Wills, Trusts, and Why Estate Planning Matters. What You Should Know Before You See An Attorney

Transcription

1 Wills, Trusts, and Why Estate Planning Matters What You Should Know Before You See An Attorney

2 AGENDA The Purpose of Estate Planning Estate Planning Yesterday and Today What You Need to Know about Wills and Trusts How to Choose the Right Attorney Take Action Q&A 23

3 THE PURPOSE AND GOALS OF ESTATE PLANNING

4 THE PURPOSE OF PLANNING Dwight D. Eisenhower Plans are nothing; planning is everything. 4

5 WHAT IS YOUR ESTATE? Money (Savings, Investments, etc.) Life Insurance Home, Real Estate, Business Personal Property, Collections, Pets, etc. FAMILY VALUES LEGACY 56

6 GOALS OF ESTATE PLANNING Give what I have to whom I want, the way I want, when I want Care for self during lifetime (incapacity, healthcare decisions) Care for/protect others (surviving spouse and children at death) Minimize or eliminate probate Fulfill your charitable intentions This watermarked image is for placement purposes only. Please purchase royalty-free images for your presentation. A curated collection of images is available at 90#e3855fe Pass on values & ideals to children and grandchildren Maximize assets distributed to your loved ones Protect assets from creditors for generations to come 67

7 A FEW QUESTIONS TO CONSIDER Do you have a will or a trust? Has it been reviewed in the last 2 years? Do you have any jointly titled assets? Does your current plan provide your heirs/beneficiaries with asset protection against creditors, divorce and lawsuits? Are you concerned about any delays and costs your estate might incur if it goes through probate when you die? Are all your heirs 21 or older and financially responsible? Is this your first marriage? Do you have step-children? Are you concerned with family disputes arising from inheritance issues? If you were to become disabled, are you certain that your healthcare and financial wishes will be honored? 78

8 KEY DEFINITIONS Probate = court proceedings that conclude all the legal and financial matters of the deceased, Also includes court proceedings during life that may be needed to name a guardian/conservator, transfer a property, or end with dignity the life of a loved one Taxes = estate, gift, income, and in some states property and inheritance taxes Asset protection for your children from their spouses and creditors 89

9 ESTATE PLANNING YESTERDAY AND TODAY

10 HISTORY OF ESTATE PLANNING Thirty years ago, the will was the centerpiece of the estate plan and the documents stood separately Will-centered plans had to be probated. The unlimited marital deduction and the low $600,000 estate tax exclusion started the use of A/B trusts created by the will, but these trusts still had to be probated Significant probate costs were the norm 10 11

11 A SHIFT IN PLANNING 20 years ago, estate planning evolved towards Lifetime Planning with the Revocable Living Trust as the centerpiece and the avoidance of probate as the primary objective Separate trusts for the spouses, A/B trusts for the surviving spouse, and staged distributions (1/3 at 30, ½ at 40, and the rest at 50) to beneficiaries became the norm Landmark cases, such as Nancy Cruzan and Terri Schiavo, drew attention to the importance of living wills and incapacity planning 11 12

12 RECENT CHANGES IN LAW - ATRA A permanent $5.25 million (inflation-adjusted) exemption for gift, estate, and generationskipping transfer (GST) tax A permanent 40% gift and estate tax rate A permanent portable exemption between spouses, allowing the surviving spouse to make a Form 706 election to take advantage of the unused portion of the estate tax exemption of the predeceased spouse This provision does not allow the GST tax exemption to be transferred to a spouse

13 PLANNING FOR THE 99.67% Avoiding estate taxes is not the motivation! Best reasons for planning include FAMILY HARMONY LEGACY PLANNING ASSET PROTECTION INCOME TAX PLANNING 13 14

14 WHAT YOU NEED TO KNOW ABOUT WILLS AND TRUSTS

15 WHEN IS A WILL-BASED PLAN APPROPRIATE? Anticipated litigation If there is family discord or disgruntled or omitted heirs, perhaps a judge-overseen process is the best approach 15 16

16 RISK OF WILL-BASED PLANS They do not provide for incapacity issues Wills have to be probated, even if they create a testamentary trust. They also may be problematic if they cross state lines Wills do not control most property Wills provide direction and protection for a short time, not for the lives of the surviving spouse, children, and grandchildren 16 17

17 FACTS ABOUT PROBATE Probate is a Public, not Private process Probate is complex Usually need to hire an attorney Probate can be a long process Often taking several months to a year. Probate can be expensive! This watermarked image is for placement purposes only. Please purchase royalty-free images for your presentation. A curated collection of images is available at 17

18 PROBATE FEES WHAT THEY MEAN Debt-Free Family Gross Estate $200,000 Family With Debt Gross Estate $200,000 Debt ($160,000) Net Estate $40,000 Probate Cost (5%) = $10,000 Probate Cost (5%) = $10,000 Effective Rate: 25% 18 19

19 ADDITIONAL PROBATE ISSUES Probate also includes court proceedings during life that may be needed Disability/Mental Incapacity might require a court to Name a Guardian/Conservator Administer your assets Make Healthcare decisions for you This can be an expensive process! 19 20

20 JOINT TENANCY Rules of Joint Tenancy Joint Tenants With Right of Survivorship (JTWROS) Last Person Alive, Owns All the Property Jointly Held Property is Not a Part of Your Estate for Probate Purposes, But is Part of Your Estate for Tax Purposes Not Controlled by your Will or Trust Not Subject to Probate Proceedings 20 21

