1. Essentials of Estate Planning:
What You Need to Know
Presented by:
Joseph D. Serrano

2. Estate planning is a process.
After having been created, your plan should be monitored, re-evaluated, and updated regularly.
You are the one in control of the entire process.

3. INITIAL QUESTIONS Do you care who receives your assets when you die?
Do you want someone to handle your children's assets if you die while they are still minors?
Do you care who will raise your children in the event of your death?
Do you wish to minimize the taxes owed on your estate, as well as the burden upon your heirs as to paying them?
Do you care about who will manage your assets if you become disabled?

4. Who will help me put together my estate plan?
Your Estate Planning Team, which consists of:
Your Family
Your Accountant
Your Financial Planner
Your Estate Planning Attorney
Your Religious Advisor

5. What is my “estate”? What is my “estate”?
Your estate is simply everything you own.
It includes:
your home
other real estate
frequent flyer miles
bank accounts
investments
retirement benefits from your employer
IRAs
insurance policies
collectibles
personal belongings (such as jewelry)
business interests

6. Last Will and Testament
I, D. LAYED TOOLONG, of Jackson County, MO, having failed to write a Will expressing my wishes, am stuck with this as my Last Will and Testament as prescribed by Missouri law.
1. If my spouse is alive after I die:
a. If one or more of my children are then alive, I bequeath $20,000 to my spouse. If my assets are worth more than that, I bequeath one-half of the balance to my spouse and the other half to my children.
b. If none of my children survive me, I bequeath everything to my spouse.
If my spouse does not survive me, I bequeath my entire estate to my children who survive me, or, if none, to my parents if they survive me, or, if not, to my brothers and sisters who survive me.
If my children are minors, their portions of my estate will be managed by their Court- appointed Conservator, who may (but need not) be my spouse. Typically, the funds for my children will be kept in accounts at banks selected by the Court, and any funds expended for the care and education of my minor children will have to be approved, often in advance, by the Court. If my spouse and the Court disagree as to expenditures, the Court's decision prevails.
The portion of my estate that I am leaving to my minor children will be given to them when they turn 18, whether or not my spouse is then living. My children may then spend those funds as they see fit.
If my spouse does not survive me, my parents and my spouse's parents can fight over who gets to raise my minor children. The Court will then decide with whom my children will live until they become adults.
Since I have no Will stating whom I want to administer my estate, the Court will select someone to do so, who may (but need not) be my spouse. That person, even if it is my spouse, will have to use funds from my estate to pay an insurance company for a bond to insure that my estate is administered properly. That person will also be entitled to a fee for administering my estate, and that fee will be paid from my estate.
Estate taxes will be paid upon my death as provided by Federal and Missouri law, probably sooner than need be, and at the highest applicable rates.
In Witness Whereof, not having cared enough to properly execute a document setting forth my desires, I wind up with this as my Will /signed/ D. Layed Toolong

7. Who are the key persons in your Will?
Family, friends and, if appropriate, charitable organizations
Guardians
Executors
Trustees

8. Lifetime Documents Powers of Attorney: Durable Powers of Attorney
Springing Powers of Attorney
Health Care Proxies/Living Wills
HIPAA Releases

9. Death and Taxes
For transfers at death: Federal exemption is presently $2,000,000 (scheduled to increase to $3,500,000 by 2009)
For lifetime gifts: Federal gift exemption is frozen at $1,000,000
State estate, inheritance and gift tax laws vary and have to be taken into account separately

10. Federal Estate Tax Exemption & Rates
Year
Exemption
Rate
2008
$2.0 million
46%
2009
$3.5 million
45%
2010
Repealed
N/A
2011
$1.0 million
55%

11. Tax Free Transfers
Annual exclusion from gift tax: $12,000 per person, per year (adjusted for inflation)
College savings accounts are taxed favorably, but gifts made to such accounts count against annual exclusion from gift tax
Gifts made to insurance trusts also count against annual exclusion from gift tax
Direct payments for tuition and medical care are gift-tax-free
Unlimited marital deduction to Citizen spouses
Unlimited charitable deduction

12. State Estate and Inheritance Taxes
Before 2001, state death taxes were relatively uniform, and (usually) were fully credited against the federal estate tax.
The federal credit for state death taxes has been phased out and replaced by a deduction.
Overall, death taxes in many states appear to be higher than they were before. They vary with the residence of the decedent and the situs of the assets.

