What is Estate Planning? Presented by: Daniela Lungu Attorney at Law

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.

What Estate Planning Does Maintain Control Over Your Person & Affairs Protect your children Protect Your Assets from Lawsuits Creditors, and Divorces Save Gift Taxes Incapacity Planning Save Estate Taxes Protect Against Administrative Expense & Delay Reduce Income Taxes Taxes

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

General Documents In Estate Plan Pour Over Will Pour Over Will Includes beneficiaries, guardianship nominations, gifts, named executor Includes beneficiaries, guardianship nominations, gifts, named executor Revocable (Living) Trust Revocable (Living) Trust contract for distribution of funded assets contract for distribution of funded assets Advance Health Care Directive Advance Health Care Directive Durable Power of Attorney for Property Durable Power of Attorney for Property

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

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 - intestacy Assets distributed according to state law - 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 Family money goes to taxes instead of heirs Kids blow inheritance Kids blow inheritance Control issues and fighting among family members left behind Control issues and fighting among family members left behind

Difference in a Will or Trust? Will Will Set of instructions that take effect upon your death Revocable Living Trust Revocable Living Trust 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 Probate My Property Heirs Property in My Living Trust (No Probate) Heirs

Comparison of Wills and Trusts SIMILARITIES Provides for distributing property at your death Can be used to plan for death tax Has no adverse lifetime income tax consequences Wills Revocable Living Trusts

Comparison of Wills and Trusts DIFFERENCES Are only effective at death Are effective immediately Must go through probate Avoids probate As much as 10% gross loss of estate Long process for heirs Are public Trusts are Private Are good only in state of Are good in every state residence Wills Revocable Living Trusts

Who Needs a Trust? “Everybody!” “Everybody!” Any individual with real property – regardless of state Any individual with real property – regardless of state Any individual with assets valued at over $100,000 Any individual with assets valued at over $100,000 Those individuals that wish to spare their beneficiaries the burden and cost of probate Those individuals that wish to spare their beneficiaries the burden and cost of probate Those individuals who have specific distribution desires post death Those individuals who have specific distribution desires post death

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 is assessed upon the death of the surviving spouse The tax 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.

Presented By: Uncle Sam For $5,125,000* 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. *Rule sunsets in 2012.

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

How to Waste Your Estate Tax “Coupon”?? Husband Wife Total Assets: $5,125,000 $5,125,000 =$10,250,000 Husband dies, leaves all to wife. Husband Wife Total Assets: $5,125,000 $5,125,000 =$10,250,000 Husband dies, leaves all to wife. Husband Wife $5,125,000 $5,125,000 $10,250,000 Less One Coupon $5,125,000$5,125,000 $5,125,000 $10,250,000 Less One Coupon $5,125,000 Tax Cost: $1,7937,500

How NOT to Waste Your Estate Tax “Coupon” Husband Wife Income and other benefits to wife for her lifetime Wife Assets in estate- $5,125,000 Less Wife’s coupon $5,125,000 Tax = 0 Assets in estate- $5,125,000 Less Wife’s coupon $5,125,000 Tax = 0 $5,125,000 of Property to Family trust To Children at Wife’s Death

What is the ESTATE TAX NOW? $3,500,000 Coupon Amount $3,500,000 Coupon Amount $5,000,000 Coupon Amount $5,000,000 Coupon Amount $5,125,000 Coupon Amount $5,125,000 Coupon Amount ?? ?? Remember that the top tax rate is 35% so your heirs potentially can lose more than a third of every dollar that you do not specifically plan for Remember that the top tax rate is 35% so your heirs potentially can lose more than a third of every dollar that you do not specifically plan for

Does this Apply to Me? Assets Included in Definition of “Estate” Assets Included in Definition of “Estate” Real Property Real Property Life Insurance Policies Life Insurance Policies Checking, Savings, Annuity or other Liquid Accounts Checking, Savings, Annuity or other Liquid Accounts Business Interests – Sole Proprietor/Corp/LLC/Partnership Business Interests – Sole Proprietor/Corp/LLC/Partnership Retirement and Pension Plans Retirement and Pension Plans All Personal Property All Personal Property

Other Estate Planning Documents and Their Use Advance Health Care Directive – 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 Advance Health Care Directive – 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 Durable Power of Attorney – gives an agent the ability to ensure your financial concerns are taken care of in the event of your incapacity Durable Power of Attorney – gives an agent the ability to ensure your financial concerns are taken care of in the event of your incapacity

Real Life Examples Elvis – estate lost $10 million due to no planning Elvis – estate lost $10 million due to no planning James Brown – heirs still fighting over estate because he had no trust; no advance health care directive caused burial to be delayed James Brown – heirs still fighting over estate because he had no trust; no advance health care directive caused burial to be delayed Anna Nicole Smith – burial delayed due to no planning; died with will only so probate – daughter lost money, eventually was granted estate Anna Nicole Smith – burial delayed due to no planning; died with will only so probate – daughter lost money, eventually was granted estate Terry Schiavo – no planning led to her being on life support for over 13 years Terry Schiavo – no planning led to her being on life support for over 13 years Leona Helmsley – put only 12 mil in trust for dog “Trouble”, rest of her billions have to be probated Leona Helmsley – put only 12 mil in trust for dog “Trouble”, rest of her billions have to be probated

Daniela Lungu, Attorney at Law Estates, Trusts, Business Planning and Mediation (925)