Recognizing the Need to Engage in Estate Planning Presented by Anita Purewal CPA MSBA

Who Needs Estate Planning?  2014 Estate Tax Exemption: $5,340,000 /Individual $10,680,000/Couple  2014 Annual Gift Exemption $14,000  Only the 0.14% of all estates in 2013 will owe tax  Estate tax 40% (lower than income at the highest brackets for fed & CA)

You Need Estate Planning  All Estate Plans should: – Designate someone to: Manage your assets Make health care and personal care decisions for you if you ever become unable to do so for yourself.  Small Estates – Address WHO Maximize Basis Step-up – Who will pay Income tax  Large Estates – Address WHO & HOW to: Minimize Transfer Taxes (Gift, Estate & GST) Preserving assets for beneficiaries

Estate Planning Affirms Your Intent & Powers  Estate planning is the process of legally structuring the future disposition of your estate.  Through estate planning, YOU may determine: Whom do I want to receive my assets—and when? Who should manage those assets if I cannot—either during my lifetime or after my death? Who should make decisions on my behalf concerning my care and welfare if I become unable to care for myself? What do I want done with my remains after I die and where would I want them buried, scattered or otherwise laid to rest?

What is an Estate?  Estate = Net Worth – ALL Assets at Fair Market Value Life Insurance Proceeds Real Property, Life Insurance Proceeds, Personal Property, Investments, Retirement Accounts, Payments due to you – Less Liabilities (Secured & Unsecured) – Less Funeral Expenses, Medical Bills, Estate Administration Expenses

No Estate Plan  Intestate – Requires Probate Court (8-10 Months) – Assets Pass to legal heirs under statute: Community Property to Surviving Spouse Separate Property – ½ to Surviving Spouse & ½ to Sole Child – 1/3 to Surviving Spouse & 2/3 to Surviving Children/Descendants (Grandchildren etc.)

Intestate Estates - Probate  Probate: Court Supervised Process to transfer title of Assets – No Privacy Probate Records are open to the public – Probate Fees (Statutory) For Executor & Attorney EACH 4% of the first $100,000 $4,000 x 2 = $8,000 3% of the next $100,000 $7,000 x 2 = $14,000 2% of the next $800,000 $23,000 x 2 = $46,000 1% of the next $9,000,000 $113,000 x 2 = $226,000

Intestate Estates – Probate (cont.)  Probate Avoidance – Assets with Designated Beneficiaries: Retirement Plan Accounts Pay on Death Assets (i.e. U.S. Bonds) Transfer on Death Assets (i.e. Securities Accounts) Life Insurance Proceeds Assets held by Trusts Assets titled WROS – Joint Tenancy WROS – Community Property WROS

Intestate Estates - Succession If you die with:here’s what happens: children but no spouse, parents, or siblings children inherit everything spouse but no children, parents, or siblings spouse inherits everything parents but no children, spouse, or siblings parents inherit everything siblings but no children, spouse, or parents siblings inherit everything a spouse and children spouse inherits all of your community property and 1/2 or 1/3 of your separate property children inherit 1/2 or 2/3 of your separate property a spouse and parents spouse inherits all of your community property and 1/2 of your separate property parents inherit 1/2 of your separate property a spouse and siblings, but no parents spouse inherits all of your community property and 1/2 of your separate property siblings inherit 1/2 of your separate property

Estate Planning – Beyond the Financial  Essential Basic Documents: – Will state who you want to inherit your property and name a guardian to care for your young children should something happen to you and the other parent (avoids court appointed guardian) – Advance Health Care Directive can protect you if you become unable to make medical decisions for yourself. Health care directives include a health care declaration ("living will") and a power of attorney for health care, which gives someone you choose the power to make decisions if you can't

Estate Planning – Beyond the Financial (cont.)  Essential Basic Documents (Cont.): – Durable POA financial power of attorney for finances, you can give a trusted person authority to handle your finances and property if you become incapacitated and unable to handle your own affairs. – Trust hold your property in a living trust, your survivors won't have to go through probate court, a time- consuming and expensive process.

Trusts  Inter-Vivos – Created & funded during the settelors life – may or may not be in the estate (Revocable/Irrevocable) – Latin for “among the living”  Testamentary – Came into existence at passing of settelor – included in the estate  Revocable – included in the estate  Irrevocable – settelor can’t revoke – Not included in the estate – Creditor Protection from Settelor’s Creditors  Tax – Trusts are at the highest marginal Individual tax Bracket at only $11,950 of Taxable Income (Fed) – California – better trust brackets & no Estate Tax

Contact Info Anita Purewal, CPA MSBA GALLINA LLP 925 Highland Pointe Drive, #450 Roseville, CA (916) “I want to leave my children enough that they feel they can do anything, but not so much that they do nothing.” ~ Warren Buffet “Never say you know a man until you have divided an inheritance with him.” ~ Johann Kaspar Lavater “I would as soon leave my son a curse as the almighty dollar.” ~ Andrew Carnegie