Estate Planning Taking Care of Your Family

and Minimizing Taxes

Speaker:Robert LeChevallierAttorney at Law

Why Most People Fail To Plan Their Estate!

Why? Fear of mortality Not sure who should handle

estate/trust Not sure how to distribute Does not know the value of

their assets Not aware of tax

consequences of failure to plan

Symptoms! Procrastination Failure to complete estate

plan.

Four Ways Assets Are Transferred On Death

Contract ex. (life insurance and retirement plans

Operation of Law (ex jointly owned property with right of survivorship)

Will (subject to probate)

Revocable Trusts

Irrevocable Trusts

Contract

Payable on Death

Transfer on Death

Life Insurance

Retirement Plans

Operation of Law

Joint Tenants with Right of Survivorship Tenants by the Entirety (husband and

wife) Community Property (WA, CA, ID)

Estate Planning Terms

TERM DEFINITION

Will

A testamentary instrument that is probated. A set of instructions to the probate judge on how the estate should be distributed.

Trust

An entity established by a settlor to hold assets and distribute income and principal to beneficiaries.

Trustee

Person holding and managing property in trust.

Beneficiary

Person who is eligible to receive distributions from a trust.

The Will

If you do not have a will the State “writes” one for you

Assets pass according to the “intestate” law of succession

Advantages of a will: Simpler to manage during lifetime than a trust Court supervision over estate administration Can waive bond requirement

Disadvantage of a will is that it is subject to probate Public information Time and cost to probate estate

Probate Process

Most states allow a small estate to avoid a full probate. Oregon: 50k personal property; 150k real property (2009)

Probate is to assure that the intent of the decedent is followed

Attorney is hired by the personal representative Probate Court takes control of estate, appoints

Personal Representative, supervises payment of debts and orders distribution of assets

Legal notice to interested parties is required to be published in local paper

Decedent’s assets must be inventoried by personal representative and appraised if necessary

Four month creditor waiting period Notice to Estate Admin -Department of Human

Services

Probate

Advantage

Court supervised process

Provides notice and allows objection by heirs and/or creditors

Time limit on claims

Disadvantage

Time Expense Lack of control

by family

Trusts

Revocable Created during the settlor’s lifetime Can be amended so long as the settlor has

capacity Typically used to avoid probate

Irrevocable Revocable trusts become irrevocable upon

settlor’s death Lifetime irrevocable trust for advanced planning Testamentary trusts (trusts established in a

decedent’s will) These are trusts that cannot be modified easily

without consent of settlor, trustee and beneficiaries

Revocable Trust

Person creating trust can be the settlor, trustee and beneficiary until their death, resignation and/or incapacity

Any items not transferred to the Trust will be distributed according to the will

No probate court jurisdiction, therefore no probate fees

Avoids a conservatorship in the event of incapacity

Trust Administration private and quicker than probate

Revocable Trusts

Advantage Private Retain control Not subject to

mandatory timelines like a probate

Procedure available to limit claims

Disadvantage

No court supervision

Beneficiary(ies) have right to enforce terms of trust

Uniform Trust Code

REVOCABLE TRUSTS

Who Should Be My Successor Trustee

Person who has financial capabilities Liability of Trustee- Uniform Trust Code Need to be detail person Ability to relate to beneficiaries Has time available to properly do the job.

Family Members? Short term or long term

Should I use a bank or financial institution?

Private trust companies Costs

What About The Kids?

At what ages should I distribute my estate to my children?

Disabled children Spendthrift

children His and Hers —

second marriages

Additional Uses of Trusts

Discretionary Trusts (income or principal)

Incentive Trusts (i.e. if you graduate…)

Education Trusts (for college) Grandchildren’s Trusts Protect children in event of

spouse’s subsequent marriage(s)

Protect family assets in event of children’s divorce

Spendthrift- protect children from creditors

Additional Estate Planning Documents

Pour-over Will Durable Power of

Attorney Advance

Directive (Living Will)

Tax Planning Terms

TERM DEFINITION

Annual Gift Exemption

An amount you can give to a person each year – currently $13,000.

Credit Shelter

or Bypass Trust

A trust that distributes the income and/or principal to the spouse. On the spouse’s death, the remainder can be distributed to the children. Takes advantage of the exemption of the first spouse to die.

QTIP Trust

A type of trust that requires distribution of net income to the spouse and may provide for principal distributions to spouse. On the spouse’s death, the remainder can be distributed to the children. The trust qualifies for the marital deduction.

Exemption Amount/ Unified Credit

An amount each person can leave to another non-spouse without paying estate or gift taxes.

Marital Deduction

A deduction that allows spouses who are US citizens to make gifts to each other without estate or gift tax liability.

Tax Planning Wills and Trusts

Husband and wife may be able to use federal tax exemption twice

Federal exemption will increase from $2.0 million in 2009 to $3.5 million by 2009, and the federal estate tax repealed in 2010. Unless congress changes the law, the federal exemption will be $1.0 million in 2011.

Oregon exemption is $1.0 million

State Inheritance Tax

Oregon did not match increase in federal exemption.

State Estate Tax on top of Federal Estate taxes Exemption = $1.0 million in 2009 Tax rate between 4% and 16% Oregon Special Marital Election to postpone

state estate tax until surviving spouse passes away

Oregon Trust to track assets WA exemption = $2.0 million in 2009

Oregon Inheritance Tax Rates

Column 1 Column 2 Column 3 Column 4

Adjusted taxable estate equal to or

more than

Adjusted taxable estate less than

Tax on amount in column 1

Rate of tax on excess over amount

in column 1

$ $ $ PERCENT

90,000 140,000 400 1.6

240,000 440,000 3,600 3.2

640,000 840,000 18,000 4.8

1,040,000 1,540,000 38,8000 6.4

1,540,000 2,040,000 70,800 7.2

2,540,000 3,040,000 146,8000 8.8

4,040,000 5,040,000 290,8000 11.2

6,040,000 7,040,000 522,800 12.8

8,040,000 9,040,000 786,800 14.4

10,040,000 ------ 1,082,800 16.0

Disclaimer Wills or Trusts

Allows spouse to “disclaim” and decide how much to fund bypass or credit shelter trust within 9 months of death

Spouse cannot take benefit of asset before disclaimer is filed

Wills Or Trusts With Credit Shelter Provisions

Formula puts portion of estate in trust for spouse who may receive income until death plus principal as needed for health, education, maintenance and support. Upon spouse’s death it will be distributed to children.

No flexibility for surviving spouse

Charitable Deduction

Gift to charities or charitable trust qualify for charitable deduction

IRA’s Gifts of life insurance Gifts of appreciated property (need

appraisal) Gifts to Community Foundations (donor

advised funds) Charitable remainder trusts Charitable lead trusts

How Often Should I Update My Estate Plan?

Remarriage (revokes a will)

Divorce (revokes provision in favor of spouse)

Death of a Spouse Change in family

situation Change in tax laws Review every 5 years

NEXT STEPS!

Prepare a will, a durable power of attorney and advance directive

Prepare a Revocable Trust (if over age 55; high net worth or assets in multiple states)

Do appropriate estate and income tax planning If you have a taxable estate start a gifting

program to family Once family is taken care of, consider charitable

gifts

QUESTIONS?For more information

give us a call (503) 620-8900

3 Centerpointe Drive, Suite 250

Lake Oswego, OR 97035

www.buckley-law.com