Estate And Legacy PlanningAn Overview of the Estate Planning Process

MVMA LUNCH 'N LEARN PROGRAMS

November 10, 2015

By: Samuel S. StalsbergSjoberg & Tebelius, P.A.

2145 Woodlane Drive, Suite 101Woodbury, Minnesota 55125

Phone: 651-738-3433sam@stlawfirm.com

What Is an Estate Plan? An estate plan is a map The map reflects the

way you want your personal and financial affairs to be handled in case of incapacity or death

Who Needs an Estate Plan?Chances are, you do Not just for the wealthy Without an estate plan, you

can’t control what happens to your property if you die or become incapacitated

An estate plan makes your wishes clear and helps avoid family disputes

Proper estate planning can preserve assets and provide for loved ones

Protects beneficiaries from others and themselves

Especially needed if: Your spouse isn’t comfortable

with financial matters You have minor or disabled

beneficiaries Your net worth exceeds the

federal transfer tax exemption amount ($5,430,000 in 2015) or, if less, your MN exemption amount ($1,400,000 in 2015)

You own property in more than one state

Financial privacy is a concern You own a business Second marriages

Basic Estate Planning ConceptsPlanning for IncapacityPlanning for Incapacity

Planning for DeathPlanning for Death

Property ManagementProperty 

Management

Health CareHealth Care

QuestionsQuestions

Wills and ProbateWills and Probate

Tax BasicsTax Basics

GiftingGiftingTrustsTrusts

Failing to plan means a court would have to appoint a guardian

Lack of planning increases the burden on your guardian

Your guardian’s decisions might not be what you would want

Attorney's fees, court costs and delays

Planning for IncapacityHealth Care

Disposition of Remains, Funeral Services, Organ 

Donation

Lets you designate an agent to makedecisions on your 

behalf

Puts your instructions in writing

Planning for Incapacity Health-Care Directives

Miscellaneous Directions

Durable Power ofAttorney for Health Care Living Will

Planning for IncapacityFinancial Management

Without appropriate planning for management of your assets during incapacity, a court supervised conservatorship is probably necessary.

• Time Consuming

• Expensive

• Public Record

Lets you designate an agent to makedecisions on your 

behalf

Lets a successortrustee take overmanagement oftrust property

Planning for IncapacityProperty Management Tools

Living TrustDurable Power ofAttorney (DPOA)Joint Ownership

Joint owner hasthe same accessto property as 

you do

What Happens If You Die Without an Estate Plan?

Some property passes automatically to a joint owner or to a designated beneficiary (e.g., IRAs, retirement plans, life insurance, trusts)

All other property generally passes according to state intestacy laws

What Happens If You Die Without an Estate Plan? -- Intestacy

Intestacy laws vary from state to state Pattern of distribution in Minnesota depends on

marital status, and if all children are also children of the surviving spouse.

Your actual wishes are irrelevant, you are stuck with how the legislature assumes you want your property divided.

Many potential problems

Wills & Probate

A will is the cornerstone of an estate plan

Directs how your property will be distributed upon your death

Names personal representative and guardian for minor children

Can accomplish other estate planning goals (e.g., estate tax planning, trusts for children)

Written, signed by you, and witnessed

Wills & Probate -- The Probate Process Most wills must be

probated Will is filed with probate

court Personal Representative

collects assets, pays debts, files tax returns, and distributes property to beneficiaries

Typically, process lasts several months to a year

Wills & Probate -- Probate Pros & Cons

Pros Cons Costs are typically

modest Court supervision Protection against

creditors

Can be time consuming for complex estates

Title transfer delays Fees Ancillary probate Public record

Wills & Probate -- Avoiding Probate

Can you avoid probate?

Yes, an estate plan can be designed to control which assets pass through probate, or to avoid probate.

Own property jointly with rights of survivorship

Complete beneficiary designation forms for property such as IRAs, retirement plans, and life insurance

Transfer on death deeds

Make lifetime gifts Use trusts

Revocable Trusts Versatile estate planning tool Can protect against

incapacity Avoid probate Allow professional

management of assets Control over property Can revoke or amend Private

Trusts -- What Is a Trust?

