Living Wills, Health Care Proxies,

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  • There are some very important and essential documents everyone should have when beginning an estate plan. Everyone should have a living will, health care proxy, and a durable power of attorney. This is a way for you to make your own decisions before it is too late.
  • There are some very important and essential documents everyone should have when beginning an estate plan. Everyone should have a living will, health care proxy, and a durable power of attorney. This is a way for you to make your own decisions before it is too late.
  • By a show of hands, how many of you have a will? How many of those people that raised their hands have updated their will within the last 10 years? It is a good idea to keep current on these things, as sometimes things can change. For example you could have drafted a will back in 1985 and left everything to a now former spouse. If something in your life has changed since you last updated or reviewed your will, you may want to consider looking at it again.
  • Any assets you own that do not have specific beneficiary designations, are subject to probate. This means that it becomes a matter of public record, it could delay the settlement of your estate, and it could be costly to your estate.
  • You can see that the current estate tax table starts at 34% and quickly graduates to 55% of your total taxable estate. Again, this is what is the law today, with all the talk lately of the Estate Tax Repeal by President Bush, this may change in the future, but as of today, this is the table we go by.
  • You can see that the current estate tax table starts at 34% and quickly graduates to 55% of your total taxable estate. Again, this is what is the law today, with all the talk lately of the Estate Tax Repeal by President Bush, this may change in the future, but as of today, this is the table we go by.
  • You can see that the current estate tax table starts at 34% and quickly graduates to 55% of your total taxable estate. Again, this is what is the law today, with all the talk lately of the Estate Tax Repeal by President Bush, this may change in the future, but as of today, this is the table we go by.
  • You can see that the current estate tax table starts at 34% and quickly graduates to 55% of your total taxable estate. Again, this is what is the law today, with all the talk lately of the Estate Tax Repeal by President Bush, this may change in the future, but as of today, this is the table we go by.
  • This is a very generic example of a married couple that has a simple “I Love You” will. Let’s assume the husband dies first, and leaves everything to his wife. Let’s assume his estate is worth $1,000,000 and her estate is $1,000,000. If he simply leaves everything to her, and she dies in the same year, then they have essentially done no planning, and they (their estate) are/is going to have to pay $434,200 of unnecessary estate taxes.
  • Slide #3
  • Slide #3
  • This is a very generic example of a married couple that has a simple “I Love You” will. Let’s assume the husband dies first, and leaves everything to his wife. Let’s assume his estate is worth $1,000,000 and her estate is $1,000,000. If he simply leaves everything to her, and she dies in the same year, then they have essentially done no planning, and they (their estate) are/is going to have to pay $434,200 of unnecessary estate taxes.
  • Now let’s see what it would look like if they did some very basic estate planning. By setting up a proper will, and splitting the titling of the assets, the same couple in the same situation, could have saved those estate taxes. The surviving spouse has no need for the funds and a credit shelter trust is created.
  • Now let’s see what it would look like if they did some very basic estate planning. By setting up a proper will, and splitting the titling of the assets, the same couple in the same situation, could have saved those estate taxes. The surviving spouse has no need for the funds and a credit shelter trust is created.
  • If your estate is on the larger side, then you are subject to estate taxes even with proper planning. In fact, if you have an estate over $10,000,000, then you will be assessed a 5% surcharge.
  • If your estate is on the larger side, then you are subject to estate taxes even with proper planning. In fact, if you have an estate over $10,000,000, then you will be assessed a 5% surcharge.
  • If your estate is on the larger side, then you are subject to estate taxes even with proper planning. In fact, if you have an estate over $10,000,000, then you will be assessed a 5% surcharge.
  • If your estate is on the larger side, then you are subject to estate taxes even with proper planning. In fact, if you have an estate over $10,000,000, then you will be assessed a 5% surcharge.

Transcript

  • 1. Living Wills, Health Care Proxies, HEALTH CARE PROXY AND LIVING WILL: You have a right to die and not be kept alive by artificial means as well as to have other medical decisions made for you. You must make this known prior to any such disability. If not, a judge will make the decision for you. Avoid these problems by setting forth your intentions in a “living will”, and designate the person you want to carry out your statement in a “health care proxy”.
  • 2. Health Insurance Portability and Accountability Act [HIPAA], and Durable Power of Attorney HIPAA: This form is now needed to enable your spouse and adult descendants to access your personal medical information. DURABLE POWER OF ATTORNEY: This is a documents that allows another person to make all financial related decisions. This will help avoid the need for a guardianship and court permission to do certain financial transactions for a loved one. This power is effective when signed but expires upon your death.
