of assets • Tax planning
Estate Planning
Tools in Estate Planning
• Titling of property • Wills • Trusts • Power of attorneys • Gifting • Insurance products
Estate Planning
Titling of Property
• Overrides the will • Examples
Revocable or irrevocable trust Transfer on death and pay on death accounts Insurance Retirement accounts Joint tenants with right of survivorship/tenants by the entirety
Estate Planning
Wills
• Takes effect only after death • Sets forth wishes regarding funeral and other arrangements • Specific bequests • Appoints guardian for minor children • May establish trusts • (No will - state law applies as to distribution of assets and care of children)
Estate Planning
Main Types of Trusts
• Testamentary
Established by your will Assets do not avoid probate
Estate Planning
Main Types of Trusts
• Inter Vivos
Established during your life Revocable vs. Irrevocable trusts Irrevocable life insurance trusts Bypass trusts, aka credit shelter trust Qualified terminal interest property trust Personal residence trust Charitable trust Kiddie trusts and grandchildren’s trust
Estate Planning
Illustration
John & Jane each have $2M in assets. John dies in 2003, leaving everything to Jane. Jane lives another 5 years during which time her assets grow to $8M. Jane leaves everything to her children. After paying an estate tax of $2.7M, children are left with $5.3M.
Estate Planning
Illustration
Instead, John left $1M to a credit shelter trust, leaving his remaining assets to Jane. At John’s death, Jane’s assets of $3M grow in value to $6M at her death. After payment of an estate tax of $1.8M, the children receive $4.2M from John’s estate, and also receive $2M from the credit shelter trust (which also has increased in value), for a total of $6.2M.
Estate Planning
Estate Taxes
• Transfer between spouses who are U .S. citizens are tax free (Qualified Domestic Trust must be established for non-U.S. citizens) • Estates under $2M pass tax free
2009 - $3.5M 2010 - no estate tax 2011 - $1M
• Majority of states have no “separate” estate taxes
VA – no estate tax DC - $1M MD - $1M
Estate Planning
Gift Taxes
• Lifetime exemption of $1M •Tied, however, to overall “exemption” • Annual exemption of $12K ($24K if spouse joins in gift) • Multiple gifts to different individuals • Annual transfers to non-U.S. citizens are tax free up to $125,000 (adjusts annually)
Estate Planning
Gifting Strategies
• Annual gift tax exclusion
$12K per donee per year Unlimited gifts to spouse
• Cash, appreciating/appreciated property • UGMA/UTMA • Medical expense/tuition • Installment sales or loans
Estate Planning
Power of Attorney
• Power to undertake any action you could do personally • Effective immediately or effective only in the event of disability • Avoids guardianship proceedings • Null/void upon your death
Estate Planning
Advanced Medical Directive or “Living Will”
• Establishes individual preferences • Identifies individuals to make medical decisions for you if you are unable to make them yourself • Only effective during lifetime
Estate Planning
When to Review an Estate Plan
• Major life events • Inheritances • Career changes • Moves out of state • Tax law changes • Significant changes in estate values • Every 5 years