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Estate  Planning Tutorial
 

Estate Planning Tutorial

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Update on estate tax and trust law, overview of estate planning and common estate planning mistakes.

Update on estate tax and trust law, overview of estate planning and common estate planning mistakes.

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    Estate  Planning Tutorial Estate Planning Tutorial Presentation Transcript

    • By: Mike Adams, CPA, JD, LLM Williams, McDaniel, Wolfe, and Womack 5521 Murray Ave, Memphis TN 38119 901-767-8200 1
    • Pursuant to Treasury Department Circular  230, this is to advise you nothing herein can be used for the purpose of avoiding tax- related penalties. If you wish to engage this firm to provide formal written advice regarding federal or state tax issues please contact the author. 2
    • Direct where and how your assets go.   Direct who is in charge of money.  Direct who gets custody of children.  Prevent court supervised guardianship.  Protect children from themselves.  Protect children from divorce & lawsuits.  Asset Protection for self.  And… 3
    • By the IRS,  By Probate Court,  By lawsuits and creditors,  By your children’s spouses,  By the wrong heirs,  By overcharging lawyers.  4
    • By Joint property w/ Right of Survivorship  By Beneficiary Designation  ◦ Life Insurance ◦ Retirement Accounts By POD and TOD for Bank Accounts  By Living Trusts  ◦ Also good for incapacity ◦ More expensive than wills. 5
    • Fed taxes anything > $3.5M (for now)  TN taxes anything > $1M  ALL assets (including life ins.)  Due 9 months after death  Fed Tax Rate = 45%  TN Rate = 9.5%  6
    • $3M $3.0M H W Joint -1.0M (dies first) ________ Taxed  $2.0M TN Tax of $195k 7
    • .5M 1.5M $0 1.5M H W Joint -1.0M ________ 1.0M Taxed  $1.0M Family Trust Fed Tax of $0k -Holds $1M -Spouse controls for family . TN Tax of $84k 8
    • Imposed on FMV of gifts when given.  Annual Exemption: $13k/yr per person.  Unlimited exemption for health & education, IF  paid directly to school or health care provider. TIP: Make sure grandparents know about this.  $1M Lifetime Exemption  9
    • Tennessee has NO Lifetime Exemption:  Gifts more than $13k cause immediate tax.  TRAP: Adding someone’s name to the deed of  your house is a taxable gift. Tax can be 5.5% to 16% of the gift.  10
    •  Planning for Death  (Docs, Life Ins, Assets)  Planning for Disability  (PoA, Disab. Ins, LTC)  Asset Protection  (Liab. Ins & Docs) 11
    • 12
    • April 29, 2009: Congress passes $3.4  Trillion budget: ◦ 1/3 of Budget financed by borrowing. ◦ Fixes Federal Estate Tax Exemption at $3.5M ◦ Tax Rate remains at 45% ◦ The budget plan sets the parameters for subsequent tax and spending bills. 13
    • TN Trust law amended in July 1, 2007  Allows child to be beneficiary AND  trustee: Protects from Creditors  Protects from Lawsuits  Protects from Divorce  Saves taxes at children’s death.  14
    • Co-Trustees = stronger protection.  Child should have right to resign.  Trust must have spendthrift clause.  Trust Must have ascertainable  distribution standards. 15
    • This problem can cause up to $225,000  in TN tax when first spouse dies! Problem: TN Exemption < Fed. Exemption  Solution: Update will to address new law so that two  trusts for spouse are created instead of one. One trust holds $1M for Tennessee exemption, the other holds the difference between the TN and Federal exemptions. 16
    • You can now modify irrevocable trust.  (TCA 35-15-411(a)) If Settlor is alive and Settlor, Trustee, and  Qualified Benes agree, then no court approval is necessary to change trustee, even if inconsistent with material purpose of the trust. If Settlor is deceased, change must be within  original purpose of trust & court must approve.
    • Direct distribution from 401k to charity is not  taxed as income. Person must be over 70 ½  Counts for required distribution from 401k  Available 2008-09 only (for now).  18
    • Effective July 1, 2007  Irrevocable  4 year waiting period from transfer before  assets are exempt, if transfer was fraudulent. Independent Trustee required  Settlor can retain many powers over trust.  19
    • 20
    • Joint Ownership: Too Much (Estate taxes)  Joint Ownership: Too Little  (Unnecessary Probate) Joint Ownership: Wrong People  21
    • Beneficiary Is Deceased  Beneficiary Is a Minor  Beneficiary is now the ex-wife, etc.  Not coordinated with the Will. (taxes)  22
    • Auto insurance caps too low.  No “umbrella” policy.  No Long Term Care Insurance.  No Earthquake Insurance.  23
    • Child eligible for governmental benefits.  ◦ Medicaid, SSI, TennCare, etc. Assets disqualify them from benefits.  Trust preserves benefits and provides a  way to supplemental gov’t benefits. 24
    • Support of a Spouse  ◦ (In the Standard of Living SHE Deserves) Support and Education of Children  How Long Do You Plan to Be Dead?  25
    • Assets Increase – Should add complexity.  Assets Decrease – Should reduce complexity.  How You Own Assets Changes  Kids Grow Up and/or Marry  Age & Health Changes may make Revocable  Trust appropriate. 26
    • 2001 Tax Act Changed Everything  ◦ Federal and TN Exemptions are not equal now. TN Adopts Uniform Trust Code.  ◦ Better opportunity to protect children’s inheritance ◦ Can amend an IRREVOCABLE trust if all parties agree. TN Inheritance Tax - Unlikely to be Repealed.  27
    • Who Declares You To Be Incompetent?  Who Manages Your Financial Affairs?  Who Pays For Your Care?  28
    • Who Makes Medical Care decisions?  Do You Want Artificial Feedings?  Artificial Life Support?  Document What You Want!  29
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    • Mike Adams, JD, LLM, CPA 901-767-8200 madams@wmww.com Williams, McDaniel, Wolfe, & Womack 5521 Murry Ave Memphis, TN 38119 32