  • 3. Your Last Will & Testament Did you ever wonder what would happen to your property if you died without a will? If you die without a will, your property will be distributed according to the laws of the state in which you reside at the time of death. In Massachusetts, if you are single, your property will pass equally to your mother or father, or the survivor, unless there are children in which case the property will be distributed equally to the children. However, if you are married and die and leave children then your spouse will only get one half of the assets while your children will get the other half. Assets which you own jointly with another person, bank accounts & real estate, will pass to the surviving co-owner. Assets with a beneficiary, IRAs & life insurance, will pass to the named beneficiary. Both of these forms of ownership will avoid probate.
  • 4. Avoiding Probate The cost of probate can be substantial (3-5%). In addition, all of your assets that you own in your individual name are listed and valued in a public filing. There is no privacy, and the administration of your estate can be delayed for substantial periods. There is also the possibility of a challenge to your will.
  • 5. Estate Tax The table shows the rate reductions and the exemption increases for the estate and gift taxes that will occur between 2002 and 2010: * Reflecting repeal of the 5% surtax. This is effective for estates of decedents dying and lifetime gifts made after 2001 55% $1 Million $1 Million 2011 35% (gift tax) $1 Million Tax Repealed 2010 45% $1 Million $3.5 Million 2009 45% $1 Million $2 Million 2008 45% $1 Million $2 Million 2007 46% $1 Million $2 Million 2006 47% $1 Million $1.5 Million 2005 48% $1 Million $1.5 Million 2004 49% $1 Million $1 Million 2003 Highest Estate and Gift Tax Rates Lifetime Gift Exempt Amount Estate Transfer Exempt Amount (Applicable Exclusion Amount) Year
  • 6. Table A Unified Rate Schedule * Reflecting repeal of the 5% surtax. This is effective for estates of decedents dying and lifetime gifts made after 2001 45% $780,800 $------------ $2,000,000 45% $555,800 $2,000,000 $1,500,000 43% $448,300 $1,500,000 $1,250,000 41% $345,800 $1,250,000 $1,000,000 39% $248,300 $1,000,000 $750,000 37% $155,800 $750,000 $500,000 34% $70,800 $500,000 $250,000 32% $38,800 $250,000 $150,000 30% $23,800 $150,000 $100,000 Column D Rate of tax on excess over amount in column A Column C Tax on amount in column A Column B Taxable amount not over Column A Taxable amount over
  • 7. Massachusetts Estate Tax $2 Million $1 Million 2006 $2 Million $1 Million 2007 $2 Million $1 Million 2008 $3.5 Million $1 Million 2009 Tax Repeal $1 Million 2010 $1 Million $1 Million 2011 $1.5 Million 950,000 2005 $1.5 Million 850,000 2004 $1 Million 700,000 2003 $1 Million 700,000 2002 675,000 675,000 2001 675,000 675,000 2000 650,000 650,000 1999 625,000 625,000 1998 Federal Exemption MA-Exemption Year
  • 8. Computation of Massachusetts Estate Tax * This is effective for estates of decedents dying after 2003 and the top rate on column D is 16% which is when the estate is worth $10,040,000. 12.0% $402,800 $6,040,000 $5,040,000 11.2% $290,800 $5,040,000 $4,040,000 10.4% $238,800 $4,040,000 $3,540,000 9.6% $190,800 $3,540,000 $3,040,000 8.8% $146,800 $3,040,000 $2,540,000 8.0% $106,800 $2,540,000 $2,040,000 7.2% $70,800 $2,040,000 $1,540,000 6.4% $38,800 $1,540,000 $1,040,000 5.6% $27,600 $1,040,000 $840,000 Column D Rate of tax on excess over amount in column A Column C Tax on amount in column A Column B Taxable amount not over Column A Taxable amount over
  • 9. Why You’d Need a Trust For Federal Estate Tax HUSBAND’S ESTATE $4,000,000 WIFE’S ESTATE $4,000,000 BALANCE TO HEIRS UNNECESSARY TAXES DUE $1,019,200
  • 10. Estate Tax With No Planning
    • Husband
    • Gross Estate $ 4,000,000
    • Marital Deduction - $ 4,000,000
    • Exemption - - 0 -
    • Taxable Estate $ - 0 -
    • Tax Due $ - 0 -
    • Fed 45%
    • State 10%
    • 55%
    • Net 50%
    • The State death tax is deducted in computing the federal tax.
