Estate Planning Basics

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Objectives

Understand what an estate encompasses

Review the pros and cons of probate

Learn about trusts and their role in estate planning

Know which important estate documents are needed

Understand how your estate is taxed

Review some estate tax reduction tools

Know which steps to take next

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Personal action plan

Action Step

• Create your own personal action plan throughout this presentation

Action Step When Done

□ □ □ □ □

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True False

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

How much do I know about estate planning?

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What can estate planning do for me?

Help distribute property according to my wishes

Ease the burden on survivors

Help take care of survivors’ needs

Specify wishes for medical treatment and handling personal affairs

Manage gifting and help minimize estate taxes

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What is an estate?

An estate consists of everything you own, as well as money or assets in your name

Do you have a:

• Home? • Retirement plan? • Life insurance policy? • Bank account?

If the answer is “yes” to any of the above, then you have an estate

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What can estate planning do for you?

Help to distribute property according to your wishes

Help to take care of survivors’ needs

Specify wishes for medical treatment and handling personal affairs

Manage gifting to loved ones and charities during life and after death

Help to minimize estate taxes

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Estate planning begins with a will

What does a will do?

• A will makes your wishes legal and helps your heirs handle your estate during a difficult time

What can you do with a will?

• Document who will receive your property when you die

• Name guardians for your children should both you and your spouse/partner die

• Appoint an executor

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What controls distribution of property?

“By Will” = Passes thru Probate

Trusts

Retirement plans (e.g., 401(k), IRA)

Life insurance

Beneficiary designation

Assets held in joint name (JTWROS)

Joint Tenant

Assets owned outright

Assets held as Tenants in Common (% owned)

Community property (50%)

Will

Probate

Heirs Action Step

• Review your beneficiary designations, including your 401(k), pension, and life insurance

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What is probate?

Processing of your will by a special court designated to probate wills

Court approves your executor or names a representative if no will exists

Judge supervises the distribution of assets and payment of debts

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Pros and cons of probate

Pros

• Court determines the validity of the will

• Allows the will to be challenged

• Court supervision of distribution of assets, valuation of assets and payments of creditor claims

• Executor must report to the court and heirs

Cons

• Costs* • Typically 2%-10% of the

probate estate • Court costs • Attorney fees • Executor fees • Appraisal fees • Publication costs • Bond premiums

• Time* • Typically 6 - 12 months

• Loss of privacy

*Source: Forefield Inc., 2016

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Avoiding probate

Own assets jointly

Name beneficiaries

Create a living trust

Gift assets while still alive

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Naming guardians

Day-to-day guardian should be:

• Equipped to rear children and provide a nurturing home life • Financially capable of supporting your children • Willing to accept the responsibility

Financial guardians should be:

• Financially astute • Ethical and trustworthy

You may wish to assign both responsibilities to one individual or nominate two separate individuals

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Executor

Carries out all the wishes stated in your will

Gets copies of the death certificate

Prepares a listing of the estate’s assets and determines their value

Files papers in court and with tax authorities

Notifies insurance companies and banks

Pays debts and taxes

Distributes assets as stated in your will

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After your will is prepared

• Do not keep your will in your own safe deposit box. Usually, state law requires that safe deposit boxes be sealed when the renter dies

• Consider using your spouse’s safe deposit box in a “cross-box arrangement” or in the safe deposit box of your executor

Pick a safe place to keep your will

• Place a copy of your will in your home, office, or in your own safe deposit box

Make copies of your will

• You should review your will at least once every three years or in the case of: • Marriage/divorce • Birth/death • Relocation (change in state of residency) • Law change

Set a date for review

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How does a trust work?

Grantor Trustee Beneficiary(ies)

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Revocable Irrevocable

Able to change or revoke? Yes No

Avoid probate? Yes Yes

Lower estate taxes? No Yes

Lower income taxes? No Maybe

Make completed gifts? No Yes

Revocable vs. Irrevocable trusts

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What can estate planning do for you?

