ESTATE PLANNING CONSIDERATIONS

Introduction to Estate Planning

A.   "EP" might stand for: “Emergency Procedure”, “Expensive Process” or "Estate Planning”.

1.         Where there is a "will" there is not necessarily: a plan.  A plan implies: goals and objectives, strategies and action steps.

2.         Three estate planning inhibitors are: lack of commitment, procrastination and lack of knowledge.

B.        Objectives:

1.         The first objective of any estate plan should be: get your property to where it is suppose to go.

(a)        In order to accomplish the objective, you must answer the questions: who, what, when, where and how much.

2.         The second objective is to: save tax and expense.

(a)        Taxes at the Federal level are: estate tax, generation skipping tax and gift tax.

(b)        Taxes at the State level are: estate tax and inheritance tax (some states).

(c)     Other expenses are: tax preparation expenses, probate and administration expenses.

3.         The third objective is to: protect assets from: spendthrifts, disabled, creditors and divorce, second spouse and the court system.

C.        Probate:

1.       The five methods of transferring property to someone else at death are: will, joint tenancy, beneficiary designation, P.O.D. (payable on death) and a living trust.

2.         Probate is necessary because: wills are one sided and no one promises to carry them out.

D.        The Estate:

1.         Estate assets would include: real estate, securities, accounts, tangible personal property, business interests, retirement plans, life insurance, retained life interests and insurance policies transferred within three years.

2.         Estate liabilities would include: debts, mortgages, loans and unpaid bills.

3.         Assets - liabilities = net worth.

E.         Deduction, Credits and Exclusions:

1.         The marital deduction is: unlimited.

2.         The charitable deduction is: unlimited.

3.         New and more favorable estate tax, gift tax and generation-skipping transfer tax exemptions and less favorable tax rates have gone into effect. Under the provisions of the American Tax Payer Relief Act (“ATRA”), the federal estate tax exemption has been indexed for inflation and therefore increased from $5.12 million in 2012 to $5.25 million in 2013, but the estate tax rate for estates valued over this amount has increased from 35% in 2012 to 40% in 2013. In addition, the lifetime gift tax exemption has also been indexed for inflation and therefore increased from $5.12 million in 2012 to $5.25 million in 2013, and the maximum gift tax rate has increased from 35% in 2012 to 40% in 2013. Finally, the generation skipping transfer tax exemption has also been indexed for inflation and therefore increased from $5.12 million in 2012 to $5.25 million in 2013, and the maximum generation skipping transfer tax rate has increased from 35% in 2012 to 40% in 2013. These unified exemptions will continue to be indexed for inflation in 2014 and later years.

4.         "Portability" of the federal estate tax tax exemption between married couples has become permanent. In 2009 and prior years, married couples could pass on up to two times the federal estate tax exemption by including "AB Trusts" in their estate plan. TRA 2010 eliminated the need for AB Trust planning for federal estate taxes in 2011 and 2012 by allowing married couples to add any unused portion of the estate tax exemption of the first spouse to die to the surviving spouse's estate tax exemption, which is commonly referred to as "portability of the estate tax exemption." ATRA makes portability of the estate tax exemption between married couples permanent for 2013 and beyond, which means that in 2013 a married couple can pass on $10.5 million to their heirs free from federal estate taxes with absolutely no planning at all. Note, however, that even if the deceased spouse's estate will not be taxable (in other words, is valued less than $5.25 million), the surviving spouse will nonetheless be required to file IRS Form 706, United States United States Estate (and Generation-Skipping Transfer) Tax Return, in order to take advantage of the deceased spouse's unused estate tax exemption, otherwise the deceased spouse's exemption will be lost.

5.         The annual gift tax exclusion is $14,000 per person per year.

6.         A husband and wife may split gifts.

7.         Tuition and medical payments for someone else are not included as long as the payment is made: directly to the provider of services.

8.         A family-owned business may be exempt from estate taxes to the extent of: $1 million.

F.         Types of Estate Plans: No will, simple will, will with testamentary trust, pour-over will with revocable living trust and pour-over will with funded revocable living trust.