ESTATE PLANNING 101

1. What is Estate Planning in General?
   1. Estate Planning is a process, not an event – It is a process of planning for the transfer of wealth from a decedent to his or her heirs in the most cost-effective manner to carry on their legacy.

1. Benefits

1. Avoid Probate – Time and Money – Attorney supervises the process – file with court.

• Definition of Probate: Proves a Will and settles an estate. It is the administrative procedure to actually transfer (re-title) the assets into the name of the heirs.
• Attorney’s Fees – some states the fees are a percentage and are statutory.

1. Save Taxes –

• Estate Taxes – all about red boxes and green boxes.
• Capital Gains – all about stepped up basis.
• Tension between the two taxes.

1. Restrict a spouse – protect remarriage – protect Stock – protect disinheriting the kids.
2. Restrict children – structuring the timing of inheriting wealth – age restrictions and dollar amount restrictions; “Earn a buck get a buck”.

• Want the wealth to enhance your life not hinder your life.
• No “trust fund babies”.

1. Settle Debts.
2. Creditor Protection – biggest creditor is taxes, then nursing home costs, then divorce.
3. Carry out deceased wishes – Planning with Purpose – using our Estate Plan to send a message to those who were a big part of your life.
4. Burial/Funeral.
5. Legacy planning – establishing multi-generational Trusts to achieve family goals, objectives and values.

• Consequences of Dying without an Estate Plan

1. Intestate Succession – property passes according to state statute – not to who you want.

1. Fiduciaries are chosen by the Court.
2. Beneficiaries inherit at age 18.
3. Taxes are generally higher – more Estate Taxes – example of Joe Robbie Stadium – Miami Dolphins.

1. More confrontations and disputes among family members – takes much longer.
2. Much more expensive.

• Will Substitutes: Buckets of Assets

1. By operation of law, i.e., Joint Tenancy Deed, right of survivorship – Matt and Nancy Dana as Joint Tenants with the Right of Survivorship.

1. Beneficiary driven – IRA, life insurance, annuity – passes by the named beneficiary on the form.

1. Titled to a Trust – Trust controls the disposition.
2. Will and estate – catchall of everything else.

• Estate Tax Planning: Red Boxes Vs. Green Boxes

1. Overall goal of shifting assets from red boxes to green boxes.
2. Avoiding the Estate Tax.
   1. Exemption Planning – “Squeeze” value into the $12 million exemption. Discounts.

• Use early and lock in.
• Get growth in the “green box”.

1. Marital Deduction Planning – defer Estate Taxes until the second death.

1. Formula – 40% of the Fair Market Value of all assets of a decedent above the Federal Estate Tax Exemption.
   1. What’s included in the calculation – everything – real and personal property – tangible and intangible property – life insurance proceeds.
   2. Reported on Form 706 by the estate 9 months after the death of the decedent.

1. Federal Estate Tax exemption is currently $12,060,000 per decedent, so $24,120,000 for a married couple. Indexed for inflation. Always subject to change by Congress.
   1. Can be used during lifetime on a Gift Tax Return (Form 709) by making lifetime transfers.
   2. Any remaining Exemption at death is used on an Estate Tax Return (Form 706).

• Estate & Gift Tax Issues

1. Small estate < $3,000,000
2. Medium estate > $3,000,000 up to $10,000,000
3. Large Estate > $10,000,000 to $50,000,000
4. Wealthy > $50,000,000 to $100,000,000
5. Ultra-Wealthy > $100,000,000

• What are we “selling”: Knowledge, peace of mind and expertise

7. Who is part of the “Estate Planning Team” – what role do they play?

1. Life insurance Agent.
2. Money Manager – Financial Planner.
3. CPA – Income Tax.
4. Attorney – create and maintain documents.

8. Five Essential Estate Planning Documents:

1. Last Will and Testament – kicks in when the person dies.
2. Durable Financial Power of Attorney – valid only until person dies.
3. Health Care power of attorney – valid only until person dies.
4. Living Will/ Pull the Plug – comes into play when there is a terminal condition.
5. Revocable Living Trust – control from the grave.

9. People who have Fiduciary Duties in Estate Planning

1. Last Will and Testament.

1. Testator/ Testatrix – owner of the Will.
2. Personal Representative – Executor of the Estate.
3. Guardians – individuals that will take care of minor children.

1. Trust – Trustor – creator of the Trust.
   1. Trustee and Successor Trustees – manages the Trust.

1. Powers of Attorney – law of “agency” – act for someone when they can’t act for themselves. Person is still alive.

1. Health Care
2. Financial

1. A Living Will – pull the plug – define when you want to die.

1. What causes an Estate Plan to require changes?

1. Death or divorce in the family.
2. Tax law changes.
3. Move from state to state.
4. Birth of a child or a grandchild.
5. Increase or decrease in the amount of assets.

Disclaimer – nothing in this outline should be construed as legal advice. This outline is intended to be a general outline of some issues that need to be considered when drafting an Estate Plan. No part of this outline should be implemented into your Estate Plan without consulting with an Estate Planning Lawyer.