Help to distribute property according to your wishes

Help to take care of survivors’ needs

Specify wishes for medical treatment and handling personal affairs

Manage gifting to loved ones and charities during life and after death

Help to minimize estate taxes

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Durable power of attorney

Grants another the power to act on your behalf regarding non-health related matters if you become incapacitated

Helps reduce physical, psychological and financial burdens on your family

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Living will and health care power of attorney

Note: The effects and availability of these documents vary under state law

Why you should have both:

A living will can’t cover every circumstance

A health care power of attorney will help ensure the power-holder will carry out

your intentions to the extent the living will doesn’t specifically define them

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Letter of instructions

A non-legal document that generally accompanies your will

Expresses your thoughts and directions regarding what is in the will (or about other things) • Burial wishes • Explanation of your actions • Advise your executor and/or

beneficiaries • Nature and location of information

your executor may need (document locator)

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Letter of instructions – Document locator

Location of: • Will and trust documents • Deeds and titles • Insurance policies • Birth and marriage certificates • Military discharge papers • Bank account numbers

Contact information of: • Attorney • Accountant • Life insurance agent

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What can estate planning do for me?

Help to distribute property according to your wishes

Help to take care of survivors’ needs

Specify wishes for medical treatment and handling personal affairs

Manage gifting to loved ones and charities during life and after death

Help to minimize estate taxes

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Gifting to loved ones - 2016

Can currently give up to $14,000 per year per recipient without paying gift tax

Married people can currently give up to $28,000 by gift-splitting

Your gift tax credit currently pays tax on taxable gifts up to the $5,450,000 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

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Reducing taxes through gifts

• Reduce your income tax (when gifting income-producing property)

• Reduce the size of your estate

Gifts to loved ones during life can:

• Reduce your income tax during your life • Reduce the size of your estate after your death

Gifts to charities can:

Caution!

• Before making a gift (even to your children), be certain you and your spouse will not need the assets

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What can estate planning do for you?

Help to distribute property according to your wishes

Help to take care of survivors’ needs

Specify wishes for medical treatment and handling personal affairs

Manage gifting to loved ones and charities during life and after death

Help to minimize estate taxes

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Gross Estate

Less Liabilities and Expenses

Adjusted Gross Estate

Retirement Account Assets

Life Insurance You Own

Assets Owned Outright

1/2 of Assets Owned Jointly or as Community

Property

Revocable Trust Assets

Less Marital and Charitable Bequests

Taxable Estate

What is included in your estate?

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How is your estate calculated?

Josh Amy Joint Total

401(k) $400,000 $300,000 - $700,000

IRA $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

50% of Joint Assets $200,000 $200,000 -

Gross Individual Estates $1,000,000 $1,000,000 - -

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Calendar Year

Estate Tax Exemption

Highest Estate Tax Rate

2015 $5.43 million 40%

2016 $5.45 million 40%

2017 + Adjusted for inflation 40%

Will your estate owe federal estate tax?

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Additional tools to reduce estate taxes

Direct payments for tuition or medical bills

Charitable deduction • Unlimited transfers to charity free of estate and gift taxes

Marital deduction • Unlimited transfers to U.S. citizen spouse free of estate and gift taxes

Unified credit • 2016 credit can shelter a $5,450,000 estate • The credit can be used to shelter the estate at death and/or taxable gifts

during life

Portability of Unused Exclusion between spouses • With little planning, married couples can pass up to $10,900,000 to heirs free

of estate taxes

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What are your goals for your survivors?

Have the insurance conversation “If I die…, If you die…”

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Finding the right lawyer

Seek a lawyer specializing in estates

Should act as a legal counselor and educator

Consider the fees based upon your needs

Can they communicate on your level?

Search for an estate lawyer • lawyers.com • search-attorneys.com • estateplanning.com

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When should I review my estate plan?

Marriage/divorce

Birth/death (spouse, beneficiary, executor, etc.)

Relocation

Law change

Periodically (e.g., every 3-5 years)

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Personal action plan

Action Step When Done

Consider your estate goals 7 days □ Review your current estate documents 10 days □ Gather information about your assets and debts 14 days □ Meet with an estate lawyer and implement your plan 14 days □ Monitor and update your plan At least

every 3 years □

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Questions?