A New Product Line Irs Supermarket[1]

Presented by

Richard L. Randall, Esq.Chairman & CEO, National Network

of Estate Planning Attorneys

A New Product Line at the IRS Supermarket: Shopping During Estate Tax

Purgatory

Estate Planning Overview

Most Estate PlansJust Don’t Work!


Definition of Estate Planning

I Want to Control My Property While I’m Alive and Well

Plan for Me and My Loved Ones if I Become Disabled


Definition of Estate Planning

Then Give What I Have• To Whom I Want• When I Want• The Way I Want

All While Assuring My Wisdom is Transferred Along with the Rest of My Wealth

SAVE TAXES

EXPAND WEALTH

PRESERVEWEALTH

FAMILY

ME

The LifeSpan™ Planning Pyramid

TM & © LifeSpan, LLC 2002 - 2009. Use by National Network members by express permission and under license granted by LifeSpan, LLC. Revised 4/2007 ™

™1. DEVELOP your plan with counselling-oriented planning partners

2. C

OM

MIT

you

rsel

f and

you

r fa

mily

to a

form

al

cont

inui

ng m

aint

enan

ce a

nd e

duca

tion

pro

gram

3. SEC

UR

E appropriate assistance to assure your w

isdom

is transferred along with the rest of your w

ealth


Three Step Strategy™• DEVELOP Your Plan with Counselling Oriented Planning Partners• COMMIT Yourself and Your Family to a

Formal Continuing Maintenance and

Education Program • SECURE Appropriate Assistance for You and Your Family to Transfer Your Wisdom Along With the Rest of Your Wealth


Personal Planning Goals

• Catastrophic Illness Protection• Remarriage Protection• Creditor Protection• Divorce Protection• Values Promotion


Three Types of Change An Estate Plan Faces

• Changes in Your Personal Situation

• Personal• Financial



• Changes in the Legal Environment

• Tax• Non-Tax (Personal Protections)



• Changes in Your Attorney’s Experience• Changes in Your OWN Experience

• Static vs. Continuous Improvement?

• Add Earned and Learned Wisdom!



Continuing Maintenance and Education

Program • SECURE Appropriate Assistance for You and Your Family to Transfer Your Wisdom Along With the Rest of Your Wealth

Results of Planning Without TheThree Step Strategy™ Approach

• Reduced Initial Planning Options

• Outdated PlansTechnicalPersonal

• Little EducationFor YourselfFor Your Family



Continuing Maintenance and Education

Program • SECURE Appropriate Assistance for You and Your Family to Transfer Your Wisdom Along With the Rest of Your Wealth


EVERYTHING IN ESTATE PLANNING COMES DOWN TO TITLE!

• Tax Savings

• Personal Protections• Catastrophic Illness Protection• Catastrophic Creditor Protection• Remarriage Protection• Divorce Protection

Presented by



The New Estate Planning Landscape (Guiding Clients Through Estate Planning

Purgatory)

Bush Tax Act (EGTRRA)

•Gradually Increased Exemption Amounts (from $675,000 to $3.5 Million in 2009)

•Decreased Estate Tax Rates (Down to Top Rate of 45%)

•Eliminated Estate &GST Taxes in 2010

•“Sunset” Provision (“Byrd Rule”) Reinstates Previous System in 2011 Unless Congress Acts

Extension of EGTRRA?

•H.R. 4154 Passed December 3, 2009 (with NO Republican Votes)

•Republicans Wanted $5 Million Exemption and Top Rate of 35%

•Senate Failed to Pass Any Law and Denied Two Month Extension (Same Republican Proposal, but Including “Portability” )

•“Byrd Rule” Requires 60 Vote Majority & There’s No Consensus!

Indeed, Senate Finance Committee Chairman

Max Baucus says there’s “Massive, Massive

Confusion”!

What Happens In 2011 If No Change?

