Estate Planning Basics

Transcription

1 Estate Planning Basics Information Workshop presented for Sacramento County Employee s Retirement System Revocable Living Trusts Wills Special Needs Trusts Conservatorships Trust Administration & Probate 8110 Pocket Road, Suite 102 Sacramento, California tel

2 Welcome to our Workshop The Law Office of Michael Pearce is committed to assisting individuals and families in planning for themselves and the next generation with comprehensive, highly personalized estate planning services. Our attorneys are devoted exclusively to estate planning and estate administration services, including drafting of Revocable and Irrevocable Trusts, Special Needs Trusts, and the handling of estate administrations, probate and conservatorships. We strive to provide the most up-to-date estate planning strategies and cutting-edge planning techniques for our clients.

3 Workshop Purpose Estate Planning Basics What Everyone Needs To Do Common Planning Mistakes Wills Revocable Living Trusts Financial Power of Attorney Advance Health Care Directive Estate Taxes

4 What Is an Estate? Everything you own, including... House; personal property, cars. Bank Accounts,Investments, Mutual Funds Life insurance death benefits Qualified Retirement Plans: IRAs, 457, 401K All assets are counted as your estate Everyone has an estate Everyone needs an estate plan

5 We All Know that Estate Planning is Important, but... We are so busy with work, school, taking care of the children, financial obligations, all the stuff that needs to be done at home, and sometimes, a vacation We are always meaning to get around to it.

6 We All Know that Estate Planning is Important, but... Most of us end up leaving our loved ones without any plan or guidance

7 What Happens When You Haven t Done Estate Planning? Unnecessary Court Proceedings & Legal Costs Delays and Distress for Loved Ones The wrong people get the wrong property Children s inheritances wasted Major intra-family problems are created Families can lose much of what it took a lifetime to build

8 Good News! There are Solutions Estate Planning = Certain Results A Solution for Every Planning Concern Control the Future Stress Reduction Minimize Costs Preserve Benefits Surprise! Estate Planning is not that hard To Do.

9 Definition of Estate Planning Good Estate Planning will: Give what you have, To whom you want, When you want, In the way you want, At the least possible cost.

10 The Commonly Asked Question: Do I Need a Will? Do I Need a Trust?

11 What Do I Need? A PLAN Your estate plan may be written in a Will, or you may create your plan in a Trust, but more than that is required

12 What Do you Need? A PLAN for your loved ones Your estate plan may be written in a Will, or you may create your plan in a Trust, but more than that is required

13 The Goals of your Estate Plan Organize your Estate assets and benefits Anticipate and eliminate potential problems Direct the distribution of assets and benefits : To whom you want, in the way you want, when you want Choose the people who will take care of your children, and PROTECT THEIR INHERITANCE Choose someone to protect you if you are disabled Leave a Good Impression organized thoughtful caring

14 What Everyone Needs To Do: Will or Living Trust Your Distribution Plan; Avoid Probate Court Power of Attorney Financial Affairs Designate someone to manage your financial and legal affairs; Avoid Conservatorship Court Proceeding Advance Health Care Directive Designate someone to make medical decisions upon incapacity; Provide Instructions for Life Support; Avoid Conservatorship Court Proceeding Special Planning Young Child Special Needs Child Domestic Partner Life Partner

15 Obstacles to Achieving Your Goals The 3 Most Common Planning Mistakes: Intestacy Joint Ownership Beneficiary designations

16 Common Mistake #1: Intestacy - the Automatic Estate Plan Without a Will or Trust, State Law will determine who gets your property. Guarantees probate, substantial fees and costs (if your probate estate exceeds $100,000) Always Creates STRESS for Loved Ones Almost Always Creates CONFLICT for Loved Ones Your Legacy: Everyone BLAMES YOU for the BIG MESS

17 Common Mistake #1: Intestacy - the Automatic Estate Plan Don t worry, be happy. Brother vs. Sister Step-Children vs. Step-Mother Children vs. Step-Brother/Sister Jointly owned property, insurance beneficiaries, IRA money, retirement plans, pre-deceased beneficiaries, ex-spouses, minor children, developmentally disabled children, lost heirs, $$$$$ $$$$$

