Estate Planning Seminar

Mistake 5: Will errors

- Another common error is dying without a will at all - Will not being updated enough ; will should be updated when: 1. Birth, adopted, or death of child 2. Upon the marriage, divroce, or seperation of anyone in the will 3. Upon major tax law change 4. Upon a move of a testator to a new state . 5. Upon signfifcant change of income or wealth of testator or beneficary 6. Change of needs and circumstances of testator or beneficary 1.a pretermitted (born after will executed) child can peitotn court to recieve what they would have if they had died intestate, unless their is language in will disinherting all children. - Wills should be reviwed at least: at birth adoption or death of child, upon marraige or divoerce of anyone in will, upon major tax law change - move of testator to new state - FINSIH

When should a will be used? (8)

- Avoid the laws of intestate sucession - Provide testator with some control of the the distributions of their property (like if they wanted to leave to relatives, a chairty, etc) - Allow testator to name their executor (this person will be responsible for carrying out the provisions of their will - Set forth the terms for how assets will be managed - Name a trustee and sucessor trustees to manage the assets - To pour over assets into a inter vivos trust, which is created during life and recives assets through the will at the testator's death (allows some privacy about trust assets, yet allows will to pass assets into the trust that are titled to the testator at death) - Nominate gaurdian of a minor - Minimize estate taxes

What is Community Property?

- Can include real estate, stocks, bonds, bank accounts, and life insruance polices if purhcased with money earned after the marriage - Each spouse owns 1/2 of the community property, no matter how its titled.

Attestation of witnesses

- Competency: mature enough and of sufficent mental capcicty to aprreiate what they're witnessing to the extent that they could clairfiy to the court if necessary - Interested witnesses: In common law, an attesting witness who is also a beneficary is not a competent witness. Under NC's "minority rule," the will's valid but the beneficary's interest is void. Under UPC states, the witness is not purged of their share.

Finanadial planner repsonisblites in the estate planning process

- Determine whether estate has federal or state tax liability - Review wills, trust, and deeds to determine whether bequest and titles of ownership are coordinated - REview inruance polices to try to see if they cover estate's liquidity needs - Explain tax and nontax aspects of estate plan to client

Datagathering: Financial Planner Responsibilites in the Estate Planning Process

- Determine whether the estate has a federal or stae

Step 4: Financial planning/estate planning process: Developing Reccomendations; Step 5: Implementing Reccomendation

- Develop estate plan to help them meet their objectives - Create a priortized implemtation plan with timeline - Assign responsibilites among team memebrs - Support client directly or indirectly with implementation - Determine monitoring repsoisbilites with client

Mistake 4: Choice of Wrong Executor

- Does the executor have the time to administer the estate? - Does the executor live in the state? - Does the executor have a conflict of interest with the beneficaries of the estae(Why its bad to say "to the execturo to split my estate evenly" when a sibling is the executor) - Is the executor capable of: collecting th decedent's assets, paying all obligatons, distributing the remaining assets to the beneficaries - Is the executor willing to assume the liability and personal financial risk of adminstering the estate? - Those likely to have a conflict of interest: beneficary acting as executor, business assocaite acting as executor - Business parter example: Scrooge and Marley have been business partners for 30 years. Partnership is worth 3 million. Marley drafts a will naming Scrooge as executor. Marley dies, and the only thing he owned was his interest in the business. Partnership dissolves upon his death....so partnership has to get appriased and divide the assets, which is the job of the executor and other partners; this is an obvious conflict of interest. If there were other partners, the partnership can either continue if they buy out the wife's share (proceeeds going to her estte) or dissolve. Partners would not want to give wife her estate much, so still a conflict. This can avoided by naming a disinterestd 3rd party, like corpoate trustee, as sole executor or at least co executor

Mistakr 6: Leaving Everything to your Spouse

- Everything passes to US citizen spouse estate tax free using marital deduciton. - Spouse may not be capable or want to manage assets left to them - could lose decedent's lifetime credit if you don't make proper use of portability - Lose oppourinty to skip generations and potentilly save taxes for future generations -

Assets passing by contract: not suject to probtate

- Funded irrovabkle and revokable trust - REtirement assets with named beneficaries: pension and IRAs; annuites with joint annuints

Execution of Unattested wills: Holographic

- Holographic: entirely in testor's handwriting and has no attesting witness - Requirements in NC: - Hologrphic must be entirely in testator's handwiring - must be signed by testator (but no requiremnt it be signed at the end of the will) - Found after the testator's death among their valuable papers or effects, or in safe deposit box or other safe place where it was depositied by the testator or under the testator's authority. - No attesting witness required - Probate?

