Estate Tax Repeal - Benefit Or Death Trap?


Published on

Effective Planning with Estate Tax Repeal and Why your Plan Needs to be Reviewed Now!

  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Estate Tax Repeal - Benefit Or Death Trap?

  1. 1. Gift, Estate & Trust (GET) Planning Products and Services<br />San Francisco & Walnut Creek Principals Meeting<br />By Brent D. Rose, M.P.Acc.(Tax), J.D.<br />February 11, 2010<br />
  2. 2. .2<br />Our Mission is to<br />Develop and Implement an<br />Effective Plan for Clients to<br />Provide them with “Peace of Mind” by<br />Understanding and Effectively Utilizing the<br />GET Tools and Techniques that will<br />Protect them and their Loved Ones<br />And Achieve their Objectives<br />
  3. 3. .3<br />Objectives of an Effective GET Plan<br />Allow Control of Business and Property - While Alive and Well to Meet Living Needs<br />Facilitate Care for Them and Loved Ones <br />- When Retired or if Disabled or Die Prematurely<br />Give What they Have to Whom they Want, When they Want, and How they Want<br />At the Lowest Reasonable Cost to <br />them as well as those they Love<br />
  4. 4. How to Effectively Accomplish Objectives<br />.4<br />
  5. 5. .5<br />Reasons to Plan<br />Gives “Peace of Mind”<br />Proper planning eases emotional and financial burden<br />Allows influence over family, friends or social causes<br />Reduce Taxes<br />Protect Assets and Business<br />
  6. 6. .6<br />Basic Components of an Effective Plan<br />Advanced Health Care Directive<br />HIPAA Release (Health Insurance Portability and Accountability Act)<br />Living Trust<br />Will<br />Power Of Attorney<br />
  7. 7. .7<br />Sam & Jane<br />$$$$<br />All Principal<br />for Sam & Jane<br />Beneficiaries<br />Revocable <br />Trust<br />Sam & Jane<br />Trustees<br />All Income <br />for Sam & Jane<br />Beneficiaries<br />Sam Dies<br />
  8. 8. .8<br />Sam Dies<br />Revocable Trust<br />Jane is Trustee<br />All Principal<br />for Jane<br />Beneficiary<br />Jane is Incapacitated<br />All Income<br />for Jane<br />Beneficiary<br />
  9. 9. .9<br />Jane is Incapacitated<br />Principal for<br />Jane<br />Beneficiary<br />Irrevocable Trust <br />during Incapacity<br />Successor Trustee<br />Income for<br />Jane<br />Beneficiary<br />Jane Dies<br />
  10. 10. .10<br />Jane Dies<br />Trust Becomes Irrevocable <br />and later Terminates with<br />Principal and Income <br />Distributed to <br />Designated <br />Beneficiaries<br />BeniOne<br />Adult<br />without Trust<br />BeniThree<br />Minor<br />Stays in Trust <br />to Designated Age(s)<br />BeniTwo<br />Disabled Adult<br />with Special <br />Needs Trust<br />
  11. 11. ESTATE TAXES<br />When Net Worth is Large Enough<br /> to Need Estate Tax Planning<br />Federal Exemption Amounts<br />.11<br />2006 to 2008$2,000,000<br />2009 $3,500,000<br />2010 Unlimited, for now<br />2011 $1,000,000<br />
  12. 12. ESTATE TAXES<br />When Net Worth is Large Enough<br /> to Need Estate Tax Planning<br />Federal Maximum Rates<br />.12<br />2006 46%<br />2007 to 200945%<br />2010 $0, for now<br />2011 55%<br />
  13. 13. .13<br />UNLIMITED MARITAL DEDUCTION<br />All Property Passing to a Surviving Spouse <br />is Deductible for Federal Estate Taxes, <br />including Property Passing to a Living Trust <br />for the Sole Benefit of the Surviving Spouse <br />While They are Alive<br />
  14. 14. .14<br />INEFFECTIVE USE OF TAX EXEMPTION<br />Sam’s & Jane’s <br />Net Worth<br />$4,000,000<br />No Trust<br />Sam Died<br />All to Jane<br />After Marital Deduction<br />No Estate Tax<br />
  15. 15. INEFFECTIVE USE OF TAX EXEMPTION<br />.15<br />Jane’s <br /><ul><li>Net Worth
  16. 16. $4,000,000
  17. 17. No Trust
  18. 18. Died in 2009</li></ul>After $3.5M Exemption<br />$500k Taxed at 45%<br />= Net to Heirs of<br />$3,775,000<br />
  19. 19. .16<br />EFFECTIVE USE OF TAX EXEMPTION<br />Sam’s & Jane’s <br />Net Worth<br />$7,000,000<br />All in Trust<br />Sam Died in 2009<br />$3.5M to<br />Bypass Trust<br />(Exemption)<br />No Estate Tax<br />$3.5M to <br />Survivor Trust<br />Marital Deduction<br />No Estate Tax<br />
