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Estate Planning

Learn about estate planning and dispel common myths surrounding it. Discover the basic documents and tools necessary for effective estate planning.

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Estate Planning

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  1. Estate Planning Presents One Myth at a Time Allstate Financial is the marketing name for Allstate Life Insurance Company (“ALIC”), its affiliates and subsidiaries. This information is provided for general educational purposes by Lincoln Benefit Life Company (“Lincoln Benefit”) and is not intended to provide legal, tax or investment advice. Lincoln Benefit issues fixed and variable insurance products that are sold through agreements with affiliated or unaffiliated broker-dealers or agencies. Lincoln Benefit’s variable products are sold by registered representatives, investment advisors, and agents or bank employees who are licensed insurance agents. ALFS, Inc. serves as principal underwriter of SEC-registered contracts for Lincoln Benefit. Lincoln Benefit and ALFS, Inc. are wholly owned subsidiaries of ALIC. FOR BROKER/DEALER OR AGENT USE ONLY 1

  2. Estate Planning is only for Wealthy people Estate Planning Myth FOR BROKER/DEALER OR AGENT USE ONLY 2

  3. Estate Planning Estate Planning is more than just contending with Uncle Sam. FOR BROKER/DEALER OR AGENT USE ONLY 3

  4. Estate Planning Estate Planning is about dreams and goals. . . making your assets do what you want – to benefit: • you, • the people, and • the organizations that you care most about. FOR BROKER/DEALER OR AGENT USE ONLY 4

  5. Why Everybody Should Plan While the financial aspects of estate planning may not apply to everyone, the people aspects do! FOR BROKER/DEALER OR AGENT USE ONLY 5

  6. Why Everybody Should Plan Children • Who will take care of your children if something happens to you? • When and how should the children receive assets Special Needs and Elder Care • How will you be taken care of if you need nursing home care? • How will the special needs of your disabled child or elderly relative be handled? FOR BROKER/DEALER OR AGENT USE ONLY 6

  7. Why Everybody Should Plan Incapacity • Who will take care of your affairs if you are incapacitated? Health Care Directives • How can you know for sure that your wishes about medical care and life support are respected? FOR BROKER/DEALER OR AGENT USE ONLY 7

  8. Why Everybody Should Plan Special Assets • Do you have special assets, such as a business or rental real estate, that needs special planning? FOR BROKER/DEALER OR AGENT USE ONLY 8

  9. Estate Planning Basics Before dispelling more myths . . . . . . let’s take a look at the basic Documents of Estate Planning FOR BROKER/DEALER OR AGENT USE ONLY 9

  10. Estate Planning Basic Tools • Powers of Attorney • Wills • Trusts FOR BROKER/DEALER OR AGENT USE ONLY 10

  11. I don’t have to worry about incapacity because everything I own is in joint tenancy. Estate Planning Myth FOR BROKER/DEALER OR AGENT USE ONLY 11

  12. Estate Planning Tools Joint Tenancy Property • Some types of property (bank accounts) allow each owner to act independently • Many types of property require both owners to sign for any transactions Everyone should have a Power of Attorney FOR BROKER/DEALER OR AGENT USE ONLY 12

  13. Estate Planning Tools Power of Attorney • Legal Document • Individual gives another person the right to act on the individual’s behalf Durable Power of Attorney • Allows an individual to act on behalf of an incompetent person FOR BROKER/DEALER OR AGENT USE ONLY 13

  14. Estate Planning Tools Financial Decisions • Durable financialpower of attorney • To write checks, sign tax returns, etc. Health Care Decisions • Living Trust • Durable power of attorney for health care FOR BROKER/DEALER OR AGENT USE ONLY 14

  15. Estate Planning Tools Wills • Legal document • Benefits • Appoints an executor • Orderly transfer of assets • Names guardians • Can establish trusts for children FOR BROKER/DEALER OR AGENT USE ONLY 15

  16. Estate Planning Tools Trusts • Parties to a trust • Grantor Creates Trust • Trustee Manages Trust • Beneficiary Benefits from trust • Type of trusts • Living Testamentary • Revocable Irrevocable FOR BROKER/DEALER OR AGENT USE ONLY 16

