Cornell University. Estate Planning Workshop

Transcription

1 Cornell University Estate Planning 2014 Objectives q Recognize the goals that estate planning can help you accomplish q Understand the roles of wills and other important estate planning documents q Recognize which assets comprise your gross estate q Learn techniques to help reduce your taxable estate q Learn about the tools and resources available to you 2 EY - For Personal Use Only (2014) 1

2 What Tools Are Available To Help You? Cornell Benefits Services EY Recorded s EY Live s 3 Personal Action Plan Action Step When Done e.g., Determine estate planning goals Next 15 Days Action Step Create your own Personal Action Plan. 4 EY - For Personal Use Only (2014) 2

3 How Much Do I Know About Estate Planning? True False P P P P 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 5 What Is An Estate? q An estate consists of everything you own, as well as money or assets in your name q Do you have a: qhome? qretirement Plan? qlife Insurance Policy? qbank Account? If the answer is yes to any of the above, then you have an estate 6 EY - For Personal Use Only (2014) 3

4 What Can Estate Planning Do For Me? q Distribute property according to my wishes q Take care of survivors needs q Specify my wishes for medical treatment and handling personal affairs q Address life insurance needs q Manage gifting to loved ones and charities during life and after death q Minimize estate taxes 7 What Can Estate Planning Do For Me? q Distribute property according to my wishes q Take care of survivors needs q Specify my wishes for medical treatment and handling personal affairs q Address life insurance needs q Manage gifting to loved ones and charities during life and after death q Minimize estate taxes 8 EY - For Personal Use Only (2014) 4

5 Estate Planning Begins With A Will q What does a will do? qa will makes your wishes legal and helps your heirs handle your estate during a difficult time q What can you do with a will? qdocument who will receive your property when you die qname guardians for your children should both you and your spouse die qappoint a personal representative 9 After My Will Is Prepared q Pick a safe place to keep your will qdon t keep your will in your own safe deposit box. Usually, state law requires that safe deposit boxes be sealed when the renter dies. qconsider using your spouse s safe deposit box in a cross-box arrangement or in the safe deposit box of your executor q Make copies of your will qplace a copy of your will in your home, office, or in your own safe deposit box 10 EY - For Personal Use Only (2014) 5

6 After My Will Is Prepared cont... q Set a date for review qyou should review your will at least once every three years or in the case of: qmarriage/divorce qbirth/death (spouse, beneficiary, executor, etc.) qrelocation (change in state of residency) qlaw change 11 How Is Property Transferred? Type of Property Individually owned Jointly owned with spouse Jointly owned non-spouse Tenancy in Common Retirement plans, IRAs Life insurance Trusts How Transferred? By will By ownership By ownership By will By beneficiary By beneficiary By beneficiary Action Step Review and update, if necessary, your beneficiary designations for your savings accounts and insurance policies. 12 EY - For Personal Use Only (2014) 6

7 What Is Probate? q Processing of your will by a special court q Court names executor (personal representative) if no will or named person cannot serve q Supervises distribution of assets, payment of debts, handling of personal affairs 13 Probate Pros And Cons Pros qcourt settles disputes qtransfer of title is recorded qcreditors must come forward within a specified timeframe Cons q Can be expensive and time consuming q Delays disposition of assets q Public record 14 EY - For Personal Use Only (2014) 7

8 How Can I Avoid Probate? q Own assets jointly q Name beneficiaries q Create a living trust q Gift assets while still alive 15 How Does A Trust Work? Grantor Trustee Beneficiary(ies) 16 EY - For Personal Use Only (2014) 8

9 Can Revocable And Irrevocable Trusts Do Different Things? Revocable Irrevocable Able to change or revoke? Yes No Avoid probate? Yes Yes Lower estate taxes? No Yes Lower income taxes? No Maybe Transfer into trust a completed gift? Assets protected from creditors? No No Yes Yes 17 What Can Estate Planning Do For Me? q Distribute property according to my wishes q Take care of survivors needs q Specify my wishes for medical treatment and handling personal affairs q Address life insurance needs q Manage gifting to loved ones and charities during life and after death q Minimize estate taxes 18 EY - For Personal Use Only (2014) 9

10 What Role Do Other Documents Play? qdurable Power of Attorney -grants another person the power to act on your behalf regarding nonhealth related matters even if you become incapacitated qliving Will -states your wishes as to health care that should or should not be provided qhealth Care Power of Attorney -provides another with authority to make health care decisions on your behalf Note The effects and availability vary under state law 19 Durable Power Of Attorney q A durable power of attorney is especially important for aged parents and older relatives q It can help reduce physical, psychological and financial burdens should you or a relative become disabled 20 EY - For Personal Use Only (2014) 10

