Practicing Good Financial Stewardship in Your Family with Estate Planning

Transcription

1 Practicing Gd Financial Stewardship in Yur Family with Estate Planning The First Presbyterian Church f La Grange May 11, 2014 Presented by Michael O Reilly Executive Vice President and Trust Officer

2 THE PURPOSE OF TODAY'S As Peple f Faith. T reflect upn the legacy we wish t leave T review why estate planning is crucial T learn abut different types f charitable gifts and their benefits Ntes: - 2 -

3 The Basics f Estate Planning Wh shuld care abut estate planning? The answer is pretty much everyne, but here are sme examples: Parents with yung children Parents with children r ther family members with disabilities Peple f advanced age Peple f significant wealth Peple with charitable intent Business wners Everybdy else I. Wills i. What is a Will? - A Will is an expressin f a persn s wishes regarding the distributin f his r her prperty after death. - The law requires certain language and frmalities t make a will valid. - A Will takes effect after yu die. - If yu d nt have a Will, yur prperty will pass under the laws f intestacy f the state where yu reside. Ntes: - 3 -

4 II. Trusts - A Will gverns nly prperty that is in yur name alne at the time f yur death. ii. What can yu d with a Will? - Distribute prperty as yu wish. - Chse yur Executr t manage yur estate and t fllw the directins yu leave in yur Will - Chse the guardian fr yur minr children - Establish trusts after yur death fr the benefit f children, ther family members r friends, r charities. i. What is a Trust? - A Trust is a frm f a cntract. Yu chse the terms that achieve yur gals and name a trustee t manage the trust and carry ut yur instructins. Yur trustee is subject t the highest standard f care t act slely in the best interest f the trust s beneficiaries. - Assets must be re-titled int the trust name fr it t wrk. ii. What can yu d with a Trust? - Once yur assets are held in trust, the trustee can manage the trust assets and use them fr yur benefit when yu are incapacitated r in pr health. Yu can be the initial trustee and designate a successr trustee t step in when needed. - Parents can create trusts that will be activated if they die t hld and manage assets fr the benefit f their children. Creating such a trust is the nly way t delay when the children take wnership f their assets beynd the age f Avid prbate by designating beneficiaries. Ntes: - 4 -

5 III. Pwers f Attrney - Achieve estate tax and incme tax savings and deferrals. Cmmn examples are marital and credit shelter trusts, irrevcable life insurance trusts, dynasty trusts and grantr-retained annuity trusts. - Trusts can be created that hld assets fr the benefit f family members with disabilities s that the trust assets are used nly fr services abve and beynd thse available thrugh public assistance prgrams. - Leaving assets t children in trust rather than utright can allw them mst f the practical benefits f wealth, but als prtectin frm claims f business creditrs, ex-spuses and s frth. - Trusts can be used t benefit chsen charities either fr a shrt perid f time r ver many generatins. - Business wners can utilize trusts t prvide fr the future management f their business shuld they becme disabled r die. i. Health Care - Yu use a Pwer f Attrney fr Health Care t name an agent t make health care decisins n yur behalf in the event f yur illness r incapacity. Having a prperly cmpleted Pwer f Attrney fr Health Care can help yur family avid public guardianship prceedings. - If a dctr r ther health care prvider is unwilling t cmply with yur agent s directin, then yur care can be transferred t anther dctr r prvider wh will cmply. - Yur agent can be given the authrity t withhld r t maintain lifesustaining measures. ii. Prperty - Yu use a Pwer f Attrney fr Prperty t name an agent t manage yur prperty in the event f yur illness r incapacity. Having a prperly cmpleted Pwer f Attrney fr Prperty can help yur family avid public guardianship prceedings. Ntes: - 5 -

