what is estate planning? presented by: daniela lungu attorney at law
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What is What is Estate Planning?Estate Planning?
Presented by: Presented by:
Daniela LunguDaniela Lungu
Attorney at LawAttorney at Law
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
Maintain Control Over Your Person & AffairsMaintain Control Over Your Person & Affairs
Protect your childrenProtect your children
Protect Your AssetsProtect Your Assetsfrom Lawsuitsfrom Lawsuits
Creditors, and DivorcesCreditors, and Divorces
Save Gift TaxesSave Gift TaxesSave Gift TaxesSave Gift Taxes
Incapacity PlanningIncapacity Planning
Save Estate TaxesSave Estate Taxes
Protect Against Protect Against Administrative Administrative Expense & DelayExpense & Delay
Reduce IncomeReduce Income TaxesTaxes
Why People Avoid Getting an Why People Avoid Getting an Estate Plan?Estate Plan?
• CostCost• Want to initiate probate proceedings Want to initiate probate proceedings
at deathat death• Think their estate is too small to Think their estate is too small to
support the expense of planningsupport the expense of planning
General Documents In General Documents In Estate PlanEstate Plan
Pour Over WillPour Over Will• Includes beneficiaries, guardianship Includes beneficiaries, guardianship
nominations, gifts, named executornominations, gifts, named executor Revocable (Living) Trust Revocable (Living) Trust
contract for distribution of funded assetscontract for distribution of funded assets Advance Health Care DirectiveAdvance Health Care Directive Durable Power of Attorney for Durable Power of Attorney for
PropertyProperty
Your Planning OptionsYour Planning Options
WillWill Revocable Living TrustRevocable Living Trust Or Both?Or Both?
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 guardian Court proceeding to determine who will be guardian
for minor childrenfor minor children Assets distributed according to state law - intestacyAssets distributed according to state law - intestacy
Failure to do advanced planning for larger estates:Failure to do advanced planning for larger estates: Family money goes to taxes instead of heirsFamily money goes to taxes instead of heirs Kids blow inheritanceKids blow inheritance Control issues and fighting among family members Control issues and fighting among family members
left behindleft behind
Difference in a Will or Difference in a Will or Trust?Trust?
WillWill
Set of instructionsSet of instructions
that take effect that take effect uponupon
your deathyour death
Revocable Living TrustRevocable Living Trust
Set of instructions to care Set of instructions to care
for you and your family for you and your family
during your lifetime, during your lifetime,
in the event of incapacity,in the event of incapacity,
and at death - amendableand at death - amendable
WILL WILL REVOCABLE REVOCABLE LIVING TRUSTLIVING TRUST
ProbateProbate
My PropertyMy Property
HeirsHeirs
Property in Property in My Living My Living
TrustTrust
(No Probate)(No Probate)
HeirsHeirs
Comparison of Wills and Comparison of Wills and TrustsTrusts
SIMILARITIES
Provides for distributing Provides for distributing
property at your death property at your death
Can be used to plan for Can be used to plan fordeath tax death tax
Has no adverse lifetime Has no adverse lifetimeincome tax consequences income tax
consequences
WillWillss
Revocable Living TrustsRevocable Living Trusts
Comparison of Wills and Comparison of Wills and TrustsTrusts
DIFFERENCES
Are only effective at death Are effective immediately
Must go through probate Avoids probate
As much as 10% gross loss of estate Long process for heirs
Are public Trusts are Private
Are good only in state of Are good in every stateresidence
WillWillss
Revocable Living TrustsRevocable Living Trusts
Who Needs a Trust?Who Needs a Trust?
• ““Everybody!”Everybody!”• Any individual with real property – Any individual with real property –
regardless of stateregardless of state• Any individual with assets valued at over Any individual with assets valued at over
$100,000$100,000• Those individuals that wish to spare their Those individuals that wish to spare their
beneficiaries the burden and cost of beneficiaries the burden and cost of probateprobate
• Those individuals who have specific Those individuals who have specific distribution desires post deathdistribution desires post death
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 deathon the first death
The tax is assessed upon the death of the The tax is assessed upon the death of the surviving spousesurviving 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
$5,125,000*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.
*Rule sunsets in 2012.
