Estate Planning Basics - IASA Presentations... · Estate Planning Basics . Page 2 Objectives ....
Transcript of Estate Planning Basics - IASA Presentations... · Estate Planning Basics . Page 2 Objectives ....
Estate Planning Basics
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Objectives
Understand what an estate encompasses
Review the pros and cons of probate
Learn about trusts and their role in estate planning
Know which important estate documents are needed
Understand how your estate is taxed
Review some estate tax reduction tools
Know which steps to take next
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Personal action plan
Action Step
• Create your own personal action plan throughout this presentation
Action Step When Done
□ □ □ □ □
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True False
Estate planning is only important for the wealthy Estate planning is only for people who are old Joint ownership of property makes estate planning unimportant Spouses automatically inherit everything
How much do I know about estate planning?
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What can estate planning do for me?
Help distribute property according to my wishes
Ease the burden on survivors
Help take care of survivors’ needs
Specify wishes for medical treatment and handling personal affairs
Manage gifting and help minimize estate taxes
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What is an estate?
An estate consists of everything you own, as well as money or assets in your name
Do you have a:
• Home? • Retirement plan? • Life insurance policy? • Bank account?
If the answer is “yes” to any of the above, then you have an estate
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What can estate planning do for you?
Help to distribute property according to your wishes
Help to take care of survivors’ needs
Specify wishes for medical treatment and handling personal affairs
Manage gifting to loved ones and charities during life and after death
Help to minimize estate taxes
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Estate planning begins with a will
What does a will do?
• A will makes your wishes legal and helps your heirs handle your estate during a difficult time
What can you do with a will?
• Document who will receive your property when you die
• Name guardians for your children should both you and your spouse/partner die
• Appoint an executor
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What controls distribution of property?
“By Will” = Passes thru Probate
Trusts
Retirement plans (e.g., 401(k), IRA)
Life insurance
Beneficiary designation
Assets held in joint name (JTWROS)
Joint Tenant
Assets owned outright
Assets held as Tenants in Common (% owned)
Community property (50%)
Will
Probate
Heirs Action Step
• Review your beneficiary designations, including your 401(k), pension, and life insurance
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What is probate?
Processing of your will by a special court designated to probate wills
Court approves your executor or names a representative if no will exists
Judge supervises the distribution of assets and payment of debts
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Pros and cons of probate
Pros
• Court determines the validity of the will
• Allows the will to be challenged
• Court supervision of distribution of assets, valuation of assets and payments of creditor claims
• Executor must report to the court and heirs
Cons
• Costs* • Typically 2%-10% of the
probate estate • Court costs • Attorney fees • Executor fees • Appraisal fees • Publication costs • Bond premiums
• Time* • Typically 6 - 12 months
• Loss of privacy
*Source: Forefield Inc., 2016
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Avoiding probate
Own assets jointly
Name beneficiaries
Create a living trust
Gift assets while still alive
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Naming guardians
Day-to-day guardian should be:
• Equipped to rear children and provide a nurturing home life • Financially capable of supporting your children • Willing to accept the responsibility
Financial guardians should be:
• Financially astute • Ethical and trustworthy
You may wish to assign both responsibilities to one individual or nominate two separate individuals
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Executor
Carries out all the wishes stated in your will
Gets copies of the death certificate
Prepares a listing of the estate’s assets and determines their value
Files papers in court and with tax authorities
Notifies insurance companies and banks
Pays debts and taxes
Distributes assets as stated in your will
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After your will is prepared
• Do not keep your will in your own safe deposit box. Usually, state law requires that safe deposit boxes be sealed when the renter dies
• Consider using your spouse’s safe deposit box in a “cross-box arrangement” or in the safe deposit box of your executor
Pick a safe place to keep your will
• Place a copy of your will in your home, office, or in your own safe deposit box
Make copies of your will
• You should review your will at least once every three years or in the case of: • Marriage/divorce • Birth/death • Relocation (change in state of residency) • Law change
Set a date for review
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How does a trust work?
Grantor Trustee Beneficiary(ies)
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Revocable Irrevocable
Able to change or revoke? Yes No
Avoid probate? Yes Yes
Lower estate taxes? No Yes
Lower income taxes? No Maybe
Make completed gifts? No Yes
Revocable vs. Irrevocable trusts
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What can estate planning do for you?