Steps to financial planning/estate planning process: Step 1 Establish relaitonship with client

- Identifty the cleint: - Discuss the financial planning process - Explain the scope of services offered - Assess and communicate ability to meet the client's needs and expectations - Identify and disclose conflicts of interest (this needs to be disclosed in the engagement letter; products you might get commission off of, if the represent both the husband and wife [may be undisclosed info like a credit card one doesn't want the other to know about]; in NC can't be both a CFP and an estate planning attorney - Discuss reponsibilites of the client and the planner - Define and document the scope of the engagement with the client

Methods of Property transfer at death 1. WIll or intestancy 2. Operation of law 3. Contract

- If property passes by will/intestancy or is transfeered to the estate after death, it goes through probate. -Probabte: court supervised process for settling decedant's estate. - 0.004 probate fee at NC; caps at $6,000. - In NC, real propaty doesnt pass through probate unless its willed to the estate. Ex. Will says I will my property to the esate, to be sold by my exectuor and the proceeds split among my heirs.

Income Tax considerations for Community Property

- Income produced by any community asset=earned half for each spouse - Client situations: - Matt is a salesman with a high income. The money he earns after marrying Jen is community property and is considered one half his and one half hers - Income earned in Jen's investment portfolio she started before marriage is exclusively her's

Assets passing by operation of law: not subject ot porbte

- JTWROS -Tennacy by entirirty - Joint bank accont - Payable on death accounts (bank accounts same as below) - Transfer of death acounts (brokeerage accounts saying __this person gets my assets when I die - Life estate: property passes automatically to remainderman at death

Addtional probate propertty

- Life insurnace policies or annuites payable to decedent's estate; ( 3 ways such polices pass through porbabte no beneifcary, beneicary named predeceases you, or estate is actually named as beneicary) - Retirement assets without a named beneficary:

Tenancy by the entirety: Income tax considerations; Gift tax considerations

- Married filing joint: all income included - Married filing seperately: 50% of income included on each spouse's 1040 - When one spouse owns property indivdually and changes it to Tennacy by the entirity, they have made a gift to another spouse

Joint Tennancy with ROS with a nonspouse: income tax consideratioins

- Married filing jointly=all income will be included - Married filing seperately= 50% of income included on each spouse's 1040

Appintment of Fiduciatires Clause

- Names an individual or corporate fiduary seperately or together to administer the testator's estate and any trust the will creates - Gives executor approproaite pwoer to act on behalf of the estate and carry out the terms of the will - Specifies if and how the executor is to be compensated. If somsone is sole heir and also personal representivae, she should not collect her fees as personal represnetive from the estae....she'll owe income tax on this...where as no income tax if she just inheritied - States whether or not the executor is to post bond (purpose is to make sure executor doesn't run off with assets - Specifies authoiry of and decision making process of coexevutors - Name gaurdian and sucessor of any minor child of the testator Planner should check: - Does client trust indivudal named as executor? Are they legally qualified to act? - Should executor's bond be waived? - Is executor willing to serve? - Is gaurdian of minors suitable? - Is pronlegoed estate adminsitrotion feasiable...should you name a sucessor executor?

Tenancy by the Entirety

- One spouse cannot terminate tennancy by the entirity without the consent of the other spouse - Creditors of one spouse cannot attach the other spouse's interest to the property. - Not subject to probate

MISTAKE TWO: Improperly arranged life insurance

- PRoceeds payable to beneifcary at the wrong time in the wrong manner: If minor children, need trust involved instead of just naming a spouse as beneifcary.....they could die at the same time - Inadequate insurance on key person: For a family, make sure the primary breadwinner is insured. For a corporation, get it on the primary perso running it - If primary beneficary has predceased person and no contingent beneficary named, life insruance proceeds may be subject to the estae, and thus creditors. Also increased probate costs. NOT GOOD. By that same logic, don't make proceeds payable to the esatate. - Update benefiary designation to refelct changes in estate planning document. If have revokable living trust, beneifcary may need to be updated if document is revoked. Better to amend. - Policy proceeds included in decedent's estate if: decent is owner and insued, decent retained an interest in the policy, decedent transferred policy or policy interest within 3 years of death - Triangulation: Ex. If Wife-owner, husband-insured, child-beneficary; When hsuabnd dies, the policy proceeds will consitute an unintended gift from the wife to the child at full value of proceeds. If someone owns a policy and another person is insured, beneicary is a donee. If husband owned policy, wife isnured, then husband wuld have made gift to child If wife owned a policy when hsuabnd insured and herself as beneficary, no gift issues.

