1. People’s Law School A simple overview of estate planning Roberta P. Clark Attorney at Law Fallbrook, California (760) 723-2833 Web page: www.robertaclark.com

2. Why Do Estate Planning? ☞ Choose your Personal Representative ☞ Eliminate Probate ☞ Eliminate or reduce Estate Tax ☞ Maintain Privacy ☞ Determine your choice of beneficiaries ☞ Choose your agents/Executor/Trustee ☞ Avoid conservatorship ☞ Protect your Assets ☞ Pay Minimum legal fees

3. Wills - Post Death Administration If assets exceed $100,000 = PROBATE ♦Holographic = PROBATE ♦Typed = PROBATE ♦Form = PROBATE ♦Professionally Drafted = PROBATE ♦State’s Will = PROBATE A Will requires a probate if assets are $100,000 or more

4. Probate - What are the Disadvantages? ➤ Privacy - public records ➤ Legal Process ➤ Length of Time ➤ Beneficiaries wait for distribution ➤ Expenses $

5. Probate - Who Wants It and Why? ▪Business Owners ▪Sole Proprietors ▪High liabilities or debts ▪Anticipated problems with beneficiaries ▪Court supervised (Judge’s decision is final) ▪Limited Creditors Claim period

6. Probate Alternatives ✔ Spend the kid’s inheritance ✔ Gifting ✔ Give away down to $100,000 ✔ Will Substitutes ✔ Living Trust

7. Probate Process ➤ File Will and petition to obtain “Letters” ➤ Obtain Tax ID number for estate ➤ Determine assets in and outside of estate ➤ Submit Inventory of assets for appraisal ➤ Handle Creditor’s Claims ➤ File final personal tax return; determine if estate tax return will be required; file estate returns

8. Probate Process ➤ If real property, file necessary documents with County Assessor ➤ Handle investments/debts ➤ Submit detailed accountings of income and expenses with the Court ➤ File tax returns for estate and decedent ➤ Prepare final accounting and Petition to get court approval for distribution

9. Probate Process ➤ Distribute assets as ordered by Court Order and obtain receipts from all Distributees ➤ File Receipts with Court ➤ After final tax return filed, all assets distributed and receipts filed with Court, obtain discharge as Executor

10. Living Trusts ●Separate legal entity ●Holds title to all types of assets ●Provides detailed instructions to Trustee ●Benefits the Settlor and Beneficiaries ●Privately administered (independent of court) ●Revocable or Irrevocable

11. Funding the Trust ▪WHAT goes into trust? ♦Real Estate ♦Everyday savings/checking accounts ♦Tangible assets (Assignment) ♦Non-tangible assets ♦Stocks and Bonds ▪WHY fund?

12. Estate Taxes $ History $ - 1797 Stamp tax - for transfers of estates $ - 1862 - Revenue Act = direct tax on estates $ - 1898 War Revenue Act = legacy tax on estates $ - Historically, average of 2% of population affected $ Current Law $ Future Law ? $ Ways to reduce or eliminate

13. Estate Tax Exemption (2001 Tax Reform Act) Total Estate / Per Person Year of Death Exemption 2003 1,000,000 2004 & 2005 1,500,000 2006 2,000,000 2007 & 2008 2,000,000 2009 (Tax Rate: 45%) 3,500,000 2010 No Tax 2011 (Tax Rate: 55%) 1,000,000

14. Estate Taxes Ways to Minimize ♦Planned giving to private beneficiaries ♦Planned giving to charitable beneficiaries ♦Life Insurance (life insurance trusts) ♦Utilize “A/B Trust” (if married)

15. What Kind of Trust? (A few of the trusts available) ? Single Probate Avoidance ? Joint Probate Avoidance (if married) ? Disclaimer (if married) ? A/B (if married) ? A/B/C (if married) ? QDOT (if married and spouse is non-citizen) ? Charitable Remainder ? Irrevocable Insurance

16. A/B Trust Teamwork Required “B” Trust Decedent’s Trust “A” Trust Survivor’s Trust Family Trust Survivor’s Chosen Beneficiaries (1st $3,500,000 Tax free -remainder taxable Decedent’s chosen Beneficiaries (100% tax free)

17. Survivor’s Trust “A” Trust (Teamwork Required) ★ Settlor - Surviving spouse ★ Trustee - Surviving spouse ★ Beneficiary - Surviving spouse Surviving Spouse receives: 100% of income - no restrictions 100% of principal - no restrictions Second death beneficiaries receive: $3,500,000 tax free Excess is taxed

18. Decedent’s Trust “B” Trust (Teamwork Required) ★ Settlor - Deceased spouse ★ Trustee - Surviving spouse or other ★ Beneficiary - Surviving spouse & others ★ at 2nd death Surviving Spouse receives: 100% of income - no restrictions 100% of principal - if : “A” Trust exhausted and needed to maintain standard of living (health, maintenance, support) Second death - beneficiaries receive: 100% of the balance estate tax free Surviving Spouse receives: 100% of income - no restrictions 100% of principal - if : “A” Trust exhausted and needed to maintain standard of living (health, maintenance, support)

19. How are Funds Split? After first death (Teamwork Required) Survivor’s Trust - “A” Decedent’s Trust - “B” Marital Trust -”C” Survivor’s Share of community property and ALL of Survivor’s separate property Decedent’s Share of community property and ALL of Decedent’s separate property

20. After a Death Depending on Type of Documents you Choose ▪ A/B Trust - division of assets; tax return ▪ Disclaimer Trust - possible division; similar to A/B Trust; meet with attorney & accountant ▪ Probate Avoidance Trust - take decedent’s name off title; valuation for step-up basis ▪ Will - probate of Will ▪ No Will or Trust - Intestate succession; probate required if more than $100,000

21. Living Trust Summary ♦Avoids Probate at death ♦Helps Prevent Court Control of Assets at Incapacity ♦Provides Maximum Privacy ♦Quick Distribution of Assets to Beneficiaries ♦Assets Can Stay in Trust ♦Reduces or Eliminates Estate Tax

22. Duties Of Executor or Successor Trustee ✔ Gather & Inventory assets ✔ Advise Creditors & Pay debts and expenses ✔ Wind up affairs ✔ Notify governmental agencies ✔ File insurance claims ✔ Detailed Accounting of estate ✔ File Tax Returns & Pay Taxes ✔ Manage, Invest and Distribute

23. Choosing an Executor or Successor Trustee ▸ Must be 18 years of age ▸ Must be U.S. citizen ▸ Able to maintain accurate, detailed records of ▸ income and principal transactions ▸ Assume legal responsibility and liability for ▸ estate assets/debts and manage assets ▸ Apply neutral and independent judgment ▸ Assumes responsibility for your estate!