6 - It can be structured t becme effective immediately r upn a future date r ccurrence, r fr a limited perid f time. - Agents may be given the authrity t transfer assets int yur living trust. They can survive a curt determinatin f yur incapacity, but they terminate upn yur death. IV. Beneficiary Designatins - Life insurance plicies, annuity cntracts, retirement plan benefits, and individual retirement accunts are examples f yur wealth that are nt directly cvered by yur will r trust. These assets have beneficiary designatins that cntrl wh receives the benefits after yu die. Beneficiary designatin frms shuld be cmpleted fr each plicy r accunt and filed with the insurance cmpany r plan administratr. V. Family Cnsideratins i. Wh d yu want t benefit frm yur accumulated wealth after yu? - Yur spuse? - Yur children? - Other family members r friends? - Charities? ii. D any f them have issues that may be cmpunded r slved by suddenly receiving an inheritance? - Disabilities r illnesses? - Chemical dependencies? - T yung? Ntes: - 6 -

7 - Difficulties managing mney? - Are they successful business wners r prfessinals wh are subject t a high risk f claims frm creditrs r litigatin? iii. Are there special assets such as a family business r vacatin hme that yu wuld like t cntinue n fr the benefit f the family? VI. Tax Cnsideratins i. Estate Taxes, Gift Taxes, and Generatin-Skipping Taxes. - The estate tax is a tax n pretty much everything yu wn r cntrl at the time f yur death. This tax wrks in tandem with the gift tax which applies t gifts yu make during yur life. This is a very cmplex subject, but here are a few imprtant pints. The current Federal estate tax rate is 40%. Many states, including Illinis, als assess estate taxes. Spuses can leave unlimited amunts t each ther free f estate r gift tax. Under current federal law, each individual has a $5.34 millin lifetime exemptin frm gift and estate taxes. That means that with reasnable planning, a married cuple shuld be able t transfer up t $10.68 millin free f estate tax. Hwever, Illinis estate tax exemptin is nly $4 millin. This discnnect between federal and Illinis estate tax law is ften verlked and is reasn alne t have yur estate plan reviewed. As there are ways t at least defer the Illinis estate tax until the death f the surviving spuse. ii. Incme Taxes Ntes: - 7 -

8 - Tax-deferred retirement plan benefits, including 401k plan balances and traditinal individual retirement accunts are nrmally subject t incme tax as funds are withdrawn. - Fr individuals subject t the estate tax, the cmbined estate tax and incme tax n retirement benefits by the time yur children receive the funds can exceed 70%. - Retirement benefits left t charity are nt subject t estate tax r incme tax, s if an individual has charitable intent, they shuld cnsider making charitable gifts frm their retirement benefits. Sharing is a Gd Thing I. Giving Out f Current Incme (a/k/a Tithing ) - Basically, this is giving ut f yur current incme t supprt the church s current perating expense r capital campaign. II.Giving as a Legacy Giving Out f Accumulated Wealth (a/k/a Planned Giving ) Ntes: - 8 -

9 i. What is Accumulated Wealth? - Savings - Appreciatin f Investments - Inheritance r ther windfalls - I wnder why desn t tithing apply here? ii. Creating a Legacy - Receiving every last penny f yur wealth is nt ging t make anyne any happier. Isn t it better t set an example by sharing? - Eighty-tw percent f affluent parents are cncerned abut instilling in their children the imprtance f being invlved in charity. U.S Trust Survey f Affluent Americans Nvember 1998 U.S. Trust III. Ways t Give i. Current Giving: If yu can affrd t give nw - Cash Easy t d by check, credit card, r autmatic debit Current incme tax deductin fr the amunt f the gift up t 50% f yur adjusted grss incme r AGI (excess can be carried ver int future years). Example: Fr a taxpayer in the 25% Federal incme tax bracket and wh itemizes, the after-tax cst f a $1,000 gift is $ Appreciated Assets Stcks, mutual funds, real estate, and ther types f assets and cllectables. Ntes: - 9 -