Powers Clause

- Pertains to executor and trustee of testamentory estblashed by the will - Gives executor and trustee specific powers and authroity over and above those provided by state law - Enables executor to conserve and manage property - Limits executor power where appropriate - Provides authoirty and flexibility to continue business or manage other property with special problems Planner should check: - Do pwoers granted cause a conflict of interest? (ex. BBandT getting one of their approved attorney's to allow executor to buy BBand T stock in the will) - Specififc authority for executor to make distirbutions in kind? (ex. testator leaves 10 million worht of gold to son with orders to sell...executor -

Steps to financial planning/estate planning process: Gather Client Data (INCOMPLETE)

- Pre-meeting information request letter: reiterate when and where of first meeting, informaiton questionaire; stress that info is condidnetal - Forms: 1. Family info: Client and spouse info:Names (including nicknames), adress, phone number, SS number, etc. Get info on children and grandchildren as well 2. Advisor info 3. Get info on favorite chairity 4. Graudian of person and property info 5. Executor info . Document checklist (request prior to meeting if possible):

Tangible personal proparty clause: what is it; what planner should check for

- Privdes for who will reviece personal property and on what terms - Allows special dispositions among persons and organizations of the testator's choice - Ex. I give my daughtet Ivanka all of my clothing, household furnshings, jewlrey, etc. If she does not survive me, I give..... OR Ex. "I give Philedhlpia musem of art all of my paintings." - General check-up of legacies: - do gifts to charitites meet state law requirements? Full legal corporate name and adress? - Someone intenitoally omitted? Defamatory statements in will concerning an heir? (this can cause estate to be sued) -

What isn't community property?

- Property aquired by a spouse via gift or inheritance - Property aquired before marriage, unless comingled with communal property (Ex. Comingly funds in a joiny bank account) - Property aquired by one spouse after marrigae with the proceeds of a seperate asset. Ex. Billy and Chuck live in a community property state. Before marrying, Billy owned a home. After he got married, he sold the home and used the proceeds to buy a larger home for him and Chuck to live in. The new home will remain seprate property - In a lot of cases, a prenub can be used to overcome the presumptions of commnity property

Tennacny by the entirity: Estate tax considerations

- Property is presumed to be owned by half of each spouse, regardless of who purchased it - 1/2 included in decedent's estate - Will qualify for marital deduction - If mortaged, one half of the mortage will be inlucded in the estate tax return - Surviving spouse's new basis is one half aquisitoin cost + decdent's stepped up basis

Community Property vs Seperate Property: Community Property States

- Property owned before marraige and property aquired after marraige by gift or inheritance remains seperate - When a purhcase is made during marraige, joint ownership is automatically presumed by law. - Property purchased during marriage requires the signature of both spouses before it can be made or mortaged - Once an asset is classified as community property, it remains that way, even when the client relocates to a non-community property state

Community Propery vs Seperate Property: Seperate Property States

- Property owned before marriage and property acquired after marriage by gift or inheritance remains seperate - When a purhcase is made during marriage, joint ownership is NOT automatically presumed by law. - Seperate property can be conveyed or mortaged without spousal consent - Seperate owner has full control over naming someone in his or her will to recieve the property.

Othe clauses

- Simulatenous death (common distater privosin)...if none, look at uniform simulataneous act (says if die in common disaster, we're to assume they predeceased each other) - Disclaimer provision - Special needs provisions for minors and incompetent beneficaires - Spendthrift clause: prevents heir from transferring or assigning interest in the trust; in most states, including NC, this prevents voluntary and involuntary tranfers> Trustee won't phyially handout money

Property passing by will subject to probate

- Solely owned personal or real proeprty - FRactional interest in tennancy in common - Property passing to a testamentory trust - Property passsing by a pour-over will to a trust - Ex. If revokable trust created in 2000, 1 million added in 2010, 2012 added ___w roth 3 million. These were added priror to death and by pass probabte. If a car, stock, and bank account added to trust after death, it goes through probate

Devises of Real Estate Clause

- Specifies which real estate is disposed of under the will and how - Handles problems where property has been sold or destroyed prior to testator's death -

Debt clause of will: whats in it; what planner should check for

- States source from which each lawfully enforceable debt is to be paid - Establishes as debt items that might not otherwise be considered the testator's obligations - Ex. I direct all my lawfully enforable debts (including expneses from my last illness) and my funeral expenses be paid Planner should check - Shoudlnt have detalied funeral arrangments in will. Use letter of instruciton instead - Does "payment of debts" include mortage on property left to a specific individual? Usally that individual will be repsonsible for paying the mortage or selling the place and paying it

Mistake 8: Failure to Stabilize and Maximize value

- What economic "shock absorbers" have been put in place to stablize value in the event of key employee's death or disability? - What if key employee if lured away by competitoin at the wrong time? - Possible solution: key employee life and disability insurance

