1. What is Estate Planning? 4695 C HABOT D RIVE, S UITE 200 P LEASANTON, C A 94588 TEL: (925) 558-2710 FAX: (925) 558-2701 LUNGU@LUNGULAW.COM WWW.LUNGULAW.COM

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

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

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

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

6. Pour Over Will States you are over 18 – age of capacity States you are over 18 – age of capacity States your understanding of what you have and who you want to give it to States your understanding of what you have and who you want to give it to Names beneficiaries and Executor Names beneficiaries and Executor Specifies gifts Specifies gifts Has Pour Over Provision to Trust Has Pour Over Provision to Trust Must go through Probate Must go through Probate

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

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

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

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

11. Your Planning Options Will Will Revocable Living Trust Revocable Living Trust Or Both? Or Both?

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

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

14. Differences of Wills and Trusts Are effective immediately Avoids probate Trusts are private Are good in every state - portable 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 Revocable Living Trust

15. NoProbate Will Revocable My Property Probate Heirs Property in My Living Trust Heirs

16. Trust Estate Why Use Both? Will Estate Funding of Assets

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

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

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

20. 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. 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. Court decides the legal validity of a deceased person’s will and appoints the executor. Probate Court then distributes assets. Probate Court then distributes assets. If there is no will, it is called an intestacy probate. If there is no will, it is called an intestacy probate.

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

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

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

24. 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

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

26. PRESENTED BY: UNCLE SAM For $5,340,000 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. Estate Tax Coupon

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

28. How to Waste Your Estate Tax “Coupon”? No Trust Husband Wife Total Assets: $5,340,000 $5,340,000 = $10,680,000 Husband dies, leaves all to wife. Husband Wife Total Assets: $5,340,000 $5,340,000 = $10,680,000 Husband dies, leaves all to wife. HUSBANDWIFE $5,340,000 + $5,340,000 $10,680,000 $5,340,000 + $5,340,000 $10,680,000 Less One Coupon $5,340,000 $ 5,340,000 Tax Cost: $2,136,000 (40% tax rate)

29. How NOT to Waste Your Estate Tax “Coupon” Using a Trust HUSBAND WIFE Income and other benefits to wife for her lifetime WIFE Assets in estate $5,340,000 Less Wife’s coupon - 5,340,000 Tax = 0 Assets in estate $5,340,000 Less Wife’s coupon - 5,340,000 Tax = 0 Husband dies & $5,340,000 of Assets go to Family Trust To Children at Wife’s Death

30. What is the ESTATE TAX “Coupon” Rate NOW? 2010 - $5,000,000 Coupon Amount 2010 - $5,000,000 Coupon Amount 2012 - $5,125,000 Coupon Amount 2012 - $5,125,000 Coupon Amount 2013 - $5,250,000 Coupon Amount 2013 - $5,250,000 Coupon Amount 2014 - $5,340,000 Coupon Amount 2014 - $5,340,000 Coupon Amount Remember that the top tax rate is 40% so your heirs potentially can lose almost half of every dollar that you do not specifically protect through trust planning Remember that the top tax rate is 40% so your heirs potentially can lose almost half of every dollar that you do not specifically protect through trust planning

31. 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

32. Real Life Examples Amy Winehouse – 27 year old singer with $5mm estate with no will – everything went to her parents – left out siblings (which was her expressed desire) Terry Schiavo – 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 J.S. – died in the middle of divorce with kids, estate left to husband K.P. – no will so estate left to wife and two kids, although kids were already provided for before death Busses can be dangerous

33. Questions? 4695 C HABOT D RIVE, S UITE 200 P LEASANTON, C A 94588 TEL: (925) 558-2710 FAX: (925) 558-2701 LUNGU@LUNGULAW.COM WWW.LUNGULAW.COM