Help to distribute property according to your wishes
Help to take care of survivors’ needs
Specify wishes for medical treatment and handling personal affairs
Manage gifting to loved ones and charities during life and after death
Help to minimize estate taxes
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Durable power of attorney
Grants another the power to act on your behalf regarding non-health related matters if you become incapacitated
Helps reduce physical, psychological and financial burdens on your family
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Living will and health care power of attorney
Note: The effects and availability of these documents vary under state law
Why you should have both:
A living will can’t cover every circumstance
A health care power of attorney will help ensure the power-holder will carry out
your intentions to the extent the living will doesn’t specifically define them
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Letter of instructions
A non-legal document that generally accompanies your will
Expresses your thoughts and directions regarding what is in the will (or about other things) • Burial wishes • Explanation of your actions • Advise your executor and/or
beneficiaries • Nature and location of information
your executor may need (document locator)
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Letter of instructions – Document locator
Location of: • Will and trust documents • Deeds and titles • Insurance policies • Birth and marriage certificates • Military discharge papers • Bank account numbers
Contact information of: • Attorney • Accountant • Life insurance agent
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What can estate planning do for me?
Help to distribute property according to your wishes
Help to take care of survivors’ needs
Specify wishes for medical treatment and handling personal affairs
Manage gifting to loved ones and charities during life and after death
Help to minimize estate taxes
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Gifting to loved ones - 2016
Can currently give up to $14,000 per year per recipient without paying gift tax
Married people can currently give up to $28,000 by gift-splitting
Your gift tax credit currently pays tax on taxable gifts up to the $5,450,000 lifetime gift exclusion
Note
• The gift tax does not apply when you directly pay for another person’s medical or education expenses, or for gifts to a spouse or charity
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Reducing taxes through gifts
• Reduce your income tax (when gifting income-producing property)
• Reduce the size of your estate
Gifts to loved ones during life can:
• Reduce your income tax during your life • Reduce the size of your estate after your death
Gifts to charities can:
Caution!
• Before making a gift (even to your children), be certain you and your spouse will not need the assets
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What can estate planning do for you?
Help to distribute property according to your wishes
Help to take care of survivors’ needs
Specify wishes for medical treatment and handling personal affairs
Manage gifting to loved ones and charities during life and after death
Help to minimize estate taxes
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Gross Estate
Less Liabilities and Expenses
Adjusted Gross Estate
Retirement Account Assets
Life Insurance You Own
Assets Owned Outright
1/2 of Assets Owned Jointly or as Community
Property
Revocable Trust Assets
Less Marital and Charitable Bequests
Taxable Estate
What is included in your estate?
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How is your estate calculated?
Josh Amy Joint Total
401(k) $400,000 $300,000 - $700,000
IRA $200,000 $300,000 - $500,000
Mutual Funds - - $100,000 $100,000
House (Net) - - $300,000 $300,000
Life Insurance $200,000 $200,000 - $400,000
Total Assets $800,000 $800,000 $400,000 $2,000,000
50% of Joint Assets $200,000 $200,000 -
Gross Individual Estates $1,000,000 $1,000,000 - -
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Calendar Year
Estate Tax Exemption
Highest Estate Tax Rate
2015 $5.43 million 40%
2016 $5.45 million 40%
2017 + Adjusted for inflation 40%
Will your estate owe federal estate tax?
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Additional tools to reduce estate taxes
Direct payments for tuition or medical bills
Charitable deduction • Unlimited transfers to charity free of estate and gift taxes
Marital deduction • Unlimited transfers to U.S. citizen spouse free of estate and gift taxes
Unified credit • 2016 credit can shelter a $5,450,000 estate • The credit can be used to shelter the estate at death and/or taxable gifts
during life
Portability of Unused Exclusion between spouses • With little planning, married couples can pass up to $10,900,000 to heirs free
of estate taxes
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What are your goals for your survivors?
Have the insurance conversation “If I die…, If you die…”
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Finding the right lawyer
Seek a lawyer specializing in estates
Should act as a legal counselor and educator
Consider the fees based upon your needs
Can they communicate on your level?
Search for an estate lawyer • lawyers.com • search-attorneys.com • estateplanning.com
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When should I review my estate plan?
Marriage/divorce
Birth/death (spouse, beneficiary, executor, etc.)
Relocation
Law change
Periodically (e.g., every 3-5 years)
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Personal action plan
Action Step When Done
Consider your estate goals 7 days □ Review your current estate documents 10 days □ Gather information about your assets and debts 14 days □ Meet with an estate lawyer and implement your plan 14 days □ Monitor and update your plan At least
every 3 years □
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Questions?