How to Preserve over How to Preserve over $10,000,000 Estate $10,000,000 Estate
Tax Free for your Heirs??Tax Free for your Heirs??
Use a Family Trust!Use a Family Trust!Let’s use our IRS “Coupon” - Let’s use our IRS “Coupon” -
The Applicable Exclusion Amount!The Applicable Exclusion Amount!
How to Waste Your Estate How to Waste Your Estate Tax “Coupon”??Tax “Coupon”??
Husband Wife Total
Assets: $5,125,000 $5,125,000 =$10,250,000
Husband dies, leaves all to wife.
Husband Wife Total
Assets: $5,125,000 $5,125,000 =$10,250,000
Husband dies, leaves all to wife.HusbandHusband WifeWife
$5,125,000 $5,125,000$5,125,000
$10,250,000Less One Coupon $5,125,000
$5,125,000 $5,125,000$5,125,000
$10,250,000Less One Coupon $5,125,000
Tax Cost: Tax Cost: $1,7937,500$1,7937,500
How NOT to Waste Your How NOT to Waste Your Estate Tax “Coupon”Estate Tax “Coupon”
HusbandHusbandWifeWife
Income and other benefits Income and other benefits to wife for her lifetimeto wife for her lifetime
WifeWife
Assets in estate- $5,125,000Less Wife’s coupon $5,125,000
Tax = Tax = 00
Assets in estate- $5,125,000Less Wife’s coupon $5,125,000
Tax = Tax = 00
$5,125,000 of $5,125,000 of Property to Property to Family trustFamily trust
To Children at Wife’s DeathTo Children at Wife’s Death
What is the ESTATE TAX What is the ESTATE TAX NOW?NOW?
2009 - $3,500,000 Coupon Amount2009 - $3,500,000 Coupon Amount 2010 - $5,000,000 Coupon Amount2010 - $5,000,000 Coupon Amount 2012 - $5,125,000 Coupon Amount2012 - $5,125,000 Coupon Amount 2013 - ??2013 - ??
Remember that the top tax rate is 35% Remember that the top tax rate is 35% so your heirs potentially can lose more so your heirs potentially can lose more than a third of every dollar that you do than a third of every dollar that you do not specifically plan fornot specifically plan for
Does this Apply to Me?Does this Apply to Me? Assets Included in Definition of “Estate”Assets Included in Definition of “Estate”
Real PropertyReal Property Life Insurance PoliciesLife Insurance Policies Checking, Savings, Annuity or other Checking, Savings, Annuity or other
Liquid AccountsLiquid Accounts Business Interests – Sole Business Interests – Sole
Proprietor/Corp/LLC/PartnershipProprietor/Corp/LLC/Partnership Retirement and Pension PlansRetirement and Pension Plans All Personal PropertyAll Personal Property
Other Estate Planning Other Estate Planning Documents and Their UseDocuments and Their Use
Advance Health Care Directive – gives Advance Health Care Directive – gives an agent ability to make health care an agent ability to make health care decisions for you if you cannot because decisions for you if you cannot because of incapacity or illness; can ensure of incapacity or illness; can ensure burial and other end of life decisions are burial and other end of life decisions are carried outcarried out
Durable Power of Attorney – gives an Durable Power of Attorney – gives an agent the ability to ensure your financial agent the ability to ensure your financial concerns are taken care of in the event concerns are taken care of in the event of your incapacityof your incapacity
Real Life ExamplesReal Life Examples Elvis – estate lost $10 million due to no planningElvis – estate lost $10 million due to no planning James Brown – heirs still fighting over estate James Brown – heirs still fighting over estate
because he had no trust; no advance health care because he had no trust; no advance health care directive caused burial to be delayeddirective caused burial to be delayed
Anna Nicole Smith – burial delayed due to no Anna Nicole Smith – burial delayed due to no planning; died with will only so probate – planning; died with will only so probate – daughter lost money, eventually was granted daughter lost money, eventually was granted estateestate
Terry Schiavo – no planning led to her being on Terry Schiavo – no planning led to her being on life support for over 13 yearslife support for over 13 years
Leona Helmsley – put only 12 mil in trust for dog Leona Helmsley – put only 12 mil in trust for dog “Trouble”, rest of her billions have to be probated“Trouble”, rest of her billions have to be probated
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