Community property and life insurance

- When community property funds are used to purchase a life insurance policy, the policy belongs 1/2 each spouse - If a policy on H is commuity property and the beneficary is someone other than W, a trnasfer subject to both estate tax in the hsuabnd's estate when he dies and gift tax from Wife to the 3rd party will occur when the insured dies, and the proceeds will be payable to that 3rd person. - Gift= 1/2 of the proceeds, which represents the wife's 1/2 community interest in the property. - If Harry and MJ live in a community property state, Harry purhcases a life insurance policy on his life and names their son has beneficary. Harry pays the preimums with community assets. At his death, the 100,00 death benefit is paid to Norman Jr. 50,000 will be inlcuded in Harry's estate and subject to estae tax, and the other 50,000 will be a taxable gift form MJ - Tip: Spouses can amend character of proety to make them sperate funds

Community property: moving form community property states to noncommunity property states

- When proceeds of a community asset are used to purchase an asset in a seperate property state, the new asset is still considered community property - Ex. Harry and Mary Jane move from a community propety state and use the proceeds of their new home to purhase a new home, its community property, no matter how its titled.

Gift Tax Considerations for Community Property

- While both spouses are alive and married, one spouse cannot dispose of community property without the consent of the other. - When a gift is made from a community property asset, the gift is technically made by each spouse, even if one spouse only made the gift - If no spousal consnet, donor may be liable to his spouse for one half of the gift - Ex. Chris deposits his eanrings in his bank account, which is titled in his name. He makes a 10,000 gift to his son, Daniel. Chris and Nancy are presumed to have made one half of the gift (5,000 each). Chris is required to get Nancy's permission to make this gift, or Nancy may have a claim against him. Nancy can make gifts to a seprate account she has with inheritance money without his consent.

Advanataes of Probate

- court supervision - protects creditors by ensuring debts are paid - bars duture creditor clims against the estate - validates title of property

Introducictory cluse of will: What it does; things planner should check for

- identifies testator - Establishes domicilie (where they're a lawful permeneant resident) - Declaires documnet intends: to dispose of testator's property at death, this document to be the last will - Reveokes all prior wills - Ex. I, Donald J Trump, a resident of and domiciled in Ny, declare this to be my last will. I revoke all wills and codocils made prior to this will. Planner should check for: - Client full legal name and spelling correct. If client goes by nickname, make any necessary specifications - Is domocile correct? - Does it meet statutory requirements of domoclie?

Who can draft a will for another? who should know who to review a will?

- only an attorney - All memebers of the estate planning team -

Data Gatehring Annual review checklist (finish)

- specific bequest: sitll want newphew to take that proparty? - Cahnges in valuaiton - SPecial provisons for children - Newly born or adopted children - Handicapped or incompetent children - Status of family marraiges - Cancellation of laons to children and equlization of inheritance and changes in distirbution goals. - Life insuarnce

Type of property ownership: Tenancy in Common

-Ex. A owns 60% of propety and B has 40% that they bought in 1970 for 100,000. Both can technically do whatever they want with their fractional interest and leave it to whoever they want to death (no right of sruvioship element). IF A dies in 2020 and proeprtyis worth 1 million, you report it on tax return as 600,000. A's heirs new basis is 600,000. B's basis remains the same (40,000). If A's heirs sell the property shortly after A's death for 700,000, capital gain of 100,000. If B decides to sell his for 500,000, his basis is still 40,000....so their capital gain is 460,000. - Income Tax Considerations: taxed based on each individual's fractioanl share of ownership.

Two Types of Wills:

1.) Attested: - Written attested wills - Written, self-proving attested wills 2.) Unattested - Holographic wills - Oral wills - Attested vs Unattested: witness vs no witness

