What is Estate Planning?

DISCLAIMER I am not your Lawyer This is not Legal Advice Information is for Educational Purposes Only Hire your own Lawyer for your Needs

Goals for Today Find out which documents are included in an estate plan Learn how all the documents work together Learn how to use trusts to avoid probate Learn how to use trusts to keep the court out of your family

What is Estate Planning? Estate planning is the planning process of determining the distribution of your assets upon your death. Planning also covers management of personal affairs in the event of incapacity.

What Estate Planning Does Maintain Control Over Your Person & Affairs Avoids Probate Protects Your Children Protects Assets from Lawsuits, Creditors, & Divorces Protects Against Administrative Expense & Delay Avoids Estate Taxes Incapacity Planning

General Documents In Estate Plan Pour Over Will Revocable (Living) Trust Advance Health Care Directive Durable Power of Attorney for Property Guardianship Documents for Minor Children

Simple Will and Pour Over Will States you are over 18 – age of capacity States your understanding of what you have and who you want to give it to Names Beneficiaries and Executor Specifies gifts Pour Over Will Names Trust as Beneficiary Must go through Probate

Trust Agreement between you as Trustee and Beneficiary during your lifetime, for your benefit now, and the benefit of beneficiaries later Provides for distribution of funded assets Avoids Probate Court Can be used to avoid or minimize Estate Taxes

Advance Health Care Directive Gives an agent ability to make health care decisions for you if you cannot because of incapacity or illness Can ensure burial and other end of life decisions are carried out Avoids Conservatorship of the Person

Durable Power of Attorney Gives an agent the ability to ensure your financial concerns are taken care of in the event of your incapacity Avoids Conservatorship of the Estate

Other Estate Planning Documents and Their Use Guardianship Nominations – document that names your designated guardian to care for minor children Affidavit of Intent to Return Home – conforms to rules for Medi-Cal and reimbursement requirements

Your Planning Options Will Revocable Living Trust Or Both?

Definition of a Will or Trust Revocable Living Trust Will Set of instructions to care for you and your family during your lifetime, in the event of incapacity, and at death - amendable Set of instructions that take effect upon your death - amendable

Similarities of Wills and Trusts Revocable Living Trust Will Provides for distributing property at your death Has no adverse lifetime income tax consequences Provides for distributing property at your death Has no adverse lifetime income tax consequences

Differences of Wills and Trusts Revocable Living Trust Will Are only effective at death Must go through probate Expensive Long process for heirs Probates are public Are good only in state of residence Are effective immediately Avoids probate Trusts are private Are good in every state - portable

Property in My Living Trust Will Revocable Living Trust My Property Property in My Living Trust No Probate Probate Heirs Heirs

Why Use Both? Funding of Assets Will Estate Trust Estate

And you forget to put the house back in trust Why Use Both? What if… Will Estate Trust Estate Refinance your house And you forget to put the house back in trust And you die

Judge grants an order to return back to trust Why Use Both? What if… Will Estate Trust Estate Transferred to Will Estate Judge grants an order to return back to trust

Judge grants an order to return back to trust Why Use Both? What if… Will Estate Trust Estate Judge grants an order to return back to trust

What is Probate? Probate is the first step in the legal process of administering the estate of a deceased person, resolving all claims and distributing the deceased person's property under a will. Court decides the legal validity of a deceased person’s will and appoints the executor. Probate Court then distributes assets. If there is no will, it is called an intestacy probate.