11 Living Will And Health Care Power Of Attorney q Why you should have both: qa living will can t cover every circumstance qexecuting a health care power of attorney will help assure that the power holder will carry out your intentions to the extent the living will doesn t specifically define them 21 Letter Of Instructions & Vital Records Organizer q Notes the location of different documents and investments q Makes the process easier on the executor and family Action Step Create your own Letter of Instructions & Vital Records Organizer 22 EY - For Personal Use Only (2014) 11

12 What Can Estate Planning Do For Me? q Distribute property according to my wishes q Take care of survivors needs q Specify my wishes for medical treatment and handling personal affairs q Address life insurance needs q Manage gifting to loved ones and charities during life and after death q Minimize estate taxes 23 Life Insurance Survivor Needs Estate taxes and costs Pre-fund education Pay-off debts Other Living expenses of survivors Expenses at Death Ongoing Expenses 24 EY - For Personal Use Only (2014) 12

13 What Will My Survivors Have? q Survivors annual earnings (wages)? q Pension income sources? q Social Security? q Savings and investments? q Other resources? q Life insurance? 25 Closing The Gap What Type Of Insurance? Term Variable, Universal, Whole Life Potential Cash Value 26 EY - For Personal Use Only (2014) 13

14 What Should I Do? q To determine the type of policy right for you: qidentify why you need the insurance qdecide how long you will need the insurance qdetermine the premium you can afford qcheck the credit rating of insurance companies Action Step Review your life insurance needs and make adjustments if necessary 27 What Can Estate Planning Do For Me? q Distribute property according to my wishes q Take care of survivors needs q Specify my wishes for medical treatment and handling personal affairs q Address life insurance needs q Manage gifting to loved ones and charities during life and after death q Minimize estate taxes 28 EY - For Personal Use Only (2014) 14

15 Gifting To Loved Ones qcan currently give up to $14,000 per year per recipient without paying gift tax qmarried people can currently give up to $28,000 by gift-splitting qyour gift tax credit currently pays tax on taxable gifts up to the $5,340,000 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 29 Reducing Taxes Through Gifts q Gifts to loved ones during life can: qreduce your income tax (when gifting income-producing property) qreduce the size of your estate q Gifts to charity can: qreduce your income tax during your life qreduce the size of your estate after death 30 EY - For Personal Use Only (2014) 15

16 What Is Included In My Estate? IRAs and SIP Life Insurance You Own Assets Owned Outright 1/2 of Assets Owned Jointly Revocable Trusts Gross Estate Less Liabilities and Expenses Adjusted Gross Estate 31 What Can Estate Planning Do For Me? q Distribute property according to my wishes q Take care of survivors needs q Specify my wishes for medical treatment and handling personal affairs q Address life insurance needs q Manage gifting to loved ones and charities during life and after death q Minimize estate taxes 32 EY - For Personal Use Only (2014) 16

17 How Is My Estate Calculated? Fred Wilma Joint Total Retirement Acct $400,000 $300,000 $700,000 IRAs $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 1/2 of Joint $200,000 $200,000 $(400,000) $0 Gross Estate $1,000,000 $1,000,000 $0 $2,000, Will I Owe Federal Estate Tax? Year Unified Credit Exemption Equivalent 2011 $1,730,800 $5,000, $1,772,800 $5,120, $2,045,800 $5,250, $2,081,800 $5,340, EY - For Personal Use Only (2014) 17

18 Estate Tax Calculation Example Gross Estate $7,340,000 Liabilities and Expenses ($1,000,000) Adjusted Gross Estate $6,340,000 Tentative Estate Tax $2,481,800 Unified Credit (2014) ($2,081,800) Net Estate Tax Due $400,000 Net to Heirs $5,940, Some Tools To Reduce Estate Taxes qgifting (529 plans, direct payments for tuition or medical bills) qcharitable deduction qunlimited transfers to charity free of estate and gift taxes qmarital deduction qunlimited transfers to U.S. citizen spouse free of estate and gift taxes qapplicable Exclusions q2014 credit can shelter a $5,340,000 estate / taxable gifts qportability of Unused Exclusion between spouses qwith little planning, married couples can pass up to $10,680,000 to heirs free of estate taxes qirrevocable Life Insurance Trust 36 EY - For Personal Use Only (2014) 18

19 Finding The Right Lawyer qseek a lawyer specializing in estates qshould act as a legal counselor and educator qconsider the fees based upon your needs qcan they communicate on your level? qsearch for an estate lawyer qwww.search-attorneys.com qcheck their background q 37 Personal Action Plan Action Step When Done Update beneficiary designations Discuss your estate planning wishes with your spouse/family Meet with an estate lawyer and set up important documents Create a Letter of Instructions and Vital Records Organizer Update your estate plan Next 10 Days Next 30 Days Next 60 Days Next 90 Days At least every 3 years 38 EY - For Personal Use Only (2014) 19