Financial Focus Estate Planning for Uncertain Times

LBL7166 (ADS202) @2006 Allstate Insurance Company

1Financial Focus Estate Planning for Uncertain Times

Not FDIC, NCUA/NCUSIF insured * Not a deposit * No bank or credit union guarantee * Not insured by any federal government agency * May lose value


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This presentation is for informational purposes only. It represents our understanding of generally applicable rules. Lincoln Benefit Life, an Allstate Company, its agents and employees may not give tax or legal advice. We recommend everyone seek and rely upon the advice of his or her own professional advisors for such advice.

Important Note


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Introduction to Estate Planning

What is estate planning?

Why should you be interested in estate planning?

How much money should you have before you consider estate planning?


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Estate Planning Goals – While Living

Provide for management of assets in the event of disability or incapacity

Provide instructions for healthcare decisions

Protect assets from long term care costs


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Estate Planning Goals – Before Death

Determine who gets what, how and when after death

Maximize estate by reducing expenses and avoid delays

Minimize estate taxes

Provide liquidity


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Who Should Plan?

EVERYBODY! Why?

Children

Assets (farm, business, etc.)

Incapacity

Healthcare

Elder Care

Expenses/Taxes


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Planning All of Us Should Consider

Long term care planning Provides a greater level of independence

and dignity when long term care is needed

Affords assistance to maintain an

accustomed standard of living

Promotes estate preservation


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Financial Decisions Financial Durable Power of Attorney

Health Care Decisions Power of Attorney for Healthcare

Living Will


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Will Legal Document

– Takes effect at death

– State requirements vary

Benefits

– Transfer of assets

– Names guardians

– Can establish trusts for beneficiaries


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Distributing Your Assets

Probate Court-supervised distribution of assets

Advantages

– Distributes assets according to will

– Limits time to challenge will

– Limits time creditors can make claims


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Probate Disadvantages

– Time

– Cost

– Publicity


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Assets That Pass Outside of Probate

Joint tenancy with right of survivorship

Assets subject to a beneficiary designation

Assets owned by a Living Trust


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Trusts Parties to a Trust

– Grantor – Creates Trust

– Trustee – Manages Trust

– Beneficiary – Benefits from Trust

Types of Trusts

– Living vs. Testamentary

– Revocable vs. Irrevocable


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Living Trusts Preferred primary estate planning document

Avoid probate

– Time

– Costs

– Publicity

Financial guardianship

– Provide protection and management of trust assets if the grantor becomes incompetent.


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Estate Taxes and Your Estate…

All Tangible Assets

All Intangible Assets

At Fair Market Value!


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Your Estate at Death


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Estate Taxes

Estate Tax Examples (2006 Credit)


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Economic Growth and Tax Relief Reconciliation Act of 2001

Estate tax “repeal” in 2010

Increased exemptions

– $1 million in 2003

– $1.5 million in 2004-05

– $2 million in 2006-08

– $3.5 million in 2009


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Deductions/Credits

Unified credit equivalent ($2,000,000 in 2006 increasing to $3.5 million in 2009)

Unlimited Marital deduction

Unlimited Charitable deduction

Annual gift tax exclusion ($12,000 in 2006)

Lifetime gift tax exemption of $1,000,000


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A/B Trusts – How Do They Work?


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Tax Payment Alternatives

Cash

– Liquidity?

– Sell business/farm/property?

Borrow

– Interest?

Use life insurance proceeds


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Planning Some of Us Should Consider


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Charitable Remainder Trusts

Charitable Remainder Trusts (CRTs) are irrevocable trusts that provide:

– an “income” stream during the lifetime of named beneficiaries

– remaining property passes to charity at the death of beneficiaries

– Income stream can be a set annuity payment (charitable remainder annuity trust – CRAT) or

stated as a percentage of the value of the trust each year (charitable remainder unitrust –

CRUT)


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Charitable Remainder Trusts

Minimum value of income stream is 5% of the value of property transferred to trust

Trust can be set up for lifetime of beneficiary or beneficiaries or for a term of years

Term of years is limited to 20 years

Estate tax deduction limited to estimate of value of property passing to charity, not

for value of property contributed to trust


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Charitable Remainder Trusts – Example

John’s estate is $2.5 million. John wants to provide an income stream for Mary

during her lifetime. John’s trust sets up a CRUT for Mary with $1,000,000 and provides that Mary is receive 7% of the value of the trust each year. At the time of John’s death in May 2005, Mary is 75 years old.

The charitable deduction is $510,200 based on IRS interest rate of 5.0%(November 2005)


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Charitable Remainder Trusts – Example

For federal estate tax purposes, John’s estate is now $1,988,000 (2,500,000 – 510,200).

He has provided for Mary and reduced his estate below the estate tax exemption

so there are no federal estate taxes to pay.

He has also provided for his favorite charity (or charities) at Mary’s death.


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What Next?

Start with baby steps and review your assets and the titling of the assets.

Use all available resources to help. Your financial advisor is invaluable in this process.

Don’t put off until tomorrow what you should do today.


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Conclusion

Thank you for coming!

Financial Focus Estate Planning for Uncertain Times

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