18 Common Planning Mistake #2: Joint Tenancy You own all of asset with someone else as Joint Tenants At your death, surviving Joint Tenant takes all You CANNOT leave your interest to anyone else Your Will or Trust does not control Joint Tenancy Property John Sample, R.I.P John s Distribution Plan: I Leave my Estate to my Children John s ½ interest in Vacation Home does not pass to children Brothers John and James buy Vacation Home Vesting Deed, 2002: John Sample & James Sample Joint Tenants After John s Death, James is 100% Owner

19 Problems with Joint Tenancy Passes property to unintended heirs Excellent for creditors of joint owner Can cause unnecessary taxes CONCLUSION: Don t use joint tenancy without professional advice.

20 Common Planning Mistake #3: Beneficiary Designations Life Insurance Policy Annuity IRA 401k Plan & other Qualified Retirement Plans These assets have a pay on death beneficiary.

21 Problems with Beneficiary Designations The wrong people can get the money Outdated beneficiary selections No Control over the money

22 Who are Your Beneficiaries? IRA k Life Insurance When was the last time you updated your beneficiaries? Who will get the money: Your parents? Your ex-spouse? Your brother or sister? Your young children? No-one? (your estate ) WHERE WILL THE MONEY GO?

23 Naming Children as Beneficiaries BOB & MARIE SAMPLE $500,000 Life Insurance on Each Beneficiary = Spouse Contingent Beneficiary = Julie (8) and Jim (4) TRAGEDY STRIKES: BOB & MARIE ARE GONE What happens now?

24 What Happens to the Insurance Money when Bob and Marie are Gone? The Sample Family Estate Plan: (sorry kids, we didn t get around to it, but we intended to.)

25 What Happens to Money when Bob and Marie are Gone? The Sample Insurance Funds and Estate Money: After the accident that killed their parents, Julie (8) and Jim (4) will: establish banks accounts; save for college; start a Retirement Plan; invest in a Diversified Portfolio How Will this Really Work?

26 What Happens to the Insurance Money when Bob and Marie are Gone? The Automatic Plan: Guardianship Proceeding Court Jurisdiction

27 What Happens to the Insurance Money when Bob and Marie are Gone? The Automatic Plan: The Sample children receive their inheritances when they become adults. When does a child become an adult?

28 What Happens to the Money AT AGE 18! If you don t have a plan

29 Naming Your Child as Beneficiary Seems like the Right Thing To Do

30 But, Remember, Children Grow Up

31 Beneficiary Designations Alone are Not Enough You need a plan for the Insurance Proceeds Your Children are counting on you When will your children be old enough to handle the money?

32 Review: Common Planning Mistakes Intestacy the worst plan Joint Tenancy it s not yours when you die Beneficiary Designations no control

33 What Everyone Needs To Do: Will or Living Trust Your Distribution Plan; Avoid Probate Court Power of Attorney Financial Affairs Designate someone to manage your financial and legal affairs; Avoid Conservatorship Court Proceeding Advance Health Care Directive Designate someone to make medical decisions upon incapacity; Provide Instructions for Life Support; Avoid Conservatorship Court Proceeding Special Needs Planning

34 Wills One Problem: The majority of us don t leave a Will

35 Wills Written instructions for distribution of your estate Are effective on death May not control all property

36 The Result of a Will Wills Guarantee Probate for estates in excess of $100,000 Estates valued less than $100,000 can pass through California s Small Estate rules without formal probate; & pay on death accounts do not require probate (life insurance, IRA, etc.)