•$1 Million Federal Estate Tax Exemption

•Estate and Gift Tax Unified Again

•GST Exemption Will Be Inflation Adjusted $1 Million (approximately $1,340,000)

•Top Rates Revert to 55% (With 60% “Bump” for Estates Over $10 Million)

Three Potential Scenarios

•Congress Acts This Year and Law Applies Retroactively

•Congress Acts and Law Does NOT apply Retroactively (or Retroactivity is held Unconstitutional)

•Congress Does Not Act

Three Possible Results

•2009 Provisions Extended ($3.5 Million Exemption and 45% Rate)

•$5 Million Exemption and 35% Rate


So What’s the Law Now?

• NO Federal Estate Tax

• NO Generation Skipping Tax (GST)

• Gift Tax at 35% Rate

• Carryover Basis Regime Becomes Effective

• $1.3 Million Step-up Allocation

• Additional Step-up Allocation for $3 Million for Assets Transferred to Spouse, Either Outright or to a Q-TIP Trust

And, Planning Uncertainty “Rules!”

•Constitutionality of Retroactive Provision?

•Interpretation of Legal Documents

•Interpretation of “Repeal” Language

Constitutionality of Retroactive Application of Tax Legislation

•Good Arguments on Each Side

•Retroactive Application Has Been Upheld, but Rulings Can Be Distinguished

•Very Difficult to Predict Result


•Constitutionality of Retroactive Provision?



Federal Estate Tax Reduction

Trustee Instructions:

Transfer up to Exemption Equivalent to Family Trust, Put Any Excess in Marital Trust

Marital

Excess 1st $3,500,000(2009)

Family

Federal Income Tax Reduction


Transfer all Property to Family Trust, Put Excess Appreciated Assets in Marital Trust

Marital

Up to $3,000,00 of Appreciated Assets

All Property(1st $1,300,000

Stepped Up-2010)

Family

Income Tax Basis Analysis

BUY DIE SELL

2009 10 100 100

2010* 10 100 10

2011 10 100 100

*$1.3 MM Basis Adjustment; Additional $3MM Spousal Basis Adjustment




Marital

Excess 1st $1,000,000(2011)

Family


•Constitutionality of Retroactive Provision



“As If Never Enacted”

•“Blended Families”•Charitable Bequests•Generation-Skipping Trusts•“De-Coupled” State Death Taxes

Note: These Involve Percentages and Formula Wording

Prioritizing Client Situations for Review

What Can Financial Advisors Do?

•Proactively Identify Clients with Estate Planning Documents Executed Prior to 2001

•Proactively Verify Estate Planning Document Language For More Recent Plans

•Proactively Identify Clients Who Have Pursued Generation-Skipping Planning

What Can Financial Advisors Do?

•Proactively Identify Clients With Appreciated Assets and Assess Basis Information Situation With Them-Begin With Clients That Have Known Health Issues

•Proactively Identify Clients Affected By Potential Reduction to $1 Million Exemption

•Encourage Clients to Document Their Intent

The Author Would Like to Acknowledge the Assistance of:• James W. Collins, Legal Support Director for the National Network of Estate Planning Attorneys•Members of the National Network who supplied various material and insights•Leading Estate Planning Attorneys for Their Insights in Articles, on Teleconferences and at the Heckerling Institute

Acknowledgements

Presented by



A New Product Line at the IRS Supermarket: Shopping During Estate Tax

Purgatory


Estate Planning Challenges

• Mental Disability

• Asset Transfer Upon Death

• Taxation

• Personal Planning Goals


Key Tax Savings Provisions

Unlimited Marital Deduction

The “Exemption Equivalent”

Estate Tax “Purgatory” Planning

Bush Tax Act (EGTRRA)

•Gradually Increased Exemption Amounts (from $675,000 to $3.5 Million in 2009)

•Decreased Estate Tax Rates (Down to Top Rate of 45%)

•Eliminated Estate & GST Taxes in 2010

•“Sunset” Provision (“Byrd Rule”) Reinstates Previous System in 2011 Unless Congress Acts