Legal entity that holds property

Parties to a trust: grantor, trustee, beneficiary

Living trusts vs. testamentary trusts

Revocable trusts vs. irrevocable trusts

Grantor

TrustAgreement

BeneficiariesHave rights to trust property

under terms of trust agreement

Trust Property

TrusteeManages trust property according to 

trust agreement

Revocable TrustsPros

1. Avoid Probate2. Incapacity Planning and

Asset Management3. Protects Privacy4. Reduces Administrative

Burden on Loved Ones

Cons1. More Complex2. More Work Upfront

(funding the trust)3. Higher Initial Cost

Tax BasicsTransfer taxes include: Federal gift tax - imposed on

transfers you make during your life

Federal estate tax - imposed on transfers made upon your death

Minnesota estate tax - -imposed on transfers made upon your death

Federal generation-skipping transfer (GST) tax - imposed on transfers to individuals who are more than one generation below you (e.g., grandchildren) both during your life and upon your death

Transfer Tax Basics Federal

2014 2015 2016

Top rate 40% 40% 40%

Gift and estate tax exemption equivalent amount

$5,340,000 $5,430,000 $5,450,000

GST tax exemption

$5,340,000 $5,430,000 $5,450,000

Tax Basics -- Gift Tax

Federal Gift tax applies to transfers made during your life

Certain gifts are excluded $14,000 annual exclusion Gifts for Education Gifts for Medical Expenses

$5,430,000 exempt from all transfers (gifts and estates) combined in 2015

Minnesota Gift Tax [Repealed]

You(Donor)

Person ReceivingGift (Donee)

Lifetime Transfer

Gift tax may apply

Tax Basics -- Federal Estate Tax Estate tax applies to

transfers made at death Generally does not apply to

transfers made to spouse or charity

$5,430,000 exempt from all transfers (gifts and estates) combined in 2015

Any portion of exemption used for gifts will be unavailable to the estate

Your Estate

Beneficiary

Transfer at Death

Estate tax may apply

Tax Basics -- Federal Estate Tax New feature important

for married couples. Exemption is “portable”

- unused portion left by deceased spouse can be transferred to surviving spouse.

$10,860,000 can be left to beneficiaries tax free (in 2015).

Note: Portable feature does not apply to MN state estate tax

Tax Basics -- Federal Estate Tax

Explanation of “Portability” Feature

1. Assume Husband owns $7M in assets and Wife owns $3M. Wife dies first.

2. Wife’s $3M estate passes to Husband.

3. Husband now owns $10M of assets. Husband can utilize the portable unused $5.43M from Wife and use his own $5.43 M exemption on top.

4. Result: No federal estate tax on $10.86M.

NOTE: Minnesota estate tax is still applicable.

Tax Basics – Minnesota Estate TaxReview of Minnesota Estate Tax Estate Tax Exemption through 12/31/13 - $1M Decedents Dying in 2014 - $1.2M (9%-16%)* Decedents Dying in 2015 - $1.4M (10%-16%)* Decedents Dying in 2016 - $1.6M (10%-16%)* Decedents Dying in 2017 - $1.8M (10%-16%)* Decedents Dying in 2018 - $2.0M Over $2M but less than $2.6M – 10% of excess

over $2M Over $2.6 but less than $7.1 - $60,000 plus 13%

of excess over $2.6M *Tax on amounts exceeding the exemption.

Tax Basics – Tax Planning (Minnesota)

A. An estate plan leaving everything outright to a spouse may not be appropriate for a couple with total assets in excess of the Minnesota applicable exclusion amount.

B. Example: Husband and Wife each have assets of $2,000,000 and Husband dies in 2015 leaving his entire $2,000,000 estate to his wife outright.

No Minnesota or Federal estate taxes are due thanks to the unlimited marital deduction. Wife now owns $4,000,000 worth of assets. Wife dies later that same year.

No federal estate tax will be due at her subsequent death because her assets are under the federal exclusion amount.

Minnesota estate tax will be due, however, because her assets exceed the Minnesota exclusion amount.