  20. 20. EFFECTIVE USE OF TAX EXEMPTION<br />.17<br />Jane’s <br /><ul><li>Net Worth
  21. 21. $3,500,000
  22. 22. All in Survivor Trust
  23. 23. Died later in 2009</li></ul>After $3.5M Exemption, <br />No Estate Tax<br />Added to Bypass Trust<br />
  24. 24. .18<br />LONG TERM USE OF TAX EXEMPTION<br />Long-Term Growth <br />Free of Estate and<br />Generation-skipping Taxes<br />(GST) for H.E.M. & S.<br />and Free from Creditors<br />Benefit of Heirs until <br />Exhausted or<br />R.A.P. limit<br />$7M<br />($3.5M x 2)<br />Dynasty Trust<br />Using Both<br />Estate and GST<br />Exemptions<br />
  25. 25. .19<br />Can You or Clients Afford to Wait?<br />Even a Non-taxable Estate with Probated Assets may <br />Cost You at least 6% (3% each for attorney and <br />personal representative, $60,000 for a $1M estate)<br />Life Insurance may & Retirement Plan Taxed at 85%<br />If SALY, every $ over $3.5M is Taxed at 45%<br />If Fail to Plan before 2011, Exemption may be <br />only $1M and the Tax Rate as High as 55%<br />
  26. 26. GET Changes Due To Repeal in 2010<br />NO Estate or Generation-skipping Transfer (GST) Tax – unlimited amount to “dynasty” trust?<br />Gift Tax Exemption (lifetime) remains at $1 Million but maximum rate drops from 45% to 35% <br />Gift Tax Annual Exclusion remains at $13,000 per<br />New Carryover Basis regime - $1.3 Million “step-up” plus $3 Million if to spouse (or effective trust)<br />.20<br />
  27. 27. .21<br />Why Plans Need to be Reviewed NOW!<br />Sam’s & Jane’s <br />Net Worth<br />$2,000,000<br />All in Trust<br />Sam Dies in 2010<br />$0 to Kids<br />Bypass Trust<br />(Exemption)<br />No Estate Tax<br />$2M to <br />Survivor Trust<br />Marital Deduction<br />No Estate Tax<br />
  28. 28. Why Plans Need to be Reviewed NOW!<br />.22<br />Jane’s <br /><ul><li>Net Worth
  29. 29. $2,000,000
  30. 30. All in Trust
  31. 31. Dies in 2011 </li></ul>After $1M Exemption,<br />$1M Taxed at 45%<br />= $1.55M ($2M - $450k)<br />Net to Heirs<br />
  32. 32. .23<br />Carryover Basis – Potential Tax Trap<br />Sam’s & Jane’s <br />Net Worth<br />$7,000,000<br />All in Trust<br />Sam Dies in 2010<br />$5.7M to <br />Survivor Trust<br />- $3M “step-up”<br />No Tax<br />$1.3M to<br />Bypass Trust<br />(“Step-up”)<br />No Tax<br />
  33. 33. Carryover Basis – Potential Tax Trap<br />.24<br />Jane’s <br /><ul><li>FMV Over Basis
  34. 34. $2.7M ($5.7M - $3M)
  35. 35. No Appreciation
  36. 36. Sells in 2010 </li></ul>$2.7M Taxed at 25%<br />(15% capital + 10% income)<br />= $675,000<br />Taxes Due to Repeal<br />
  37. 37. .25<br />Carryover Basis – Single or Survivor<br />Jane’s <br />Net Worth<br />$2,000,000<br />Dies in 2009<br />Property Sold<br />Jane’s <br /><ul><li>Net Worth
  38. 38. $2,000,000
  39. 39. Dies in 2010
  40. 40. Property Sold</li></ul>After $1.3M “step-up”<br />$700k Taxed at 25%<br />(15% capital + 10% income)<br />= $175,000 Taxes<br />No Estate, <br />Capital Gains or <br />Income Tax<br />
  41. 41. .26<br />Can You Afford to WAIT for Review?<br />Even a Non-taxable Estate can result in nothing going to children from prior marriage or spouse<br />Amount passing to spouse, even with trust, may be unnecessarily subject to Estate and GST taxes later<br />Heirs, including spouse, may owe significant capital gains and income taxes if sell property worth more than the Carryover Basis “step-up” amounts<br />Difficult, maybe impossible, to track old Basis<br />
  42. 42. PLANNING – PROCESS AND DEVELOPMENT<br />Planning is a Process, Not an Event<br />- Fact Finding, Analyzing, Recommending, <br />Implementing and Monitoring Process<br />Plan will be Developed with Presumption<br />Will Not be Here Tomorrow<br />.27<br />
  43. 43. .28<br />FINAL THOUGHTS !!!<br />Most people Spend less Time on Planning<br />than they do Getting their Hair Cut<br />“For my Tax Evasion I should be Punished, for my <br />Tax Avoidance I should be Commended. The Tragedy <br />is that so few people know the Free Bridge even exists.”<br />- U. S. Supreme Court Justice Louis P. Brandeis<br />
  44. 44. Question and answer<br />Brent D. Rose, M.P.Acc.(Tax), J.D.<br />949-428-3177 (ext 507)<br /><br /><br />