Three Potential Scenarios

•Congress Acts This Year and Law Applies Retroactively

•Congress Acts and Law Does NOT apply Retroactively (or Retroactivity is held Unconstitutional)

•Congress Does Not Act


Three Most Likely Results

•2009 Provisions Extended ($3.5 Million Exemption and 45% Rate)




Requires an “If-Then” Approach IF No Estate Tax is in Effect (as in 2010),

Your Plan Must Provide for Maximizing Federal INCOME Tax (Capital Gains) Reduction

THEN Retains Traditional Estate Tax Reduction Approach IF Federal Estate Tax is Reinstated (No Later Than 2011?)


Trip to the IRS Supermarket


Property in The Supermarket Is Subject to Federal Estate Tax

Property out in The Parking Lot Is Not Subject to Federal Estate Tax


Family Trust

also called: B Trust Credit Shelter Trust By Pass Trust

FamilyTrust


Split Trusts Into Two Sub-Trusts

Family


Marital

Survivor May Be Trustee and Beneficiary of Both!




Marital

Excess 1st $3,500,000(2009)

Family



Transfer all Property to Family Trust, Put Excess Appreciated Assets in Marital Trust

Marital

Up to $3,000,000 of Appreciation on Assets

All Property(1st $1,300,000

Stepped Up-2010)

Family




Marital

Excess 1st $1,000,000(2011)

Family

Federal Estate Tax Reduction Marital Trust


Income to Spouse

Marital

Federal Estate Tax ReductionMarital Trust


Principal Full Control Full Use; Limited

Control on Death Full Use Marital

Limited Power of Appointment

The “Hit Parade”

Kid Hits the School Bus School Bus Hits the Kid Marriage Hits the Rocks Kid Hits the Bottle Kid Hits the Books Kid Hits the Lottery Kid Hits the Skids

Federal Estate Tax ReturnFamily Trust


Income to Spouse Mandatory Discretionary

Family

Federal Estate Tax ReductionFamily Trust


Principal For “Needs” Health Education Maintenance Support

Family


The “Rule of 72”Dividing 72 by the rate of return on your investment roughly equals the number of years it takes to double

your account balance.


Effect of Growth

Excess

To LaterBeneficiaries But

Included in Survivor’s Estate

1st $3,500,000 (2009)

$14,000,000To Later Beneficiaries

WITHOUT Federal Estate Tax

FamilyMarital


Effect of Growth

$3,000,000

To Later Beneficiaries WITHOUT Federal Income Tax But Could Be

Later Included in Survivor’s Estate

1st $1,300,000

To Later Beneficiaries WITHOUT Federal Estate Tax or Income (Capital Gains) Tax

FamilyMarital




Marital

Excess 1st $1,000,000(2011)

Family


Requires an “If-Then” Approach IF No Estate Tax is in Effect (as in 2010),

Your Plan Must Provide for Maximizing Federal INCOME Tax (Capital Gains) Reduction

THEN Retains Traditional Estate Tax Reduction Approach IF Federal Estate Tax is Reinstated (No Later Than 2011?)


Tax Savings Determined By:

Applicable Exclusion Amount

(Determined by Congress)

Funding of Family Trust


Tax Savings Determined By:

Applicable Basis Allocation Amount (Determined by Congress)

Funding of Family Trust Funding of Marital Trust


Available

Individual Name Assets Living Trust Assets Beneficiary Designations

Payable to Trust

Not Available

Joint Assets

Beneficiary Designations Payable to Individuals

Funding The Family Trust


Available

Individual Name Assets Living Trust Assets Beneficiary Designations

Payable to Trust

Not Available

Joint Assets

Beneficiary Designations Payable to Individuals

Funding The Family and Marital Trusts

Conclusion/Recommendation

Pursue the Three Step Strategy™• DEVELOP Your Plan with Counselling Oriented Planning Partners• COMMIT Yourself and Your Family to a



A New Product Line Irs Supermarket[1]

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