  17. Estate Planning Tools Living Trusts • With a typical living trust: FOR BROKER/DEALER OR AGENT USE ONLY 17

  18. Estate Planning Tools Living Trusts • Provides financial “guardianship” • Management of assets during lifetime • If Trustee becomes incompetent, contains provisions for successor trustees • Confidential (unlike a will, not public) • Revocable – can be changed at any time FOR BROKER/DEALER OR AGENT USE ONLY 18

  19. Estate Planning Tools Living Trusts • Must be funded to be effective (assets must be transferred to the trust) • Trust value included in estate • Last, but not least, Avoids Probate FOR BROKER/DEALER OR AGENT USE ONLY 19

  20. Estate Planning Rules Probate • Court-Supervised distribution of assets • Advantages: • Distribute assets according to will • Limits time to challenge will • Limits time creditors can make claims FOR BROKER/DEALER OR AGENT USE ONLY 20

  21. Estate Planning Rules Probate • Disadvantages: • Time – 1 to 2 years is typical • Cost – Filing fees, attorney fees • Publicity – Will and Estate inventory, distribution are public records FOR BROKER/DEALER OR AGENT USE ONLY 21

  22. Estate Planning Rules Probate Assets That Pass Outside of Probate • Joint Tenancy with Right of Survivorship • Assets subject to a beneficiary designation • Assets transferred to a trust (e.g. living trust) FOR BROKER/DEALER OR AGENT USE ONLY 22

  23. I have a living trust, so I don’t need a will. Estate Planning Myth FOR BROKER/DEALER OR AGENT USE ONLY 23

  24. Estate Planning Tools Living Trusts This is simply not true! • A trust and a will accomplish different things (e.g. a will designates guardians, appoints an executor) • “Pour Over” will still needed • For any remaining assets not transferred to living trust FOR BROKER/DEALER OR AGENT USE ONLY 24

  25. I don’t have to worry about estate taxes because everything I own is either in joint tenancy or has a named beneficiary. Estate Planning Myth FOR BROKER/DEALER OR AGENT USE ONLY 25

  26. Estate Planning Rule The tax rules are different For tax purposes all assetsyou own are included in your estate. Assets held in joint tenancy are partially included in the estate depending on who the other joint tenants are. FOR BROKER/DEALER OR AGENT USE ONLY 26

  27. Estate Planning Rule Your Estate’s Assets All tangible and intangible assets at fair market value owned by you, such as: • Personal Property • Real Estate • Financial Assets • Business Interests • Life Insurance • Qualified Retirement Plans FOR BROKER/DEALER OR AGENT USE ONLY 27

  28. The new tax laws have eliminated estate taxes Estate Planning Myth FOR BROKER/DEALER OR AGENT USE ONLY 28

  29. 2001 Tax Act (EGTRRA) • Estate taxes were not repealed • Estate taxes are: • Reduced between 2001-2009 • Eliminated in 2010 • Reinstated in 2011 (sunset provision) FOR BROKER/DEALER OR AGENT USE ONLY 29

  30. 2001 Tax Act (EGTRRA) • Prior to EGTRRA, most states collected the “state death tax credit” portion of the federal estate tax. • Now the credit is phased out and replaced by a deduction. What that means is: FOR BROKER/DEALER OR AGENT USE ONLY 30

  31. 2001 Tax Act (EGTRRA) What that means is: • To the states: • Revenue shortfalls, so many states have now enacted their own estate tax system • To the taxpayer: • Possible increase, not a decrease, in overall estate tax burden because of: • New state estate tax system • Federal deductions are typically not as generous as previous credits FOR BROKER/DEALER OR AGENT USE ONLY 31

  32. 2001 Tax Act (EGTRRA) Top federal estate tax rate is scheduled to decrease as follows: FOR BROKER/DEALER OR AGENT USE ONLY 32

  33. 2001 Tax Act (EGTRRA) The unified credit/estate tax-exempt amount will gradually increase: FOR BROKER/DEALER OR AGENT USE ONLY 33

  34. My estate plan is to give everything to my children before I die, so I won’t have to pay estate taxes. Estate Planning Myth FOR BROKER/DEALER OR AGENT USE ONLY 34

  35. Estate Planning Tools Gift Tax • There is a federal gift tax, as well as an estate tax (unified gift and estate tax system) • Hence, deathbed gifting to completely avoid estate taxes rarely works • However, there is an annual gift tax exclusion FOR BROKER/DEALER OR AGENT USE ONLY 35