13. The Federal Estate Tax for Couples With Assets of $4,000,000 or Less
(Death in 2008)

14. Example 1
Spouse A has assets of $4,000,000; Spouse B has assets of $0. Spouse A dies first with a Will leaving everything to Spouse B (or everything is held in joint names):
A. When Spouse A dies:
Spouse A’s assets
$4,000,000
Less federal estate tax
Amount passing to Spouse B
Spouse B’s assets
Assets supporting Spouse B
B. When Spouse B dies:
920,000
Amount passing to children
$3,080,000

15. Example 2
Same assets divided the same way. Spouse A again dies first, but with a Will or Living Trust incorporating estate tax planning designed to minimize the federal estate tax:
A. When Spouse A dies:
Spouse A’s assets
$4,000,000
Less federal estate tax
Amount for Spouse B
Spouse B’s assets
Assets supporting Spouse B
Division of above amount:
Property received by Spouse B from Spouse A
$2,000,000
Trust for Spouse B
2,000,000
Amount supporting Spouse B

16. …and B. When Spouse B dies: Spouse B’s own assets $ 0$
Received from Spouse A
2,000,000
Spouse B’s total assets
$2,000,000
Less federal estate tax
Amount remaining
Plus trust for Spouse B
Amount passing to children
$4,000,000
This is $920,000 more than in Example 1

17. Example 3
Spouse A and Spouse B each have assets of $2,000,000 in separate names. Spouse A dies first with a Will leaving everything to Spouse B:
A. When Spouse A dies:
Spouse A’s assets
$2,000,000
Less federal estate tax
Amount passing to Spouse B
Spouse B’s assets
2,000,000
Assets supporting Spouse B
$4,000,000
B. When Spouse B dies:
Spouse B’s own assets
Received from Spouse A
Spouse B’s total assets
920,000
Amount passing to children
$3,080,000

18. Example 4
Same assets divided the same way. Spouse A again dies first, but with a Will or Living Trust incorporating estate tax planning designed to minimize the federal estate tax:
A. When Spouse A dies:
Spouse A’s assets
$2,000,000
Less federal estate tax
Amount for Spouse B
Spouse B’s own assets
2,000,000
Assets supporting Spouse B
$4,000,000
Division of above amount:
Trust for Spouse B
Amount supporting Spouse B

19. …and B. When Spouse B dies: Spouse B’s own assets $2,000,000
Received from Spouse A
Spouse B’s total assets
Less federal estate tax
Amount remaining
Plus trust for Spouse B
2,000,000
Amount passing to children
$4,000,000
Again, the children get $920,000 more

20. Summary Total federal estate tax paid: Example 1 or 3 $ 920,000
$ 920,000
Example 2 or 4
Federal estate tax saved by estate tax planning
Amount passing to children:
$4,000,000
3,080,000
Amount gained by children due to estate tax planning
Note: Funeral and estate administration expenses and state death taxes, which may be substantial, as well as any federal deduction for them are ignored in the above examples. The above examples also assume that there were no prior taxable gifts. All amounts are approximate.

21. Would you rather leave $920,000 to your children or to your “Uncle Sam” ?

22. Most Common Types of Trusts
Revocable Trust/Living Trust
Exemption Trust/Bypass Trust/Credit Shelter Trust
Marital Deduction Trust/QTIP Trust/Qualified Domestic Trust (“QDOT”)
Discretionary Trust/Sprinkle Trust/Spray Trust
Insurance Trust/Second-to-Die Trust
Dynasty Trust/Generation-Skipping Trust
Supplemental Needs Trust

23. Transfers by Resident Aliens
With two very important exceptions, a resident who is not a U.S. citizen (known as a “Resident Alien”) is entitled to the same estate and gift tax credits as U.S. Citizens
The two very important exceptions:
Gifts to a resident alien spouse are limited to $120,000 per year (i.e. An Italian resident of the U.S. makes a $320,000 gift to his Italian wife - $120,000 is excluded. He must pay gift tax on the remaining $200,000)
Amounts payable at death to a resident alien spouse are not entitled to the unlimited marital deduction unless paid to a Qualified Domestic Trust (“QDOT”)

24. Qualified Domestic Trusts (“QDOT”)
Qualifies for the marital deduction
At least one Trustee must be a U.S. bank or U.S. resident individual
Must contain specific provisions insuring that the fund will always be in reach of the IRS
Income is paid to the surviving resident alien spouse
Principal distributions may only be made for very specific purposes, otherwise, tax is immediately due at time of distribution
At death of surviving resident alien spouse, trust is taxed as if added to the original decedent’s estate
Surviving resident alien may create QDOT so that property will qualify for the marital deduction

25. Retirement Plan Death Benefits
Retirement plan benefits payable on your death will be paid to the beneficiary you have named, if he/she survives you
Federal law requires that at least 50% of the death benefits under qualified retirement plans be paid to your spouse, unless your spouse has consented to a different designation (This rule does not apply to IRAs)
To the extent that your spouse is not a required beneficiary, and no beneficiary has been named, the terms of the retirement plan govern

26. Three Primary Goals of Retirement Planning
Identify funds needed and available for retirement income
Evaluate savings and investment strategies needed to meet retirement income objectives
Integrate retirement plans into income and estate tax planning

27. Tax Planning at Retirement
Defer income taxes for as long as possible
Maintain as much flexibility as possible with respect to investments and distributions
Minimum distribution rules during life

28. Tax Planning at First Death
Qualify benefits for Federal estate tax marital deduction
Consider how to take advantage of the exemption if retirement plans constitute a majority of estate assets
Continue income tax deferral and flexibility
Spousal IRA rollover
Long term post death payout
Minimum distribution rules at death