1. Modern Estate Planning J. Sydney Cook, III Steven M. Wyatt R. Kevin Davis Emilee H. Scheeff Sydney Cook & Associates, LLC P. O. Box 1877 Tuscaloosa, AL 35403 205.561.5400

2. History of the Estate Tax

3. Estate Taxes  Estate Tax Exemption Amount:  2014: $5,340,000  2015: $5,430,000  Tax Rate  40%

4. Estate Taxes  Portability  Allows unused portion of estate tax exemption at first spouse’s death to carry over to the second spouse  Requirements to ensure portability  Does not apply to GST tax exemption

5. Gift Taxes  The taxes that the donor of a gift has to pay  What is a gift?  Any transfer to an individual, either directly or indirectly, where full consideration is not received  Gift Tax Exclusion  2014: $14,000  2015: $14,000  Reason not to give property to heirs during your lifetime  The taxes that the donor of a gift has to pay  What is a gift?  Any transfer to an individual, either directly or indirectly, where full consideration is not received  Gift Tax Exclusion  2014: $14,000  2015: $14,000  Reason not to give property to heirs during your lifetime

6. Generation Skipping Taxes  What is it?  The amount that can be directly transferred to a person that is two or more generations below the transferor  Exemption Amount  2014: $5,340,000  2015: $5,430,000  Special planning may be needed due to the fact that the exemption is not portable

7. Due to…  Very high estate tax exemption  Portability  High GST exemption IT’S NOT ALWAYS ABOUT ESTATE TAX ANYMORE  Very high estate tax exemption  Portability  High GST exemption IT’S NOT ALWAYS ABOUT ESTATE TAX ANYMORE

8. What is the new focus?  Minimizing Income Taxes for Beneficiaries  Higher income tax rates  Historically high exclusion amount  Step-Up in Basis upon death  Ensuring that their children will be taken care of  Avoiding probate at the first spouse’s death

9. Minimizing Income Taxes  Step-Up in Basis  Allows beneficiaries to increase the basis in property to the fair market value at the date of death tax free  There are certain requirements to ensure that this is taken advantage of

10. Basis Step-Up  Example:  Decedent’s basis in property $50,000  Fair Market Value upon Decedent’s Death: $150,000  Beneficiaries’ Basis: $150,000  Gain realized tax free: $100,000

11. Basis Step-Up Planning  Be sure certain assets are included in the Gross Estate  Appreciated Assets  Sell Certain assets prior to death  Avoid a step-down in basis  Many trusts which were drafted prior to the step-up in basis rules may transfer property in a way that makes the step-up unavailable

12. Ensuring that Children Will be Taken Care of  Trusts for Control  Trustee controls the assets  Protection from beneficiaries’ creditors  Protection from the beneficiary themselves  To ensure that their estate will not be diverted from their natural heirs  Remarriage by the surviving spouse  Prevents surviving spouse from diverting assets to other individuals

13. Ensuring that Children Will be Taken Care of  Trusts for Minors  Cannot give property to a minor  Typically a “support” trust  HEMS standard  Really for basic needs of life  Can direct at what age or ages you want the children to be able to directly access the assets  Can include specific requirements  Protection from Creditors

14. Ensuring that Children Will be Taken Care of  Trusts for Control Continued  Example of Spouse Unintentionally Diverting Assets  You and your spouse have two children  Surviving Spouse (SS) remarries  New spouse has two children from a previous marriage  SS leaves entire estate to new spouse  New spouse can then divert the entire thing to the two children from the previous marriage if desired  Trusts for Control Continued  Example of Spouse Unintentionally Diverting Assets  You and your spouse have two children  Surviving Spouse (SS) remarries  New spouse has two children from a previous marriage  SS leaves entire estate to new spouse  New spouse can then divert the entire thing to the two children from the previous marriage if desired

15. Ensuring that Children Will be Taken Care of  Special Needs Trusts  Required if beneficiary receives or may receive government assistance to ensure that the beneficiary is not rendered ineligible  Only makes distributions to preserve eligibility and fills in the gaps left by such programs  If done correctly, trust assets are deemed unavailable to the beneficiary and not “countable assets”

16. Avoiding Probate at First Death  If Estate is well under $5,430,000 exemption, then there are times to consider advising clients on avoiding probate on first death  Things to Consider:  Joint Ownership of Assets  Loss of first Step-Up in Basis  Cost savings at first death  If Estate is well under $5,430,000 exemption, then there are times to consider advising clients on avoiding probate on first death  Things to Consider:  Joint Ownership of Assets  Loss of first Step-Up in Basis  Cost savings at first death

17. Items to Consider that can derail your Estate Plan  Check beneficiary designations on all assets (bank accounts, life insurance policies, retirement accounts, etc.)  How property is titled

18. Other Estate Planning Documents  Durable Power of Attorney  Advanced Directive for Health Care  Durable Health Care Power of Attorney  Health Insurance Portability and Accountability Act Authorization

19. Durable Power of Attorney  “A instrument in writing whereby one person, as principal, appoints another as his agent and confers authority to perform certain specified acts or kinds of act on behalf of the principal”  Agent: “A person authorized by a principal to act for or in place of him; one entrusted with another’s business.”

20. Durable Power of Attorney  Two types:  Springing: is only valid upon two doctors certifying that you are disabled  Sprung: valid upon you signing the document  When to use each type

21. Durable Power of Attorney  Dangers of not having a DPOA  If you are incapacitated  Conservatorship-trustee role  Guardianship-parental role  Court-appointed, even if they are your children  Dangers of giving it to the wrong person  They can effectively liquidate your assets  Dangers of not having all powers listed in the DPOA

22. Advanced Directive for Health Care  Allows you to document your wishes concerning medical treatments at the end of life and appoint a health care proxy  Dangers of not having a Advanced Directive  Example: Terry Schiavo  Relieves guilt of children having to make the decisions

23. Durable Health Care Power of Attorney  Names Health Care Proxy  Sets out the powers that your health care proxy has  Sometimes is combined with the Advanced Directive  Names Health Care Proxy  Sets out the powers that your health care proxy has  Sometimes is combined with the Advanced Directive

24. HIPAA Authorization  Allows healthcare providers to release protected health information  This ensures that it will be shared with your healthcare proxy so that they can be informed in making healthcare decisions

25. Alabama State Bar requires the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." © 2015 Sydney Cook & Associates, LLC All Rights Reserved "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." © 2015 Sydney Cook & Associates, LLC All Rights Reserved