THE BASICS OF ESTATE PLANNING Michael J. Morris November 1, 2013 This material is presented to point out selected issues relating to Estate and Tax Planning. As is the case with materials of this nature, it is not legal or tax advice and should not be relied upon to form legal or tax analyses or substituted for proper consultation of the applicable statutes, cases or other authorities. Circular 230 Disclosure: Pursuant to Regulations Governing Practices Before the Internal Revenue Service, any tax advice contained herein is not intended and may not be used by any person for the purposes of avoiding tax penalties that may be imposed upon a taxpayer or for the purpose of promoting, marketing or recommending to another party any transaction or tax-related matter.

What is Estate Planning?  Lifetime Planning:  Use and Preservation of Property  Dealing with Death and Incapacity  Property Management Ultimate disposition Taxation  Personal Health and End of Life Decisions

Who Should be Involved?  Attorney  Accountant  Financial Planner/Advisor  Life Insurance Advisor  Trust Officer

The Transfer Tax System  Taxes Imposed  Estate Tax  Gift Tax  Generation Skipping Transfer Tax (GSTT)  California

Estate and Gift Tax Rates Year of Death Estate Tax Exemption GST Tax Exemption Gift Tax Exemption Top Estate, GST and Gift Tax Rates 2009$3,500,000 $1,000,00045% 2010n/a * $1,000,00035% (Gift Tax Only 2011$5,000,000 35% 2012$5,120,000 35% 2013$5,250,000 40% 2014$5,340,000 ** 40% *Estates of decedents who died in 2010 could elect (1) no estate or GST tax but a modified carryover basis regime or (2) 2011 estate and GST exemption amounts with unlimited step-up in basis. **Estimated

Federal Gift Tax  $5,250,000 indexed and unified with Estate Tax  $14,000 per donor per donee annual gifts  Carry over basis

State Estate and Inheritance Taxes  California  No Estate of Inheritance Tax  Other States  Estate Tax  Inheritance Tax  Property Ownership

Portability  Deceased Spouse Unused Exemption (DSUE)  Must File Estate Tax Return  Executor Must File  Last Spouse’s Unused Exemption  Successive Marriages  Other Issues  Not Applicable to GSTT  Non-Resident Alien Spouses  Basis Issue

Example 1  Husband dies in 2013  Taxable Estate of $3.25 million to children  Wife files 706 and makes election  Wife now has $7.25 million exclusion (her $5.25 million and her husband’s DSUE of $2 million) and can use for gifts or at death

Example 2  Same facts as Example 1, except:  Wife marries Husband #2  Husband #2 dies having made taxable transfers of $4.25 million and no estate  Wife loses her first husband’s $2 million DSUE and now has $6.25 million exclusion

Estate Tax Planning  Using both Exemptions for Husband and Wife  Exemption, Marital, Disclaimer and Survivor’s Trust  Generation Skipping Taxes  Fractional Gifts and Freezing Techniques  Charitable Giving

Other Tax Considerations  Adjusted Basis vs. Carry Over Basis  Real Property Transfer Taxes – Prop 13 Parent/Child Exclusion

Estate Planning Vehicles  Intestacy  Wills  Revocable Inter Vivos Trusts  Irrevocable Trusts  Life Insurance  Children’s  Personal Residence  Charitable  Other Devices  Joint Tenancy  POD Accounts

Revocable Inter Vivos Trust  Probate and Conservatorship Avoidance  Tax Planning  Management  Funding

Selection of a Trustee  During the Trustor’s Life  At the Trustor’s Death  Multiple and Successor Trustees  Corporate Fiduciaries

Trusts for Children & Others  Guardians and Trustees  Approaches for Management  Special Needs Trusts

Trust Provisions  Powers of the Trustee  No Contest Clauses

Durable General Powers of Attorney  Use  Springing Powers

Advance Health Care Directives  Selecting an Agent  Direction to Agent for Health Care  Other Matters

Retirement Plans and Life Insurance  Beneficiary Designation