Notes

Outline

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BENEFITS OF ESTATE PLANNING Provide Financial Security For Loved Ones Simplify The Administration Process Protect The Estate From Creditors Reduce or Eliminate Estate Taxes Control The Distribution of Assets Encourage or Educate Younger  Beneficiaries

Estate Planning Documents

POWERS OF ATTORNEY Governed By The Law of Agency Principle - Person Granting The Power Attorney in Fact - Person Receiving The Power Durable - Valid Even If Principal Becomes Incompetent Can Be “General” Or “Limited”

LIVING WILLS “Right to Die” Declaration Controlled By State Law If Valid In The State Where Executed, Generally Valid In The State Where The Principle Resides Needs To Be Specific Rather Than General

LAST WILL & TESTAMENT Disposes of Tangible Personal Property Names Guardian for Minor Children Names the Personal Representative (“Executor”) “Pours” the Residue into the Revocable Trust

Last Will & Testament: Types Outright Distributions: This type  distributes the residue outright to the named beneficiaries Testamentary Trust: This type distributes the assets to a trust created within the Will Pour-over Will: This type distributes the assets to a Revocable Living Trust

Last Will & Testament: Outright Distribution

Last Will & Testament: Testamentary Trust

“Pourover” Last Will & Testament

What is Probate? State court proceeding Used to transfer title from the decedent to the heirs Must satisfy: Creditor claims Federal and state taxes Time and Expense Attorney’s fees Executor’s fees

What Is A Trust? A separate legal entity, “like a corporation”, that can own property Created by a written instrument “Trustor” creates the trust “Trustee” manages the trust “Beneficiaries” receive financial benefits from the trust

REVOCABLE TRUST

BENEFITS OF A REVOCABLE TRUST

How Trust Avoids Probate?

Privacy Probate is a court proceeding; public documents A trust is usually not recorded Private matters: Size of the estate Assets owned by the estate Most actions of the Trustee Subject to trustee’s fiduciary duty to account to the beneficiaries

How a Trust Saves Estate Taxes? Only Saves Estate Taxes for a Married Couple Each Spouse has a $1,000,000 Exemption The Exemption must be Preserved Upon the death of first spouse, the first $1,000,000 of the decedent’s estate is “sheltered” in a Trust

Trust Assets: Division on Death

Design of Credit Shelter Trust

Design of Credit Shelter Trust Funded with client’s unified credit Beneficiaries can be the surviving spouse or the client’s children Can be designed to be restrictive or flexible Can stay in trust or can be distributed outright to the beneficiaries Taxable in decedent’s estate, but use of the unified credit makes the tax zero

Decedent’s Trust: Spouse as Beneficiary Trustee: spouse or independent All Income For Life Principal can be restrictive or flexible Can give spouse a limited power of appointment

Decedent’s Trust:Trustee Discretionary Powers Power to distribute principal If spouse is the trustee: power must be limited to “Ascertainable Standard” Health, Education, Support and Maintenance

Design of Marital Trust Spouse must be the only lifetime beneficiary Must receive all income for life Principal distributions can be restrictive or flexible Can be given a limited or general power of appointment Can be revocable or irrevocable

Marital Trust: QTIP Irrevocable All Income for Life Principal distributions Spouse: can be given power to withdraw 5% per year Trustee: can be given discretionary power to distribute principal Can be given a power of appointment QTIP election

Advantages of QTIP Trust QTIP election Provide benefit for spouse, yet protect trust for the benefit of the remainder beneficiaries Facilitates generation skipping planning – Dual QTIP Trust Fractional interest discounts for the estate tax of the surviving spouse

Design of Marital Trust: Flexible Spouse can have the power to revoke Can be given liberal powers to invade principal Can be given a general power of appointment Used in cases where client wants spouse to have control

Allocation: Death of Client

Estate Taxation: Client’s Death

Estate Taxation: Spouse’s Death

DISPOSITION OF TRUST

Trusts: Beyond the Grave Minor Children - Control Distributions Until Children Reach Adulthood Disabled Children - “Special Needs” Trust Creditor Protection Teach Children Financial Management Skills Generation Skipping

What is Generation Skipping?

IRS GREED! Estate Taxation at Every Generation

Advantages of Generation Skipping Planning

Forms of Generation Skipping

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