Mini truth

The Truth About Estate Planning“The Basics and Beyond”

A Recipe for Successful Estate Planning, Retirement Preservation and Post Mortem

Transfer of Assets

Sean Gjerde LL.M.Attorneys & Counselor at Law

(916)483-3040

To quote the will exactly, it

reads:

“I, Amos Thornbury,

being of sound mind and

body, have spent it all.”

Estate Planning Overview

•Proper Asset Ownership

•Control of Process• What to Do• How to Do It• How to Pay for It

Keys to an Effective Estate Plan

SAVE TAXES

EXPAND WEALTH

WEALTH

FAMILY

ME

“I want to control my property while alive and well, plan for me and my loved ones if I become mentally disabled,

and then give what I have to whom I want, when I want and the way I want--

all at the lowest possible overall cost to me and those I love.”

PLANNING PYRAMID


Definition of Estate Planning

I Want to Control My Property While I’m Alive and Well;

Plan for Me and My Loved Ones if I Become Disabled;


Definition of Estate Planning

• Give What I Have• To Whom I Want• When I Want• The Way I Want

All at the Lowest Possible Cost to Me and Those I Love

Estate Planning Strategy

• Work with a Counseling Oriented Attorney

• Establish and Maintain a Formal Updating Program

• Assure Successors Utilize Fixed Fee Services After Death

Three Types of Estate Plans

• Married Couple Under $1,000,000

• Married Couple Over $1,000,000

• Unmarried Individual

Client Personal Planning Goals

• Catastrophic Illness Protection

• Creditor Protections

• Remarriage & Bloodline Protections

• Divorce Protections

• Controlling distributions of the estate

• Transmitting values to family members

• Estate Tax & Cost Reduction

Your AssetsFederal Income Tax Federal Estate TaxState Income TaxAttorney’s FeesFuneral CostsCourt CostsOutstanding

Debt

Your Family

Key Tax Savings Provisions

• Unlimited Marital Deduction

• *$1,000,000 Exemption Equivalent for the Unified Gift & Estate Tax Credit

*(2003 & Post Jan. 1, 2011)

Federal Estate Tax Reduction

Year

2001

2002

2003

2004

2005

Amount

$ 675,000

1,000,000

1,000,000

1,500,000

1,500,000

Tax Relief Act of 2001 (EGTRRA): “Coupon” Amount

Federal Estate Tax Reduction

Year

2006

2007

2008

2009

2010

2011

Amount

$ 2,000,000

2,000,000

2,000,000

3,500,000

Estate Tax Repealed

1,000,000

Tax Relief Act of 2001 (EGTRRA): “Coupon” Amount

Estate Tax Planning With Married Couples

Example: John and Mary Sample have an estate that has an estimated $2,000,000 fair market value (this includes net worth, retirement, and life insurance). John and Mary have accumulated all their wealth during their marriage (community property). They have one son named Tom. They have no estate plan.

John dies on Jan. 1, 2003. His $1,000,000 (half the community) goes to Mary.

Mary now owns the full $2 million. No tax because of UMD, but John’s exemption expires. Mary dies on Feb. 2, 2003.

Tax Calculation: Gross Estate 2,000,000 Estate Tax 780,800 Mary’s Exemption - 345,800 Net Tax to IRS $435,000

Estate Tax Planning With Married Couples

Example: Same assumptions, except that John and Mary have created a Revocable Living Trust that contains estate tax provisions. Also, this example assumes that assets have been properly funded into the trust.

John dies Jan. 1, 2003.

Mary dies Feb. 2, 2003.

Tax Calculation:

Family Trust – Passes to Tom without any estate tax. John’s coupon was used to pass any principal and accumulated interest to Tom without any estate taxes.

Marital Trust – Any principal and accumulated interest will be estate taxable, however the survivor’s coupon can still be used. In this case:

Gross Estate 1,000,000 Estate Tax 345,800 Mary’s Exemption 345,800 Net Tax to IRS 0

RLT 2,000,000

Marital Trust

$1,000,000 100% Access

Family Trust

$1,000,000 HEMS

RLT

Marital Family

Husband

Joint Insurance 401(k) IRA

Wife

Excess 1st $1,000,000(2003)

RLT

Marital Family

Husband

Joint Insurance 401(k) IRA

Wife

Excess 1st $1,000,000(2003)

Estate Taxes & Personal Planning Goals

“The Key is to Coordinate the Estate Plan & the Financial Plan”

Additional Tools & Concepts

Aggregate Theory Agreement

Additional Tools & Concepts

Stretch Out IRA Strategies

• No Qualified DB

• Individual QDB• Trust QDB

Stretch Out IRA Example Example: John and Mary Sample have an estate that has an estimated $2,000,000 fair market value. $1,000,000 of this is in an IRA in John’s name. They have one son named Tom who is age 25. They have no estate plan.

John dies on Jan. 1, 2003. His $1,000,000 IRA goes to Mary.

Mary now owns the full $1 million IRA in her name as she did an IRA Spousal Rollover. No tax because she is the spouse. Mary dies on Feb. 2, 2003 and has not yet made proper beneficiary designations.

Income Tax Calculation: IRA forced W/D $1,000,000

(in 1 to 5 yrs.) Approx. Income Tax 450,000 NET TO HEIRS $550,000

Stretch Out IRA Example Example: John and Mary Sample have an estate that has an estimated $2,000,000 fair market value. $1,000,000 of this is in an IRA in John’s name. They have one son named Tom who is age 25.

John dies on Jan. 1, 2003. His $1,000,000 IRA goes to Mary.

Mary now owns the $1 million IRA in her name as she did an IRA Spousal Rollover.

Mary dies on Feb. 2, 2003 and has named a proper QDB Trust.

Income Tax Calculation: *IRA forced W/D 0 NET TO INVEST $1,000,000

**Future Value of $1,000,000 in 30 years

if earn 7% and adjust for 3.5% inflation. $3,000,000 Tom’s early retirement at Age 55 (6%) $180,000 yr.

**Benefit is that the $450k tax billed is deferred. This creates $1.8 Million of NEW WEALTH.

*Actual is $16,667 in Yr. 1 based on Tom’s life expectancy.


Three Types of Change An Estate Plan Faces

• Changes in Your Personal Situation

• Personal• Financial



•Changes in the Legal Environment

• Tax• Non-Tax (Personal Protections)



•Changes in Your Attorney’s Experience

• Static vs. Continuous Improvement?


Three Factors of Overall Cost

• The Cost of the Documents

• The Cost of Updating (Or Failing to Update)

• The Cost After Death• Transfer of Assets• Death Tax Return Preparation

Estate Planning OverviewFees

• Traditional Probate

– 3 to 5%

• Living Trust Planning

– About 1%

• What to do about the taxes still due to the IRS? • What to do about the taxes still due to the IRS?

Advance Planning Opportunities

• Irrevocable Life Insurance Trusts

• Charitable Planning - Lifetime

• Charitable Planning - Testamentary

• Family Limited Partnerships

• Gifting Strategies

• Qualified Personal Residence Trusts

• Stretch Out IRA Strategies

The Truth About Estate Planning“The Basics and Beyond”

A Recipe for Successful Estate Planning, Retirement Preservation and Post Mortem

Transfer of Assets

Sean GjerdeAttorneys & Counselors at Law

(916)483-3040

Mini truth

Law

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