37 Probate The Court-Supervised transfer of assets from the deceased to the living Dead People Don t Sign Deeds The Process: File Petition for Probate Appoint personal representatives Locate and value the property The Purpose and Goal: Obtain Court authority to handle and distribute the deceased s property

38 How A Will Works To Distribute Your Property After Your Death House Deed: Harry Baxter $ Bank Accounts $ owner: Harry Baxter $ Mutual Funds $ owner: Harry Baxter $ Other Assets $ owner: Harry Baxter Court Jurisdiction Court authorizes sale of assets and payment of debts. At end of probate, property distributed by court order: 1/3 = Julie 1/3 = Tom 1/3 = Jane Will Filed in Probate Court

39 Probate In order to conclude Probate: Pay the personal representative Pay the Attorney Pay all other creditors Resolve all controversies Distribute property to beneficiaries

40 The Cost Of Probate Generate executor and attorney fees Taken off the top Average probate fees from 4-8% Probate can take 1-2 years to complete

41 A Will is a Basic Estate Planning Tool Everyone should have a Will - at a minimum Leave instructions - a matter of respect Some people want to do more than the basics

42 Revocable Living Trust A Revocable and Changeable Contract Created during you Life A Single or Joint Trust The Trust owns Property and Assets All Trusts have 3 Parties: Trustmaker Trustee Beneficiary

43 3 Parties To A Revocable Living Trust Trustmaker: Trustee: The person who creates the Trust (You). The person managing the Trust property (You). Beneficiary: The person who uses and receives the benefit of the trust property (You). While you are alive, and not incapacitated, you retain complete control in the role of all three parties.

44 Revocable Living Trusts Place your assets in your Trust Real Property (residence, rental) Financial Accounts Coordinate beneficiary designations All property held for your benefit During you life, with complete control or during you disability, by your Trustee

45 How A Living Trust Works During Your Life House Deed: Baxter Trust $ Bank Accounts $ Owner: Baxter Trust $ Mutual Funds $ Owner: Baxter Trust Complete Control by Harry & Catherine As Co-Trustees. The Baxter Living Trust Trustees: Harry & Catherine $ Other Assets $ Owner: Baxter Trust Beneficiaries: Harry & Catherine

46 How A Living Trust Works House Deed: Baxter Trust $ Bank Accounts $ Owner: Baxter Trust $ Mutual Funds $ Owner: Baxter Trust $ Other Assets $ Owner: Baxter Trust After Your Death Complete Control. Jane Baxter acts as Successor Trustee. No court proceeding required. The Baxter Living Trust Trustees: #1: Successor Trustee - Jane Baxter (daughter) or #2: Successor Trustee - Ryan Smith (friend) Beneficiaries: 3 Baxter Children in equal shares.

47 How A Living Trust Works $ Bank Accounts $ $ Mutual Funds $ $ Insurance $ All assets sold by Trustee. Insurance paid to Trustee. Proceeds held in Trust. Trustee distributes proceeds to children: 1/3 = Julie 1/3 = Tom 1/3 = Jane To Distribute Your Property After Your Death The Trustee has complete control of all assets. No court proceeding required. The Baxter Living Trust Trustees: #1: Jane Baxter (daughter) Beneficiaries: 3 Baxter Children in equal shares.

48 How A Living Trust Works If You Are Incapacitated House Deed: Baxter Trust $ Bank Accounts $ Owner: Baxter Trust $ Mutual Funds $ Owner: Baxter Trust $ Other Assets $ Owner: Baxter Trust Complete Control by Trustees. Catherine acts as Trustee for Harry while he is incapacitated. No court proceeding required. The Baxter Living Trust Trustees: #1: Catherine #2: Catherine as Trustee for Harry Beneficiaries: Harry & Catherine

49 How A Living Trust Works $ Bank Accounts $ $ Mutual Funds $ $ Insurance $ All assets sold by Trustee. Insurance paid to Trustee. Proceeds held in Trust. To Take Care of Your Children After Your Death Complete Control by Trustee. The Baxter Living Trust Each child s share held in Trust. Money used for child s school, support, house. Trustees: Ryan Smith (friend) Children s Trust Distributions: 1/4 at age 25; 1/2 at age 30; all at age 35. No court proceeding required. Beneficiaries: 3 Baxter Children in equal shares.