What is the Cost of Probate? Gross Asset Value of Entire Estate Minimum Statutory Probate Fees $400,000 $500,000 $750,000 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $22,000* $26,000* $36,000* $46,000* $66,000* $86,000* $106,000* *Fee is 0 if asset is in trust

Why People Avoid Getting an Estate Plan? Cost Think their estate is too small to support the expense of planning Want to initiate probate proceedings at death Superstitious

What if You Do Nothing? At Incapacity: Guardianship/Conservatorship Court controls assets Brain dead on life support At Death: Court proceeding to determine who will be guardian for minor children Assets distributed according to state law through probate - intestacy Failure to do advanced planning for larger estates: Family money goes to taxes instead of heirs – estate tax risk Kids blow inheritance Control issues and fighting among family members left behind

Who Needs a Trust? “Everybody!” Any individual with real property (home, land)– regardless of state Any individual with assets valued at over $150,000 - gross Those individuals that wish to spare their beneficiaries the burden and cost of probate Those individuals who have specific distribution desires post death Individuals with large estate tax risk

What is Estate Tax? Two Fundamental Rules Unlimited Marital Deduction ANY amounts passing to a spouse (or a qualifying trust for spouse) avoid estate taxes on the first death. The tax, if any, is assessed upon the death of the surviving spouse. Applicable Exclusion (Coupon) Amount The dollar value of assets that one can leave to non spouse beneficiaries without incurring any estate taxes.

PRESENTED BY: UNCLE SAM Estate Tax Coupon For $5,490,000 This coupon allows you to leave assets and wealth, up to the face amount of the coupon, to someone besides your spouse, free of estate taxes. This coupon is non-transferable and must be redeemed at the time of your death.

How to Preserve over a $10,000,000 Estate Tax Free for your Heirs? Use a Family Trust! Let’s use our IRS “Coupon” - The Applicable Exclusion Amount

How to Waste Your Estate Tax “Coupon”? No Trust Husband Wife Total Assets: $5,490,000 $5,490,000 = $10,980,000 Husband dies, leaves all to wife. HUSBAND WIFE $5,490,000 $5,490,000 + $5,490,000 $10,990,000 Less One Coupon $5,490,000 Tax Cost: $2,196,000 (40% tax rate)

How NOT to Waste Your Estate Tax “Coupon” Using a Trust HUSBAND WIFE Husband dies & $5,490,000 of Assets go to Family Bypass Trust Income and other benefits to wife for her lifetime WIFE Assets in estate $5,490,000 Less Wife’s coupon - 5,490,000 Tax = 0 To Children at Wife’s Death

What is the ESTATE TAX “Coupon” Rate NOW? 2014 - $5,340,000 Coupon Amount 2015 - $5,430,000 Coupon Amount 2016 - $5,450,000 Coupon Amount 2017 – $5,490,000 Coupon Amount but could change - ? maybe zero estate tax but limit Capital Gains exemption and increase tax? Top tax rate is 40% presently so protect your assets through trust planning

Does this Apply to Me? Assets Included in Definition of “Estate” Real Property in any state Life Insurance Policies Checking, Savings, Annuity or other Liquid Accounts Business Interests – Sole Proprietor/Corp/LLC/Partnership Retirement and Pension Plans All Personal Property

Do I Need Life Insurance? It’s not your parent’s life insurance Life Insurance is a great way to build wealth, provide for a cash inheritance to your family, ensure a family legacy Easy access to Cash for estate needs Market Protection – Whole Policies do not suffer the same peaks and valleys as most of our investments and offers principal protection as well Use Life Insurance to ensure family protection

Real Life Examples Terry Schiavo – now called “unresponsiveness wakefulness” instead of persistent vegetative state - no planning led to her being on life support for over 13 years Leona Helmsley – put only $12 mm in trust for dog “Trouble,” rest of her billions had to be probated Maria Assunta a 94-year old Italian heiress - left her entire $13 million fortune to her cat Tommaso Estate of Robin Williams Estate of Carrie Fisher – Testamentary Will Prince – lack of trust could cost his heirs as much as $130 – 140 million in taxes, fees, and court costs

Do I Need a Plan? If you have attended a class, you are entitled to a Complimentary Consultation to discuss your individual needs (CA residents only) Call (925) 558-2710 to make an appointment E-mail lungu@lungulaw.com with questions

Questions?