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Estate Plans That Work South Florida Office North Florida Office Florida Keys Office Tennessee Office 3020 NE 32 Ave 1200 Plantati

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									                    Estate Plans That Work
  South Florida Office            North Florida Office           Florida Keys Office          Tennessee Office
     3020 NE 32 Ave.           1200 Plantation Island Dr.         1010 Kennedy Dr.          207 Mockingbird Lane
        Suite 302                      Suite 220                      Suite 201                  Suite 402
Fort Lauderdale, FL 33308       St. Augustine, FL 32080          Key West, FL 33040        Johnson City, TN 37604


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                                             www.taflaw.com

                                                   Updated 1/15/2007                                              1
        The Andersen Firm
         A Professional Corporation
IRS Circular 230 disclosure: To ensure
compliance with requirements imposed by the
IRS, we inform you that any U.S. federal tax
advice contained in this communication
(including any attachments) is not intended or
written to be used, and cannot be used, for the
purpose of (i) avoiding penalties under the
Internal Revenue Code or (ii) promoting,
marketing or recommending to another party
any transaction or matter addressed herein.
                   Updated 1/15/2007              2
 A Question:



“Imagine  your life has ended and you’re looking down
from your cloud at your loved ones. Everything you’re
looking at tells you your estate plan is working perfectly,
exactly as you planned it . . . . . .WHAT do you see?




                         Updated 1/15/2007                3
If what you see is what you wanted to happen then
what you have is an Estate Plan That Works .




In Reality Most Estate Plans Don’t Work .




                      Updated 1/15/2007             4
    It helps to get past the various
       “smoke screens”:

        Wills vs. Trusts
        Avoid Probate / Save Taxes
        Hourly vs. Fix Fee Billing


“PTA”:   Philosophy / Technical Basics / Application

                          Updated 1/15/2007            5
I. “Philosophy” of an Estate
    Plan That Works




          Updated 1/15/2007    6
A. The Definition of an estate plan that works:


1. I want to Control my property while I am alive and well;


2. Plan for my loved ones and me in case I become Disabled


3. Give What I want, To Whom I want, When I want,
  The Way I want;


4. All at a fully disclosed and controlled Cost to me and
   those I love.

                          Updated 1/15/2007                   7
B. A new Paradigm for an estate plan that works:

                     “Paradigm” Shifts:
              1492, Columbus and a flat earth
          The “Traditional” Planning Paradigm:
                   Planning Priorities:

           1. Save Taxes / Avoid Probate
           2. Protect Wealth
           3. Enhance Wealth
           4. The Family
           5. Client / Spouse

                         Updated 1/15/2007         8
      The “New Paradigm” Planning Pyramid:

End of Philosophy . . .             5. Taxes / Probate


                             4. Protecting Wealth


                       3.   Enhancing Wealth

                 2.   Family / Beneficiaries

            1.   Client / Spouse

                            Updated 1/15/2007            9
  So, let’s add a small dose of (semi)
“Technical” to understand the TIP of the
Pyramid so we can then concentrate on
          ME and MY FAMILY




                 Updated 1/15/2007         10
II. Technical basics of an
    Estate Plan That Works




           Updated 1/15/2007   11
A. Taxes
 “TRANSFER” Tax System . . .

 1. GIFT Tax: up to 45%


 • Each individual can give up to $12,000
 • To any other individual
 • In any Year    without paying gift tax
 • $ 1,000,000 lifetime exemption
 • Unlimited Marital Deduction
                    Updated 1/15/2007       12
2. ESTATE Tax: Up to 45%


• The “Coupon” amount: $ 2,000,000

•Two Rules:
 Expiration Date: “Choose it or Lose it!”
Non-Transferable


• Unlimited Marital Deduction

                  Updated 1/15/2007          13
3. GENERATION SKIPPING Tax: up to 45%

•   Skip One Generation


•   The “Coupon” Amount: $ 2,000,000


•   The Unlimited Marital Deduction




                      Updated 1/15/2007   14
     The Tennessee Inheritance Tax Gap
       Federal Estate Tax Coupon
      Tennessee Inheritance Tax Coupon


 In 2009, the Federal Coupon will be $3,500,000,
but the Tennessee coupon will only be $1,000,000.

 In 2010, the Federal Estate Tax will disappear for
1 year, but Tennessee will continue to tax estates of
over $1,000,000.


                      Updated 1/15/2007             15
A.Tennessee Transfer Tax System
    1. GIFT Tax:
Each individual can give up to $12,000 to any direct relative, or
$5,000 to the 1st person and $3,000 to any person thereafter,
In any year
             Without paying State gift tax
    2. ESTATE Tax:
        The ­TN “Coupon” amount: $1,000,000

                →Expiration Date – “Choose It or Loose It”
                →Non-Transferable
                →Unlimited Marital Deduction
                →Counseling will be needed to help plan for the
                           Coupon changes
                →Designed to pay least possible “death” taxes



                              Updated 1/15/2007                      16
B. The LAW                       The “Magic Rule”: TITLE = RESULT!!!




Think about the 3 WAYS you can own property at the time of your
death … and what happens in each case




                             Updated 1/15/2007                    17
1.    Individual Title at death = Probate

**WITH or WITHOUT A WILL!! The 3 Big complaints about
      PROBATE???


A) Time: 6 – 18 Months


B) Cost:   4–7%

C) Privacy: Public Record




                          Updated 1/15/2007             18
2. Joint    Title at death = Ownership passes Automatically
 to other Joint Owner(s).


