Estate Planning Estate Planning 101101

Presented by: Presented by:

Daniela LunguDaniela Lungu

Attorney at LawAttorney at Law

What is Estate Planning?What is Estate Planning?

• Estate planning is the process of Estate planning is the process of determining the distribution of your determining the distribution of your assets upon your death.assets upon your 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• FearFear• Lack of understanding of benefits of Lack of understanding of benefits of

EPEP• 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

Will or Revocable Living TrustWill or Revocable Living Trust General Durable Power of AttorneyGeneral Durable Power of Attorney Advance Health Care DirectiveAdvance Health Care Directive

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

Will or Revocable Living Will or Revocable Living 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 lifetime

income 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 Avoid probate 10-30% gross loss of estate Long process for heirs

Are public Offer privacy

Are not viable interstate Are good in every state planning tools

General power of attorney to Incapacity Trustee has address incapacity legal title and makes

decisions directed by you

WillWillss

Revocable Living TrustsRevocable Living Trusts

Who Needs a Trust?Who Needs a Trust?

• ““Everybody!”Everybody!”• Typically any individual with real property Typically any individual with real property • Any individual with assets valued at over Any individual with assets valued at over

$200,000$200,000• 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

$2,000,000*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.

*Increasing to $3.5MM in 2009.

How to Preserve $4,000,000 How to Preserve $4,000,000 Estate 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: $2,000,000 $2,000,000 =$4,000,000

Husband dies, leaves all to wife.

Husband Wife Total

Assets: $2,000,000 $2,000,000 =$4,000,000

Husband dies, leaves all to wife.HusbandHusband WifeWife

$2,000,000 $2,000,000$2,000,000$4,000,000

Less One Coupon $2,000,000

$2,000,000 $2,000,000$2,000,000$4,000,000

Less One Coupon $2,000,000

Tax Cost: Tax Cost: $900,000$900,000

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- $2,000,000Less Wife’s coupon $2,000,000

Tax = Tax = 00

Assets in estate- $2,000,000Less Wife’s coupon $2,000,000

Tax = Tax = 00

$2,000,000 of $2,000,000 of Property to Property to Family trustFamily trust

To Children at Wife’s DeathTo Children at Wife’s Death

Does this Apply to Me?Does this Apply to Me?

Assets Included in Definition of Assets Included in Definition of EstateEstate Real PropertyReal Property Life Insurance PoliciesLife Insurance Policies Checking, Savings, Annuity or Checking, Savings, Annuity or

other Liquid Accountsother Liquid Accounts Business InterestsBusiness Interests 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 Elvis – estate lost $10 million due to no

planningplanning James Brown – heirs still fighting over estate James Brown – heirs still fighting over estate

because he had no trust; no advance health because he had no trust; no advance health care directive cause burial to be delayedcare directive cause 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 probateplanning; died with will only so probate

Terry Schiavo – no planning led to her being Terry Schiavo – no planning led to her being on life support for over 13 yearson life support for over 13 years

Leona Helmsley – put only 12 mil in trust for Leona Helmsley – put only 12 mil in trust for dog Trouble, rest of her billions have to be dog Trouble, rest of her billions have to be probatedprobated

Daniela Lungu, Attorney at Law

Estates and Trustsand Business Planning

(510) 917-4002lungu@lungulaw.comwww.lungulaw.com

Questions?Questions?