21 JOINT TENANCY Creates Unintended Heirs (the next spouse ) Does Not Totally Avoid Probate Still Have to Probate Property at Second Death Unintended Tax Consequences LOSS OF CONTROL 21 22

22 BENEFICIARY DESIGNATIONS 401(k) Plans Life Insurance P.O.D. Accounts / T.O.D. Accounts I.R.A. s 22 23

23 BENEFICIARY DESIGNATIONS RISKS Does Not Protect Your Spouse Does Not Protect and Care for Minor / Adult Children Can Cause Unfortunate Results Can Create Unintended Beneficiaries LOSS OF CONTROL 23 24

24 CHOOSE A TRUST WHEN You want a plan that will take care of you during your life. You want to keep control over the plan during your lifetime. You want to outline what you want to happen in the event of your disability: How you want to be taken care of Who will make decisions on your behalf

25 CHOOSE A TRUST WHEN You Want to Control Distributions to Descendants Outright In Stages (for health, education, maintenance, and support): At age 25, receive one-third of trust principal At age 30, receive one-half of trust principal At age 35, receive remainder of trust principal Lifetime Beneficiary-Controlled Trusts Protects beneficiary from himself or herself, creditors, predators, and divorce 25 26

26 WITH A TRUST, YOU CAN Create provisions for your spouse or significant other upon your death Create provisions for your minor children upon your death Create provisions for your adult children upon your death RETAIN CONTROL Protect your assets from creditors and predators of your spouse and children 26 27

27 WITH A TRUST, YOU CAN Incorporate your personal values and desires: Charitable giving Planning for your Pets Gun Trusts RETAIN CONTROL 27 28

28 WITH A TRUST, YOU CAN Save money in the long term: Minimize or avoid probate (and accompanying cost). Save estate and income taxes by maximizing use of available deductions and exemptions RETAIN CONTROL 28 29

29 ASSET PROTECTION & INCOME TAX PLANNING Basic Protection insurance (long-term care, liability, medical) Business protection entities such as corporations, family limited partnerships, and LLCs Bypass Trusts (despite the portable exemption) second marriage and creditor protection 29 30

30 ASSET PROTECTION & INCOME TAX PLANNING Stand-Alone Retirement Trusts Name a Stand-Alone Trust as the Beneficiary of your IRA or 401(K) Irrevocable Trusts Life Insurance Trusts (ILITs), Domestic Asset Protection Trusts (DAPTs), Beneficiary Defective Inheritor s Trusts (BDITs) 30

31 FIND THE RIGHT ATTORNEY

32 FINDING THE RIGHT ATTORNEY Is the attorney s primary focus on estate planning? Does the attorney practice Collaborative Based Planning (works with your CPA, FA, Insurance Broker) Does the attorney charge a flat fee or an hourly rate for providing estate planning and other services? Does the attorney have a process in place to keep your plan up to date (Continuum of Care Program) Ask yourself: Can I see myself working closely with this attorney? 32

33 A COMPREHENSIVE PLAN INCLUDES Trust (Fully Funded) Instructions for Alive and Well, Incapacity and Death Pour Over Will Guardianship provisions for Minor Children Directs That Anything Not in Trust Goes To Trust Health Care Power of Attorney Durable Power of Attorney Living Will HIPPA Releases Personal Property Memorandum Memorial Instructions & Legacy Statement Certificate of Trust & Trust ID Card 33

34 BEWARE OF BARE BONES TRUSTS! May not comply with state law No personalized planning Someone else decides important matters for you! Cookie cutter design Often not funded or improperly funded Non Trust assets will require probate Retirement & Insurance Plans not included Improper property ownerships may prevent implementation of the trust plan 34

35 OUR ESTATE PLANNING PROCESS Initial Client Meeting Establish our relationship Identify your objectives Learn about family and assets Engage other professionals (Advisor, CPA and/or Insurance Broker) Design Meeting Define problem areas Establish priorities Delivery Meeting Implement the plan, including funding Monitor and update the plan through Continuum of Care program 35

36 TAKE ACTION

37 EXCUSES Cost/Time Estate planning is a luxury, not a necessity I do not want to think about it It won t happen to me I do not have enough property I don t like attorneys I am going to do it myself (Leads to store bought, Internet, Legal Zoom, etc.) 37

38 NO PLANNING IN PLACE? Your Risks with Intestacy Surviving spouse with no children may share with inlaws Surviving spouse with children may get the same share as a child or maybe none Children are usually treated equally, even though the children s needs may not be the same Court-appointed administrator A surety bond may be required Fees are likely higher The court appoints a guardian for the children 38

39 WHEN SHOULD YOU PLAN? First child is born Children reach age of majority and can serve as decision makers Grandchildren are born Parents are aging and have more definite plans regarding when and how they want their property to pass 39

40 WHEN SHOULD YOU PLAN? A child turning the age of majority should have a durable power of attorney and health-care documents in place A financial windfall, such as winning the lottery or inheriting wealth, has occurred Death of a spouse or child A change in the relationship to a decision maker 40

41 SHOULD I REVIEW MY EXISTING PLAN? If you don t remember creating instructions for your disability If your plan lacks the comprehensive planning options for your spouse, children and grandchildren If the persons named as power of attorney, trustee or executor are no longer the best choice If you are not sure that your assets are properly aligned with your current plan 41 40

42 SUMMARY Estate planning has come a long way in the past 30 years Much more effective and efficient at meeting your legacy goals Estate planning is a critical part of any comprehensive financial plan Selecting the right attorney makes a difference 42 41

43 SUMMARY George Bernard Shaw The possibilities are numerous once we decide to act and not react. 43

44 QUESTION AND ANSWER