 This happens “By operation of Law.” In other
 words “The Survivor WINS”



BUT … be aware of the dangers of depending on joint
ownership as the ” Centerpiece ” of an estate plan

                        Updated 1/15/2007              19
3. Title by Contract at death = Control over how your
assets pass.
      Familiar examples of Title by Contract =
      Beneficiary Designations for:
      A) Life Insurance
      B) Annuities
      C) IRA’s and 401 – K’s


                     End of Technical Basics

                      Updated 1/15/2007             20
                                                THREE ROLES
     Revocable
     Living                                      Trustmaker(s)
     Trust                                       Trustee(s)

  1. The “ Bucket     “ Story:                   Beneficiary(-ies)

        First StepCreate         the “Bucket”
        Second Step Fill         the “Bucket”

  2. The “ Babysitter ” Story:

* A Key Distinction: Word Processing vs. Counseling

                           Updated 1/15/2007                          21
III. Application of an Estate Plan
   That Works




              Updated 1/15/2007   22
   A. Providing for my SPOUSE
                                                  $ 5m
       Husband’s                           Total Assets
                                                                        Wife’s
                          $ 2.5m                               $ 2.5m
                                             Co-
(Both Alive)                                 Trustees
 ---------------------------------------------------------------------------------
(After 1st death)                           Health, Education & Maintenance


                                                               Surviving Spouse
                 $ 500k            $ 2m
                                                               Beneficiary
                                                               Trustee
      Marital Trust              Family Trust
         (“A”)            (“Credit Shelter,” “Bypass”, “B”)         No Tax
                                                                    upon first
(After 2nd death)           *Protections:
                    (remarriage; creditors &“predators”)            Death

                                           Updated 1/15/2007                          23
B. Providing for my Children          and / or   Beneficiaries
   The KEY question is “How Much”
   •   Control
   •    Access
   •   Ownership


   do you want to give your Children / Beneficiaries?



                        Updated 1/15/2007                        24
      Outright                                                     In Trust
                                             Lifetime                             Conserv.
Lump Sum    Phases     Stages
                                            Protective                             Lifetime
           1/3 at 35    Kids                                          &
                                                Trust                                Trust
  $        1/3 at 45    House           In trust for the beneficiary's lifetime; income &
                                        principal in the Trustees discretion:
           1/3 at 55    College
                                                    Health, Education & Maintenance
                                      Brother’s Trust                      Sister’s Trust
 No Asset Protection
                                                     $                                $

                                       Brother as Trustee              Sister as
                                       and Beneficiary w/              Beneficiary w /Third
                                       Co-Trustee                      Party Trustee

                                Updated 1/15/2007                                           25
The Three Phases     & Costs of EVERY Estate Plan:



  1.The Upfront Phase:
    a) Documents . . .
    vs. . .
    b) Counseling and Design




                   Updated 1/15/2007           26
2. The Updating Phase: (or failing to update!)

              What Changes???
                    Life

                    Law

                    Lawyer

 a) How long (on average) do people go before updating their
   estate plans?   19.2     yrs!!

 b) How many Trust buckets are not fully funded?   90% !!!


                      Updated 1/15/2007                        27
     3. The Settlement Phase:


     Don’t fall for the “Magic Book” myth!!



                    The CHALLENGE:
Who takes responsibility for each phase & its cost and When ??




                          Updated 1/15/2007                28
IV. Advanced Planning Techniques




             Updated 1/15/2007   29
Qualified Personal Residence Trust

                                             Tenants in Common



              Husband’s          Wife’s
           50%     Gift to Trusts       50%

                                                     Right to live in
             H’s QPRT                 W’s QPRT       house for # of
                                                         Years

     Value of Home + Appreciation out of Estate
           Home out of reach of creditors
                 Current FMV of Home
           - Value of right to live in Home
                   = Taxable Gift
                        Updated 1/15/2007                           30
   Buildup Equity Retirement Trust
Irrevocable Trust for Spouses Lifetime
Transfer into Trust
      Higher of $ 5,000 or 5 % of Trust
      Each Year
        Transfer Tax Free

Spouse Can Use Trust for Needs

Property in BERT:
     Protected from Creditors
     Passes Transfer Tax Free            Upon Death
                     Updated 1/15/2007                31
          Growth of BERT Assets
                 Slow and Steady
           Greater of $5,000 or 5% of Trust
                     (assuming 2% inflation)


                  6%                           10%
Year 5:           $29,877                      $33,578

Year 10:          $69,858                      $87,656

Year 20:          $211,735                     $372,824

Year 30:          $634,456                     $1,302,031
                 For Each BERT !
                         Updated 1/15/2007                  32
      Growth of BERT Assets
                Super Charged
    Year 1 - $240,000 Gift Thereafter - $12,000 Gift
                      Assuming 2% Interest

                6%                             10%
Year 5:     $377,879                         $448,884

Year 10:    $586,741                         $813,875

Year 20:    $1,269,317                       $2,383,485

Year 30:    $2,541,699                       $6,517,169
                 For each BERT!
                       Updated 1/15/2007                  33
 Limited Liability Company

 Family Members Run Company as Business

      Contribute Unprotected Assets to LLC
    Assets Inside LLC may NOT be          Seized

 Creditors can only get a Charging Order which is
 the Right to the Member’s Share of Distributions

         Creditor of LLC can only Sue the LLC

                       Updated 1/15/2007            34
Limited Liability Company

   Company's Value Less Than Asset Value

                                   Lack of Marketability
      Discounts:
                                       Minority Interest

                                   Most Protection
    Wyoming LLC:
                                   Lowest Valuation

                   Updated 1/15/2007                       35
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