10 Most Common Estate Planning Mistakes

1.) Improper use of jointly held property: potential for federal and state gift tax when titled as jointly held property between nonspouses; possibility of double taxation: when jointly held property with right of surviorship passes outright to a surviving joint tenant it never results in the inclusion of more than 1/2 of property's value in the first to die tenant's federal estate. False. Only time full value is not included is controbiton, gift bsivse or bequest from 3rd prty or if tennants are married Ex. A buys a farm for 3 million. Not maried to B, but retitles it as joint tenants with right to survivorship. This is a 1.5 million gift to B. In 2020, A dies and all 4 million (its worht in 2020) is included in his estate. When B dies in 2025, its worth 10 million and 10 million is included in their estate. 2nd expection didnt apply because a 3rd party thats not a current tenant made the gift. In surviving tenant's estate to the extent that they did not consume or give away the asset - Two expections: 1. Controbution: In this scenario each pays 1.5 million for the proeprty....no gift made, and each has a 50% interest. Titled joint tennacny with right to survivorship. In 2020, A dies, and the farm is worth 4 millon, and 2 millin inlcuded in A's estate. When B dies in 2025, its worht 10 million, and the entire value of 10 is included in B's gross estate. Befrore, entire amount inlcded in A's estate, but since can prove B paid half of pruchase price, half included in A's estate. 2. Gift, Divise, bequest from 3rd party: Mother leaves A and B (siblings) farm worht 2 million. When A dies, 2 million is included since he had a half interest. In 2025, farm is worth 10 million and 10 million is included for B. More Reasons this is a mistake - Surviving tenant during life or at death can give property to whomever the surivior desires. - Joint property passes outide the decdent's executor with a lack of adaquete cash to pay estate taxes and other settlement expenses. Ex. A's will says leaving everyhting to his only son, B. Find a CD worth 13.5 million and savings account worth 2 million. A's sister was named as beneficary on the CD. A's son inheirts a savings account. The total gross estate of A is 15.5 million. 15.5-11.5=4 million X 40%= 1.6 million. - To avoid Double Estate Taxation, do not use Joint Tennancy with Right of Survivorshp titling.

Who Needs Estate Planning?

1.) Individuals with estate in excess of the unified credit of 11,580,000. 2.) Nonresident aliens (cant take martiral deduction if one spouse is citizen and other is not....ex. If give 1,000,000 to noncitizen wife, you're gonna end up owning like 400,000 in tax), resident aliens, aliens about to move to the US, individuals considering expatrtion, and US citizens with property interests in foreign countries. 3.) People with minor children: dont want them to inherit millions at a young age. 4.) Children spouses and other depends tht are handicapped. Children, spouses, or other dependents who can't or don't want to handle money, securities, or a business. 4.) People with closely held buiness interest 5.) property in more than one state or persons who move from sttate to state or live in multiple countires (ex. If own residences in multiple states, your executor has to open estates every estate....use estate planning vchicles to avoid this) 6.) charitable objectives 7.) speical property like coin collecitons, fine art, etc 8.) pets that are particularly important to them 9.) asset protection concern of heirs (Ex. if creditors are trying to reach their heirs)

Estate Tax considerations for community property

1/2 of community property is included in deceased spouse's estate, regardless of titling. - Ex. Randy and Elizabeth have been married for 32 years. All of their propety was aquired after marriage and titled in Randy's name. When Randy died last year, their total assets were 3 million. 1.5 is inlcuded in his gross estate. If they lived in a seperate property state, 3 million would have been included in his estate. - Step-upped basis: Her new stepped up basis will be 3 million.

Controlled estate Planning

A systematic process for uncorvering problems and providing solutions in client's L.I.V.E.S. - LIVEs: 7 Major Areas of Estate Planning

What is a will?

An instrument, executed with certain formalities, that usally directs the disposition of a person's property at death. - Revocable during the lifetime - Codocil: supplement to the will that modifies or revokes it - Will has no legal affect until testator's death - Operates upon circumsntaces and properties as they exsist at the time of the testator's death.

Tennacny in common: Gift Tax consideration (If ownership not split equally but income is split equally, a gift is made)

Be careful not to create an uninentiaonl gift. - Ex. Sid (50%), Ben (25%), and Jacob (25%) each own a deep sea fishing boat that they rent out. Rent for 2020 is 800,000. Sid is entitled to 400,000, 200,000 for Ben, and 200,000 for Jacob. Sid wants to split the income equally, which would give each of them 267,000. Sid has now made 2 unintentional gifts. He's now still paying income tax on 400,000 (even though only getting 267) and two taxable gifts of 52,000 (67,000-annual exclsuion). If he did this for 10 years, he's eating up his lifetime exemtpion.

Mistake 3: Lack of Liquidity

Cash demands on the excutor after death: - Federal estate taxes - State death taxes - federal income taxes - state income taxes - probate and administrative costs - payment on maturity debts - maintence and welfare of family - - etc

LIVES: Special Problems

Clients have various phycoloigcal needs for security and safety. You never know what keeps clients up at night

LIVES: Value stablization and maximization

Clients need to stabalize and maximize the value of their business and other assets - Ex. For sole properieship, as a family business, its value is derived from the owner who was running it. Need a sucession plan to keep value of business from going dead or some type of buy-sell agreement

Wills in community property states

Communiity property is owned equally by the spouses - At death, each spouse has testamentory power of distirbution over their half of the community assets

Disadvantage of probate

Delays, expenses, privacy issues. Will is public record

Testator's Signing Clause

Establishes that document is intended ot be their last will, meet staturory requirements that require testator's signature at logical conclusion of the will; state the date on which the will was signed. Planner should check for: - Is will singed by testtor at its logical end? - Is each page numbered? Is the page count correct? - Is each page initialed? - Are there duplicate or triplicate signed wills in exsistnece?

LIVES: Inadquete Resources for Survivng Spouse

Estate planners often forget that cash demands for survivors food, water, shelter, etc will exhaust funds that would otherwise be avaliable for liquidity needs - People might also live longer than expected

Community Property States

Ex. Husband and wife aquire house during marriage with communal funds. Only wife's name is on deed. Husband still owns half no matter how its titled.

Step 3: Analyzing the Client's Financial Status

Examine current and future financial status to determine liklihood of meeting their goals - Identify defecientcy's

Execution of attested wills: funciton of formaliti3s; 3 formal requirements of due execution

Function of formailites (4 functions served by the statute of wills): - Ritual: ritual of will signing is desinged to assure that the product of careful reflection by the testator - Evidentiary: provides a physical record of testator's wishes - Protective: - Channeling: provides us with standard expressions of testator's intent - For a will to be valid and admissible to probate, the testator must meet the 3 formal requirements of due execution: 1. Writing 2. Signed by testator 3. Attestation by 2 witnesses

JTRS (nonspouse): income tax considerations; gift tax considerations; Estate tax considerations

Income that is eanred on jointly held property is deemed to have been earned equally among all joint tenants - If two people own an account that produces 10,000 of income per year, each joint tenant will report 5,000 of taxable income; If both tenants sell an asset that has a basis of 20,000 for 100,000, each tenenat will report a capital gain of 40,000. Gift tax - If one person provides all the funds to pruchase an asset titled "JTRS," he has made a taxable gift to the joint tenants. - If one tenenat recieves all income, the tenant recieving no income is deemed to have made a gift - If any further contirbutions are made to the property (ex. paying exepnses), they must be contributed proporiantely or furhter gifts are made - If property sold and proceeds not split evenly, gift form one tenant to another. Estate tax considerations - provides that the value of the decendent's estate shall include the entire value at death unless a contribution or if it was a gift from a 3rd party - Survivors new basis is orignal basis + amount included in decedent's estate

LIVES: Lack of Liquidity

Insufficent cash to pay adminsitrative cost, which inlcude taxes, costs of maintaing property, and other estate settlement procedures. - Can cause a "fire sale" of liquid assets

Execution of attested wills

Intent to attest, timing, prescence (line of sight test or concious prescense test if okay in NC)

LIVES: Excessive Transfer Cost

Its not good to depend too much on portability. - Ex. Wife worth 7 million and husband worth 14 million of gold; if leaves everything to wife, won't owe anything via maritle deduction. When wife dies, she can pass a total of 23 million tax free. If gold appreciates by 30 million, her net worth 40 million, she can pass 23 tax free. If instead husband created a MDT and CST could put 11.5 million in CST incomd wife remainder to children and 2.5 in MDT income wife. IF CST appreciates to 30 million and MDT appreciates to 8, appreciateion is caputred in CST, keeping it out of wife's estate. When she dies, her estate will be 15 million-11.5 million=4 million x 0.4=

Step 6: Monitoring Recommednations

Once plan is implemented, it should be reviewed and monitored. - Each party's role in monitoring should be identified - Plan might need to be revised if ineffective -

Type of property ownership: Sole onwerswhop

Owner has complete lifetime and testamentaroy control of proprty - No restrcitons on how the property holder can hold the asset while alive - Income tax considerations: All income from that asset is attributed to him and reported on his federal income tax retrun - FMV of property is included in the owner's gross estate. - Can qualify for the marital deduiton - Heirs get a new, step up in basis when owner dies - Anciellary probate: for real property owned in other states. If client has sole ownership peorpty in other states, they may have to do this...unless they have a trust that they can use to avoi it

Joint Tennacny with Right to Survivorship

Passed to other tenant via operation of law, no matter what will says. - Ex. A owns home worth 3 milion and has a bank account worth 13 million and made B a joint tenant (B's not his spouse and contriuted nothing). In 2020, A dies, his gross estate icnludes the house and all 13 million for a total of 16 million. Taxable estate (subtracting lifetine credit) will be around 5.5 million. Taxes due will be around 2.6 million. A's execturo is determing how to pay these taxes.....only the home can be used to help pay...bank account is with B. Home will have to be sold to pay not just the taxes but other administrative expenses as well.

Data gathering: document checklist (finish)

Personal documents ideally needed prior to the meeting: - Personal Financial Statements: See their personal ifnanial assets - Loan Agreements: mortage, home equity line - Consumer debt info: auto loans, student loans, etc - Banking checking and savings statements: -Current will and trust agreement - Income and business tax retruns - life/health/disability insruance policies and beneifcary designations - employee benefit plan descriptions: important becasue if you fail to name benefiary on some polices it'll decide for you - Pre or post-nuptual agreements - Divorce decrees/property settlements - All gift tax returns ever filed (need to see how much of lifetime credit left) - Deeds to real estate

Estate Planning?

Process of planning the accumultion, conservation, and distribution of an estae in the manner that most effectively and efficently accomplishes an individual's personal tax and non-tax objectives - Its process is never ending - Concerned about how someone accumulates their assets because of tax issues (some have higher tax burden than others) but also because of how its titled (ex. Client purchases 5 million apportionment, titling it tennancy by the entirity with spouse...later tries to leave his half interest in his will to his sister.....wife still gets aportionment. Don't care what will says....have to took at how assets are titled) - Conservation of assets: As a trust officer, we will try to convince client to name us executor over their daughter....empahaize it will take a lot of her time and money, in additon to the fact that we have a whole department of expertise. - Distribution of an Estae: Don't want the government to plan for us by dying intestate - Tax and Non-Tax Objectives:

Avoid probate by

Property passing by opeation of law, contraxts with beneficary designations, trusts

Execution of Unattested wills: Oral Wills

Requirements: - Small number of states allow it for oral wills and do so only for the dispositoin of personal property if made by soliders or sailors during the time of armed conflict or any person in their last sickness or in contemplation of immedatie death - 2 witnesses - Written down in a resonable amount of time - probate?

Two types of wills: Written Assested will vs Written self-proving attested rule

Self-proving has a notary signaute, notarizing the assestor and the two witnesse. The only diffence. Important because, when person dies, you the court will take the will at face value and not have to call the witnesses before the court

Ancially probate

Seperate probate proceeding

Tax clause: What it is; what should planner check for?

Similr to debt clause, estbalishes a source for payment for taxes (federal, state inheritance, etc) - Planner should check for: 1. State's apporitonment statutes. (Tells how taxes will be paid at debt without a tax clasuse) 2. Does tax clause state who pays taxes on both probate and nonprobate property? 3. Coordiantion with tax clause in living trust

Mistake 9: Lack of adaquete records (7 lifetime steps to save your executor time and money)

Steps to take in lifeitme to save executor time and money: 1. Aquire Safe deposit box 2. Put all your important documents in box 3. Anually update a list of names and phone numbers of your family advisors 4. Tell your executor where your safe deposit box is and ensure executor has acess to it 5. Keep tax returns and records of at least 6 years 6. Continue to keep records regarding your basis 7. Have family meeting to discuss goals, family recources, and what assets are avaliable for income and capital needs

Execution of attested will: self-proving affidaivt

Testator and attesting witness sign the will, and then they sign a sworn affidavt before a notary republic reciting that the testator declared to the witnesses that the instrumet was her will and that the testator and the witnesses all signed in the prescence of each other

Testamentory Intent ; Testamentroy capcity

Testator must intened that the particular instrumet operate as a will. - Testamentroy capcity: must be 18, sound mind (identify natural objects of their bounty & identify property and understand disposition scheme)

Mistake 7: Improper Dispositon of Assets

The wrong asset goes to the wrong person in the wrong manner at the wrong time. Ex. Leaving large estate to a family member incapable of managing the property - Equal but inequitable distribution: Equal divisons among 2 children where one is a Bruce and one is a Brain surgeon. - Secondary beneficary who should not recieve the asset in the same manner as the primary beneficary. Ex. Minor children who is secondary beneficary inheriting outright just like the primary beneficary

Residuary clause

Transfers all assets not disposed of up to that point - Provides mechanism for "pouring over" assets from a will to a previously established trust (in some cases) - Provides alternative dispositon in case the primary beneifary has died or the trust to recieve pour-over assets is deemed invalid, revoked, or non-exsistent. Planner should check: - Accidently disinheritng a spouse - Inadveretant excersise of a general power of appointment under relevant state statute. (in some states, including NC, a residuary clause can excercise a GPA) - Defualt position if pour over trust nonexistent, revoked, or invalid - Marital deduction fomrula clause in conjunction with marital and bypass trust provisions; often for wills where clients own assets equal or greater than the unified credit.

Mistake 10: Lack of a Master Stradegy

Using a team including a CPA, attorney (use a qualified one that specialzies in estate planning), life insruance agent, trust officer, CFP, and other financial services professionals: - Conduct an annual "financial fire drill." - Formulate the plan - Execute the plan -

Community Property vs Separate Property States

West States typically community property and west are separate property states - Seperate proeprty states say that when a purchase is made during marraige, joint ownership is not automatically preseumed by law. - Property owned before marriage and proeprty aquired after marriage by gift or inheritance remains seperate. Spouses

Community Property: Moving from seperate proeprty to noncommunity property states

When a couple moves form a seperate to a community proeprty state, the character of the seprate property doesn't change. - Ex. If HArry and Mary Janes had started out in a sperate property state, where the house was titled in Harry's name alone, when they moved to a community property state and used the proceeds to buy the new home, it would remain exclsuively his asset

Joint Tennancy with Right of surviioship with spouse

When an asset is held JTWRS between two spouses, property is presumed to be owned by 1/2 by each spouse, regardless of who purchased. - 1/2 will be included in the first spouse to die's estate. Will qualify for marital deduciton. - Will qualify for maritle deduciton - If mortaged, 1/2 of mortage will be included on the decedent's estate tax return - Only 1/2 of decedent's property will receive a step up in baisis

Joint Tennacy with ROS with a spouse: Gift Tax considerations

When one spouse owns property individually and changes the title to "joint tennacny with right to survivorship," naming his spouse cowner, he has made a gift to his spouse Gift Tax considerations - Ex. Jeff purchased a home for 2 million with mortage of 1.8 millin. Shortly after he purchased the home, Jeff and Michelle were married. Jeff changed the title on the house to joint tenancy with right to survivorship. His orignal basis is 2,000,000; her basis will be 1 million and his new basis will be 1 million. When Jeff died, the property was worth 3 million and the mortage was 500,000. 1,500,000 is inlcuded in his gross estate, and one half of the deduction can be used as a deduciton (250,000). 1.25 million is now his adjusted gross estate. TAxable estate will be 0 because of martial deduciton (becasue trasnferred to surviving spouse). House automatically passed to Michelle. 1.5 milloin is included in Jeff's estate. Michelle's new stepped-up basis will be 2,500,000 (Jeff's basis of 1,500,000 + her basis 1,000,000)If Michelle sells the house for 5 milllion 3 years after Jeff's death, what is her total gain?

Tennancy in common: More on Stepped up basis; Adjusted basis

When someone gets a gift, donee usally does NOT get a step up in basis. Step-up only occurs at death. Never get a step-up in basis with a lifetime gift. - Ex. House basis is 100,000 when he purchased it in 2000. By 2020, he's basis has stayed the same. He wants to give his son the house in 2020, and when he does, the taxable gift in 2020 is 85,000 (100,000-annual exclsuion). Son wants to sell house in 2020 for 140,000, its a capital gain of 40,000. - If instead the house appreciated to 1,000,000 in 2020, the taxable gift will be 985,000. Gift tax payable will be 339,950. IRS will see this apprecation and the gift tax it caused, and they will give the son adjsuted basis (not step up). Gain/FMV of gift X gift tax paid. 900,000/1,000,000 X 339,950=305,955. This represents the gift tax attributable to the gain...add this to original basis (305,955+100,000=405,955) to get adjsuted basis. In 2020, Son now sell the house for 1 million.....capital gain of 500 and some thousand dollars. - Ex2. Dad bought a house in 2000 for 200,000. In 2020, home was worth 500,000. Dad gifts it to son. Taxable gift is 485,000, and gift taxes payable is 150,700. Adjsuted basis for the son is 300,000/500,000 X 150,700=90,420 +200,000=290,420 adjusted basis. - Ex3. Father bought house for 100,000 in 2000. In 2020, FMV is 112,000. With annual exclsuion, he won't owe gift tax, so no adjusted basis for son - Bottom line: When you gift, your basis does carry over....but if you gift and pay gift taxes on the gain, the donee instead gets an adjusted basis. No adjusted baiss if no gain, no deprecation, or if annual exlcusion wipes out basis.

LIVES: Improper Disposition of Assets

When the wrong asset goes at the wrong time to the wrong person in the wrong manner, the result is oftern a distater. - Its important to appoint a court appointed gaurdian for minor beneficares

Attested will vs unatessted

Witnesse vs no witnesses

Attestations clause

Witnesses the attestor's signing; comply with state law requriements in cases where testator signed by mark or where will was signed by someone else when testator physically incapable of signging but still mentally competent Planner shudl check: - ARe there 3 witnesses to the testator's siging? (many states require 2...3 is safer) - Are any of the witnesses beneicaries? This disinherets them in NC - Are the adresses of the witnesses stated? - Is th will self-proviing? Self-proving means a notarized affidavnt is attached by the will and signed by witnesses (only reconized in some states)

Data gathering: safe deposit/fire proof box

this should be kept in one: - Birth certificates - bonds, stocks, and other securites - Real estate deeds and insurnace policces - Business buy/sell agreements -marriage cerftiicares and documentation on prior marriages - Trust agreements - Military discharge papers - Copy of financial pla (including advisor info)