  36. Estate Planning Tools Gift Tax • Annual Gift Tax Exclusion: • $11,000 per year* to any one person (donee) • Unlimited number of donees • $22,000 if spouse participates • Must be a gift of present interest *($11,000 in 2005; adjusted for inflation periodically) FOR BROKER/DEALER OR AGENT USE ONLY 36

  37. Estate Planning Tools Gifting Planning Techniques • If done for many years or gifts made to large number of donees, significant amounts of wealth can be transferred with no gift or estate tax. • Gift most rapidly appreciating assets first Beyond the Annual Exclusion Is the Lifetime Gift Tax Exemption FOR BROKER/DEALER OR AGENT USE ONLY 37

  38. Estate Planning Tools Lifetime Gift Tax Exemption • Frozen at $1 million (even in 2010 and beyond) • Taxable gifts exceeding $1 million subject to progressive gift taxes • In 2010, the top gift tax rate will be equal to top individual income tax rate FOR BROKER/DEALER OR AGENT USE ONLY 38

  39. Estate Planning Tools Lifetime Gift Tax Exemption FOR BROKER/DEALER OR AGENT USE ONLY 39

  40. Estate Planning Tools Gift Tax Example Lifetime Credit Fully Used FOR BROKER/DEALER OR AGENT USE ONLY 40

  41. A husband and wife never have to pay estate taxes until the second death. Estate Planning Myth FOR BROKER/DEALER OR AGENT USE ONLY 41

  42. Estate Planning Rules True (generally) Unlimited Marital Deduction One spouse can leave an unlimited amount of property to the other at death without triggering estate or gift tax • Decedent must be survived by spouse • Spouse must be U.S. citizen • Estate documents prepared after 1981 FOR BROKER/DEALER OR AGENT USE ONLY 42

  43. A husband and wife can wait until after one dies to worry about saving estate taxes. Estate Planning Myth FOR BROKER/DEALER OR AGENT USE ONLY 43

  44. Estate Planning Cost of Waiting $695,000 Why? The Unlimited Marital Deduction Tax Trap You use or lose the individual tax exemption, which can be costly! Let’s look at an example. . . FOR BROKER/DEALER OR AGENT USE ONLY 44

  45. Example without Planning Total Assets $3,000,000 First Death Marital Deduction Surviving Spouse $3,000,000 Second Death Taxable Estate: $3,000,000 Estate Tax: $1,250,800 Less Unified Credit: $555,800 Taxes Due: $695,000 Distribution to Heirs: $2,305,000 Note: Chart assumes no growth in value of the estate between the first and second death and that both deaths occur in 2005. Estate owned with JTWROS (Joint Tenancy with Right of Survivorship). FOR BROKER/DEALER OR AGENT USE ONLY 45

  46. Estate Planning Tool A/B Trust Planning Strategy • Goal: to make full use of each spouse’s estate tax exemption ($1,500,000 each in 2004-2005) • Estate divided into two parts at first death • Marital or ‘A’ Trust • Family or ‘B’ Trust FOR BROKER/DEALER OR AGENT USE ONLY 46

  47. Estate Planning Tool A/B Trust Planning Strategy • Family or ‘B’ Trust • Shelters assets equal to exemption at first death • Provides benefits to surviving spouse • No taxes paid on first death • Bypasses his/her estate at second death FOR BROKER/DEALER OR AGENT USE ONLY 47

  48. Estate Planning Tool A/B Trust Planning Strategy • Marital or ‘A’ Trust • Receives everything not in ‘B’ trust • Transfers using the unlimited marital deduction • Transfers outright to surviving spouse or • Placed in Marital ‘A’ trust for spouse’s benefit • No taxes paid on first death FOR BROKER/DEALER OR AGENT USE ONLY 48

  49. Taxable Property: $1,500,000 Less Exemption: $1,500,000 Taxes Due: 0 Taxable Property: $1,500,000 Less Exemption: $1,500,000 Taxes Due: 0 A/B Trust Example Family ‘B’ Trust $1,500,000 First Death Total Assets $3,000,000 First Death Marital ‘A’ Trust $1,500,000 Second Death Distribution to Heirs: $3,000,000 Estate Tax Savings: $695,000 Note: Chart assumes no growth in value of the estate between the first and second death and that both deaths occur in 2005 FOR BROKER/DEALER OR AGENT USE ONLY 49

  50. Estates have several years before estate taxes have to be paid. Estate Planning Myth FOR BROKER/DEALER OR AGENT USE ONLY 50

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