50 Revocable Living Trusts Trusts are easy for you to create No lifetime income tax consequences No other persons involved Trusts are easy to maintain Changes are easy to make, and not often needed No extra record keeping No recurring fees or costs

51 Additional Estate Planning Tools There are Additional Decisions to make and Documents we all need, sooner or later Later may be too late If you don t execute Power of Attorney and Advance Health Care Directive, then if you are incapacitated, it is likely that you will require a Con$ervator$hip Proceeding.

52 Power of Attorney for Financial Affairs Who will handle your financial affairs if you are not able to do so? Incapacity or Unavailability A Power of Attorney can designate your Agent to handle your financial affairs on your behalf banking, real property, tax matters, etc. Everyone over age 18 should have a Power of Attorney for Financial Affairs

53 Advance Health Care Directive

54 Advance Health Care Directive Who will make medical decision for you if you cannot communicate with your physician? An Advance Health Care Directive is a single legal document that serves two purposes: 1. Designate your Health Care Agent to make general medical decisions on your behalf 2. You can also make your desires known regarding end-of-life decisions and life support. You make the decision; your Agent follows your instructions. Everyone over 18 needs a Health Care Directive

55 Advance Health Care Directive Everyone over 18 needs a Health Care Directive

56 Special Planning For Child under age 18, designate a Guardian of the Person who will raise and care for the child. For Domestic Partners, establish basic estate plans, plus provisions dealing with co-owned property and separate property; decide whether to opt out of Domestic Partner laws and rules.

57 Special Planning for a Child with Developmental Disabilities Special Needs Trusts A Special Needs Trust will provide a lifetime of care and support while preserving public benefits for your child. Conservatorship at age 18.

58 And What About Estate Taxes? Good News!

59 The Federal Estate Tax 2010 Estate Size Estate Tax $ 3,500,000 $ none $30,000,000 $ none However, Congress may change the laws to impose the 2009 Tax Rates.

60 Estate Tax Planning for Married Couple with more than $7,000,000 in 2009 Harry & Catherine Baxter Living Trust $7,000,000 Estate Harry Baxter Family Trust = $3,500,000 At Harry s death, the Baxter Trust turns into Two Trusts: Catherine s Survivor s Trust= $3,500,000 At Catherine s death, Both Trusts distributed to Baxter Children Catherine controls both Trusts during her lifetime Estate Tax = $0 Baxter Children Inherit $7,000,000 Without Trust Planning, Estate Tax Bill = $1,500,000

61 Estate Taxes No one ever has an estate tax problem If you have estate tax issues, there are plenty of planning tools to save estate taxes. You have the power and resources to implement those tools.

62 Conclusion & Review: Estate Planning Basics Will or Living Trust Trust for Children; Guardianship Special Needs Trust for Special Child Advance Health Care Directive You need to appoint someone to make medical decisions when you can t; If desired, state your decision regarding life support.

63 Review: Estate Planning Basics General Financial Power of Attorney: Authorize someone to act on your behalf in financial matters. Memorial Instructions: You should let people know what you want done. Estate Planning Support Team: Key family member or friend. Financial Planning Advisor. Estate Planning Attorney.

64 Estate Planning Basics How To Do Estate Planning: Consult with Estate Planning Attorney Hire Estate Planning Attorney Self Help Power of Attorney Forms - www. What will it Cost? The Range of Fees: DIY Costco Software Attorney

65 WHEN IS THE RIGHT TIME TO DO ESTATE PLANNING? What are your Priorities?

66 Planning your Next Vacation?

67 Doing the Yardwork?

68 Taking Care of Sparky?

69 What About Taking Care of Your Family and Loved Ones?

70 Good Estate Planning Will Give what you have to whom you want, when you want, in the way you want. And do it all at the lowest possible cost.

71 Good Estate Planning Good Estate Planning will protect your loved ones and keep all of your assets with your family.

72 Thank You!

73 Questions and Answers Consultation are encouraged. (our consultations are free of charge) Law Office of Michael Pearce (916)