10 Current deductin fr the market value up t 30% f AGI (excess can be carried ver int future years). Avid capital gains tax n the appreciatin. Example: Fr a taxpayer in the 25% Federal incme tax bracket, the after-tax gift cst f a gift f $1,000 wrth f stck purchased fr $200 mre than ne year ag, is $606. ii. Give Nw and Retain Current Incme - Charitable Gift Annuities Gift annuities appeal t individuals wh wish t make a gift t charity, but wh als have a need fr current incme. They wrk particularly well fr thse wh wn appreciated assets that d nt pay sufficient current incme. They are very easy t d. The dnr purchases the annuity frm the charity in return fr a stated annuity payment fr life (they can als be fr the life f mre than ne individual, such as a husband and wife). The annuity payments can be partially taxable incme t the dnr. The dnr receives a current incme tax deductin that is calculated based n the amunt f the gift, the dnr s age, and the annuity rate. The dnr can als defer r pssibly avid capital gain tax if the gift is f appreciated assets Upn the death f the annuitant(s), the remainder passes t the charity. Gift annuities are available thugh the United Church f Christ fr the benefit f yur lcal church r chsen missin. Example: Ntes:

11 An individual aged 78, gives $25,000 in cash t her church in exchange fr a gift annuity. She receives an incme tax deductin f $12,000 based n her gift. She will begin receiving incme checks f abut $1,700 each year fr the rest f her life. When she passes away, the remaining principal will benefit her church. - Charitable Remainder Trusts Alphabet Sup: CRAT s, CRUT s, CLAT s, CLUT s and mre. Charitable remainder trusts are mre cmplex than gift annuities, but far mre flexible. The dnr places the gift in trust and receives annuity r unitrust payments fr life r anther chsen perid f time. Yu can create a Charitable Remainder Trust by seeing yur estate planning attrney r thugh the United Church f Christ fr the benefit f yur lcal church r chsen missin. Yu can receive a current incme tax deductin fr the present value f the charity s future interest as calculated under IRS rules. Yu can defer r avid capital gain tax if the gift is f appreciated assets The remainder passes t the charity after the death f the annuitant iii. Give in the Future - By Will, Trust r Beneficiary Designatin An individual can leave mney r assets t charity by including the prper gift language in their will, trust, r beneficiary designatin (retirement plans, IRAs, insurance plicies, etc.). See attachment fr sample bequest language. N current incme tax deductin, but bequests t qualified charities are nt subject t estate r gift taxes. Ntes:

12 Pay special attentin t retirement assets such as traditinal IRAs and 401k plans (likewise t U.S. savings bnds). During yur life, withdrawals are subject t incme tax as rdinary incme. Upn death, retirement balances are eventually subject t bth incme tax and estate tax (which cmbined can be ver 70% fr high net wrth individuals). S lk first t these assets as a surce f charitable bequests because the charity will receive 100% f the gift. - Alternatives: Dnr Advised Funds Charitable Trusts Private r Family Fundatins IV. The Church Endwment Fund - Any f the giving methds mentined abve can be designated t g t the church endwment fund. The Endwment Fund is a perfect match fr the underlying purpse f planned giving. Planned giving reflects a fundamental faith that the church will be there fr future generatins and that it is Gd in charge rather than us. Gifts can be designed fr general purpses r fr a specific missin (i.e. trustees, music, utreach, etc.) A healthy planned giving prgram cmbined with the structure and guidance prvided by an established Endwment Fund reflects a church with a dynamic stewardship prgram that shuld be better equipped t care ut existing and new missins fr int the future. Examples f ptential Endwment Fund uses: Ntes:

13 Extend Cmmunity utreach prgrams Imprve existing facilities t meet mdern needs r new prgrams and uses. Supprt staffing fr additinal prgrams r existing prgrams that need additinal resurces r talents. Supprt a glbal missin prject. Assist in maintaining existing facilities that may be a drain n current resurces. A key t unlck the generally untapped cncept f giving accumulated assets. On-Line Resurces Charitable Giving IRS Search fr Charities - 0,,id=96136,00.html Estate Planning in General Chicag Estate Planning Cuncil Natinal Assciatin f Estate Planning Cuncils Illinis State Bar Assciatin - American Bar Assciatin law_issues_fr_cnsumbers/estates.html Ntes: