Estate planning
Describe the unlimited marital deduction. What exclusions apply?
"I can give as much as I want to my spouse" -estate panning tool -spouse can allow what to do with the dead spouse ---put dead spouse (5.4) exemption in in a trust challenge: non US citizen spouse-$148,000 LOOP hole: transfer into a trust and put into a QDOT qualified domestic spouse (pay for all living expenses for that person) NON US spouse ---POUR over will--assets pour into the trust
Notes on "Giving: The unusual tale of Oseola McCarty
-5th grade education -donated $150,000 towards scholarships -go to african american students who could not afford to attend college -lawyer wanted to know how to allocate her assets -10 dimes (10%) will be distributed -grassroots movement for UNI Mississippi -give money to school, endowed--principal cannot be spent-live off earnings-(scholarship funds in the person's name) -a lot more people contributed -IMPORTANT: --CREATING A WILL --ID'ING WHO IT GOES TO
Why are basis and a step-up in basis important? How does basis change between gifting and passing through an estate?
-When you gift something: $10,000-gift while alive=get basis -receive it when death -cost basis $100,000 -step up in basis to current value at the date of death
What are some advantages for having a will? What are some reasons people don't have wills?
-You get to choose your wishes -you can put any speculations-get your money "education" -most common thing in a will "specification of a trust" -pour over will-asset pours over into will ---they thing death is far away ---confronting death ---don't know where you want the assets to go
What documents are needed for Estate Planning?
-medical emergency {need for parents too} ---medical power attorney (make decisions), HIPPA authorization, durable [financial}power of attorney (financial decisions) Estate planning: Durable power of attorney-financial matters -pay everyday expenses, pay taxes, limited power of attorney-buy a house-go away for a job-gives them limited to sign real estate documents general power of attorney-anything Advance medical directives -health care proxy=medical power of attorney -medical providers can make designs -living will, health care provider, do not resuscitate order WILL-distribute property after your death --executer --legal guardian --can be modified (divorce) -More children (amend with codicile) LETTER OF INSTRUCTION -extra things, where is the barial plot, private, funural
Notes on Prince death:
-take time to execute a will and plan for your estate 1.not having a will leaves you "intestate" -dies w/o a will-a judge will appoint someone to personally handle the allocation of your assets 2. when you're intestate, your assets are public 3. your family will accrue extra cost -in intestate your family will pay cost of hiring a lawyer LEGAL FEES -4. your assets won't automatically go where you want them to --of there is no surviving spouse assets will go to children or grandchildren followed by parents and siblings 5. it is never too early to plan your estate -if you want a friend on your will -exclude family members -having a living trust avoids probate and your fin info is private on your death PROBATE: transfer property 3-7% fees to lawyer REASONS TO HAVE A WILL
What is the role of the Executor?
-what ever the executor is told to do, the executor does -you picked in your will, read the will, court blesses the will No will-will administrator-pays bills, taxes, heirs get what's left over after paying bills Pay the bills and the taxes and then start identifying who is in the will, publish death matters, JOBS:send copies of will to all the beneficiaries, publish death notices, pay any taxes, debts, bills, manage financial matters of the estate, at the end distribute assets (what's left), and do accounting (show that flow)
What is a gift? How much can I give to any one person? Is there a lifetime maximum?
1. Anything, that your give that is less $14,000 and do not suffer any tax consequences 2. Life time maximum in 2016 5.45 million and gifts reduce this ex. you give 15,00 to all students the extra 1,000 times the number of people reduces the 5.45 million -also every year the lifetime max. changes -when you above 5.4 you get hit with estate tax -tax free to the recipient
Four steps in Estate Planning
1. Determine the value of your estate' 2. Choose your heirs and decide what they receive 3. Determine the cash needs of the estate 4. Select and implement your estate planning techniques "do it:
FOUR WAYS TO AVOID PROBATE
1. Joint ownership (automatically who owns jointly) 2. gifts prior to death 3. any contract that names the beneficiaries(IRA Accts, life insurance) 4. trust that are created before death (you had to tittle prop before you died)
What is Probate? Why would you want to avoid Probate? How to avoid Probate? What is the cost?
1. Legal procedure that establishes the validity of a will and then distributes the estate's assets (to transfer the property) 2. Title the property-so it goes to the person (set beneficiaries on bank accts) finally farm=pour over will 3. avg. 3-7% of value of the asset GOOD THINGS: liabilities of person receiving the asset (prop taxes), heirs cannot change things, dispute are resolved, Its espensive, it delays to transfer assets, and its public
what are the three characteristics of a valid will?
1. Mentally competent, 2. No undue influence- someone with a gun 3. conform with the laws where it was written Drafted in accordance with that states laws - gets challenging with people that live in two different places (notarized)
What is required for a gift?
1. you cannot give a gift and remain in control of the gift 2. you cannot require a contra gift-"you need to lawn my lawn" NO strings attached
What are the different ways to title property and why does it matter for estate purposes?
3 ways first 2 to avoid probate 1. most common-joint tendency with a right of suvirvorship (parents on acct, parents with joint accts) if something happens to one the other one gets the money 2. tendency by the entirely- joint asset-reserved for marry people-only way to get out is to opt out 3. tendency in common if you have a business-you own 50%,>>your 50% to your heirs=goes trough probate business title is going to go through probate
What is the generation-skipping transfer tax?
A tax on wealth and property transfers to a person two or more generations younger than the donor all tax is in one box (gift tax, estate tax, generation skipping tax)-anytime you give over the limit--takes away from your exception--report it used to be three diff ways
What is a Trust?
A trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries. Trying to accomplish passing on our wealth in the way that we require. May be professionally managed, may provide tax benefits - has a little bit more control than a gift. Trust bypasses probate, protects us against creditors that might come along later on. TRUST- separate legal entity by a bank, relative,=trying to accomplish trying to pass our wealth to a beneficiary in way we require pour over wills=creates a trust advantages: may be professionally managed provide tax benefits more control than a gift (this is what I want you to do with it) bypass probate protect us from creditors (assets of trust)=timing Probate:public process handled by court Disadvantages - cost money to set it up and to operate -bank charges to administer trust -sometimes a lot of the relatives do not like that they don't have the freedom=grantor gives rules Grantor or Trustor - person putting the money in the trust BENEFITS:
crummy trust
Crummy trust - family wanted to gift assets well more than the annual gift amount ($14,000) while they were living to create trusts for their children Put in an amount of money and told children that they couldn't take it out - not a gift because there are restrictions and rules Court said you can't exclude because its not a gift Way to pass assets onto the heirs and also keep hold of assets --allows you to give a gift a minor no strings and after 30 days they lock into a trust ---30 days unlimited access ---you can do anything you want, if you take the first one out they will find out (annual contributions) ---
NOTES ON "Arts sale value? The tax bill? 29 mill
LIMITATIONS OF HAVING A WILL -IRS valued at 65 mill (black market) -to sell bald eagle is illegal -0 market value -heirs sold a lot of the artwork to pay estate taxes -IRS finally said is ok 0 and then up the value of other artwork -paintings were loaned everywhere -friends sued estate -created a revocable trust
How is life insurance characterized for probate & estate planning purposes? What are some strategies that are available?
Life insurance=policy or put into a trust payable to beneficiaries--guarantee of payment, death certificate=money Life insurance into a trust-payable to all beneficiaries, multiple distributions (benife-trust) then trust distributes 5 things 1. guarantee of payment 2. liquidity 3. tax savings--proceeds are not taxable 4. payable to an individual, not taxable through estate 5. avoid probate
Example of gifting of appreciated stock
Purchase price: 20,000 current value: 60,000 Give it to a charity: $60,000 marginal tax rate: 35% tax on gain: none Tax benefit: 60,000*.35=21,000 gift it by selling: 60,000 -6,000 {40,000 gain * .15}=15% capital gain tax =$54,000 tax on gain: 6,000 tax benefit on gain: gifting 54,000*.35= $18,900 (-) gain -$6,000 =$12,900 TAX BENEFIT if you gift it to a person they pay the gain or you do --this is only when you sell it!
Who governs the distribution of property if there is no will, Federal or State Government?
The state government -die nebraska (fed, and state estate taxes) -a guy comes up with calculator Cali -estate amount, day of death, surviving spouse (yes), living children, deseased children have decendents. --6 mil 2 mil goes to spouse (1/3 for spouse) living children (get 2/3) (WITHOUT WILL) FLORIDA spouse gets all EVERY STATE DOES IT DIFFERENTLY NORTH EASTERN STATES-HAVE STATE ESTATE TAX
What happens when you gift?
When you give a gift of property or stock. When you give it the recipient steps into your shoes, the cost basis becomes their cost basis. ex. you give a 1 million beach house with cost basis of 200,00 and they sell it --they have a gain on 800,000
What are the advantages and disadvantages to revocable vs. irrevocable trusts?
advantages: revocable-take them off (if someone makes me mad) ADVANTAGE: change beneficiary disadvantage: does not save you texes irrevocable-once I create the trust the document- for the most part i cannot change (beneficiary) unless someone the beneficiary dies 1,000,000 and name heirs and secondary---you cannot take it back WHY? tax implication-no control over the money ---take those assets out of your estate if their out of your estate their no tax implication DISADVANTAGE: is irrevocable-what if you need the money?
What is the difference between a Charitable Remainder Trust and a Charitable Lead Trust? - Both have to be paid to qualified (501c3) charity
charity 501c3(qualified charity) Charitable Remainder Trust - the donor is going to receive a stream (annuity) of income for a fixed amount of time (has to have a specified end) once it ends then the charity gets the remainder - includable in your estate Charitable Lead Trust - the charity receives a stream of income for a specified amount of time, at the end of the 20 year (of whatever time) then the beneficiary will receive the income - easier to show that it
Gift of Depreciated Stock "you cannot gift a loss"
current value Purchase cost $60,000 current value: $40,000 full charity $20,000* .35 {marginal tax rate)=$7000 tax benefit sell to give to charity: $20,000 (loss)*.35=6,000 tax on loss:+6,000 (20,000*.15) tax benefit: 7,000 (20,000 *.35) +6,000 (loss) =13,000 BETTER TO SELL FOR DEPRECIATED!!!
What are the Estate Tax Exemptions? How is the Estate tax calculated?
estate exemption $5.45 million in 2010 estate tax repealed=you get @ the cost basis and capital gains were higher
What are the fundamental differences between a living and a testamentary trust?
living: I am alive and I set it up (created when we are alive) -beneficiaries are contacted good: you can see how it is going to work irrevocable living trust: revocable living trust testamentary trust: trust is created upon death -Someone can contest the will -beneficiaries are contacted after is set up qtip trust: gives the grantor the ability to provide income to spouse for life {non-US citizen} Sprinkling trust- after we die/pre set formula what ever is in this trust-these 10 family members will get 10% of assets/ family AB trust-allows surviving spouse to receive income portability-exclusion created under old rules used to perserve exclusion
AB TRUST
orginally design that allowed you to keep the exemption from the deseased spouse Allows us to use Estate Tax Exemption Advantages Appreciation of trust assets and undistributed income will not be subject to federal or state estate tax on the surviving spouse's passing Asset and creditor protection of trusts VS. Unlimited Marital Deduction - you can transfer everything to your spouse on date of death, no gift tax implications - easy but if exceeds the 5.4 mil limit then heirs owe a lot of taxes