Tax Basics – Tax Planning (Minnesota)

H'S ESTATE$2,000,000

TO SPOUSE

NO TAX

Husband dies first in 2015

Tax Basics – Tax Planning (Minnesota)

W'S ESTATE$4,000,000

$4,000,000TAXABLE

Federal Taxes = $0Minnesota Taxes = $268,000

BYPASS$0

Wife dies second, also in 2015

Tax Basics – Tax Planning (Minnesota)

To reduce MN estate tax, include tax planning in your estate plan Bypass Trust (aka Credit Shelter Trust, Family

Trust, “B” Trust) Formula v. Disclaimer

Purpose To use credit to pay tax at death of first-to-die To use a trust to pass property values equal in

amount to the exemption equivalent To provide surviving spouse with use of property To avoid tax on property at surviving spouse’s

death

Tax Basics – Tax Planning (Minnesota)

Example Revisited: Husband and Wife each have assets of $2,000,000. Husband dies in 2015, leaving $1,400,000 to a trust for the benefit of wife and children (Bypass Trust) and the remaining $400,000 passes outright to wife.

Taxes at Husband’s Death:Federal Estate Tax due = $0

Minnesota Estate Tax due - $0

HUSBAND’SESTATE

$2,000,000

$1,400,000BYPASSTRUST

NO TAXNO TAX

$600,000MARITAL

DEDUCTION

Tax Basics – Tax Planning (Minnesota)

Example Revisited: Wife dies later that same year.

WIFE’S ESTATE$ 2,600,000*

$2,600,000TAXABLE

$1,400,000NON-

TAXABLE

No Federal Estate TaxMinnesota Estate Tax = $120,000

* Bypass Trust not included in Wife’s estate.

BYPASS TRUST$1,400,000

Tax Basics – Tax Planning (Minnesota)

Total Minnesota Estate Tax Savings 

$268,000 ‐ $120,000 = $148,000

Lifetime Gifting Lets you see the recipient

enjoying your gift Lets you minimize transfer

taxes by taking advantage of the $14,000 annual gift tax exclusion and other tax deductions

Removes future appreciation of property from your taxable estate

No “step-up” in basis -- your basis in the property carries over instead

Lifetime Gifting -- Transfers Excluded from Gift Tax

You can give $14,000 to as many individuals as you want federal gift tax free ($28,000 if you and your spouse make the gift together)

If you’re contributing to a Section 529 plan, you can give $70,000 ($140,000 with spouse) gift tax free

No gift tax on amounts paid directly to a school for an individual’s tuition

No gift tax on amounts paid directly to a medical care provider for an individual’s medical care

Unlimited exemption for gifts to qualified charities

Legacy Planning Gifts to Charity During Lifetime Example: Outright Gift of $25,000 Mutual

Fund to the MVMFSupports wonderful causes of MVMFNo capital gains tax 100% income tax deductible

Lifetime Planned Gifts to Charity Gift Annuities Charitable Remainder/Lead Trusts

Legacy Planning Gifts In Estate Plan Use retirement plan beneficiary

[most tax efficient] Flat dollar amount by bequest Tithing percentage by bequest Family Foundation Planning with

a Donor Advised Fund

MVMF Legacy Society MVMF Board Appointed Planned Giving Task Force

last fall

Dr. Olson, Dr. McMenomy, and Dr. Greiner

Established the MVMF Legacy Society

Includes anyone who has included MVMFin their will or estate plan

MFMF Legacy Society Detailed information mailed to

members this month. Website

mvmfcares.org/youcanhelp

Questions? inezb@mvmfcares.org

ConclusionI would welcome the opportunity to meet individually with each of you to address any specific concerns or questions that you may have:Samuel S. Stalsberg Sjoberg & Tebelius, P.A.2145 Woodlane Dr, Ste 101Woodbury, MN 55125Phone: 651-738-3433sam@stlawfirm.com

Have you implemented a plan for incapacity (health and property)?

Do you have a valid will?

Are transfer taxes a planning concern for you?

Does your overall estate plan reflect your current wishes and circumstances?