    • So the net estate tax is 50%
  • 11. Estate Tax With No Planning
    • Husband Wife
    • Gross Estate $ 4,000,000 $ 4,000,000
    • Marital Deduction - $ 4,000,000 - 0 -
    • Exemption - - 0 - - $ 2,000,000
    • Taxable Estate $ - 0 - $ 2,000,000
    • Tax Due $ - 0 - $ 1,000,000
    • Fed 45%
    • State 10%
    • 55%
    • Net 50%
    • The State death tax is deducted in computing the federal tax.
    • So the net estate tax is 50%
  • 12. Eliminating Estate Taxes With Planning
    • Husband
    • Gross Estate $ 4,000,000
    • Marital Deduction - $ 2,000,000
    • Exemptions - $ 2,000,000
    • Taxable Estate $ - 0 -
    • Tax Due $ - 0 -
    • Fed 45%
    • State 10%
    • 55%
    • Net 50%
    • The State death tax is deducted in computing the federal tax.
    • So the net estate tax is 50%
  • 13. Eliminating Estate Taxes With Planning Husband Wife Gross Estate $ 4,000,000 $ 2,000,000 Marital Deduction - $ 2,000,000 - 0 - Exemptions - $ 2,000,000 - $ 2,000,000 Taxable Estate $ - 0 - $ - 0 - . Tax Due $ - 0 - $ - 0 - Fed 45% State 10% 55% Net 50% The State death tax is deducted in computing the federal tax. So the net estate tax is 50%
  • 14. Why You’d Need a Trust For Massachusetts Estate Tax HUSBAND’S ESTATE 4,000,000 WIFE’S ESTATE $4,000,000 BALANCE TO HEIRS UNNECESSARY TAXES DUE $280,400
  • 15. Benefits of Having a Trust: Reducing Estate Taxes TOTAL ESTATE $4,000,000 WIFE’S TRUST $2,000,000 BALANCE TO HEIRS $4,000,000 HUSBAND’S TRUST $2,000,000 PLAN AND SAVE $1,019,200 IN ESTATE TAXES!
  • 16. Benefits of Having a Trust: Reducing MA Estate Taxes TOTAL ESTATE $4,000,000 WIFE’S TRUST $2,000,000 BALANCE TO HEIRS $3,818,000 HUSBAND’S TRUST $2,000,000 PLAN AND SAVE $98,400 IN MA ESTATE TAXES! BUT STILL OWE $182,000 VS $280,,400
  • 17. Reducing Estate Taxes – Larger Estates : Life Insurance is it Tax Free? 1. Income tax free to the beneficiary 2. Estate taxable as valued on date of death Planning note: Life insurance may cause your estate to be taxable when maybe it would not have been otherwise.
    • Solution Irrevocable Life Insurance Trust:
    • Assets in the trust are creditor protected
    • Assets in the trust are estate tax free
    • The trust is a grantor trust for income tax purposes which means that you are considered the owner for income tax purposes. In other words any income would be taxed at your individual rates.
  • 18. Reducing Estate Taxes – Larger Estates
    • : First to Die Irrevocable Life Insurance Trust
    • Donor will be the insured
    • Trustee will be the spouse
    • Spouse may be beneficiary upon death of the donor
    • Assets unused not taxed in spouse’s estate at death
    • Second to Die Irrevocable Life Insurance Trust:
    • Donor would be both spouses as they both will be the insured
    • Trustee could be a child or children but not the Donors
    • Donors retain the power to remove the trustees but the replacement trustee must not be anyone related or subordinate to the Donors.
  • 19. Reducing Estate Taxes – Larger Estates Larger estates face an estate tax problem even with proper planning. The federal estate tax rates begin at 45% and go as high as 45%. There is also a special Generation Skipping Tax of 45%. The maximum estate tax rate may be back to 55% in 2011. Your estate may lose as much as 80% to various taxes on the death of the second spouse if income taxes are considered. If you consider gifting property away during your life, you may consider a Qualified Personal Residence Trust (QPRT), a Grantor Retained Annuity Trust (GRAT), a Charitable Remainder Trust (CRT), a self-canceling installment note (SCIN), or even a private life annuity.
  • 20. Reducing Estate Taxes – Larger Estates
    • Regular and Series Limited Liability Companies:
    • Provide creditor protection against personal assets
    • Maintain control over your assets during life
    • Provide a lack of control discount for estate tax valuation purposes thereby reducing estate tax
    • Provide a lack of marketability discount for estate tax valuation purposes thereby reducing estate tax
    • No adverse income tax consequences year to year
    • Regular LLC is ideal for owning investment accounts
    • Series LLC is ideal for owning rental properties